ARTICLE 1217: RECOVERY IN CASE OF obligation, he cannot demand reimbursement

PAYMENT because his payment is less than his actual debt.

1. REPUBLIC GLASS CORP VS. QUA Since they only made partial payments, RGC and
GC should clearly and convincingly show that
FACTS their payments to Metro bank and PDCP
Republic Glass, Gervel and Qua were exceeded their proportionate shares in the
shareholders of Ladtek obligations before they can seek reimbursement
from Qua. RGC and GC failed to do this, thus
Ladtek obtained loans from Metrobank and they cannot seek reimbursement from Qua
Private Devt Corp of the Phils (PDCP)
On the second issue:
They entered into agreement that in case of
default in payment of Ladtek loans, the parties There was no novation of the agreements. The
will reimburse each other the proportionate parties did not constitute new obligations to
shares of any sum that any might pay to creditors substitute the agreements. The terms and
conditions of the agreement remains the same.
Ladtek defaulted on its obligation to Metrobank
and PDCP Novation extinguishes obligation by 1) changing
the object or principal conditions; 2) substituting
Republic Glass Corp and Gervel Corp payed the person of the debtor and 3) subrogating a third
Metrobank 7M (not full payment of the amount person in the rights of the creditor
due)
ARTICLE 1240: TO WHOM PAYMENT SHALL BE
Republic Glass and Gervel demanded to Qua MADE
reimbursement of the total amount that RGC and
GC paid to Metrobank 1. BPI VS. COURT OF APPEALS

Qua refused to pay FACTS:

Qua filed a complaint for injunction with Private respondents Eastern Plywood Corporation and
damages with application for TRO Benigno Lim as officer of the corporation, had an
AND/OR joint account with Commercial Bank and
ISSUES Trust Co (CBTC), the predecessor-in-interest of
W/N payment of the entire obligation is an petitioner Bank of the Philippine Islands. Lim withdraw
essential condition for reimbursement? funds from such account and used it to open a joint
checking account (an AND account) with Mariano
W/N there was novation of agreements as held by Velasco. When Velasco died in 1977, said joint checking
CA (that there was implied novation) account had P662,522.87. By virtue of an Indemnity
Undertaking executed by Lim and as President and
RULING
General Manager of Eastern withdrew one half of this
On the first issue: amount and deposited it to one of the accounts of Eastern
with CBTC.
Contrary to RGC and GCs claim, payment of any
amount will not automatically result in Eastern obtained a loan of P73,000.00 from CBTC which
reimbursement. If a solidary debtor pays the was not secured. However, Eastern and CBTC executed a
obligation in part, he can recover reimbursement Holdout Agreement providing that the loan was secured
from the co-debtors only in so far his payment by the Holdout of the C/A No. 2310-001-42 referring to
exceeded his share in the obligation. This is the joint checking account of Velasco and Lim.
precisely because if solidary debtor pays an
Meanwhile, a judicial settlement of the estate of Velasco
amount equal to his proportionate share in the
ordered the withdrawal of the balance of the account of
obligation, then he in effects pay only what is due
Velasco and Lim.
to him. If the debtor pays less than his share in the

1
Asserting that the Holdout Agreement provides for the liquidation receipts). Francisco testified that he made the
security of the loan obtained by Eastern and that it is the foregoing payments to an SMC supervisor who came in
duty of CBTC to debit the account of respondents to set an SMC van. He was then showed of list of customer's
off the amount of P73,000 covered by the promissory accountabilities which included his account. The
note, BPI filed the instant petition for recovery. Private defendant in good faith, then paid to the said liquidation
respondents Eastern and Lim, however, assert that the receipts (dated Apr 19-30,1983).SMC in its part
amount deposited in the joint account of Velasco and Lim submitted a publisher's adavit to prove that the entire
came from Eastern and therefore rightfully belong to booklet of receipts was reportedJuly 9, 1983.
Eastern and/or Lim. Since the Holdout Agreement covers
the loan of P73,000, then petitioner can only hold that ISSUES:
amount against the joint checking account and must return WON the payment of petitioner's obligation was properly
the rest. made to extinguish the obligation? NO
ISSUE: HELD:
Whether BPI can demand the payment of the loan despite No, the court found out that:The receipts given were
the existence of the Holdout Agreement and whether BPI included in the respondents lost booklet which was duly
is still liable to the private respondents on the account advertised in the newspaper.There was something amiss
subject of the withdrawal by the heirs of Velasco. in the way the receipts were issued as one receipt bearing
RULING: a higher serial number was issued ahead of another
bearing a lower serial number.The supervisor's name
Yes, for both issues. Regarding the first, the Holdout was invariably left blank in remember the name of the
Agreement conferred on CBTC the power, not the duty, supposed impostor who received the payment. Payment is
to set off the loan from the account subject of the a mode of extinguishing an obligation under Art.1240,
Agreement. When BPI demanded payment of the loan provides that payment shall be made to the person in
from Eastern, it exercised its right to collect payment whose favor the obligation has been constituted or his
based on the promissory note, and disregarded its option successor in-interest or any person authorized to received
under the Holdout Agreement. Therefore, its demand was it. In this case, the payments were purportedly made to a
in the correct order. supervisor of the private respondent who was clad in SMC
Regarding the second issue, BPI was the debtor and to accept payments as he showed a list of customers
Eastern was the creditor with respect to the joint checking Unfortunately, Francisco Culaba did not ascertain the
account. Therefore, BPI was obliged to return the amount Petitioner relied solely on the man's representation, thus,
of the said account only to the creditor. When it allowed the payments made were not to discharged their
the withdrawal of the balance of the account by the heirs obligation to the private respondent. The most prudent
of Velasco, it made the payment to the wrong party. The thing that authority of the person who collected their
law provides that payment made by the debtor to the payments. Failing this, the petitioners cannot claim that
wrong party does not extinguish its obligation to the they acted in good faith when they made such payment.
creditor who is without fault or negligence. Therefore, Their claim by its consequences.
BPI was still liable to the true creditor, Eastern. 3. DELA CRUZ VS. CONCEPCION
2. CULABA VS. COURT OF APPEALS FACTS:
FACTS:
On March 25, 1996, petitioners entered into a Contract to
SMC sold beer products on credit to the Culaba spouses Sell with respondent involving a house and lot in Antipolo
in the amount of P28,650.00. Thereafter, the Culaba City for a 2 million consideration.
spouses made a partial payment of P3,740.00leaving an
unpaid balance of P24,910.00.As they failed to pay Respondent made the following payments, to wit:
despite repeated demands, SMC Fled an action for (1)500,000 by way of downpayment;
collection before the RTC.The spouses denied any (2)500,000 on May 30, 1996;
liability claiming that they had already paid full on four (3)500,000 paid on January 22, 1997; and
separate occasions (evidence of temporary charge sales (4)500,000 bounced check dated June 30, 1997 which was
2
replaced. ARTICLE 1245: DATION IN PAYMENT
Thus, Respondent was able to pay the 2 million total
obligation. 1. CALTEX INC. VS. IAC
FACTS:
Before respondent issued the 500,000 replacement check,
she told petitioners that based on the computation of her On January 12, 1978, private respondent Asia Pacific
accountant as of July 6, 1997, her unpaid obligation which Airways Inc. entered into an agreement with petitioner
includes interests and penalties was only 200,000. Caltex (Philippines) Inc., whereby petitioner agreed to
Petitioners agreed with respondent. Despite repeated supply private respondent's aviation fuel requirements for
demands, petitioners failed to collect the amounts they two (2) years, covering the period from January 1, 1978
claimed. Hence, the complaint for sum of money with until December 31, 1979. Pursuant thereto, petitioner
damages filed with the RTC of Antipolo Rizal. In her supplied private respondent's fuel supply requirements.
answer with Compulsory counterclaim and during the As of June 30, 1980, private respondent had an
presentation of evidence, respondent presented a receipt outstanding obligation to petitioner in the total amount of
purportedly indicating payment of the remaining balance P4,072,682.13, representing the unpaid price of the fuel
of 200,000 to Losloso who allegedly received the same on supplied. To settle this outstanding obligation, private
behalf of petitioners. respondent executed a Deed of Assignment dated July 31,
1980, wherein it assigned to petitioner its receivables or
On March 8, 2014, the RTC rendered a decision in favor refunds of Special Fund Import Payments from the
of respondent. On appeal, the CA affirmed the decision National Treasury of the Philippines to be applied as
with modification by deleting the award of moral payment of the amount of P4,072,683.13 which private
damages and attorney's fees in favor of respondent. respondent owed to petitioner. On February 12, 1981,
Aggrieved, petitioners come before the Court in this pursuant to the Deed of Assignment, Treasury Warrant
petition for review on certiorari under Rule 45. No. B04708613 in the amount of P5,475,294.00
representing the refund to respondent of Special Fund
ISSUE: Import Payment on its fuel purchases was issued by the
Whether it was proper to dismiss the complaint based on National Treasury in favor of petitioner. Four days later,
the ground that the defendant fully paid the claims of on February 16, 1981, private respondent, having learned
plaintiff that the amount remitted to petitioner exceeded the
amount covered by the Deed of Assignment, wrote a letter
HELD: to petitioner, requesting a refund of said excess.
Yes.
Petitioner, acting on said request, made a refund in the
When the issue is tried without the objection of the amount of P900,000.00 plus in favor of private
parties, it should be treated with all respects as if it had respondent. The latter, believing that it was entitled to a
been raised in the pleadings. On the other hand, when larger amount by way of refund, wrote petitioner anew,
there is an objection, the evidence may be admitted where demanding the refund of the remaining amount. In
its admission will not prejudice him. response thereto, petitioner informed private respondent
that the amount not returned (P510,550.63) represented
Thus, while respondent judicially admitted in her answer interest and service charges at the rate of 18% per annum
that she only paid 2 million and that she still owed on the unpaid and overdue account of respondent from
petitioners 200,000, respondent claimed later and in fact, June 1, 1980 to July 31, 1981.
submitted an evidence to show that she already paid the
Thus, on September 13, 1982, private respondent filed a
whole amount of her unpaid obligation. It is noteworthy
complaint against petitioner in the Regional Trial Court
what when respondent presented evidence of payment,
of Manila, to collect the sum of P510,550.63.00.
petitioners did not object thereto.
Petitioner (defendant in the trial court) filed its answer,
To be sure, petitioners were given ample opportunity to reiterating that the amount not returned represented
refute the fact of and present evidence to prove payment. interest and service charges on the unpaid and overdue
account at the rate of 18% per annum. It was further

3
alleged that the collection of said interest and service Appellate Court failed to take into account the express
charges is sanctioned by law, and is in accordance with recitals of the Deed of Assignment.
the terms and conditions of the sale of petroleum products
"That Whereas, ASSIGNOR has an outstanding
to respondent, which was made with the conformity of
obligation with ASSIGNEE in the amount of
said private respondent who had accepted the validity of
P4,072,682.13 as of June 30, 1980, plus any applicable
said interest and service charges.
interest on overdue account. Now therefore in
On November 7, 1983, the trial court rendered its decision consideration of the foregoing premises, ASSIGNOR by
dismissing the complaint, as well as the counterclaim virtue of these presents, does hereby irrevocably assign
filed by defendant therein. Private respondent (plaintiff) and transfer unto ASSIGNEE any and all funds and/or
appealed to the Intermediate Appellate Court (IAC). On Refund of Special Fund Payments, including all its rights
August 27, 1985, a decision was rendered by the said and benefits accruing out of the same, that ASSIGNOR
appellate court reversing the decision of the trial court, might be entitled to, by virtue of and pursuant to the
and ordering petitioner to return the amount of decision in BOE Case No. 80-123, in payment of
P510,550.63 to private respondent. ASSIGNOR's outstanding obligation plus any applicable
interest charges on overdue account and other avturbo
ISSUE: fuel lifting and deliveries that ASSIGNOR may from time
Whether or not there is a valid dation in payment in this to time receive from the ASSIGNEE, and ASSIGNEE
case. does hereby accepts such assignment in its favor."

RULING: Hence, it could easily be seen that the Deed of

Assignment speaks of three (3) obligations (1) the
The Supreme Court ruled that the Deed of Assignment outstanding obligation of P4,072,682.13 as of June 30,
executed by the parties on July 31, 1980 is not a dation in 1980; (2) the applicable interest charges on overdue
payment and did not totally extinguish respondent's accounts; and (3) the other avturbo fuel lifting and
obligations as stated therein. deliveries that assignor (private respondent) may from
The then Intermediate Appellate Court ruled that the three time to time receive from assignee (Petitioner). As aptly
(3) requisites of dacion en pago are all present in the argued by petitioner, if it were the intention of the parties
instant case, and concluded that the Deed of Assignment to limit or fix respondent's obligation to P4,072.682.13,
of July 31, 1980) constitutes a dacion in payment they should have so stated and there would have been no
provided for in Article 1245 of the Civil Code which has need for them to qualify the statement of said amount with
the effect of extinguishing the obligation, thus supporting the clause "as of June 30, 1980 plus any applicable
the claim of private respondent for the return of the interest charges on overdue account" and the clause "and
amount retained by petitioner. other avturbo fuel lifting and deliveries that ASSIGNOR
may from time to time receive from the ASSIGNEE".
The Supreme Court, speaking of the concept of dation in
payment, in the case of Lopez vs. Court of Appeals, The terms of the Deed of Assignment being clear, the
among others, stated: "'The dation in payment literal meaning of its stipulations should control. In the
extinguishes the obligation to the extent of the value of construction of an instrument where there are several
the thing delivered, either as agreed upon by the parties or provisions or particulars, such a construction is, if
as may be proved, unless the parties by agreement, possible, to be adopted as will give effect to all.
express or implied, or by their silence, consider the thing Likewise, the then Intermediate Appellate Court failed to
as equivalent to the obligation, in which case the take into consideration the subsequent acts of the parties
obligation is totally extinguished." which clearly show that they did not intend the Deed of
From the above, it is clear that a dation in payment does Assignment to totally extinguish the obligation: (1) After
not necessarily mean total extinguishment of the the execution of the Deed of Assignment on July 31,
obligation. The obligation is totally extinguished only 1980, petitioner continued to charge respondent with
when the parties, by agreement, express or implied, or by interest on its overdue account up to January 31, 1981.
their silence, consider the thing as equivalent to the This was pursuant to the Deed of Assignment which
obligation. In the instant case, the then Intermediate provides for respondent's obligation for "applicable
interest charges on overdue account". The charges for
4
interest were made every month and not once did On July 18, 1975, PNB filed a petition for extra-
respondent question or take exception to the interest; and judicial foreclosure of the real estate mortgage over the
(2) In its letter of February 16, 1981, respondent La Vista property as well as the mortgaged properties
addressed the following request to petitioner: located at Isabela, Negros Occidental and covered by
OCT No. RT 1615.
In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be At the auction sale, PNB was the highest bidder with a bid
principally considered (Art. 1253, Civil Code). The price of P1,000,001.00. However, when said property was
foregoing subsequent acts of the parties clearly show that about to be awarded to PNB, the representative of the
they did not intend the Deed of Assignment to have the mortgagor-spouses objected and demanded from the PNB
effect of totally extinguishing the obligations of private the difference between the bid price of P1,000,001.00 and
respondent without payment of the applicable interest the indebtedness of P499,060.25 of the Arroyo spouses on
charges on the overdue account. their personal account. It was the contention of the
spouses Arroyo's representative that the foreclosure
Finally, the payment of applicable interest charges on
proceedings referred only to the personal account of the
overdue account, separate from the principal obligation of
mortgagor spouses without reference to the account of
P4,072,682.13 was expressly stipulated in the Deed of
TCC.
Assignment. The law provides that "if the debt produces
interest, payment of the principal shall not be deemed to ISSUE:
have been made until the interests have been covered."
Was TCC's liability extinguished by the repossession of
(Art. 1253, Civil Code).
PNB of the imported cement plant machinery and
2. PNB VS. PINEDA equipment?
FACTS: HELD:
In 1963, the Arroyo Spouses, obtained a loan of No. PNB's possession of the subject machinery and
P580,000.00 from petitioner bank to purchase 60% of the equipment being precisely as a form of security for the
subscribed capital stock and thereby acquire the advances given to TCC under the Letter of Credit, said
controlling interest of private respondent Tayabas Cement possession by itself cannot be considered payment of the
Company, Inc. (TCC). As security for said loan, the secured loan. Payment would legally result only after
spouses Arroyo executed a real estate mortgage over a PNB had foreclosed on said securities, sold the same, and
parcel of land known as the La Vista property. applied the proceeds thereof to TCC's loan obligation.
Mere possession does not amount to foreclosure for
TCC filed with petitioner bank an application and
foreclosure denotes the procedure adopted by the
agreement for the establishment of an eight (8) year
mortgagee to terminate the rights of the mortgagor on the
deferred letter of credit (L/C) for $7,000,000.00 in favor
property and includes the sale itself.
of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the
importation of a cement plant machinery and equipment. Neither can said repossession amount to dacion en pago.
Upon approval of said application, the Arroyo spouses Dation in payment takes place when property is alienated
executed a Surety Agreement dated August 5, 1964 3 and to the creditor in satisfaction of a debt in money and the
Covenant dated August 6, 1964 to secure the loan. same is governed by sales. Dation in payment is the
delivery and transmission of ownership of a thing by the
The imported cement plant machinery and
debtor to the creditor as an accepted equivalent of the
equipment arrived from Japan and were released to TCC
performance of the obligation. As aforesaid, the
under a trust receipt agreement. Subsequently, Toyo
repossession of the machinery and equipment in question
Menka Kaisha, Ltd. made the corresponding drawings
was merely to secure the payment of TCC's loan
against the L/C as scheduled, but TCC failed to remit
obligation and not for the purpose of transferring
and/or pay the corresponding amount covered by the
ownership thereof to PNB in satisfaction of said loan.
drawings. Thus, pursuant to the agreement, PNB
Thus, no dacion en pago was ever accomplished.
repossessed the imported machinery and equipment for
failure of TCC to settle its obligations under the L/C.

5
ARTICLE 1249: RA 8183; FORM OF PAYMENT In the meantime, the action derived from the original
obligation shall be held in abeyance.;
1. TIBAJIA VS COURT OF APPEALS
b. Section 1 of Republic Act No. 529, as amended,
FACTS which provides:
A suit for collection of a sum of money filed by
Sec. 1. Every provision contained in, or made with respect
Eden Tan against the Tibajia spouses
to, any obligation which purports to give the obligee the
A writ of attachment was issued by the trial court right to require payment in gold or in any particular kind
of coin or currency other than Philippine currency or in an
The Deputy Sheriff filed a return stating that a amount of money of the Philippines measured thereby,
deposit made by the Tibajia spouses had been shall be as it is hereby declared against public policy null
garnished by him. and void, and of no effect, and no such provision shall be
Tibajia spouses delivered to Deputy Sheriff contained in, or made with respect to, any obligation
Eduardo Bolima the total money judgment in thereafter incurred. Every obligation heretofore and
check hereafter incurred, whether or not any such provision as
to payment is contained therein or made with respect
Private respondent refused to accept the payment thereto, shall be discharged upon payment in any coin or
made by the Tibajia spouses and instead insisted currency which at the time of payment is legal tender for
that the garnished funds deposited be withdrawn public and private debts
to satisfy the judgment obligation.
Section 63 of Republic Act No. 265, as amended (Central
Petitioners filed a motion to lift the writ of Bank Act) which provides:
execution on the ground that the judgment debt
had already been paid Sec. 63. Legal character Checks representing deposit
money do not have legal tender power and their
Motion was denied by the trial court on the acceptance in the payment of debts, both public and
ground that payment in cashier's check is not private, is at the option of the creditor: Provided,
payment in legal tender and that payment was however, that a check which has been cleared and credited
made by a third party other than the defendant to the account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal to the
ISSUE
amount credited to his account.
WHETHER OR NOT THE BPI CASHIER'S
In the recent cases of Philippine Airlines, Inc. vs. Court of
CHECK TENDERED BY PETITIONERS FOR
Appeals 4 and Roman Catholic Bishop of Malolos, Inc. vs.
PAYMENT OF THE JUDGMENT DEBT, IS
Intermediate Appellate Court, 5 this Court held that
"LEGAL TENDER"
A check, whether a manager's check or ordinary check, is
RULING
not legal tender, and an offer of a check in payment of a
The provisions of law applicable to the case at bar debt is not a valid tender of payment and may be refused
are the following: receipt by the obligee or creditor.

a. Article 1249 of the Civil Code which provides: ANOTHER VERSION:

Art. 1249. The payment of debts in money shall be made FACTS: A suit of collection of sum of money was filed
in the currency stipulated, and if it is not possible to by Eden Tan against the spouses. A writ of attachment
deliver such currency, then in the currency which is legal was issued, the Deputy Sheriff filed a return stating that a
tender in the Philippines. deposit made by Tibajia in the amount of P442,750 in
another case, had been garnished by him. RTC ruled in
The delivery of promissory notes payable to order, or bills favor of Eden Tan and ordered the spouses to pay her an
of exchange or other mercantile documents shall produce amount in excess of P3,000,000. Court of Appeals
the effect of payment only when they have been cashed, modified the decision by reducing the amount for
or when through the fault of the creditor they have been damages. Tibajia Spouses delivered to Sheriff Bolima the
impaired. total money judgment of P398483.70. Tan refused to
6
accept the payment and insisted that the garnished funds ARTICLE 1250: EXTRAORDINARY INFLATION
be withdrawn to satisfy the judgment obligation. AND DEFLATION
ISSUE: Whether or not payment by means of check is 1. FILIPINO PIPE AND FOUNDRY CORP VS.
considered payment in legal tender NAWASA
RULING: The ruling applies the statutory provisions FACTS
which lay down the rule that a check is not legal tender
NAWASA entered into a contract with the
and that a creditor may validly refuse payment by check,
plaintiff FPFC for the latter to supply iron
whether it be a managers check, cashiers or personal
pressure pipes worth P270,187.50 to be used in
check. The decision of the court of Appeals is affirmed.
the construction of the Anonoy Waterworks in
2. PAPA VS. VALENCIA & CO, INC. Masbate and the Barrio San Andres-Villareal
Waterworks in Samar.
FACTS:
NAWASA paid in installments on various dates,
Myron Papa is the administrator of the estate of Angela
a total of P134,680.00 leaving a balance of
Butte. In 1973, he sold a portion of said estate to Felix
P135,507.50 excluding interest.
Pearroyo through A.U. Valencia and Co., Inc. Pearroyo
gave Papa P5,000.00 plus a check worth P40,000.00. FPFC demanded payment from NAWASA of the
However, Papa was not able to deliver the certificate of unpaid balance of the price with interest in
title to Pearroyo. A litigation ensued and ten years after, accordance with the terms of their contract
Papa argued that the sale between him and Pearroyo was
NAWASA failed to pay, plaintiff filed a
never consummated because he did not encash the
collection suit
P40,000.00 check and that the P5,000.00 cash was merely
earnest money. RTC rendered judgment ordered NAWASA to
pay the unpaid balance in NAWASA negotiable
ISSUE: Whether or not Papa is correct.
bonds
HELD: No. After more than ten (10) years from the
NAWASA did not deliver the bonds to the
payment in part by cash and in part by check, the
judgment creditor
presumption is that the check had been encashed.
Granting that Papa had never encashed the check, his FPFC filed another complaint seeking an
failure to do so for more than ten (10) years undoubtedly adjustment of the unpaid balance in accordance
resulted in the impairment of the check through his with the value of the Philippine peso
unreasonable and unexplained delay. While it is true that
the delivery of a check produces the effect of payment FPFC presented voluminous records and
only when it is cashed, pursuant to Article 1249 of the statistics showing that a spiralling inflation has
Civil Code, the rule is otherwise if the debtor (Pearroyo) marked the progress of the country from 1962 up
is prejudiced by the creditors (Papas) unreasonable to the present. There is no denying that the price
delay in presentment. The acceptance of a check implies index of commodities, which is the usual
an undertaking of due diligence in presenting it for evidence of the value of the currency has been
payment, and if he from whom it is received sustains loss rising.
by want of such diligence, it will be held to operate as ISSUE
actual payment of the debt or obligation for which it was
given. W/N there exists an extraordinary inflation of the
currency justifying an adjustment of NAWASA's unpaid
judgment obligation to FPFC.
RULING
Article 1250 of the Civil Code provides:
In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the
7
currency at the time of the establishment of the obligation allowed to pay the principal amount of P100,000
shall be the basis of payment, unless there is an agreement in 3 equal installments of 6 months each with the
to the contrary.. 1st installment and the accrued interest of
P24,000 to be paid immediately upon approval
Extraordinary inflation exists "when there is a
decrease or increase in the purchasing power of July 29, 1975: Bishop through its counsel, Atty.
the Philippine currency which is unusual or Carmelo Fernandez, formally denied the request
beyond the common fluctuation in the value said but granted a grace period of 5 days from the
currency, and such decrease or increase could not receipt of the denial to pay the total balance of
have reasonably foreseen or was manifestly P124,000
beyond contemplation the the parties at the time
August 4, 1975: private respondent, through its
of the establishment of the obligation. (Tolentino
president, Atty. Francisco, wrote the counsel of
Commentaries and Jurisprudence on the Civil
the petitioner requesting an extension of 30 days
Code Vol. IV, p. 284.)
from to fully settle its account. - denied
While appellant's voluminous records and
RTC: favored Bishop declaring the down
statistics proved that there has been a decline in
payment as forfeited
the purchasing power of the Philippine peso, this
downward fall of the currency cannot be ISSUE: W/N there is tender of payment by issuance of a
considered "extraordinary." It is simply a certified check
universal trend that has not spared our country.
HELD: NO. RTC reinstated.
ARTICLE 1256: TENDER OF PAYMENT AND
CONSIGNATION Tender of payment involves a positive and
unconditional act by the obligor of offering legal
1. ROMAN CATHOLIC ARCHBISHOP OF tender currency as payment to the obligee for the
MALOLOS VS. IAC formers obligation and demanding that the latter
accept the same.
FACTS:
tender of payment cannot be presumed
July 7, 1971: A contract over the land was
by a mere inference from surrounding
executed between the Roman Catholic Bishop of
circumstances
Malolos (bishop) as vendor and the through its
then president, Mr. Carlos F. Robes, as vendee, sheer proof of sufficient available funds to meet
stipulating for a downpayment of P23,930 and the more than the total obligation within the grace
balance of P100,000 plus 12% interest per annum period - NOT sufficient
to be paid within 4 years from execution of the
contract. On the contrary, the respondent court
finds itself remiss in overlooking or
The contract likewise provides for taking lightly the more important
cancellation, forfeiture of previous findings of fact made by the trial court
payments, and reconveyance of the land which are entitled to great weight on
in case of failure to pay within the period appeal and should be accorded full
consideration and respect and should not
March 12, 1973: private respondent, through its
be disturbed unless for strong and cogent
new president, Atty. Adalia Francisco, addressed
reasons
a letter 6 to Father Vasquez, parish priest of San
Jose Del Monte, Bulacan, requesting to be certified personal check which is not legal tender
furnished with a copy of the subject contract and nor the currency stipulated, and therefore, can not
the supporting documents constitute valid tender of payment
July 17, 1975: after the expiration of the Since a negotiable instrument is only a substitute
stipulated period for payment, Atty. Francisco for money and not money, the delivery of such an
wrote the formal request that her company be instrument does not, by itself, operate as payment
8
ANOTHER VERSION: From a perusal of the foregoing facts, we find that both
the contending parties have conflicting versions on the
ROMAN CATHOLIC OF MALOLOS VS. IAC main question of tender of payment.
FACTS: According to the trial court:
The property subject matter of the contract consists of a
. . . What made Atty. Francisco suddenly decide to pay
parcel of land in the Province of Bulacan, issued and
plaintiffs obligation on tender her payment, when her
registered in the name of the petitioner which it sold to the
request to extend the grace period has not yet been acted
private respondent.
upon? Atty. Franciscos claim that she made a tender of
On July 7, 1971, the subject contract over the land in payment is not worthy of credence.
question was executed between the petitioner as vendor
The trial court considered as fatal the failure of Atty.
and the private respondent through its then president, Mr.
Francisco to present in court the certified personal check
Carlos F. Robes, as vendee, stipulating for a
allegedly tendered as payment or, at least, its xerox copy,
downpayment of P23,930.00 and the balance of
or even bank records thereof.
P100,000.00 plus 12% interest per annum to be paid
within four (4) years from execution of the contract. The Not satisfied with the said decision, the private
contract likewise provides for cancellation, forfeiture of respondent appealed to the IAC. The IAC reversed the
previous payments, and reconveyance of the land in decision of the trial court. The IAC, in finding that the
question in case the private respondent would fail to private respondent had sufficient available funds, ipso
complete payment within the said period. facto concluded that the latter had tendered payment.
After the expiration of the stipulated period for payment, ISSUE:
Atty. Adalia Francisco (president of the company who
Whether or not the finding of the IAC that Atty. Francisco
bought land) wrote the petitioner a formal request that her
had sufficient available funds did tender payment for the
company be allowed to pay the principal amount of
said obligation.
P100,000.00 in three (3) equal installments of six (6)
months each with the first installment and the accrued Whether or not an offer of a check is a valid tender of
interest of P24,000.00 to be paid immediately upon payment of an obligation under a contract which
approval of the said request. stipulates that the consideration of the sale is in Philippine
Currency.
The petitioner formally denied the said request of the
private respondent, but granted the latter a grace period of HELD:
five (5) days from the receipt of the denial to pay the total
balance of P124,000.00. The private respondent wrote the 1. No. Tender of payment involves a positive and
petitioner requesting an extension of 30 days from said unconditional act by the obligor of offering legal tender
date to fully settle its account but this was still denied. currency as payment to the obligee for the formers
obligation and demanding that the latter accept the same.
Consequently, Atty. Francisco wrote a letter directly Thus, tender of payment cannot be presumed by a mere
addressed to the petitioner, protesting the alleged refusal inference from surrounding circumstances. At most,
of the latter to accept tender of payment made by the sufficiency of available funds is only affirmative of the
former on the last day of the grace period. But the private capacity or ability of the obligor to fulfill his part of the
respondent demanded the execution of a deed of absolute bargain. The respondent court was therefore in error.
sale over the land in question
2. No. In the case of Philippine Airlines v. Court of
Atty. Fernandez, wrote a reply to the private respondent Appeals:
stating the refusal of his client to execute the deed of
absolute sale so the petitioner cancelled the contract and Since a negotiable instrument is only a substitute for
considered all previous payments forfeited and the land as money and not money, the delivery of such an instrument
ipso facto reconveyed. does not, by itself, operate as payment. A check, whether
a managers check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the
9
obligee or creditor. The tender of payment by the private Reyes the purchase price and all expenses to execute the
respondent was not valid for failure to comply with the reconveyance. Reyes appealed the Decision to the CA
requisite payment in legal tender or currency stipulated which in turn elevated the appeal to this Court since only
within the grace period questions of law were involved. When Reyes died,
petitioner-spouses Rayos wrested physical possession of
The DECISION of the IAC is hereby SET ASIDE and
the disputed properties from Reyess heirs.
ANNULLED and the DECISION of the trial court is
REINSTATED. This Court considered the case closed and terminated for
failure of the parties therein to manifest their interest to
2. RAYOS VS. REYES further prosecute the case. The judgment in the Civil Case
FACTS: became final and executory.

3 parcels of unregistered land in Pangasinan were Subsequent to the finality of judgment in the Civil Case
formerly owned by the spouses Tazal who on 1 September petitioner-spouses did nothing to repurchase the three (3)
1957 sold them to respondents predecessor-in-interest, parcels of land within the thirty (30) day grace period
Reyes, with right to repurchase within two 2 years from from finality of judgment.
date thereof by paying to the vendee the purchase price
Respondents as heirs of Reyes executed an affidavit
and all expenses incident to their reconveyance. After the
adjudicating to themselves the ownership of the parcels of
sale the vendee a retro took physical possession of the
land and declared the properties in their names for
properties and paid the taxes thereon.
assessment and collection of real estate taxes. The
The otherwise inconsequential sale became controversial respondents registered the 1 September 1957 deed of sale
when 2 of the 3 parcels were again sold by Tazal in favor with right of repurchase with the RD.
of petitioners predecessor-in-interest Rayos without first
Respondents filed a complaint for damages and recovery
availing of his right to repurchase the properties. In the
of ownership and possession of the 3 parcels of land in
meantime, the conventional right of redemption in favor
dispute against herein petitioner-spouses Rayos and the
of spouses Tazal expired without the right being exercised
administrator thereof before the RTC. It was respondents
by either the Tazal spouses or the vendee Rayos.
theory that neither petitioners nor their predecessors-in-
After the expiration of the redemption period, Tazal interest Tazal and Rayos repurchased the properties
attempted to repurchase the properties from Reyes by before buying them or when the judgment in the Civil
asserting that the 1 September 1957 deed of sale with right Case became final and executory, hence the sale of the
of repurchase was actually an equitable mortgage and three (3) parcels of land to petitioner-spouses did not
offering the amount of P724.00 to pay for the alleged transfer ownership thereof to them.
debt. (consignation) But Reyes refused the tender of
Petitioners argued on the other hand that the consignation
payment and vigorously claimed that their agreement was
of P724.00 in Civil Case No. A-245 had the full effect of
not an equitable mortgage.3
redeeming the properties from respondents and their
On 9 May 1960 Francisco Tazal filed a complaint with predecessor-in-interest, and that respondents were guilty
the CFI Reyes for the declaration of the 1 September 1957 of estoppel and laches since Reyes as their predecessor-
transaction as a contract of equitable mortgage. He also in-interest did not oppose the sale to Rayos and to
prayed for an order requiring defendant Mamerto Reyes petitioner-spouses Rayos. The parties then filed their
to accept the amount of P724.00 which he had deposited respective memoranda after which the case was submitted
with the trial court as full payment for his debt, and for decision.
canceling the supposed mortgage on the three (3) parcels
The trial court promulgated its Decision in the Civil Case
of land with the execution of the corresponding
void the separate deeds of absolute sale thereof executed
documents of reconveyance in his favor.
by Tazal in favor of Rayos and to spouses Rayos and by
The trial court in the Civil Case rejected the contention of Rayos to the same spouses, and ordered herein petitioners
Tazal that the deed of sale executed on 1 September 1957 and Francisco Tazal to vacate and reconvey the lands to
was an equitable mortgage but held that Tazal could respondents as heirs of Reyes and to pay damages.
nonetheless redeem the three (3) parcels of land within Petitioners appealed the Decision to the CA.
thirty (30) days from finality of judgment by paying to
10
The appellate court promulgated its Decision affirming in period in the deed of sale which had already expired when
toto the judgment appealed from. Hence, the instant the tender of payment was made and the Civil Case was
petition for review. instituted, and as a corollary, to avail of the thirty (30)-
day grace period under Art. 1606 of the Civil Code within
ISSUE: which to exercise the right to repurchase. Reyes was
1. WON the consignation is valid therefore within his right to refuse the tender of payment
offered by petitioners because it was conditional upon his
2. WON the respondents are barred by estoppel and laches waiver of the two (2)-year redemption period stipulated in
3. Won the petitioners are in good faith the deed of sale with right to repurchase.

HELD: Moreover, petitioners failed to prove in the Civil Cases

that any form of notice regarding their intention to deposit
1. In order that consignation may be effective the debtor the amount of P724.00 with the CFI had been served upon
must show that: respondents. This requirement is not fulfilled by the
notice which could have ensued from the filing of the
(a) there was a debt due;
complaint in the civil case or the stipulation made
(b) the consignation of the obligation had been made between Tazal and Reyes regarding the consignation of
because the creditor to whom a valid tender of payment P724.00. The latter constitutes the second notice required
was made refused to accept it; by law as it already concerns the actual deposit or
consignation of the amount and is different from the first
(c) previous notice of the consignation had been given to notice that makes known the debtors intention to deposit
the person interested in the performance of the obligation; the amount, a requirement missing in the instant case.
(d) the amount due was placed at the disposal of the court; Without any announcement of the intention to resort to
and, consignation first being made to the persons interested in
the fulfillment of the obligation, the consignation as a
(e) after the consignation had been made the person means of payment is void.
interested was notified thereof
It is also futile to argue that the deposit of P724.00 with
In the instant case, petitioners failed, the Court of First Instance could have perfected the
redemption of the three (3) parcels of land because it was
first, to offer a valid and unconditional tender of payment;
not approved by the trial court, much less accepted by
second, to notify respondents of the intention to deposit Mamerto Reyes or his heirs, herein respondents. The
the amount with the court; and dispositive portion of the Decision in Civil Case No. A-
245, which reads x x x x the Court, hereby renders
third, to show the acceptance by the creditor of the amount judgment declaring the contract x x x entered into by the
deposited as full settlement of the obligation, or in the plaintiffs and the defendant and captioned Deed of Sale
alternative, a declaration by the court of the validity of the with Right to Repurchase as a true sale with right to
consignation. The failure of petitioners to comply with repurchase x x x and not an equitable mortgage x x x and
any of these requirements rendered the consignation declaring the plaintiffs entitled to repurchase the property
ineffective. in question within thirty (30) days from finality of this
Consignation and tender of payment must not be decision x x x x plainly rejected the complaint for lack
encumbered by conditions if they are to produce the of merit and necessarily also the consignation done
intended result of fulfilling the obligation. In the instant pursuant thereto. This conclusion is buttressed by the
case, the tender of payment of P724.00 was conditional directive of the trial court in the body of the Decision that
and void as it was predicated upon the argument of Tazal Francisco Tazal may still exercise the right to repurchase
that he was paying a debt which he could do at any time the property in question by returning to the [Mamerto
allegedly because the 1 September 1957 transaction was Reyes] the purchase price of P724.00 plus all expenses
a contract of equitable mortgage and not a deed of sale incident to the reconveyance within the period of thirty
with right to repurchase. The ostensible purposes of (30)-days from the time this decision becomes final x x x
offering the amount in connection with a purported x21 The obvious reference of this statement was the
outstanding debt were to evade the stipulated redemption stipulation made by the parties therein that the defendant

11
[Mamerto Reyes] has been paying the taxes on said meet his needs and obligations and realize the full value
properties from 1958 to 1969 x x x x22 where the taxes of his land.
paid constituted necessary expenses that petitioners had
Moreover, we do not think that respondents causes of
to reimburse to respondents predecessor-in-interest aside
action in Civil Case No. A-2032 are now barred by
from the P724.00 earlier deposited by Tazal.
estoppel and laches. The essence of estoppel and laches is
To be sure, while it has been held that approval of the the failure or neglect for an unreasonable and unexplained
court or the obligees acceptance of the deposit is not length of time to do that which by exercising due
necessary where the obligor has performed all acts diligence could or should have been done earlier; it is the
necessary to a valid consignation such that court approval negligence or omission to assert a right within a
thereof cannot be doubted, Sia v. Court of Appeals23 reasonable time warranting a presumption that the party
clearly advises that this ruling is applicable only where entitled to assert it either has abandoned or declined to
there is unmistakable evidence on record that the assert it although there is no absolute rule as to what
prerequisites of a valid consignation are present, constitutes staleness of demand as each case is to be
especially the conformity of the proffered payment to the determined according to its particular circumstances.28
terms of the obligation which is to be paid.24 In the
In the instant case, it was prudent and discerning for
instant case, since there is no clear and preponderant
respondents and their predecessor-in-interest Mamerto
evidence that the consignation of P724.00 satisfied all the
Reyes that they deferred any action against petitioners,
requirements for validity and enforceability, and since
i.e., Civil Case No. A-2032, to recover ownership and
Mamerto Reyes vehemently contested the propriety of the
possession of the three (3) pieces of real estate, until the
consignation, petitioners cannot rely upon sheer
finality of judgment in Civil Case No. A-245. For
speculation and unfounded inference to construe the
patiently electing not to inundate our courts of justice with
Decision of the Court of First Instance as one impliedly
cases the outcome of which may well depend upon the
approving the consignation of P724.00 and perfecting the
then pending civil suit, respondents cannot now be
redemption of the three (3) parcels of land.
penalized by barring their complaint in Civil Case No. A-
It should be recalled that one of the requisites of 2032 on the equitable grounds of estoppel and laches.
consignation is the filing of the complaint by the debtor
We also find no reason to disturb our findings upon
against the creditor. Hence it is the judgment on the
petitioners assertion that they were purchasers of the
complaint where the court declares that the consignation
three (3) parcels of land in good faith and for value. As
has been properly made that will release the debtor from
we held in David v. Bandin, the issue of good faith or
liability. Should the consignation be disapproved by the
bad faith of the buyer is relevant only where the subject
court and the case dismissed, there is no payment and the
of the sale is registered land and the purchaser is buying
debtor is in mora and he shall be liable for the expenses
the same from the registered owner whose title to the land
and bear the risk of loss of the thing.25
is clean x x x in such case the purchaser who relies on the
To sanction the argument of petitioners and in the process clean title of the registered owner is protected if he is a
excuse them from their responsibility of securing from the purchaser in good faith for value.29 Since the properties
trial court in Civil Case No. A-245 a categorical in question are unregistered lands, petitioners as
declaration that the consignation of P724.00 had complied subsequent buyers thereof did so at their peril. Their claim
with all the essential elements for its validity would only of having bought the land in good faith, i.e., without
dilute the rule requiring absolute compliance with the notice that some other person has a right to or interest in
requisites of consignation.26 It also disturbs a steady and the property, would not protect them if it turns out, as it
stable status of proprietary rights, i.e., x x x el acreedor actually did in this case, that their seller did not own the
tan solo, y no el juez, puede autorizar la variacion que para property at the time of the sale.
los derechos de aquel suponga la que se intente en el
At any rate, petitioners failed to discharge their burden of
objeto, cuantia o forma de las obligaciones,27 since
proof that they were purchasers of the three (3) parcels of
parties are left guessing on whether the repurchase of the
land in good faith. For, as we ruled in Embrado v. Court
properties had been effected. In a broader sense, this
of Appeals,30 the burden of proving the status of a
uncertain state will only depress the market value of the
purchaser in good faith and for value lies upon him who
land and virtually paralyze efforts of the landowner to
asserts that status, which is not discharged by simply
12
invoking the ordinary presumption of good faith, i.e., that consignation had been made the person interested was
everyone is presumed to act in good faith, since the good notified thereof.
faith that is here essential is integral with the very status
which must be established. NOTES:
No evidence to prove actual damages was offered in Civil
In the proceedings a quo, what is evident is the admitted
Case No. A-2032 since the parties therein submitted the
fact of payment made by Mamerto Reyes as respondents
case for decision on the basis of their respective
predecessor-in-interest of the taxes on the properties prior
memoranda, hence no actual damages can be awarded.32
to and at the time when the contracts of sale in favor of
In the same manner, there is no clear and convincing
petitioner-spouses were perfected, which undoubtedly
showing that petitioners acted in a wanton, fraudulent,
confirms the precedence of respondents possession of the
reckless, oppressive, or malevolent manner to warrant the
parcels of land in question. This situation should have
imposition of exemplary damages in respondents
compelled petitioners to investigate the right of
favor.33 In any event, exemplary damages cannot be
respondents over the properties before buying them, and
adjudicated in the instant case since there is no award of
in the absence of such inquiry, the rule is settled that a
moral, temperate or compensatory damages.
buyer in the same circumstances herein involved cannot
claim to be a purchaser in good faith. It is appropriate to stress that the mere filing of a
complaint does not ipso facto entitle a party to attorneys
The absence of good faith on the part of petitioner-
fees since this act is a means sanctioned by law to protect
spouses Teofilo and Simeona Rayos in purchasing the
rights and interests even if found subsequently to be
three (3) parcels of unregistered land precludes the
unmeritorious.
application of the rule on double sales enunciated in Art.
1544 of the Civil Code.31 In any event, even if we apply 3. DALTON VS. FGR REALTY AND
Art. 1544, the facts would nonetheless show that DEVELOPMENT CORPORATION
respondents and their predecessor-in-interest registered
first the source of their ownership and possession, i.e., the FACTS:
1 September 1957 deed of sale with right to repurchase, Dalton was renting a property of Dayrit. Dayrit sold the
held the oldest title, and possessed the real properties at property to FGR realty. FGR realty wanted the lease
the earliest time. Applying the doctrine of priority in terminated and so did not collect rental from Dalton.
time, priority in rights or prius tempore, potior jure, Dalton, without informing FGR consigned his rents to
respondents are entitled to the ownership and possession RTC. After consignation, Dalton did not also inform
of the parcels of land in dispute. FGR. When FGR learned of the consignation he withdrew
The instant Petition for Review is DENIED. The assailed the rentals reserving his right to question consignation.
Decision of the CA is AFFIRMED with RTC ordered Dalton to vacate because Dalton did not
MODIFICATION concerning the damages. inform FGR realty of the consignation before and after the
same was made. C.A. affirmed.
There is no evidence to prove that petitioners paid at any
time the repurchase price for the three (3) parcels of land ISSUE: was consignation valid?
in dispute except for the deposit of P724.00 in the Court No. Dalton did not comply strictly with the requirements
of First Instance which however fell short of all the acts of consignation.
necessary for a valid consignation and discharge of their
obligation to respondents. Dalton argues that the issue as to whether consignation
was valid or not is already moot because FGR already
In order that consignation may be effective the debtor withdrew the amount consigned. Is his argument valid?
must show that (a) there was a debt due; (b) the
consignation of the obligation had been made because the No because FGR expressly reserved the right to question
creditor to whom a valid tender of payment was made the validity of the consignation.
refused to accept it; (c) previous notice of the
SAID THE COURT:
consignation had been given to the person interested in
the performance of the obligation; (d) the amount due was The Court is not impressed. First, in withdrawing the
placed at the disposal of the court; and, (e) after the amounts consigned, Dayrit and FGR expressly reserved

13
the right to question the validity of the consignation. In any of the requisites will render the consignation void.
Riesenbeck v. Court of Appeals,15 the Court held that: Substantial compliance is not enough.
A sensu contrario, when the creditors acceptance of the In Insular Life Assurance Company, Ltd. v. Toyota Bel-
money consigned is conditional and with reservations, he Air, Inc.,17 the Court enumerated the requisites of a valid
is not deemed to have waived the claims he reserved consignation: (1) a debt due; (2) the creditor to whom
against his debtor. Thus, when the amount consigned does tender of payment was made refused without just cause to
not cover the entire obligation, the creditor may accept it, accept the payment, or the creditor was absent, unknown
reserving his right to the balance (Tolentino, Civil Code or incapacitated, or several persons claimed the same right
of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena to collect, or the title of the obligation was lost; (3) the
263). The same factual milieu obtains here because the person interested in the performance of the obligation was
respondent creditor accepted with reservation the amount given notice before consignation was made; (4) the
consigned in court by the petitioner-debtor. Therefore, the amount was placed at the disposal of the court; and (5) the
creditor is not barred from raising his other claims, as he person interested in the performance of the obligation was
did in his answer with special defenses and counterclaim given notice after the consignation was made.
against petitioner-debtor.
Articles 1257 and 1258 of the Civil Code state,
As respondent-creditors acceptance of the amount respectively:
consigned was with reservations, it did not completely
Art. 1257. In order that the consignation of the thing due
extinguish the entire indebtedness of the petitioner-
may release the obligor, it must first be announced to the
debtor. It is apposite to note here that consignation is
persons interested in the fulfillment of the obligation.
completed at the time the creditor accepts the same
without objections, or, if he objects, at the time the court The consignation shall be ineffectual if it is not made
declares that it has been validly made in accordance with strictly in consonance with the provisions which regulate
law.16 (Emphasis supplied) payment.
WHAT ARE THE REQUIREMENTS OF Art. 1258. Consignation shall be made by depositing the
CONSIGNATION?. things due at the disposal of judicial authority, before
whom the tender of payment shall be proved, in a proper
RTC ENNUMERATED THEM, THUS:
case, and the announcement of the consignation in other
The requisites of consignation are as follows: cases.
1. The existence of a valid debt. The consignation having been made, the interested parties
shall also be notified thereof. (Emphasis supplied)
2. Valid prior tender, unless tender is excuse [sic];
The giving of notice to the persons interested in the
3. Prior notice of consignation (before deposit)
performance of the obligation is mandatory. Failure to
4. Actual consignation (deposit); notify the persons interested in the performance of the
obligation will render the consignation void. In Ramos v.
5. Subsequent notice of consignation; Sarao,18 the Court held that, All interested parties are to
be notified of the consignation. Compliance with [this
requisite] is mandatory.19 In Valdellon v. Tengco,20 the
DALTON CLAIMS CONSIGNATION IS PROPER Court held that:
BECAUSE HE HAS COMPLIED WITH OTHER
REQUIREMENTS OF CONSIGNATION AND THUS Under Art. 1257 of our Civil Code, in order that
THERE WAS SUBSTANTIAL COMPLIANCE. IS consignation of the thing due may release the obligor, it
THIS CORRECT? must first be announced to the persons interested in the
fulfillment of the obligation. The consignation shall be
NO. STRICT COMPLIANCE IS MANDATORY. ineffectual if it is not made strictly in consonance with the
provisions which regulate payment. In said Article 1258,
SAID THE COURT:
it is further stated that the consignation having been made,
Second, compliance with the requisites of a valid the interested party shall also be notified thereof.21
consignation is mandatory. Failure to comply strictly with (Emphasis supplied)
14
In Soco v. Militante, et al.,22 the Court held that: grounded on speculation; (3) when the inference made is
manifestly mistaken; (4) when the judgment of the Court
We hold that the essential requisites of a valid
of Appeals is based on a misapprehension of facts; (5)
consignation must be complied with fully and strictly in
when the factual findings are conflicting; (6) when the
accordance with the law, Articles 1256 to 1261, New
Court of Appeals went beyond the issues of the case and
Civil Code. That these Articles must be accorded a
its findings are contrary to the admissions of the parties;
mandatory construction is clearly evident and plain from
(7) when the Court of Appeals overlooked undisputed
the very language of the codal provisions themselves
facts which, if properly considered, would justify a
which require absolute compliance with the essential
different conclusion; (8) when the facts set forth by the
requisites therein provided. Substantial compliance is not
petitioner are not disputed by the respondent; and (9)
enough for that would render only a directory
when the findings of the Court of Appeals are premised
construction to the law. The use of the words shall and
on the absence of evidence and are contradicted by the
must which are imperative, operating to impose a duty
evidence on record.26 Dalton did not show that any of
which may be enforced, positively indicate that all the
these circumstances is present.
essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and
explicitly direct what must be essentially done in order
that consignation shall be valid and effectual.23
(Emphasis supplied)
DALTON SAID THE CA ERRED IN RULING SHE
FAILED TO PAY RENT. CAN SC REVIEW CA
FINDINGS?
NO, BECAUSE FINDINGS OF FACTS OF LOWER
COURTS ARE BINDING ON SC.
Dalton claims that the Court of Appeals erred in ruling
that she failed to pay rent. The Court is not impressed.
Section 1, Rule 45 of the Rules of Court states that
petitions for review on certiorari shall raise only
questions of law which must be distinctly set forth. In
Pagsibigan v. People,24 the Court held that:
A petition for review under Rule 45 of the Rules of Court
should cover only questions of law. Questions of fact are
not reviewable. A question of law exists when the doubt
centers on what the law is on a certain set of facts. A
question of fact exists when the doubt centers on the truth
or falsity of the alleged facts.
There is a question of law if the issue raised is capable of
being resolved without need of reviewing the probative
value of the evidence. The issue to be resolved must be
limited to determining what the law is on a certain set of
facts. Once the issue invites a review of the evidence, the
question posed is one of fact.25
Whether Dalton failed to pay rent is a question of fact. It
is not reviewable.
The factual findings of the lower courts are binding on the
Court. The exceptions to this rule are (1) when there is
grave abuse of discretion; (2) when the findings are
15
 Presidential Decree No. 957(PD 957). It added that since
no prior valid tender of payment was made by petitioners,
the consignation case was fatally defective and
susceptible to dismissal.

ISSUE: Whether or not the case falls within the exclusive

jurisdiction of the HLURB.

RULING: No. Unlike tender of payment which is

extrajudicial, consignation is necessarily judicial; hence,
jurisdiction lies with the RTC, not with the
HLURB. Under Article 1256 of the Civil Code, the debtor
shall be released from responsibility by the consignation
of the thing or sum due, without need of prior tender of
payment, when the creditor is absent or unknown, or when
he is incapacitated to receive the payment at the time it is
due, or when two or more persons claim the same right to
collect, or when the title to the obligation has been lost.
The said provision clearly precludes consignation in
venues other than the courts.

ARTICLE 1279: LEGAL COMPENSATION

4. SPOUSES CACAYORIN VS. AFP-MBAI 1. INTERNATIONAL CORP BANK VS. IAC

FACTS: 2. FRANCIA VS. IAC

FACTS
Oscar Cacayorin filed an application with AFPMBAI to
purchase a property which the latter owned through a loan Engracio Francia was the owner of a 328 square meter
facility. Oscar and his wife, Thelma, and the Rural Bank land in Pasay City. In October 1977, a portion of his land
of San Teodoro executed a Loan and Mortgage (125 square meter) was expropriated by the government
Agreement with the former as borrowers and the Rural for P4,116.00. The expropriation was made to give way
Bank as lender, under the auspices of PAG-IBIG. On the
to the expansion of a nearby road.
basis of the Rural Bank's letter of guaranty, AFPMBAI
executed in petitioners' favor a Deed of Absolute It also appears that Francia failed to pay his real estate
Sale, and a new title was issued in their name. taxes since 1963 amounting to P2,400.00. So in
December 1977, the remaining 203 square meters of his
Then, the PAG-IBIG loan facility did not push through land was sold at a public auction (after due notice was
and the Rural Bank closed. Meanwhile, AFPMBAI
given him). The highest bidder was a certain Ho
somehow was able to take possession of petitioners' loan
Fernandez who paid the purchase price of P2,400.00
documents and the TCT, while petitioners were unable to
pay the loan for the property. AFPMBAI made written (which was lesser than the price of the portion of his land
demands for petitioners to pay the loan for the property. that was expropriated).
Then, petitioners filed with the RTC a complaint for Later, Francia filed a complaint to annul the auction sale
consignation of loan payment, recovery of title and
on the ground that the selling price was grossly
cancellation of mortgage annotation against AFPMBAI,
PDIC and the Register of Deeds of Puerto Princesa City. inadequate. He further argued that his land should have
never been auctioned because the P2,400.00 he owed the
AFPMBAI filed a motion to dismiss claiming that government in taxes should have been set-off by the debt
petitioners' Complaint falls within the jurisdiction of the the government owed him (legal compensation). He
Housing and Land Use Regulatory Board (HLURB), as it alleged that he was not paid by the government for the
was filed by petitioners in their capacity as buyers of a expropriated portion of his land because though he knew
subdivision lot and it prays for specific performance of that the payment therefor was deposited in the Philippine
contractual and legal obligations decreed under National Bank, he never withdrew it.
16
ISSUE: Whether or not the tax owed by Francia should 4. MONTEMAYOR VS. MILLORA
be set-off by the debt owed him by the government.
ARTICLE 1291: NOVATION
HELD: No. As a rule, set-off of taxes is not allowed.
There is no legal basis for the contention. By legal 1. ILOILO TRADERS VS. HEIRS OF SORIANO
compensation, obligations of persons, who in their own FACTS:
right are reciprocally debtors and creditors of each other,
are extinguished (Art. 1278, Civil Code). This is not Respondents executed two promissory notes secured by
applicable in taxes. There can be no off-setting of taxes real property mortgages in favor of petitioner. The
against the claims that the taxpayer may have against the respondents defaulted and petitioner moved for extra-
government. A person cannot refuse to pay a tax on the judicial foreclosure of the mortgages. Respondent filed a
ground that the government owes him an amount equal to complaint against petitioner. The parties later entered into
or greater than the tax being collected. The collection of a amicable settlement and submitted it to the trial court
tax cannot await the results of a lawsuit against the for approval. The trial court required the parties to give
government. some clarifications on several issues that were not
complied. The amicable settlement was disapproved and
The Supreme Court emphasized: A claim for taxes is not the court proceeded. Respondents withdrew the case and
such a debt, demand, contract or judgment as is allowed filed a (new) case for novation and specific performance
to be set-off under the statutes of set-off, which are which was decided favorably for the respondents. The
construed uniformly, in the light of public policy, to Court of Appeals affirmed the judgment.
exclude the remedy in an action or any indebtedness of
the state or municipality to one who is liable to the state ISSUE:
or municipality for taxes. Neither are they a proper subject Whether or not the amicable settlement entered into
of recoupment since they do not arise out of the contract between parties has novated the original obligation.
or transaction sued on.
RULING:
Further, the government already Francia. All he has to do
was to withdraw the money. Had he done that, he could NO. The parties entered into the agreement basically to
have paid his tax obligations even before the auction sale put an end to Civil Case No. 14007 then pending before
or could have exercised his right to redeem which he did the Regional Trial Court. Concededly, the provisions of
not do. the settlement were beneficial to the respondent couple.
The compromise extended the terms of payment and
Anent the issue that the selling price of P2,400.00 was implicitly deferred the extrajudicial foreclosure of the
grossly inadequate, the same is not tenable. The Supreme mortgaged property. It was well to the interest of
Court said: alleged gross inadequacy of price is not respondent spouses to ensure its judicial approval;
material when the law gives the owner the right to redeem instead, they went to ignore the order of the trial court and
as when a sale is made at public auction, upon the theory virtually failed to make any further appearance in court.
that the lesser the price, the easier it is for the owner to This conduct on the part of respondent spouses gave
effect redemption. If mere inadequacy of price is held to petitioner the correct impression that the Sorianos did not
be a valid objection to a sale for taxes, the collection of intend to be bound by the compromise settlement, and its
taxes in this manner would be greatly embarrassed, if not non-materialization negated the very purpose for which it
rendered altogether impracticable. Where land is sold for was executed.
taxes, the inadequacy of the price given is not a valid
objection to the sale. This rule arises from necessity, for, The decision of the court of the Court of Appeals
if a fair price for the land were essential to the sale, it affirming that of the trial court was reversed and set aside.
would be useless to offer the property. Indeed, it is
2. AJAX MARKETING & DEVELOPMENT CORP
notorious that the prices habitually paid by purchasers at
VS. CA
tax sales are grossly out of proportion to the value of the
land.
3. MONDRAGON PERSONAL SALES, INC. VS.
VICTORIANO S. SOLA JR.

17
3. CALIFORNIA BUS LINES VS. STATE ARTICLE 1292: REAL OR OBJECTIVE
INVESTMENT HOUSE NOVATION
FACTS: 1. PNB VS. LILIAN S. SORIANO
Delta Motors Corporation applied for financial FACTS OF THE CASE:
assistance from respondent State Investment House, Inc.,
Lisam Enterprises, Inc. [LISAM], a family-owned
a domestic corporation engaged in the business of quasi-
and controlled corporation that maintains Current
banking. SIHI agreed to extend a credit line to Delta
Account No. 445830099-8 with petitioner PNB avail a
which eventually became indebted to SIHI. Meanwhile,
Floor Stock Line (FSL) in the increased amount of Thirty
petitioner purchased on installment basis several buses to
Million Pesos (30 Million), Soriano as the chairman and
Delta. To secure the payment of the obligation petitioner
president of LISAM and the authorized signatory
executed promissory notes in favor of Delta. When
in all LISAMs Transactions with [PNB]. For each
petitioner defaulted on the payments of the debts, it
availment, LISAM through [Soriano], executed 52 Trust
entered into an agreement with delta to cover its due
Receipts (TRs). In addition to the promissory notes,
obligations. However, petitioner still had trouble meeting
showing its receipt of the items in trust with the duty to
its obligations with delta. Pursuant to the memorandum of
turn-over the proceeds of the sale thereof to [PNB].
agreement delta executed a deed of sale assigning to
respondent, the promissory notes from petitioner. PNBs authorized personnel conducted an actual physical
Respondent subsequently sent a demand letter to inventory of LISAMs motor vehicles and motorcycles
petitioner requiring remitting payments due on the and found that only four (4) units covered by
promissory notes. Petitioner replied informing respondent the TRs remained unsold.
of the fact that delta had taken over its management and
operations. Total availments on the line covered by TRs, [LISAM]
should have remitted to PNB, Twenty Nine Million Four
ISSUE: Hundred Eighty Seven Thousand Eight Hundred Forty
Four Pesos and Fifty Five Centavos (29,487,844.55).
Whether the Restructuring Agreement dated October 7,
Despite several formal demands, respondent Soriano
1981, between petitioner CBLI and Delta Motors, Corp.
failed and refused to turn over the said amount to the
novated the five promissory notes Delta Motors, Corp.
prejudice of PNB.
assigned to respondent SIHI,
PNB, as previously adverted to, filed a complaint-
HELD:
affidavit before the Office of the City
The attendant facts do not make out a case of novation.
Prosecutor of Naga City charging Soriano with fifty two
The restructuring agreement between Delta and CBLI
(52) counts of violation of the Trust Receipts Law, in
executed on October 7, 1981, shows that the parties did
relation to Article 315, paragraph 1(b) of the Revised
not expressly stipulate that the restructuring agreement
Penal Code.
novated the promissory notes. Absent an unequivocal
declaration of extinguishment of the pre-existing In refutation, Soriano filed a counter-affidavit asserting
obligation, only a showing of complete incompatibility that:
between the old and the new obligation would sustain a
finding of novation by implication. 59 However, our 1. LISAM submitted proposals to PNB for the
review of its terms yields no incompatibility between the restructuring of all of LISAMs credit facilities. PNB
promissory notes and the restructuring agreement. LISAM informing PNBs lack of objection to
LISAMs proposal of restructuring all its obligations;
and
2. PNB Boards minutes of meeting informed that the
Board of Directors of PNB has approved the conversion
of LISAMs existing credit facilities at PNB.
PNB filed a reply-affidavit maintaining Sorianos criminal
liability under the TRs:
18
While it is true that said restructuring was approved, the it be so declared in unequivocal terms, or that the old and
same was never implemented because [LISAM] failed to the new obligations be on every point incompatible with
comply with the conditions of approval stated in B/R No. each other. contemplates two kinds of novation: express
6, such as the payment of the interest and other charges or implied. The extinguishment of the old obligation by
and the submission of the title of the 283 sq. m. of vacant the new one is a necessary element of novation, which
residential lot, x x x Tandang Sora, Quezon City. may be effected either expressly or impliedly.
The DOJ, in a Resolution dated 25 June 2002, reversed In order for novation to take place, the concurrence
and set aside the earlier resolution of the Naga City of the following requisites is indispensable:
Prosecutor and hereby directed to move, with leave of
(1) There must be a previous valid obligation;
court for the withdrawal of the informations for estafa
against Lilian S. Soriano in Criminal Case Nos. 2001- (2) There must be an agreement of the parties concerned
0641 to 0693.PNB filed a petition for certiorari before the to a new contract;
Court of Appeals. The appellate court did not find grave
abuse of discretion in the questioned resolution of (3) There must be the extinguishment of the old contract;
the DOJ, and dismissed PNBs petition for certiorari. and

ISSUE: Whether or not the Court of Appeals gravely (4) There must be the validity of the new contract.
erred in concurring with the finding of the DOJ that the In this case, without a written contract stating in
approval by PNB of [LISAMs] restructuring proposal of unequivocal terms that the parties were novating the
its account with PNB had changed the status of [LISAMs] original loan agreement, thus undoubtedly eliminating an
obligations secured by Trust Receipts to one of an express novation.
ordinary loan, non-payment of which does not give rise to
a criminal liability. The approval of LISAMs restructuring proposal is not the
bone of contention in this case. The pitch of the issue lies
Petitioner file an appeal by certiorari. in whether, assuming a restructuring was effected, it
HELD: extinguished the criminal liability on the loan obligation
secured by trust receipts, by extinguishing the entruster-
Respondent Soriano, despite several opportunities to entrustee relationship and substituting it with that of an
do so, failed to file a Memorandum as required in ordinary creditor-debtor relationship. The Court look to
the Court Resolution dated 16 January 2008. Thus, on 8 whether there is an incompatibility between the Floor
July 2009, the Court resolved to dispense with the filing Stock Line secured by TRs and the subsequent
of Sorianos Memorandum. restructured Omnibus Line which was supposedly
approved by PNB. The test of incompatibility is whether
LISAM failed to comply with the conditions precedent for
the two obligations can stand together, each one having
its effectivity, specifically, the payment of interest and
its independent existence. If they cannot, they are
other charges, and the submission of the titles to the real
incompatible and the latter obligation novates the first.
properties in Tandang Sora, Quezon City. PNB is
The Court have scoured the records and found no
adamant that the events concerning the restructuring of
incompatibility between the Floor Stock Line and the
LISAMs loan did not affect the TR security, thus,
purported restructured Omnibus Line. While the
Sorianos criminal liability there under subsists.
restructuring was approved in principle, the effectivity
The Court did not subscribe to the appellate courts thereof was subject to conditions precedent such as the
reasoning. The DOJ Secretarys and the Court of payment of interest and other charges, and the submission
Appeals holding that, the supposed restructuring of the titles to the real properties in Tandang Sora, Quezon
novated the loan agreement between the parties is City. Moreover, as asserted by Soriano in her counter-
myopic. The purported restructuring of the loan affidavit, the waiver pertains to penalty charges on the
agreement did not constitute novation. Floor Stock Line. There is no showing that the waiver
extinguished Sorianos obligation to "sell the merchandise
Article 1292 of the Civil Code which provides:
for cash for LISAMs account and to deliver the proceeds
Art. 1292. In order that an obligation may be extinguished thereof to PNB to be applied against its acceptance on
by another which substitutes the same, it is imperative that LISAMs account. Soriano further agreed to hold the

19
"vehicles and proceeds of the sale thereof in Trust for the in its behalf, and thereby acquiesced to the substitution of
payment of said acceptance and of any of its other Enviro Kleen as the new debtor in Megaworlds place.
indebtedness to PNB." Well-settled is the rule that, with
The Regional Trial Court ruled in favor of Parada.
respect to obligations to pay a sum of money, the
obligation is not novated by an instrument that expressly On appeal, Megaworld argued that the trial court should
recognizes the old, changes only the terms of payment, have dismissed the complaint for failure of the respondent
adds other obligations not incompatible with the old ones, to implead Genlite Industries as "a proper party in
or the new contract merely supplements the old interest."
one. Besides, novation does not extinguish criminal
liability. It stands to reason therefore, that Sorianos The sales invoices and receipts show that the respondent
criminal liability under the TRs subsists considering that is the sole proprietor of Genlite Industries, and therefore
the civil obligations under the Floor Stock Line secured the real party.
by TRs were not extinguished by the purported On the issue of novation, the Court of Appeals ruled that
restructured Omnibus Line. Based on all the foregoing, by retaining his option to seek satisfaction from the
we find grave error in the Court of Appeals dismissal of petitioner, any acquiescence which the respondent had
PNBs petition for certiorari. Certainly, while the made was limited to merely accepting Enviro Kleen as an
determination of probable cause to indict a respondent for additional debtor from whom he could demand payment,
a crime lies with the prosecutor, the discretion must not but without releasing the petitioner as the principal debtor
be exercised in a whimsical or despotic manner from its debt to him.
tantamount to grave abuse of discretion. WHEREFORE,
the petition is GRANTED. The Decision of the Court of ISSUE: W/N Genlite Industries should have been
Appeals in CA-G.R. SP No. 76243 finding no grave abuse impleaded as a party-plaintiff.
of discretion on the part of the Secretary of Justice is
REVERSED and SET ASIDE.
RULING: No.
ARTICLE 1293: SUBJECT NOVATION
Only natural or juridical persons or entities authorized by
1. S.C. MEGAWORLD CONSTRUCTION VS.
law may be parties in a civil case.
PARADA
A sole proprietorship has no juridical personality separate
FACTS:
and distinct from that of its owner, and need not be
S.C. Megaworld Construction and Development impleaded as a party-plaintiff in a civil case.
Corporation (Megaworld) bought electrical lighting
Genlite Industries is merely the DTI-registered trade
materials from Gentile Industries, a sole proprietorship
name or style of Parada by which he conducted his
owned by Engineer Luis U. Parada. Megaworld was
business. As such, it does not exist as a separate entity
unable to pay for the above purchase on due date, but
apart from its owner, and therefore it has no separate
blamed it on its failure to collect under its sub-contract
juridical personality to sue or be sued. As the sole
with the Enviro KleenTechnologies, Inc. (Enviro Kleen).
proprietor of Genlite Industries, there is no question that
It was however able to persuade Enviro Kleen to agree to
the Parada is the real party in interest who stood to be
settle its above purchase, but after paying the
directly benefited or injured by the judgment in the
respondent P250,000.00 once, Enviro Kleen stopped
complaint below. There is then no necessity for Genlite
making further payments, leaving an outstanding balance
Industries to be impleaded as a party-plaintiff, since the
of P816,627.00. It also ignored the various demands of
complaint was already filed in the name of its proprietor,
the Parada, who then filed a suit in the RTC, to collect
Engr. Luis U. Parada. To heed the Megaworlds sophistic
from the petitioner the said balance, plus damages, costs
reasoning is to permit a dubious technicality to frustrate
and expenses.
the ends of substantial justice.
Megaworld denied liability by saying that it was released
ISSUE: W/N there is novation of the contract.
from its indebtedness to the Parada due to the novation of
their contract, which. There was allegedly novation when RULING: None.
the Parada accepted the partial payment of Enviro Kleen

20
Novation is a mode of extinguishing an obligation by charges, attorney's fees, all legal fees and expens
changing its objects or principal obligations, by e
substituting a new debtor in place of the old one, or by
o Failed to redeem in the 1-year period
subrogating a third person to the rights of the creditor. It
is "the substitution of a new contract, debt, or obligation - Respondents filed case for
for an existing one between the same or different parties." Reformation of Instruments,
The settled rule is that novation is never presumed, but Declaration of Nullity of Notarial Foreclosure Pr
must be clearly and unequivocally shown. In order for a oceedings and Certificate of
new agreement to supersede the old one, the parties to a Sale, Cancellation of Annotations
contract must expressly agree that they are abrogating - RTC:
their old contract in favor of a new one.
o The increases are unreasonable, and
The trial court found that the respondent never agreed to arbitrary
release the petitioner from its obligation, and this
conclusion was upheld by the CA. o Refund plaintiffs amount in excess of
17% p.a.
ARTICLE 1305: STAGES OF A CONTRACT
o Foreclosure void ab initio
1. ROBERN DEVELOPMENT CORPORATION VS.
PEOPLES LANDLESS ASSOCIATION o Damages to PSB

ARTICLE 1308: MUTUALITY OF CONTRACTS o In MR, increased rate to 24%

1. PHILIPPINE SAVINGS BANK VS, CASTILLO - CA:

FACTS o The increases are unreasonable, and

arbitrary
- Spouses Castillo and Spouses Capati are lot
owners in Tondo, Manila o Refund plaintiffs amount in excess of
17% p.a
- Obtained a loan secured by mortgage from Phil
Savings Bank (2.5M) o Foreclosure valid

o Solidarily bound o Reduced damages to PSB

o 17% p.a. interest RATIO

o Rate subject to adjustment every 90 days 1.

- 1997-1999 interest was adjusted from 15.5- - The unilateral determination and imposition of t
29% he increased rates is violative of
the principle of mutuality of contracts under Arti
- Notices were given in writing. Respondents did cle 1308 of the Civil Code,
not confirm or formally question.
- A perusal
- However, Castillo sent numerous letters of the Promissory Note will readily show that th
requesting for reduction of interest rates, which e increase or decrease of
were denied
- interest rates hinges solely on the discretion of p
- 2000- extrajudicial foreclosure sale, and winner etitioner.
and only bidder was PSB
- It does not require
- petitioner no longer paid the said amount but rat the conformity of the maker before a new interes
her t rate could be enforced.
credited it to the loan amortizations and arrears,
past due interest, penalty - Any
contract which appears to be heavily weighed in
21
 favor of one of the parties so o Similarly, contract changes must be mad
as to lead to an unconscionable result, thus parta e with
king of the nature of a the consent of the contracting parties. Th
contract of adhesion, is void. Any stipulation re e minds of all the parties must meet
garding the validity or as to the proposed modification, especial
compliance of the contract left solely to the will ly when it affects an important aspect
of one of the parties is likewise invalid of the agreement.
2. In the case of loan contracts, the
interest rate is undeniably
- Petitioner contends that respondents acquiesced t always a vital component
o the imposition of the
modified interest rates thus, there was no violati Any change must be mutually a
on of the principle of mutuality of contracts. greed upon, otherwise, it produc
es no binding effect.
o Conformity letter signed by them does
not pertain to the HELD:
modification of the interest rates, but rat
Affirmed
her only to the amendment of the
interest rate review period from 90 days Damages deleted
to 30 days.
ARTICLE 1311: STIPULATION IN FAVOR OF
- Moreover, respondents' assent to the modificatio THIRD PERSONS
ns in the interest rates cannot
be implied from their lack of response to the m 1. MAMARIL VS. THE BOY SCOUT OF THE
emos sent by petitioner, PHILIPPINES
informing them of the amendments. 1ST DIGEST:
o The said memos were in the nature of a FACTS:
proposal to change the contract with res
pect to one of its significant Spouses Benjamin C. Mamaril and Sonia P. Mamaril
components, i.e., the interest rates. (Spouses Mamaril) are jeepney operators. They park their
o As we have held, no one receiving a passenger jeepneys every night at the Boy Scout of the
proposal to change a contract is oblige Philippines (BSP) for a fee per month for each unit.
d to answer the proposal As usual, all these vehicles were parked inside the BSP
compound one evening. However, the following morning,
- We likewise disagree with petitioner's assertion t one of the vehicles was missing and was never recovered.
hat respondents recognized According to the security guards CesarioPe (Pe) and
the legality of the imposed interest rates through Vicente Gaddi (Gaddi) of AIB Security Agency, Inc.
the letters requesting for the (AIB) with whom BSP had contracted (Guard Service
reduction of the rates. Contract) for its security and protection, a male person
who looked familiar to them took the subject vehicle out
o The request for reduction of the interest
of the compound.
does not translate to consent thereto.
- Basic is the rule that there can be no contract in i ISSUE: Whether or not BSP is liable based on the
ts true sense without the Guard Service Contract and the parking ticket it
mutual assent of the parties. If this consent is abs issued.
ent on the part of one who
contracts, the act has no more efficacy than if it HELD: The petition lacks merit.
had been done under duress or
by a person of unsound mind. CIVIL LAW: Principle of Relativity of Contracts;
Lease
22
 thereto, its provisions cover only the protection of BSP's
With respect to Guard Service Contract, it is undisputed properties, its officers, and employees.
that Spouses Mamaril are not parties therein. Neither did
ISSUE:
the subject agreement contain any stipulation pour autrui.
And even if there was, Spouses Mamaril did not convey Whether or not BSP may be held liable for the loss of the
any acceptance thereof. Thus, under the principle of vehicle caused by the negligence of its security guards.
relativity of contracts, they cannot validly claim any
rights or favor under the said agreement. HELD:
The proximate cause of the loss of Sps. Mamaril's vehicle
With respect to the parking ticket, it has been held that the was the negligent act of security guards Pea and Gaddi
act of parking a vehicle in a garage, upon payment of a in allowing an unidentified person to drive out the subject
fixed amount, is a lease. A lessor-lessee relationship vehicle. The records are bereft of any finding of
existed between Spouses Mamaril and BSP. Article 1664 negligence on the part of BSP. Neither will the vicarious
of the same Code states that [t]he lessor is not obliged to liability of an employer under Article 2180 of the Civil
answer for a mere act of trespass which a third person may Code apply in this case. Pea and Gaddi were assigned as
cause on the use of the thing leased; but the lessee shall security guards by AIB to BSP pursuant to the Guard
have a direct action against the intruder. Here, BSP was Service Contract. No employer-employee relationship
not remiss in its obligation to provide Spouses Mamaril a existed between BSP and the security guards assigned in
suitable parking space for their jeepneys as it even hired its premises. Sps. Mamaril are not parties to the Guard
security guards to secure the premises; hence, it should Service Contract. Guard Service Contract between
not be held liable for the loss suffered by Spouses defendant-appellant BSP and defendant AIB Security
Mamaril. Agency is purely between the parties therein.

DENIED. Contracts take effect only between the parties, their

assigns and heirs, except in case where the rights and
2nd DIGEST: obligations arising from the contract are not transmissible
FACTS: by their nature, or by stipulation or by provision of law.
The heir is not liable beyond the value of the property he
PUJ operators Sps. Mamaril would park their 6 passenger received from the decedent. If a contract should contain
jeepneys every night at BSPs compound in Malate, some stipulation in favor of a third person, he may
Manila for a fee of P300.00 per month for each unit. One demand its fulfillment provided he communicated his
day, one of the vehicles was missing and was never acceptance to the obligor before its revocation. A mere
recovered. According to the security guards Pea and incidental benefit or interest of a person is not sufficient.
Gaddi of AIB Security Agency with whom BSP had The contracting parties must have clearly and deliberately
contracted for its security and protection, a male person conferred a favor upon a third person.
who looked familiar to them took the subject vehicle out
of the compound. Sps. Mamaril prayed that Pea and
Gaddi, together with AIB and BSP, be held liable for: (a) Thus, in order that a third person benefited by the second
the value of the subject vehicle; (b) amount representing paragraph of Article 1311, referred to as a stipulation pour
daily loss of income/boundary reckoned from the day the autrui, may demand its fulfillment, the following
vehicle was lost; (c) exemplary damages; (d) moral requisites must concur: (1) There is a stipulation in favor
damages; (e) attorney's fees; and (f) cost of suit. of a third person; (2) The stipulation is a part, not the
whole, of the contract; (3) The contracting parties clearly
BSP denied any liability contending that not only did Sps. and deliberately conferred a favor to the third person - the
Mamaril directly deal with AIB with respect to the favor is not merely incidental; (4) The favor is
manner by which the parked vehicles would be handled, unconditional and uncompensated; (5) The third person
but the parking ticket itself expressly stated that the communicated his or her acceptance of the favor before
"Management shall not be responsible for loss of vehicle its revocation; and (6) The contracting parties do not
or any of its accessories or article left therein." It also represent, or are not authorized, by the third
claimed that Sps. Mamaril erroneously relied on the party. However, none of the foregoing elements obtains
Guard Service Contract. Apart from not being parties in this case.There is absolutely nothing in the said contract
23
that would indicate any obligation and/or liability on the event of death of said driver, the Company shall,
part of the parties therein in favor of third persons such as likewise, "indemnify his personal
herein plaintiffs-appellees. representatives."
Moreover, the Court concurs with the finding of the CA typical of contracts pour autrui, this character
that the contract between the parties herein was one of being made more manifest by the fact that the
lease as defined under Article 1643 of the Civil Code. It deceased driver paid 50% of the corresponding
has been held that the act of parking a vehicle in a garage, premiums, which were deducted from his weekly
upon payment of a fixed amount, is a lease. The commissions
agreement with respect to the ingress and egress of Sps.
expressly stipulated and declared that it shall be a
Mamaril's vehicles were coordinated only with AIB and
condition precedent to any right of action or suit
its security guards, without the knowledge and consent of
upon this Policy that the award by such arbitrator,
BSP. Accordingly, the mishandling of the parked vehicles
arbitrators or umpire of the amount of the
that resulted in herein complained loss should be
Company's liability hereunder if disputed shall be
recovered only from the tort feasors (Pea and Gaddi) and
first obtained
their employer, AIB; and not against the lessor, BSP.
both parties from the inception of their dispute
2. COQUIA VS. FIELDMENS INSURANCE CO,.
proceeded in entire disregard of the provisions of
INC
the contract relating to arbitration
1ST DIGEST:
o conduct was as effective a rejection of the
FACTS: right to arbitrate
December 1, 1961: Fieldmen's Insurance 2ND DIGEST:
Company, Inc. issued in favor of the Manila
Yellow Taxicab Co., Inc. (Manila) from FACTS:
December 1, 1961 to December 1, 1962 > On Dec. 1, 1961, Fieldmens Insurance co. Issued in
favor of the Manila Yellow Taxicab a common carrier
February 10, 1962: A taxicab of Manila driven
insurance policy with a stipulation that the company shall
by Carlito Coquia, met a vehicular accident at
indemnify the insured of the sums which the latter wmy
Mangaldan, Pangasinana and died
be held liable for with respect to death or bodily injury
The insured filed a claim for P5,000 in which to any faire-paying passenger including the driver and
Fieldmen's replied with an offer to pay P2,000 by conductor.
way of compromise
> The policy also stated that in the event of the death of
The insured rejected it and countered with P4,000 the driver, the Company shall indemnify his personal
representatives and at the Companys option may make
September 18, 1962: Carlito's parents filed a
indemnity payable directly to the claimants or heirs of the
complaint against the Company for collection
claimants.
o The company pleaded lack of cause of
> During the policys lifetime, a taxicab of the insured
action
driven by Coquia met an accident and Coquia died.
RTC: ordered to pay the parents
> When the company refused to pay the only heirs of
ISSUE: W/N there is a stipulation pour autrui that Coquia, his parents, they institued this complaint. The
exempts the general rule that the parents are not a party to company contends that plaintiffs have no cause of action
the contract since the Coquias have no contractual relationship with
the company.
HELD: YES. RTC affirmed.
ISSUE:
There is a stipulation that the Company "will
indemnify any authorized Driver who is driving Whether or not plaintiffs have the right to collect on the
the Motor Vehicle" of the Insured and, in the policy.

24
HELD: Gilchrist but they didn't know the identity of the
other party
YES.
Gilchrist filed for injunction against these parties
Athough, in general, only parties to a contract may bring
an action based thereon, this rule is subject to exceptions, Trial Court and CA: granted - there is a contract
one of which is found in the second paragraph of Article between Gilchrist and Cuddy
1311 of the Civil Code of the Philippines, reading: "If a
ISSUE: W/N Espejo and his partner Zaldarriaga should
contract should contain some stipulation in favor of a
be liable for damages though they do not know the
third person, he may demand its fulfillment provided he
identity of Gilchrist
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a HELD: YES. judgment is affirmed
person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third That Cuddy was liable in an action for damages
person." This is but the restatement of a well-known for the breach of that contract, there can be no
principle concerning contracts pour autrui, the doubt.
enforcement of which may be demanded by a third party the mere right to compete could not justify the
for whose benefit it was made, although not a party to the appellants in intentionally inducing Cuddy to take
contract, before the stipulation in his favor has been away the appellee's contractual rights
revoked by the contracting parties
o Everyone has a right to enjoy the fruits
In the case at bar, the policy under consideration is typical and advantages of his own enterprise,
of contracts pour autrui this character being made more industry, skill and credit. He has no right
manifest by the fact that the deceased driver paid fifty to be free from malicious and wanton
percent (50%) of the corresponding premiums, which interference, disturbance or annoyance.
were deducted from his weekly commissions. Under these If disturbance or loss come as a result of
conditions, it is clear that the Coquias who, admittedly, competition, or the exercise of like rights
are the sole heirs of the deceased have a direct cause by others, it is damnum absque
of action against the Company, and, since they could have injuria(loss without injury), unless some
maintained this action by themselves, without the superior right by contract or otherwise is
assistance of the insured it goes without saying that they interfered with
could and did properly join the latter in filing the
complaint herein. o Cuddy contract on the part of the
appellants was a desire to make a profit
ARTICLE 1314: UNLAWFUL INTERFERENCE by exhibiting the film in their theater.
1. GILCHRIST VS. CUDDY There was no malice beyond this desire;
but this fact does not relieve them of the
FACTS: legal liability for interfering with that
contract and causing its breach.
Cuddy was the owner of the film Zigomar
liability of the appellants arises from unlawful
April 24: He rented it to C. S. Gilchrist for a week
acts and not from contractual obligations, as they
for P125
were under no such obligations to induce Cuddy
A few days to the date of delivery, Cuddy sent the to violate his contract with Gilchrist
money back to Gilchrist
So that if the action of Gilchrist had been one for
Cuddy rented the film to Espejo and his damages, it would be governed by chapter 2, title
partner Zaldarriaga P350 for the week knowing 16, book 4 of the Civil Code.
that it was rented to someone else and that Cuddy
o Article 1902 of that code provides that a
accepted it because he was paying about three
person who, by act or omission, causes
times as much as he had contracted with
damages to another when there is fault or

25
 negligence, shall be obliged to repair the So far as the preliminary injunction issued against
damage do done the appellants is concerned, which prohibited
them from exhibiting the Zigomar during the
o There is nothing in this article which
week which Gilchrist desired to exhibit it, we are
requires as a condition precedent to the
of the opinion that the circumstances justified the
liability of a tort-feasor that he must
issuance of that injunction in the discretion of the
know the identity of a person to whom he
court
causes damages
the remedy by injunction cannot be used to
An injunction is a "special remedy" which was
restrain a legitimate competition, though such
there issued by the authority and under the seal of
competition would involve the violation of a
a court of equity, and limited, as in order cases
contract
where equitable relief is sought, to cases where
there is no "plain, adequate, and complete remedy 2. YU VS. UNISIA MERCHANDISING
at law," which "will not be granted while the
rights between the parties are undetermined,
except in extraordinary cases where material and
irreparable injury will be done," which cannot be
compensated in damages, and where there will be
no adequate remedy, and which will not, as a rule,
be granted, to take property out of the possession
of one party and put it into that of another whose
title has not been established by law
o irreparable injury
not meant such injury as is
beyond the possibility of repair,
or beyond possible
compensation in damages, nor
necessarily great injury or great
damage, but that species of
injury, whether great or small,
that ought not to be submitted to
on the one hand or inflicted on
the other; and, because it is so
large on the one hand, or so small
on the other, is of such constant
and frequent recurrence that no
fair or reasonable redress can be
had therefor in a court of law
Gilchrist was facing the immediate prospect of
diminished profits by reason of the fact that the
appellants had induced Cuddy to rent to them the
film Gilchrist had counted upon as his feature
film
o It is quite apparent that to estimate with
any decree of accuracy the damages
which Gilchrist would likely suffer from
such an event would be quite difficult if
not impossible
26
 bidder.

On February 8, 1983, the Certificate of Sale issued to

Home Bankers. With the failure of Ignacio to redeem the
foreclosed properties within one year from such
registration, the titles were consolidated in favor of Home
Bankers.

Despite the lapse of the redemption period and

consolidation of title in Home Bankers, Ignacio offered to
repurchase the properties. While Home Bankers
considered Ignacios offer to repurchase, there was no
repurchase contract executed. Home Bankers made
several dispositions of the foreclosed properties already
titled in its name.

In a letter addressed to Home Bankers dated July 25,

1989, Ignacio expressed his willingness to pay the amount
of P600,000.00 in full, as balance of the repurchase price,
and requested Home Bankers to release to him the
remaining parcels of land. Home Bankers turned down his
request. Then, Home Bankers sold the properties to herein
respondents.

The RTC rendered judgment in favor of Ignacio and

found that Home Bankers deliberately disregarded
petitioners substantial payments on the total repurchase
consideration.

Home Bankers appealed to the CA. The CA reversed the

trial court and found that Ignacio modified the terms of
the offer contained in the March 22, 1984 letter of Home
ARTICLE 1315: CONSENSUAL CONTRACTS;
Bankers. There was also no written conformity by Home
EFFECTS
Bankers officers to the amended conditions for
1. C.F. SHARP & CO. INC. VS. PIONEER repurchase which were unilaterally inserted by Ignacio.
INSURANCE & SURETY CORPORATION Consequently, no contract of repurchase was perfected
and Home Bankers acted well within its rights when it
ARTICLE 1319: CONSENT AND ACCEPTANCE; sold the subject properties to herein respondents.
HOW MANIFESTED
1. HEIRS OF FAUSTO C IGNACIO VS. HOME ISSUE: Whether or not a contract for the repurchase
BANKERS SAVINGS AND TRUST COMPANY of the foreclosed properties was perfected between
petitioner and respondent bank?
FACTS:
HELD: Court of Appeals decision is sustained.
Petitioner Fausto C. Ignacio (Ignacio), during his lifetime,
mortgaged two parcels of land located in Cabuyao, CIVIL LAW: acceptance of counter-offer
Laguna to respondent Home Bankers Savings and Trust
Company (Home Bankers), as security for the Contracts are perfected by mere consent, which is
P500,000.00 loan. When Ignacio defaulted in the payment manifested by the meeting of the offer and the acceptance
of his loan obligation, Home Bankers proceeded to upon the thing and the cause which are to constitute the
foreclose the real estate mortgage where it was the highest
27
contract. In Palattao v. Court of Appeals, G.R. No. Board of Directors to accept Ignacios counter-proposal to
131726, the Court held that if the acceptance of the offer repurchase the foreclosed properties at the price and terms
was not absolute, such acceptance is insufficient to other than those communicated in the March 22, 1984
generate consent that would perfect a contract. The letter.
acceptance must be identical in all respects with that of
the offer so as to produce consent or meeting of the minds. Section 23 of the Corporation Code expressly provides
Where a party sets a different purchase price than the that the corporate powers of all corporations shall be
amount of the offer, such acceptance was qualified which exercised by the board of directors. Just as a natural
can be at most considered as a counter-offer; a perfected person may authorize another to do certain acts in his
contract would have arisen only if the other party had behalf, so may the board of directors of a corporation
accepted this counter- offer. validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts
While it is impossible to expect the acceptance to echo of a corporation must be made either by the board of
every nuance of the offer, it is imperative that it assents to directors or by a corporate agent duly authorized by the
those points in the offer which, under the operative facts board. Absent such valid delegation/authorization, the
of each contract, are not only material but motivating as rule is that the declarations of an individual director
well. Anything short of that level of mutuality produces relating to the affairs of the corporation, but not in the
not a contract but a mere counter-offer awaiting course of, or connected with, the performance of
acceptance. More particularly on the matter of the authorized duties of such director, are held not binding on
consideration of the contract, the offer and its acceptance the corporation. (AF Realty & Development, Inc. v.
must be unanimous both on the rate of the payment and Dieselman Freight Services, Co., 424 Phil. 446).
on its term. An acceptance of an offer which agrees to the
rate but varies the term is ineffective. (Villanueva v. DENIED.
Philippine National Bank, G.R. No. 154493)
2. LAUDICO V. ARIAS (43 PHIL. 270)
In a letter dated March 22, 1984, Ignacio set a different On February 5, 1919, the defendant, Vicente Arias, who,
repurchase price and also modified the terms of payment, with his codefendants, owned the building Nos. 205 to
which even contained a unilateral condition for payment 221 on Carriedo Street, on his behalf and that of his
of the balance (P600,000), that is, depending on coowners, wrote a letter to the plaintiff, Mamerto
petitioners financial position. However, there was no Laudico, giving him an option to lease the building to a
evidence of any document or writing showing the third person, and transmitting to him for that purpose a
conformity of respondent banks officers to this counter- tentative contract in writing containing the conditions
proposal. upon which the proposed lease should be made. Later Mr.
Laudico presented his coplaintiff, Mr. Fred. M. Harden,
A contract of sale is consensual in nature and is perfected as the party desiring to lease the building. On one hand,
upon mere meeting of the minds. When there is merely an other conditions were added to those originally contained
offer by one party without acceptance of the other, there in the tentative contract, and, on the other, counter-
is no contract. When the contract of sale is not perfected, propositions were made and explanations requested on
it cannot, as an independent source of obligation, serve as certain points in order to make them clear. These
a binding juridical relation between the parties. negotiations were carried on by correspondence and
verbally at interviews held with Mr. Vicente Arias, no
MERCANTILE LAW: authority of board of directors/ definite agreement having been arrived at until the
officers plaintiff, Mr. Laudico, finally wrote a letter to Mr. Arias
on March 6, 1919, advising him that all his propositions,
Even assuming that the bank officer or employee whom as amended and supplemented, were accepted. It is
Ignacio claimed he had talked to regarding the March 22, admitted that this letter was received by Mr. Arias by
1984 letter had acceded to his own modified terms for the special delivery at 2.53 p.m. of that day. On that same day,
repurchase, their supposed verbal exchange did not bind at 11.25 in the morning, Mr. Arias had, in turn, written a
Home Bankers in view of its corporate nature. There was letter to the plaintiff, Mr. Laudico, withdrawing the offer
no evidence that it was authorized by Home Bankers to lease the building.

28
The chief prayer of the plaintiff in this action is that the But even supposing Laudico's testimony to be true, still
defendants be compelled to execute the contract of lease the doctrine invoked has no application here. With regard
of the building in question. It thus results that when Arias to contracts between absent persons there are two
sent his letter of withdrawal to Laudico, he had not yet principal theories, to wit, one holding that an acceptance
received the letter of acceptance, and when it reached him, by letter of an offer has no effect until it comes to the
he had already sent his letter of withdrawal. Under these knowledge of the offerer, and the other maintaining that
facts we believe that no contract was perfected between it is effective from the time the letter is sent.
the plaintiffs and the defendants.
The Civil Code, in paragraph 2 of article 1262, has
The parties agree that the circumstances under which that adopted the first theory and, according to its most eminent
offer was made were such that the offer could be commentators, it means that, before the acceptance is
withdrawn at any time before acceptance. known, the offer can be revoked, it not being necessary,
in order for the revocation to have the effect of impeding
Under article 1262, paragraph 2, of the Civil Code, an
the perfection of the contract, that it be known by the
acceptance by letter does not have any effect until it
acceptant. Q. Mucius Scaevola says apropros: "To our
comes to the knowledge of the offerer. Therefore, before
mind, the power to revoke is implied in the criterion that
he learns of the acceptance, the latter is not yet bound by
no contract exists until the acceptance is known. As the
it and can still withdraw the offer. Consequently, when
tie or bond springs from the meeting or concurrence of the
Mr. Arias wrote Mr. Laudico, withdrawing the offer, he
minds, since up to that moment there exists only a
had the right to do so, inasmuch as he had not yet receive
unilateral act, it is evident that he who makes it must have
notice of the acceptance. And when the notice of the
the power to revoke it by withdrawing his proposition,
acceptance was received by Mr. Arias, it no longer had
although with the obligation to pay such damages as may
any effect, as the offer was not then in existence, the same
have been sustained by the person or persons to whom the
having already been withdrawn. There was no meeting of
offer was made and by whom it was accepted, if he in turn
the minds, through offer and acceptance, which is the
failed to give them notice of the withdrawal of the offer.
essence of the contract. While there was an offer, there
This view is confirmed by the provision of article 1257,
was no acceptance, and when the latter was made and
paragraph 2, concerning the case where a stipulation is
could have a binding effect, the offer was then lacking.
made in favor of a third person, which provision
Though both the offer and the acceptance existed, they did
authorizes the contracting parties to revoke the stipulation
not meet to give birth to a contract.
before the notice of its acceptance. That case is quite
Our attention has been called to a doctrine laid down in similar to that under comment, as said stipulation in favor
some decisions to the effect that ordinarily notice of the of a third person (who, for the very reason of being a third
revocation of an offer must be given to avoid an person, is not a contracting party) is tantamount to an offer
acceptance which may convert in into a binding contract, made by the makers of the contract which may or may not
and that no such notice can be deemed to have been given be accepted by him, and which does not have any effect
to the person to whom the offer was made unless the until the obligor is notified, and may, before it is accepted,
revocation was in fact brought home to his knowledge. be revoked by those who have made it; therefore, the case
being similar, the same rule applies."
This, however, has no application in the instant case,
because when Arias received the letter of acceptance, his Under the second theory, the doctrine invoked by the
letter of revocation had already been received. The latter plaintiffs is sound, because if the sending of the letter of
was sent through a messenger at 11.25 in the morning acceptance in itself really perfects the contract, the
directly to the office of Laudico and should have been revocation of the offer, in order to prevent it, must be
received immediately on that same morning, or at least, known to the acceptor. But this consideration has no place
before Arias received the letter of acceptance. On this in the first theory under which the forwarding of the letter
point we do not give any credence to the testimony of of acceptance, in itself, does not have any effect until the
Laudico that he received this letter of revocation at 3.30 acceptance is known by the person who has made the
in the afternoon of that day. Laudico is interested in offer.
destroying the effect of this revocation so that the
The judgment appealed from is reversed and the
acceptance may be valid, which is the principal ground of
defendants are absolved from the complaint, without
his complaint.
special finding as to costs. So ordered.
29
ART. 1324: OPTION CONTRACT August 30, 1991: the RTC ordered the Cu
Unjiengs to execute the necessary Deed of Sale
1. ANG YU ASUNCION V. CA (238 SCRA 602) of the property in litigation in favor of plaintiffs
FACTS: Ang Yu Asuncion, Keh Tiong and Arthur Go for
the consideration of P15 Million pesos in
July 29, 1987: An amended Complaint for Specific recognition of petitioners right of first refusal
Performance was filed by petitioners Ang Yu Asuncion and that a new Transfer Certificate of Title be
and others against Bobby Cu Unjieng, Rose Cu Unjieng issued in favor of the buyer. The court also set
and Jose Tan before RTC. aside the title issued to Buen Realty Corporation
Petitioners (Ang Yu) alleged that: for having been executed in bad faith. On
September 22, 1991, the Judge issued a writ of
- they are the tenants or lessees of residential and execution.
commercial spaces owned by Bobby Unijeng and others
located in Binondo, Manila (since 1935) The CA reversed the RTC ruling.

that on several occasions before October 9, 1986, the

lessors informed the lessees (petitioners) that they are ISSUE: WON Buen Realty can be bound by the writ of
offering to sell the premises and are giving them priority execution by virtue of the notice of lis pendens, carried
to acquire the same; over on TCT No. 195816 issued in the name of Buen
Realty, at the time of the latters purchase of the property
- that during the negotiations, Bobby Cu Unjieng offered on 15 November 1991 from the Cu Unjiengs.
a price of P6-million while they made a counter offer of
P5-million; RULING: No.

- that they wrote them on October 24, 1986 asking that Right of first refusal is not a perfected contract of sale
they specify the terms and conditions of the offer to sell; under Article 1458 of the Civil Code
that when plaintiffs did not receive any reply, they sent In the law on sales, the so-called right of first refusal is
another letter dated January 28, 1987 with the same an innovative juridical relation. Needless to point out, it
request; cannot be deemed a perfected contract of sale under
The RTC found that Cu Unjiengs offer to sell Article 1458 of the Civil Code.
was never accepted by the petitioners (Ang Yu) In a right of first refusal, while the object might be made
for the reason that they did not agree upon the determinate, the exercise of the right, however, would be
terms and conditions of the proposed sale, hence, dependent not only on the grantors eventual intention to
there was no contract of sale at all. The Court of enter into a binding juridical relation with another but also
Appeals affirmed the decision of the lower court. on terms, including the price, that obviously are yet to be
This decision was brought to the Supreme Court later firmed up. Prior thereto, it can at best be so described
by petition for review on certiorari which as merely belonging to a class of preparatory juridical
subsequently denied the appeal on May 6, 1991 relations governed not by contracts (since the essential
for insufficiency in form and substance. elements to establish the vinculum juris would still be
(Referring to the first case filed by Ang Yu) indefinite and inconclusive) but by, among other laws of
November 15, 1990: While the case was pending general application, the pertinent scattered provisions of
consideration by this Court, the Cu Unjieng the Civil Code on human conduct.
spouses executed a Deed of Sale transferring the The proper action for violation of the right of first
subject petitioner to petitioner Buen Realty and refysal is to file an action for damages and NOT writ
Development Corporation. of execution
Petitioner Buen Realty and Development The final judgment in Civil Case No. 87-41058, it must
Corporation, as the new owner of the subject be stressed, has merely accorded a right of first refusal
property, wrote a letter to the lessees demanding in favor of petitioners (Ang Yu et. al). The consequence
that the latter vacate the premises. of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed
30
to us, petitioners are aggrieved by the failure of private ART. 1335: VITIATION OF CONSENT;
respondents to honor the right of first refusal, the remedy INTIMIDATION
is not a writ of execution on the judgment, since there is
none to execute, but an action for damages in a proper 1. MANGAHAS V. BROBIO (634 SCRA 351)
forum for the purpose. FACTS:
Unconditional mutual promise to buy vs. Accepted ABC needed from XYZ an original copy of a deed of
unilateral promise extrajudicial settlement. XYZ told ABC that he will sign
only if ABC will give him the additional money he
An unconditional mutual promise to buy and sell, as long
promised as his share in the estate in the amount of
as the object is made determinate and the price is fixed,
P1,000,000.00. XYZ bargained until the reduced amount
can be obligatory on the parties, and compliance therewith
of P600,000.00was agreed. Since XYZ has no money at
may accordingly be exacted.
that time, he executed a promissory note. When the due
An accepted unilateral promise which specifies the thing date came, XYZ refused to pay. ABC sued. The defense
to be sold and the price to be paid, when coupled with a of XYZ was there was no consent since he was just forced
valuable consideration distinct and separate from the to sign the promissory note and there was no
price, is what may properly be termed a perfected contract consideration. RTC ruled in favor of ABC. Court of
of option. This contract is legally binding, and in sales, it Appeals reversed the RTC decision on the ground that
conforms with the second paragraph of Article 1479 of there was indeed no consent and consideration in the
the Civil Code, viz: execution of the promissory note.
Art. 1479. . . . ISSUE: Was the promissory note void for lack of consent
and consideration?
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the RULING: When XYZ signed the promissory note there
promissor if the promise is supported by a consideration was consent and consideration.
distinct from the price. (1451a)
As to the matter of consent, the Court ruled as follows:
Observe, however, that the option is not the contract of
Contracts are voidable where consent thereto is given
sale itself. The optionee has the right, but not the
through mistake, violence, intimidation, undue influence,
obligation, to buy. Once the option is exercised timely,
or fraud. In determining whether consent is vitiated by
i.e., the offer is accepted before a breach of the option, a
any of these circumstances, courts are given a wide
bilateral promise to sell and to buy ensues and both parties
latitude in weighing the facts or circumstances in a given
are then reciprocally bound to comply with their
case and in deciding in favor of what they believe actually
respective undertakings.
occurred, considering the age, physical infirmity,
Buen Realty cannot be ousted from the ownership and intelligence, relationship, and conduct of the parties at the
possession of the property time of the execution of the contract and subsequent
thereto, irrespective of whether the contract is in a public
Furthermore, whether private respondent Buen Realty
or private writing.[1][14]
Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether Nowhere is it alleged that mistake, violence, fraud, or
or not it should, in any case, be considered bound to intimidation attended the execution of the promissory
respect the registration of the lis pendens in Civil Case note. Still, respondent insists that she was forced into
No. 87-41058 are matters that must be independently signing the promissory note because petitioner would not
addressed in appropriate proceedings. Buen Realty, not sign the document required by the BIR. In one case, the
having been impleaded in Civil Case No. 87-41058, Court in characterizing a similar argument by
cannot be held subject to the writ of execution issued by respondents therein held that such allegation is
respondent Judge, let alone ousted from the ownership tantamount to saying that the other party exerted undue
and possession of the property, without first being duly influence upon them. However, the Court said that the
afforded its day in court. fact that respondents were forced to sign the documents
does not amount to vitiated consent.[2][15]

31
There is undue influence when a person takes improper A contract is presumed to be supported by cause or
advantage of his power over the will of another, depriving consideration.[7][21] The presumption that a contract has
the latter of a reasonable freedom of choice.[3][16] For sufficient consideration cannot be overthrown by a mere
undue influence to be present, the influence exerted must assertion that it has no consideration. To overcome the
have so overpowered or subjugated the mind of a presumption, the alleged lack of consideration must be
contracting party as to destroy his free agency, making shown by preponderance of evidence.[8][22] The burden
him express the will of another rather than his own.[4][17] to prove lack of consideration rests upon whoever alleges
it, which, in the present case, is respondent.
Respondent may have desperately needed petitioners
signature on the Deed, but there is no showing that she Respondent failed to prove that the promissory note was
was deprived of free agency when she signed the not supported by any consideration. From her testimony
promissory note. Being forced into a situation does not and her assertions in the pleadings, it is clear that the
amount to vitiated consent where it is not shown that the promissory note was issued for a cause or consideration,
party is deprived of free will and choice. Respondent still which, at the very least, was petitioners signature on the
had a choice: she could have refused to execute the document.
promissory note and resorted to judicial means to obtain
It may very well be argued that if such was the
petitioners signature. Instead, respondent chose to
consideration, it was inadequate. Nonetheless, even if the
execute the promissory note to obtain petitioners
consideration is inadequate, the contract would not be
signature, thereby agreeing to pay the amount demanded
invalidated, unless there has been fraud, mistake, or
by petitioner.
undue influence.[9][23] As previously stated, none of
The fact that respondent may have felt compelled, under these grounds had been proven present in this case.
the circumstances, to execute the promissory note will not
negate the voluntariness of the act. As rightly observed by ARTS. 2345 & 1346: SIMULATION OF
the trial court, the execution of the promissory note in the CONTRACTS
amount of P600,000.00 was, in fact, the product of a 1. HEIRS OF DR. INTAC V. CA (584 SCRA 88)
negotiation between the parties.
FACTS:
Contrary to the CAs findings, the situation did not
amount to intimidation that vitiated consent. There is Ireneo Mendoza (Ireneo), married to Salvacion Fermin
intimidation when one of the contracting parties is (Salvacion), was the owner of the subject property,
compelled to give his consent by a reasonable and well- presently covered by TCT No. 242655 of the Registry of
grounded fear of an imminent and grave evil upon his Deeds of Quezon City and situated at No. 36, Road 8,
person or property, or upon the person or property of his Bagong Pag-asa, Quezon City, which he purchased in
spouse, descendants, or ascendants.[5][19] Certainly, the 1954. Ireneo had two children: respondents Josefina and
payment of penalties for delayed payment of taxes would Martina (respondents), Salvacion being their stepmother.
not qualify as a reasonable and well-grounded fear of an When he was still alive, Ireneo, also took care of his niece,
imminent and grave evil. Angelina, since she was three years old until she got
married. The property was then covered by TCT No.
We join the RTC in holding that courts will not set aside 106530 of the Registry of Deeds of Quezon City.
contracts merely because solicitation, importunity,
argument, persuasion, or appeal to affection was used to On October 25, 1977, Ireneo, with the consent of
obtain the consent of the other party. Influence obtained Salvacion, executed a deed of absolute sale of the
by persuasion or argument or by appeal to affection is not property in favor of Angelina and her husband, Mario
prohibited either in law or morals and is not obnoxious (Spouses Intac). Despite the sale, Ireneo and his family,
even in courts of equity.[6][20] including the respondents, continued staying in the
premises and paying the realty taxes. After Ireneo died
As to the matter of consideration, the court ruled as intestate in 1982, his widow and the respondents
follows: remained in the premises. After Salvacion died,
respondents still maintained their residence there. Up to
On the issue that the promissory note is void for not being
the present, they are in the premises, paying the real estate
supported by a consideration, we likewise disagree with
the CA.
32
taxes thereon, leasing out portions of the property, and executed. Marietto testified that Ireneo never intended to
collecting the rentals. sell the subject property to the Spouses Intac and that the
deed of sale was executed to enable them to borrow from
On February 22, 1994, respondents filed the Complaint
a bank. This fact was confirmed by Angelina herself when
for Cancellation of Transfer Certificate of Title (TCT) No.
she testified that she and her husband mortgaged the
2426555 against Spouses Intac before the RTC. The
subject property sometime in July 1978 to finance the
complaint prayed not only for the cancellation of the title,
construction of a small hospital in Sta. Cruz, Laguna.
but also for its reconveyance to them. Pending litigation,
Mario died on May 20, 1995 and was substituted by his ISSUES:
heirs, his surviving spouse, Angelina, and their children,
1. Whether or not the subject deed of sale was a
namely, Rafael, Kristina, Ma. Tricia Margarita, Mario,
valid and binding contract.
and Pocholo, all surnamed Intac (petitioners).
2. Whether or not the action to annul the deed of
On April 30, 2002, the RTC rendered judgment in favor
absolute sale had already prescribed.
of respondents and against Spouses Intac. The RTC ruled,
among others, that the sale between Ireneo and Salvacion, RULING:
on one hand, and Spouses Intac was null and void for
being a simulated one considering that the said parties had A contract, as defined in the Civil Code, is a meeting of
no intention of binding themselves at all. It explained that minds, with respect to the other, to give something or to
the questioned deed did not reflect the true intention of render some service. Accordingly, for a contract to be
the parties and construed the said document to be an valid, it must have three essential elements: (1) consent of
equitable mortgage on the following grounds: the contracting parties; (2) object certain which is the
subject matter of the contract; and (3) cause of the
1. The signed document did not express the real obligation which is established.
intention of the contracting parties because Ireneo
signed the said document only because he was in In the case at bench, the Court is one with the lower courts
urgent need of funds; that no valid sale of the subject property actually took
place between the alleged vendors, Ireneo and Salvacion;
2. The amount of 60,000.00 in 1977 was too and the alleged vendees, Spouses Intac. There was simply
inadequate for a purchase price of a 240-square no consideration and no intent to sell it. The questioned
meter lot located in Quezon City; contract of sale was only for the purpose of lending the
title of the property to Spouses Intac to enable them to
3. Josefina and Martina continued to be in
secure a loan. Their arrangement was only temporary and
possession of the subject property from 1954 and
could not give rise to a valid sale. Where there is no
even after the alleged sale took place in 1977 until
consideration, the sale is null and void ab initio.
this case was filed in 1994; and
Consideration and consent are essential elements in a
4. The Spouses Intac started paying real estate taxes
contract of sale. Where a partys consent to a contract of
only in 1999.
sale is vitiated or where there is lack of consideration due
The RTC added that the Spouses Intac were guilty of to a simulated price, the contract is null and void ab initio.
fraud because they effected the registration of the subject More importantly, Ireneo and his family continued to be
property even though the execution of the deed was not in physical possession of the subject property after the
really intended to transfer the ownership of the subject sale in 1977 and up to the present. They even went as far
property. as leasing the same and collecting rentals. One of the most
striking badges of absolute simulation is the complete
On appeal, the CA modified the decision of the
absence of any attempt on the part of a vendee to assert
RTC. The CA ruled that the RTC erred in first declaring
his right of dominion over the property. On another
the deed of absolute sale as null and void and then
aspect, Spouses Intac failed to show that they had been
interpreting it to be an equitable mortgage. The CA
paying the real estate taxes of the subject property.
believed that Ireneo agreed to have the title transferred in
the name of the Spouses Intac to enable them to facilitate The primary consideration in determining the true nature
the processing of the mortgage and to obtain a loan. This of a contract is the intention of the parties. If the words of
was the exact reason why the deed of absolute sale was a contract appear to contravene the evident intention of
33
the parties, the latter shall prevail. Such intention is his undisturbed possession gives him the continuing right
determined not only from the express terms of their to seek the aid of a court of equity to ascertain the nature
agreement, but also from the contemporaneous and of the adverse claim of a third party and its effect on his
subsequent acts of the parties. As heretofore shown, the title, which right can be claimed only by one who is in
contemporaneous and subsequent acts of both parties in possession. Thus, considering that Lucia continuously
this case, point to the fact that the intention of Ireneo was possessed the subject lot, her right to institute a suit to
just to lend the title to the Spouses Intac to enable them to clear the cloud over her title cannot he barred by the
borrow money and put up a hospital in Sta. Cruz, Laguna. statute of limitations.
Clearly, the subject contract was absolutely simulated
and, therefore, void.
As a logical consequence, petitioners did not ARTS. 1356, 1357 & 1358: FORM OF CONTRACTS
become the owners of the subject property even after a 1. DAUDEN-HERNAEZ V. DE LOS ANGELES
TCT had been issued in their names. After all, registration (27 SCRA 1276)
does not vest title. Certificates of title merely confirm or
record title already existing and vested. They cannot be FACTS: Marlene Dauden-Hernaez, a movie actress, filed
used to protect a usurper from the true owner, nor can they a case against Hollywood Far East Productions its
be used as a shield for the commission of fraud, or to President and General Manager, Ramon Valenzuela, to
permit one to enrich oneself at the expense of others. recover P14,700 allegedly the balance due for her
Hence, reconveyance of the subject property is warranted. services as leading actress in two motion pictures. The
complaint was dismissed by Judge De Los Angeles
The Court does not find acceptable either the argument of mainly because her claim was not supported by an written
the Spouses Intac that respondents action for cancellation document, public or private in violation of Articles 1356
of TCT No. 242655 and the reconveyance of the subject and 1358 of the Civil Code. Upon a motion for
property is already barred by the Statute of Limitations. reconsideration, the respondent judged dismissed the
The reason is that the respondents are still in actual same because the allegations were the same as the first
possession of the subject property. It is a well-settled motion. According to Judge De Los Angeles, the contract
doctrine that "if the person claiming to be the owner of the sued upon was not alleged to be in writing when Article
property is in actual possession thereof, the right to seek 1358 requires it to be so because the amount involved
reconveyance, which in effect seeks to quiet title to the exceeds P500.
property, does not prescribe."
ISSUE:
It is well-settled that an action for reconveyance
prescribes in 10 years, the reckoning point of which is the Whether or not a contract for personal services involving
date of registration of the deed or the date of issuance of more than P500.00 was either invalid or unenforceable
the certificate of title over the property. In an action for under the last paragraph of Article 1358?
reconveyance, the decree of registration is highly
RULING: No.
regarded as incontrovertible. What is sought instead is the
transfer of the property or its title, which has been The order dismissing the complaint is set aside and the
erroneously or wrongfully registered in another person's case is remanded to the CFI.
name, to its rightful or legal owner or to one who has a
better right. RATIO
Consistent with the Spanish Civil Code in upholding spirit
However, in a number of cases in the past, the Court has
and intent of the parties over formalities, in general,
consistently ruled that if the person claiming to he the
contracts are valid and binding from their perfection
owner of the property is in actual possession thereof, the
regardless of whether they are oral or written. However,
right to seek reconveyance, which in effect seeks to quiet
as provided in the 2nd sentence of Art. 1356:
title to the property, does not prescribe. The reason for this
is that one who is in actual possession of a piece of land ART. 1356. Contracts shall be obligatory in whatever
claiming to be the owner thereof may wait until his form they may have been entered into, provided all the
possession is disturbed or his title is attacked before essential requisites for their validity are present.
taking steps to vindicate his right. The reason being, that
34
However, when the law requires that a contract be in with Damages with aprayer to acquire ownership over the
some form in order that it may be valid or enforceable, subject lot upon payment of their remaining balance. The
or that a contract be proved ina certain way, that Regional Trial Court dismissed thepetition because the
requirement is absolute and indispensable.... verbal sale between Gabriel Sr. and Orduawas
unenforceable under the Statute of Frauds. This was
Thus, the two exceptions to the general rule that the form
lateraffirmed by the Court of Appeals.
is irrelevant to the binding effect of a contract are: (a)
ISSUE: Whether or not the sale of the subject lot by
Solemn Contracts - contracts which the law requires to be
Gabriel Sr. to Antonita is unenforceable under the Statute
in some particular form (writing) in order to make them
of Frauds
valid and enforceable. Examples:1.
RULING: No. It is a well-settled rule that the Statute of
Donation of immovable property (Art. 749) which must
Frauds asexpressed in Article 1403, par. (2), of the Civil
be in a public instrument to be valid. in order "that the
Code is applicable only to purely executory contracts and
donation maybe valid", i.e., existing or binding.2.
not to contracts which have already been executed either
Donation of movables worth more than P5,000 (Art. totally or partially. Here, theverbal contract of sale has
748)which must be in writing otherwise they are void.(b) been partially executed through thepartial payments made
by Ordua duly received by both Gabriel Jr. and his
Contracts that the law requires to be proved by some father. The purpose of the Statute of Fraud is prevention
writing(memorandum) of its terms, i.e. those covered by fraud and perjury in the enforcement of obligations
the old Statute of Frauds, now Article 1403(2) of the Civil depending for their evidence on the unassisted memory of
Code. For the latter example, their existence are not witnesses, by requiring some contracts and transactions to
provable by mere oral testimony (unless wholly or partly be evidenced by a writing signed by the party to be
executed) and are required to be in writing to be charged. Since there is already ratification of the verbal
enforceable by action in court. However, the contract sued contract through the acceptance of benefits through the
upon (compensation for services)does not come under partial payments, it is thus withdrawn from the purview
either exception. While the last clause of Article1358 of the Statute of Frauds.
provides that "all other contracts where the amount
involved exceeds five hundred pesos must appear in Sale of Shares of Stock in relation to Articles 1461-
writing, even a private one." Said Article does not provide 1462of the New Civil Code
that the absence of a written form in this case will make
2. HERNANDEZ V. CA (160 SCRA 821)
the agreement invalid or unenforceable. On the contrary,
Article 1357 clearly indicates that contracts covered by NARVASA, J.:
Article 1358 are binding and enforceable by action or
To those prevented by fraud from proving their title to
suit despite the absence of writing.
land subject of registration proceedings in another's name,
ART. 1403: UNENFORCEABLE CONTRACTS; the law affords the remedy of review of the decree of
STATUTE OF FRAUDS registration by petition in the land registration court
within one year from its issuance of the order. 1 This was
1. ORDUNA V. FUENTEBELLA (622 SCRA the remedy availed of by Victorino Hernandez, but as he
146) could convince neither the Court of First Instance of Rizal
FACTS: Antonita Ordua purchased a residential lot nor the Court of Appellants 2 of the merits of his petition,
from Gabriel Sr.payable in installments but no deed of he failed in his bid to reopen and correct the decree in
sale was executed. Theinstallments were paid to Gabriel Land Registration Case No. N-2488 Fr. Lucio V. Garcia
Sr. and later to Gabriel Jr. after the death of the former. the absolute owner of three parcels of land in
Improvements were thereafterintroduced by petitioner Paraaque. 3 This Court however finds that upon the
and the latter even paid its real propertytax since 1979. recorded facts, the petitioner is entitled to the relief
Unknown to Ordua, the property has beensubject to sought.
further alienations until the same was ceded torespondent,
Fr. Garcia 4 applied in 1959 for the registration in his
Fuentebilla, Jr. Ordua, after being demanded by
name of Lots 1-A, 1-B, and 2 of Plan Psu-172410-B in
Fuentebilla to vacate the disputed land, then filed a
Bo. San Dionisio, Paraaque. His property adjoined that
Complaint forAnnulment of Sale, Title, Reconveyance
35
of Hernandez, and since both estates were once owned by thus fraudulently giving the false impression to petitioner
one Andres San Buenaventura, 5 no dividing boundaries that no alteration has actually been made in originally
existed thereon until cadastral surveyors from the Bureau agreed-upon boundaries in the course of the preparation
of Lands laid down official monuments to mark the of (the) Plan." Thus having been "misled to believe that
separation of the lots. These monuments were set along a no encroachment has been made by applicant," and
line which the landowners had previously agreed upon as "conscious of the previous agreement and the fact that the
representing the correct boundary between their estates. Bureau of Lands monuments have not been altered."
This was in 1956. 6 Hernandez had put up no objection to the application. 10
Unknown to Hernandez, the Advance Plan Psu-172410- As stated at the outset, the trial court dismissed
B submitted in Fr. Garcia's behalf to the land registration Hernandez's petition, 11 and the appellate court gave his
court in 1959 included 220 square meters of land now appeal short shrift. 12 Both courts were of the view
disputed Lots ABC and 4057-A of Lot 1-B. This area essentially that the evidence did not bear out the claim of
fell beyond the stipulated boundaries of Fr. Garcia's land fraud; that under the Statute of Frauds, the parties'
and encroached pro tanto on the land of Hernandez (on covenant as to their properties' metes and bounds was
which, it should be mentioned, his tenants had been living unenforceable since it was not reduced to writing; and that
for many years [decades, in fact] before the date of Fr. Hernandez's parents and predecessors-in-
Garcia's application). 7 Allegedly lulled into complacency 13
interest, Victorino and Tranquilino, acquired title by
by the recentness of their agreement as to the limits of purchase from San Buenaventura to only 516 square
their respective properties, and confident that the visible meters of land, which could not have included the
landmarks installed by the government surveyors disputed property. 14
precluded any overstepping of those limits, Hernandez
Ordinarily, the Appellate Court's factual conclusions are
proffered no opposition to Fr. Garcia's application,
not reviewable by this Court, 15and since here those
leaving the heirs of Andres San Buenaventura as the only
conclusions are decidedly adverse to Hernandez, the
oppositors thereto.
application of the rule should result in a verdict against
It was not until the court had already ordered the him. The rule admits of exceptions, however, as when
registration of the lots in Fr. Garcia's name that Hernandez facts of substance were overlooked by the appellate court
discovered the anomaly in the application. He at once which, if correctly considered, might have changed the
filed a petition for review of the decree, but in view of the outcome of the case. 16
new trial ordered by the court upon motion of the heirs-
In this case there are several pivotal facts about which
oppositors, the petition was dismissed on the ground of
there is no controversy whatever, it may be added
prematurity. 8The court thereafter adjudged Fr. Garcia as
which clearly should have been weighed by the court a
the owner of Lots 1-A and 2 and the heirs-oppositors as
quoin Hernandez's favor, but inexplicably were not. It is
owners of Lot 1-B.
of record, to begin with, that concrete monuments or
On appeal, however, the Court of Appeals declared Fr. "majones" were laid out by government surveyors in 1956
Garcia absolute owner, by acquisitive prescription, of an between the properties of Hernandez and Fr. Garcia.
the lots. This judgment became final on December 9, Hernandez avows that these structures were purposely
1970; Decree No. 132620 was issued by the CFI of Rizal, installed to mark the limits of their estates; his opponents
and the Register of Deeds issued OCT No. 8664 in Fr. could only let this statement pass with telling silence.
Garcia's name. 9 Neither did they seriously dispute that these "mojones"
were installed along the line agreed upon by the parties as
Hernandez promptly refiled his petition for the reopening
marking their properties' boundaries. All they averred in
of the decree. He argued that the decree covered a
their defense is that the agreement did not bind them.
substantial portion of his land to which Fr. Garcia could
Lastly, they freely conceded the presence of a fence along
claim no title. He averred anew that the Advance Plan
this line, but were quick to point out that they had merely
supporting the application was "irregular, because it
"permitted" Hernandez to put up this "temporary"
disregarded the existing Bureau of Lands monuments
structure "to stop the public (from) using ... this place as
designating the actual possessions of the petitioner and
a common madden shed." The excuse is lamentably
the applicant" and "falsely designates (other) ...
feeble.
boundaries ... not actually marked by any ... monuments,
36
Hernandez argues that if indeed the Advance Plan, basis border, were this to be reckoned from the "mojones,"
of Fr. Garcia's application, was prepared without regard further buttresses his claim.
to the boundary indicated by the fence and the surveyors
The foregoing considerations demonstrate more than
markers, and worse, "falsely designate(d) as boundaries
adequately that the inclusion of the 220-square-meter area
the lines marked by ... corners not actually marked by any
in the Original Certificate of Title No. 8664 of the
Bureau of Lands monuments" which purposely left the
Register of Deeds of Rizal is null and void.
mistaken impression that the exact limits of the adjoining
estates had been faithfully drawn, then he was truly a ACCORDINGLY, the appealed decision of the Court of
victim of fraud, deftly cheated of the chance to vindicate Appeals is hereby REVERSED and set aside and another
his claim to the land. The respondents again did not care one entered, ordering the Register of Deeds of Rizal to
to refute the premises on which the argument is register the 220 square meters in question in favor of
predicated. In any event, the argument is entirely in petitioner Victorino Hernandez; and to cancel Original
accord with the evidence and the norms of logic. Certificate of Title No. 8664 and issue a new one in favor
of the private respondents excluding said 220-square-
Lastly, the Appellate Court may have been convinced of
meter area belonging to the petitioner. No pronouncement
the impossibility of the inclusion of the disputes lot in the
as to costs.
516 square meters stated as sold to Hernandez's parents in
the deed of sale in their favor, 17 but only because the 3. FERNANDEZ V. CA (166 SCRA 577)
Court missed sight of the fact that the adjoining lots sold
to the spouses and to Fr. Garcia were unregistered and 4. VDA. DE ESPINA V. ABAYA (196 SCRA
unsurveyed at the time of the transfer. This explains the 312)
discrepancy between the area of the land purportedly FACTS: Marcos Espina died on February 14, 1953 and
conveyed to the Hernandezes in the instrument (516 was survived by his spouses, Simprosa Vda. de Espina
square meters) and the actual area falling within the and their children namely, Recaredo, Timoteo, Celia,
boundaries described in the same document, which, after Gaudiosa, Necifora, Sora and Jose, all surnamed Espina.
the survey, was found to be 716 square meters. The Decedent's estate comprises of 4 parcels of land located
respondents cannot hold Hernandez to the approximate in Surigao del Sur.
area fixed in the deed and claim ownership over the
excess. All the land embraced within the stated In 1973, an action for partition of the land was filed by
boundaries was sold. 18 If the respondent insist on the petitioners Simprosa and her children Recaredo, Timoteo,
figures named in the deeds of sale, then they themselves Celia, Gaudencia and Necifora.
stand to lose 736 square meters of land. San Buenaventura
The complaint alleges that parcel No. 1 is the exclusive
had only sold 1,545 square meters to Fr. Garcia, 19 but the
property of the deceased, hence the same is owned in
estate was later found to be actually 2,328 square meters
common by petitioners and private respondents in eight
in area. 20
(8) equal parts, while the other 3 parcels of land being
Given the weight they deserve, the recorded facts prove conjugal properties, are also owned in common, one-half
Hernandez's entitlement to the relief sought. The (1/2) belongs to the widow Simprosa and the other half is
respondents' reliance on the Statute of Frauds to secure a owned by her and her children in eight (8) equal parts.
contrary judgment is misplaced. The Statute of Frauds
Petitioners have several times demanded the partition of
finds no application to this case. Not every agreement
the properties, but notwithstanding such demands private
"affecting land" must be put in writing to attain
respondents refused to accede.
enforceability. Under the Statute of Frauds, Article
1403(2) (e) of the Civil Code, such formality is only Private respondents alleged in their answer that in or
required of contracts involving leases for longer than one about April, 1951, the late Marcos Espina and his widow,
year, or for the sale of real property or of an interest Simprosa, together with their children made a temporary
therein. Hernandez's testimony is thus admissible to verbal division and assignment of shares among their
establish his agreement with Fr. Garcia as to the boundary children. After the death of Marcos, the temporary
of their estates. It is also to be noted that the presence of division was finalized by the heirs. Thereafter the heirs
Hernandez's tenants on the land within his side of the took immediate possession of their respective shares on
April 20, 1952. Private respondents took actual physical
37
possession of their respective shares including the 2. YES. "An agreement of partition may be made
portions ceded to them by Simprosa. orally or in writing. An oral agreement for the
partition of the property owned in common is
Private respondents filed a motion to dismiss the
valid and enforceable upon the parties. The
complaint alleging that the CAUSE OF ACTION IS
Statute of Frauds has no operation in this kind of
BARRED BY STATUTE OF LIMITATIONS.
agreements, for partition is not a conveyance of
RTC property but simply a segregation and designation
of the part of the property which belong to the co-
Trial court granted petition. owners." (Tolentino, Commentaries and
Petitioners Contention Jurisprudence on the Civil Code of the
Philippines, Vol. II, 1983 Edition, 182-
Petitioners contended that the present action is not for 183 citing Hernandez v. Andal, et. al., G.R. No.
reconveyance but one for partition. Hence, the rule L275, March 29, 1957
insisted by the private respondents on prescriptibility of
an action for reconcile conveyance of real property
based on an implied trust is not applicable in the case
at bar. They also argued that private respondents cannot
set up the defense of prescription or laches because their
possession of the property no matter how long cannot
ripen into ownership.
The petitioners claim that the alleged oral partition is
invalid and strictly under the coverage of the statute
of Frauds.
ISSUE:
1. WoN imprescriptibility of partition applies in the
case - NO
2. WoN oral partition is valid YES
RULING:
1. NO. We already ruled in Lebrilla, et al. v.
Intermediate Appellate Court (G.R. No. 72623,
December 18, 1989, 180 SCRA 188; 192) that an
action for partition is imprescriptible. However,
an action for partition among co-heirs ceases
to be such, and becomes one for title where the
defendants allege exclusive ownership.
In the case at bar, the imprescriptibility of the action for
partition cannot be invoked because two of the co-heirs,
namely private respondents Sora and Jose Espina
possessed the property as exclusive owners and their
possession for a period of twenty one (21) years is
sufficient to acquire it by prescription. Hence, from the
moment these co-heirs claim that they are the absolute and
exclusive owners of the properties and deny the others any
share therein, the question involved is no longer one of
partition but of ownership.

38