s;a##e&&ees *ade a don#ay*ent of -392"00 u#on the e8ecution of the contract" They #ro*ised to #ay the ba&ance in *onth&y insta&&*ents of -41"20 unti& fu&&y #aid, the insta&&*ents being due and paya"le on t!e ,-t! day of eac! $ont!" The #&ainti>s;a##e&&ees #aid the *onth&y insta&&*ents unti& Guly ,-//,, hen their aggregate #ay*ent a&ready a*ounted to -4,33"3" Bn nu*erous occasions, the defendants;a##e&&ants acce#ted and received de&ayed insta&&*ent #ay*ents fro* the #&ainti>s;a##e&&ees" Bn Cece*ber <, 1955, the defendants;a##e&&ants rote the #&ainti>s;a##e&&ees a &etter reuesting the re*ittance of #ast due accounts" Bn January 2, 195< 2, the defendants;a##e&&ants cancelled the said contract because the plainti(s4appellees failed to meet subseuent payments. The #&ainti>s &etter ith their #&ea for reconsideration of the said cance&&ation as denied by the defendants;a##e&&ants" The #&ainti>s;a##e&&ees )&ed ivi& ase Eo" 943 ith the ourt of irst %nstance of +ia&, $eventh Judicia& Cistrict, Kranch W to co*#e& the defendants;a##e&&ants to e8ecute in their favor the )na& deed of sa&e a&&eging inter a&ia that after co*#uting a&& subseuent #ay*ents for the &and in uestion, they found out t!at t!ey !ave already paid t!e total a$ount of P3'455.56 including interests' realty ta9es and incidental e9penses for t!e registration and transfer of t!e land.
1 9 years, to be e8act" 2 ro* that ti*e, the #&ainti>s sto##ed #ay*ent unti& Cece*ber, since the res#ondent argued that the #ay*ent re#resenting the *onth of August has been de&ayed for *ore than *onths" Christian Arbiol 1A – San Beda College Alabang School of Law
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The defendants;a##e&&ants a&&eged in their anser that the co*#&aint states no cause of action and that the #&ainti>s;a##e&&ees violated paragraph si& #1% of the contract to sell when they failed and refused to pay and/or o(er to pay the monthly installments corresponding to the month of August, *11 for more than 0ve #5% months, thereby constraining the defendants4 appellants to cancel the said contract "3 Issue: ?hether or not the contract to se&& has been auto*atica&&y and va&id&y cance&&ed by the defendants;a##e&&ants" Ruling: %n reci#roca& ob&igations, either #arty has the right to rescind the contract u#on the fai&ure of the other to #erfor* the ob&igation assu*ed thereunder" .oreover, there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention. Universit$ o( t%e 8%ili&&ines v. +e los An'eles, '3 $+A 102( here e e8#&ained that:
DBf course, it *ust be understood that the act of a #arty in treating a contract as cance&&ed or reso&ved on account of infractions by the other contracting #arty must be made known to the other and is always provisional, being ever sub6ect to scrutiny and review by the proper court 7" %f the other #arty denies that rescission is usti)ed, it is free to resort to 6udicial action in its on beha&f, and bring the *atter to court" Then, shou&d the court, after due hearing, decide that the reso&ution of the contract as not arranted, the res#onsib&e #arty i&& be sentenced to da*ages7 in the contrary case, the reso&ution i&& be aOr*ed, and the conseuent inde*nity aarded to the #arty #reudiced" D%n other ords, the #arty ho dee*s the contract vio&ated *any considers it reso&ved or rescinded, and act according&y, ithout #revious court action, but it &rocee"s at its on ris " 8or it is only the 0nal 6udgment of the corresponding court that will conclusively and 0nally settle whether the action taken was or was not correct in law " " " D?e see no conRict beteen this ru&ing and the #revious uris#rudence of this ourt invo/ed by res#ondent decå that udicia& action is necessary for the reso&ution of a reci#roca& ob&igation7 'Bceo, -ere o" v" %nternationa& Kan/ing or#", 3< -hi&" 5317 +e#ub&ic v" @os#ita& de $an Juan de Cios, et a&", 4 -hi&" 20( 3 The +T rendered udg*ent in favor of #&ainti>s" Ky ho&ding that the contract as EBT VAL%CLN cance&&ed by the res#ondent" 4 -rovisiona& in a sense, unti& and after the #arty had concurred ith it, that the recission6cance&&ation can be dee*ed to be fu&&y in e>ect" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
since in every case where the e&tra6udicial resolution is contested only the 0nal award of the court of competent 6urisdiction can conclusively settle whether the resolution was proper or not " %t is in this sense that udicia& action i&& be necessary, as ithout it, the e8traudicia& reso&ution i&& re*ain contestab&e and subect to udicia& inva&idation, unless attack thereon should become barred by acuiescence, estoppel or prescription"D The right to rescind the contract for non;#erfor*ance of one of its sti#u&ations, therefore, is not abso&ute" %n Universal Foo" Cor&. v. Court o( A&&eals '33 $+A 1( the ourt stated that Q DThe genera& ru&e is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very ob6ect of the parties in making the agreement " '$ong o o" v" @aaiian;-hi&i##ine o", 4< -hi&" 21, 2<( The uestion of hether a breach of a contract is substantia& de#ends u#on the attendant circu*stances" 'or#us v" @on" A&i/#a&a, et a&", L;23<0< L;23<20, Jan" 1<, 195(" The breach of the contract adverted to by the defendants;a##e&&ants is so s&ight and casua& hen e consider that a#art fro* the initia& don#ay*ent of -392"00 the #&ainti>s;a##e&&ees had a&ready #aid the *onth&y insta&&*ents for a #eriod of a&*ost nine '9( years" %n other ords, in on&y a short ti*e, the ob&igation ou&d have been #aid" urther*ore, a&though the #rinci#a& ob&igation as on&y -3,920"00 e8c&uding the < #ercent interests, the #&ainti>s; a##e&&ees had a&ready #aid an aggregate a*ount of -4,33"3" To sanction the rescission *ade by the defendants;a##e&&ants i&& or/ inustice to the #&ainti>s;a##e&&ees" The defendants, instead of rescinding the contract, received the #ay*ents *ade by the #&ainti>s considering the de&ay that they *ay have caused" Eo, they are barred fro* e8ercising their right to rescind, a&though it as granted by the contract, nonethe&ess, they are a&ready esto##ed fro* raising such" The defendants;a##e&&ants drafted and #re#ared the contract" The #&ainti>s; a##e&&ees, eager to acuire a &ot u#on hich they cou&d bui&d a ho*e, aO8ed their signatures and assented to the ter*s and conditions of the contract" They had no o##ortunity to uestion nor change any of the ter*s of the agree*ent" %t as o>ered to the* on a Dta/e it or &eave itD basis" The contract to se&&, being a contract of adhesion, *ust be construed against the #arty causing it" ?e agree ith the observation of the #&ainti>s;a##e&&ees to the e>ect that Dthe ter*s of a contract *ust be inter#reted against the orre&ate to Art" 1234 as to $ubstantia& co*#&iance *ade by a #arty in good faith" '$a*e ith Ciese& case( Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
#arty ho drafted the sa*e, es#ecia&&y here such inter#retation i&& he&# e>ect ustice to buyers ho, after having invested a big a*ount of *oney, are no sought to be de#rived of the sa*e thru the #rayed a##&ication of a contract c&ever in its #hraseo&ogy, conde*nab&e in its &o#sidedness and inurious in its e>ect hich, in essence, and in its entirety is *ost unfair to the buyers" After consideration of the nature of the contract of adhesion, the courts shou&d on&y order the #ay*ent of the fe re*aining insta&&*ents but not u#ho&d the cance&&ation of the contract"
+oue vs" La#u Facts: $o*eti*e in 194, #rior to the a##rova& by the Eationa& -&anning o**ission of the conso&idation and subdivision #&an of #&ainti>s #ro#erty /non as the +oc/vi&&e $ubdivision, situated in Ka&intaa/, Yueon ity, #&ainti> and defendant entered into an agree*ent of sa&e covering Lots 1, 2 and 9, K&oc/ 1, of said #ro#erty, ith an aggregate area of 1,200 suare *eters, #ayab&e in 120 eua& *onth&y insta&&*ents at the rate of -15"00, -1"00 #er suare *eter, res#ective&y" %n accordance ith said agree*ent, defendant #aid to #&ainti> the su* of P,4+.++ as deposit and t!e furt!er su$ of P3+.4/ to co$plete t!e pay$ent of four $ont!ly install$ents ,*+ 3 ,,/ pay$ents are yet to "e $ade' #!ic! #as not co$plied #it! "y t!e respondent any$ore; covering t!e $ont!s of Guly' August' Septe$"er' and cto"er' ,-43. '8hibits A and K(" ?hen the docu*ent 8hibit DAD as e8ecuted on June 2, 194, the #&an covering #&ainti>s #ro#erty as *ere&y tentative, and the #&ainti> referred to the #ro#osed &ots a##earing in the tentative #&an" After the a##rova& of the subdivision #&an by the Kureau of Lands on January 24, 19, defendant reuested #&ainti> that he be a&&oed to abandon and substitute Lots 1, 2 and 9, the subect *atter of their #revious agree*ent, ith Lots 4 and 12, K&oc/ 2 of the a##roved subdivision #&an, of the +oc/vi&&e $ubdivision, ith a tota& area of <2 suare *eters, hich are corner &ots ' to #!ic! re=uest plainti? graciously acceded " The evidence disc&oses that defendant proposed to plainti? $odi%cation of t!eir previous contract to sell "ecause !e found it =uite diJcult to pay t!e $ont!ly install$ents on t!e t!ree lots , and besides the to &ots he had chosen ere better &ots, being corner &ots" %n addition, it as agreed that the #urchase #rice of these to &ots ou&d be at the unifor* rate of -1<"00 #er suare '*eter( #ayab&e in 120 eua& *onth&y insta&&*ents, ith interest at P annua&&y on the ba&ance un#aid" Pursuant to t!is ne# agree$ent' defendant occupied and possessed Lots 3 and ,*' >lock * of t!e approved su"division plan , and enc&osed the*, inc&uding the #ortion here his house no stands, ith barbed ires and adobe a&&s" @oever, aside fro* the de#osit of -10"00 and the a*ount of -<40"5 hich ere #aid under their #revious agree*ent, defendant failed to Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
$ake any furt!er pay$ent on account of the agreed *onth&y insta&&*ents for the to &ots in dis#ute, under the ne contract to se&&" -&ainti> de*anded u#on defendant not on&y to #ay the sti#u&ated *onth&y insta&&*ents in arrears, but a&so to *a/e u#;to;date his #ay*ents, but defendant, instead of complying with the demands, kept on asking for e&tensions, promising at 0rst that he would pay not only the installments in arrears but also make up4to4date his payment, but later on refused altogether to comply with plainti('s demands. Cefendant as &i/eise reuested by the #&ainti> to sign the corres#onding contract to se&& in accordance ith his #revious co**it*ent" Again, defendant promised that he would sign the reuired contract to sell when he shall have made up4to4date the stipulated monthly installments on the &ots in uestion, but subseuent&y bac/ed out of his #ro*ise and refused to sign any contract in non;co*#&iance ith hat he had re#resented on severa& occasions" And plainti? relied on t!e good fait! of defendant to $ake good !is pro$ise "ecause defendant is a professional and !ad "een rat!er good to !i$ plainti?;. Bn or about Eove*ber 3, 19<, in a for*a& &etter, #&ainti> de*anded u#on defendant to vacate the &ots in uestion and to #ay the reasonab&e renta&s thereon at the rate of -50"00 #er *onth fro* August, 19" '8hibit DKD(" Eotithstanding the recei#t of said &etter, defendant did not dee* it ise nor #ro#er to anser the sa*e"I Koth #arties agreed t!at t!e period #it!in #!ic! to pay t!e lots in =uestion is ten years. T!ey !o#ever' disagree on t!e $ode of pay$ent" ?hi&e the a##e&&ant c&ai*s that he cou&d #ay the #urchase #rice at any ti*e ithin a #eriod of ten years ith a gradua& #ro#ortionate discount on the #rice, the a##e&&ee *aintains that the a##e&&ant as bound to #ay *onth&y insta&&*ents" Bn January 22, 1950, #etitioner e&i#e " +oue '#&ainti> be&o( )&ed the co*#&aint against defendant EicanorLa#u '#rivate res#ondent herein( ith the ourt of irst %nstance of +ia&, Yueon ity Kranch, for rescission and cance&&ation of the agree*ent of sa&e beteen the* invo&ving the to &ots in uestion" Cefendant )&ed a .otion to Cis*iss on the ground that the co*#&aint states no cause of action, hich as denied by the court" As aOr*ative and s#ecia& defenses, defendant a&&eges that the co*#&aint states no cause of action7 that the present action for rescission !as prescri"ed7 t!at no de$and for pay$ent of t!e "alance #as ever $ade@ and t!at t!e action "eing "ased on reciprocal o"ligations' "efore one party $ay co$pel perfor$ance' !e $ust %rst co$ply #!at is incu$"ent upon !i$. / '@e a&&eged a&so that the #&ainti> did not co*#&y ith #utting u# the reuisite faci&ities in the subdivision, thats hy"( 5 The +T rendered its decision in favor of #&ainti>7 afterards, an a##ea& as *ade but the A aOr*ed in toto. Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
Acting on the .otion for +econsideration, the ourt of A##ea&s sustained the si8th ground raised by the a##e&&ant 'La#us(, t!at assu$ing t!at a cause of action for rescission e9ists' !e s!ould nevert!eless "e entitled to t!e %9ing of a period #it!in #!ic! to co$ply #it! !is o"ligation "< The ourt, hoever, concedes that #&ainti>s fai&ure to co*#&y ith his ob&igation to #ut u# the necessary faci&ities in the subdivision i&& not deter hi* fro* as/ing for the rescission of the agree*ent since t!is o"ligation is not correlative #it! defendant0s o"ligation to "uy t!e property. Issue: 7!et!er private respondent is entitled to t!e "ene%ts of t!e t!ird paragrap! of Article ,,-,' e# Civil Code' for t!e %9ing of a period #it!in #!ic! !e s!ould co$ply #it! #!at is incu$"ent upon !i$. Ruling: %n a contract to se&&, the full payment of the price through the punctual performance of the monthly payments is a condition precedent to the e&ecution of the 0nal sale and to the transfer of the property from the owner to the proposed buyer 7 so that there i&& be no actua& sa&e unti& and un&ess fu&& #ay*ent is *ade" The decision a&so stressed that there can be no rescission or resolution of an obligation as yet non4e&istent, because the suspensive condition did not happen. Artic&e 192 of the Ee ivi& ode 'Art" 104 of B&d ivi& ode( reuiring de*and by suit or notaria& act in case the vendor of rea&ty ants to rescind does not apply to a contract to sell or pro$ise to sell' #!ere title re$ains #it! t!e vendor until ful%ll$ent to a positive condition' suc! as full pay$ent of t!e price"D '.anue& vs" +odrigue, 109 -hi&" 9( t is irrelevant whether a party9s infringement of its contract was casual or seriousD for as #ointed out in .anue& vs" +odrigue, '%(n contracts to se&&, hether onershi# is retained by the se&&er and is not to #ass unti& the fu&& #ay*ent of the #rice, suc! pay$ent' as #e said' is a positive suspensive condition, the fai&ure of hich is not a breach, casua& or serious, but si*#&y an event that #revented the ob&igation of the vendor to convey tit&e fro* acuiring binding force" -etitioner 'La#us( contends that D'n(othing in the decision of the courts be&o ou&d sho that onershi# of the #ro#erty re*ained ith #&ainti> for so &ong as the insta&&*ents have not been fu&&y #aid" :hich yields the conclusion that, by the delivery of the lots to defendant, ownership likewise was transferred to the latter. @oever, The ourt he&d that the contract beteen the #etitioner and the res#ondent as a contract to se&& here the onershi# or tit&e is retained by the se&&er and is not to #ass unti& the fu&& #ay*ent of the #rice, such #ay*ent being a #ositive sus#ensive condition and fai&ure of hich is not a breach, < Bn the basis that the #ro#erty earned substantia& i*#rove*ents, to grant the recission ou&d be tanta*ount to inustice to the defendant" Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
casua& or serious, but si*#&y an event that #revented the ob&igation of the vendor to convey tit&e fro* acuiring binding force" 2here is no writing or document evidencing the agreement #as to the intent to an absolute sale; or to the immediate transfer of the same% 2his absence of a formal deed of conveyance is a very strong indication that the parties did not intend immediate transfer of ownership and title, but only a transfer after full payment of the price To a&&o and grant res#ondent an additiona& #eriod for hi* to #ay the ba&ance of the #urchase #rice, hich ba&ance is about 92P of the agreed #rice, would be tantamount to e&cusing his bad faith and sanctioning the deliberate infringement of a contractual obligation that is repugnant and contrary to the stability, security and obligatory force of contracts" .oreover, res#ondents fai&ure to #ay the succeeding 115 *onth&y insta&&*ents after #aying on&y 4 *onth&y insta&&*ents is a substantia& and *ateria& breach on his #art, not *ere&y casua&, hich ta/es the case out of the a##&ication of the bene)ts of #aragra#h 3, Art" 1191, E""" The euitab&e grounds or considerations hich are the basis of the res#ondent court in the )8ing of an additiona& #eriod because res#ondent had constructed va&uab&e i*#rove*ents on the &and, that he has bui&t his house on the #ro#erty orth -4,000"00 and #&aced adobe stone a&&s ith barbed ires around, do not arrant the )8ing of an additiona& #eriod" :e cannot sanction this claim for euity of the respondent for to grant the same would place the vendor at the mercy of the vendee who can easily construct substantial improvements on the land but beyond the capacity of the vendor to reimburse in case he elects to rescind the contract by reason of the vendee's default or deliberate refusal to pay or continue paying the purchase price of the land.
%t as shon here in this case, that his act of not co*#&ying ith the contract as evidenced by his fai&ure to #ay for the insta&&*ents, by arguing that he had the o#tion to #ay it at anyti*e he desires for a #eriod of 10 years, and his act of not signing the ne contract beteen the* as to the 2 &ots, is a&ready an act indicative of bad faith 'fraud( on La#us #art" 9 Bne ho co*es to court, *ust do so ith c&ean hands" Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
#eriod of ten years that he ob&iged hi*se&f to co*#&ete #ay*ent of the #rice"10 Ayson;$i*on vs" Ada*os acts: Bn Cece*ber 13, 1943, Eico&as Ada*os and Vicente eria, defendants; a##e&&ants herein, #urchased to &ots for*ing #art of the -iedad state in Yueon ity, ith an area of a##ro8i*ate&y 5,39 suare *eters, fro* Juan -orciuncu&a" $o*eti*e thereafter, the successors;in;interest of the &atter )&ed Civil Case o. ,3 in the then ourt of irst %nstance of Yueon ity for annu&*ent of the sa&e and the cance&&ation of Transfer erti)cate of Tit&e Eo" 594<, hich had been issued to defendants;a##e&&ants by virtue of the dis#uted sa&e" Bn Cece*ber 1, 1953, t!e Court rendered a (ecision annulling t!e sale, cance&&ing TT 594<, and authoriing the issuance of a ne tit&e in favor of -orciuncu&as successors;in;interest" The said udg*ent as aOr*ed by the A##e&&ate ourt and !ad attained %nality" %n the *eanti*e, on .ay 29, 1945, during t!e pendency of t!e a"ove< $entioned case, defendants;a##e&&ants so&d to FE+B$AAyson $i*on, #&ainti>;a##e&&ee herein, the to &ots in uestion for -3,00"00 each, #&us an additiona& -00"00 #aid subseuent&y for the #ur#ose of faci&itating the issuance of ne tit&es in FE+B$As na*e" Cue to the fai&ure of defendants; a##e&&ants to co*#&y ith their co**it*ent to have the subdivision #&an of the &ots a##roved and to de&iver the tit&es and #ossession to FE+B$A, the &atter )&ed suit for s#eci)c #erfor*ance before the ourt of irst %nstance of Yueon ity on $e#te*ber 4, 1953" @oever, since e9ecution of t!e foregoing rder #as rendered i$possi"le "ecause of t!e &udg$ent in Civil Case o. ,3' #!ic! earlier declared t!e sale of t!e lots in =uestion "y Guan Porciuncula to defendants
10 %t is uite c&ear that it is a&ready too &ate in the day for res#ondent to c&ai* an additiona& #eriod ithin hich to co*#&y ith his ob&igation . '$aid the court( Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
become impossible, Article *** allows the in6ured party to seek rescission even after he has chosen ful0llment. True it is that in ivi& ase Eo" <2< the ourt a&ready rendered a Cecision in favor of #&ainti>, but since defendants cannot fu&)&& their ob&igation to de&iver the tit&es to and #ossession of the &ots to #&ainti>, the portion of the decision reuiring them to ful0ll their obligations is without force and e(ect. )nly that portion relative to the payment of damages remains in the dispositive part of the decision, since in either case #ful0llment or rescission% defendants may be reuired to pay damages. As to #rescri#tion: The cause of action to c&ai* rescission arises hen the fu&)&&*ent of the ob&igation beca*e i*#ossib&e hen the ourt of irst %nstance of Yueon ity in ivi& ase Eo" 1<4 dec&ared the sa&e of the &and to defendants by Juan -orciuncu&a a co*#&ete nu&&ity and ordered the cance&&ation of Transfer erti)cate of Tit&e Eo" 594< issued to the*" $ince the to &ots so&d to #&ainti> by defendants for* #art of the &and invo&ved in ivi& ase Eo" 1<4, it beca*e i*#ossib&e for defendants to secure and de&iver the tit&es to and the #ossession of the &ots to #&ainti> . >ut plainti? !ad to #ait for t!e %nality of t!e decision in Civil Case o. ,3. According to the certi)cation of the c&er/ of the ourt of irst %nstance of Yueon ity '8hibit ;2(, t!e decision in Civil Case o. ,3 "eca$e %nal and e9ecutory 0as per entry of Gudg$ent dated ay 5' ,-/ of t!e Court of Appeals.0 2he action for rescission must be commenced within four years from that date, May +, *1>. ?ince the complaint for rescission was 0led on August *1, *1@, the four year period within which the action must be commenced had not e&pired.
Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
have vs" +eyes acts: %n the ear&y #art of Ju&y, 1953, the #&ainti> de&ivered to the defendant, ho is a ty#eriter re#airer, a #ortab&e ty#eriter for routine c&eaning and servicing" The defendant as not ab&e to )nish the ob after so*e ti*e des#ite re#eated re*inders *ade by the #&ainti>" The defendant *ere&y gave assurances, but fai&ed to co*#&y ith the sa*e" %n Bctober, 1953, the defendant as/ed fro* the #&ainti> the su* of -5"00 for the #urchase of s#are #arts, hich a*ount the #&ainti> gave to the defendant" Bn Bctober 25, 1953, after getting e8as#erated ith the de&ay of the re#air of the ty#eriter, the #&ainti> ent to the house of the defendant and as/ed for the return of the ty#eriter" The defendant de&ivered the ty#eriter in a ra##ed #ac/age" Bn reaching ho*e, the #&ainti> e8a*ined the ty#eriter returned to hi* by the defendant and found out that the sa*e as in sha*b&es, ith the interior cover and so*e #arts and scres *issing" Bn Bctober 29, 1953" the #&ainti> sent a &etter to the defendant for*a&&y de*anding the return of the *issing #arts, the interior cover and the su* of -5"00 '8hibit C(" The fo&&oing day, the defendant returned to the #&ainti> so*e of the *issing #arts, the interior cover and the -5"00" Bn August 29, 1954, the #&ainti> had his ty#eriter re#aired by rei8as Kusiness .achines, and the re#air ob cost hi* a tota& of -9", inc&uding &abor and *ateria&s" The error of the court a #uo, according to the #&ainti>;a##e&&ant, +osendo B" haves, is that it aarded on&y the va&ue of the *issing #arts of the ty#eriter, instead of the ho&e cost of &abor and *ateria&s that ent into the re#air of the *achine, as #rovided for in Artic&e 115< of the ivi& ode" Bn the other hand, the #osition of the defendant;a##e&&ee, ructuoso Fona&es, is that he is not &iab&e at a&&, not even for the su* of -31"10, because his contract ith #&ainti>;a##e&&ant did not contain a #eriod, so that #&ainti>;a##e&&ant shou&d have )rst )&ed a #etition for the court to )8 the #eriod, under Artic&e 119< of the ivi& ode, ithin hich the defendant a##e&&ee as to co*#&y ith the contract before said defendant;a##e&&ee cou&d be he&d &iab&e for breach of contract" %ssue: ?hether the res#ondent shou&d be he&d &iab&e for the contract of &abor and services as e&& as for the *ateria&s hich the #&ainti> s#ent for the entire re#air of the ty#eriter" @e&d: The a##ea&ed udg*ent states that the D#&ainti> de&ivered to the defendant " " " a #ortab&e ty#eriter for routine c&eaning and servicingD7 that the defendant as not ab&e to )nish the ob after so*e ti*e des#ite re#eated re*inders *ade by the #&ainti> D7 that the Ddefendant *ere&y gave assurances, but fai&ed to co*#&y ith the sa*eD7 and that Dafter getting e8as#erated ith the de&ay of the re#air of the ty#eriterD, the #&ainti> ent to the house of the defendant and as/ed for its return, hich as done" The inferences derivab&e fro* these )ndings of fact are that the a##e&&ant and the a##e&&ee had a #erfected contract for c&eaning and servicing a ty#eriter7 that they intended that the defendant as to )nish it at so*e future ti*e a&though such ti*e as not s#eci)ed7 and that such ti*e had #assed ithout the or/ having been acco*#&ished , far the defendant returned the ty#eriter canniba&ied and unre#aired, hich in itse&f is a breach of his ob&igation, Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
29
#it!out de$anding t!at !e s!ould "e given $ore ti$e to %nis! t!e &o"' or co$pensation for t!e #ork !e !ad already done" 'T%at t%e "e(en"ant is alrea"$ liable (or t%e breac% o( contract, so t%ere is no )ore nee" (or i)&osin' t%e &erio" (or co)&liance "( The ti*e for co*#&iance having evident&y e8#ired, and there being a breach of contract by non;#erfor*ance, it as acade*ic for the #&ainti> to have )rst #etitioned the court to )8 a #eriod for the #erfor*ance of the contract before )&ing his co*#&aint in this case" Cefendant cannot invo/e Artic&e 119< of the ivi& ode for he virtua&&y ad*itted non;#erfor*ance by returning the ty#eriter that he as ob&iged to re#air in a non;or/ing condition, ith essentia& #arts *issing" The )8ing of a #eriod ou&d thus be a *ere for*a&ity and ou&d serve no #ur#ose than to de&ay 'cf" Tig&ao" et a&" V" .ani&a +ai&road o" 9 -hi&" 11(" %t is c&ear that the defendant;a##e&&ee contravened the tenor of his ob&igation because he not on&y did not re#air the ty#eriter but returned it Din sha*b&esD, according to the a##ea&ed decision" or such contravention, as a##e&&ant contends, he is &iab&e under Artic&e 115< of the ivi& ode" *a) #uot, for the cost of e8ecuting the ob&igation in a #ro#er *anner" The cost of the e8ecution of the ob&igation in this case shou&d be the cost of the &abor or service e8#ended in the re#air of the ty#eriter, hich is in the a*ount of -"<" because the ob&igation or contract as to re#air it" %n addition, the defendant;a##e&&ee is &i/eise &iab&e, under Artic&e 11<0 of the ode, for the cost of the *issing #arts, in the a*ount of -31"10, for in his ob&igation to re#air the ty#eriter he as bound, but fai&ed or neg&ected, to return it in the sa*e condition it as hen he received it" As to da*ages, there is no suOcient uantu* of #roof that ou&d su##ort, since it as not a&&eged by the #&ainti> in his co*#&aint"
Li* vs" -eo#&e acts: -etitioner Lourdes Va&erio Li* as found gui&ty of the cri*e of estafa and as sentenced Dto su>er an i*#rison*ent of four '4( *onths and one '1( day as *ini*u* to to '2( years and four '4( *onths as *a8i*u*, to inde*nify the o>ended #arty in the a*ount of -9"0, ith subsidiary i*#rison*ent in case of inso&vency, and to #ay the costs"I The a##e&&ant is a businesso*an" on January 10, 1955, the a##e&&ant ent to the house of .aria Ayroso and #ro#osed to se&& Ayrosos tobacco" Ayroso agreed to the #ro#osition of the a##e&&ant to se&& her tobacco consisting of 51 /i&os at -1"30 a /i&o" The a##e&&ant as to receive the over#rice for hich she cou&d se&& the tobacco" This agree*ent as *ade in the #resence of #&ainti>s sister, $a&ud F" Kantug" $a&vador Kantug dre the docu*ent, 8h" A, dated January 10, 1955, hich reads: LibLe8 To ?ho* %t .ay oncern: Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
This is to certify that % have received fro* .rs" .aria de Fu*an Vda" de Ayroso, of Fa#an, Eueva cia, si8 hundred )fteen /i&os of &eaf tobacco to be so&d at -1"30 #er /i&o" The #roceed in the a*ount of $even @undred Einety Eine -esos and 06100 '-<99"0( i&& be given to her as soon as it as so&d" This as signed by the a##e&&ant and itnessed by the co*#&ainants sister, $a&ud Kantug, and the &atters *aid, Fenoveva +ui" The a##e&&ant at that ti*e as bringing a ee#, and the tobacco as &oaded in the ee# and brought by the a##e&&ant" Bf the tota& va&ue of -<99"0, the a##e&&ant had #aid to Ayroso on&y -240"00, and this as #aid on three di>erent ti*es" Ce*ands for the #ay*ent of the ba&ance of the va&ue of the tobacco ere *ade u#on the a##e&&ant by Ayroso, and #articu&ar&y by her sister, $a&ud Kantug" $a&ud Kantug further testi)ed that she had gone to the house of the a##e&&ant severa& ti*es, but the a##e&&ant often e&uded her7 and that the ca*arin of the a##e&&ant as e*#ty" A&though the a##e&&ant denied that de*ands for #ay*ent ere *ade u#on her, it is a fact that on Bctober 19, 1955, she rote a &etter to $a&ud Kantug hich reads as fo&&os: Cear $a&ud, @indi a/o na/a#unta dian noon a 1< nitong na/araan, dahi& /o/onte #a ang nasisingi& /ong #era, *agintay /a hanggang dito sa &inggo ito at tia/ na a/o ay *agdada&a sa iyo" Fosto /o $a&ud ay *a/a#agbigay *an &ang a/o ng *ara*i #ara hindi *asiadong /ahiyahiya sa iyo" Egayon /ung gosto *o ay /ahit /onte *una ay bibigyan /ita" -u#unta &ang /a*i ni .ina sa .ayni&a ngayon" $a&ud /uug ta&agang /ai&angan *o ay bu/as ay dada&han /ita ng #era" .edio *ahira# ang *aningi& sa #a&eng/e ng abanatuan dahi& nagsisi&i#at ang *ga su/i /o ng #uesto" @uag /ang *abaha&a at tiya/ na babayaran /ita" -atnubayan tayo ng *aha& na #anginoon Cios" '8h" K(" Ludy D-ursuant to this &etter, the a##e&&ant sent a *oney order for -100"00 on Bctober 24, 195<, 8h" 4, and another for -0"00 on .arch , 195<7 and she #aid -90"00 on A#ri& 1, 195< as evidenced by the recei#t 8h" 2, dated A#ri& 1, 195<, or a tota& of
Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
-240"00" As no further a*ount as #aid, the co*#&ainant )&ed a co*#&aint against the a##e&&ant for estafa"I %ssue: ?hether the ourt of A##ea&s as &ega&&y right in ho&ding that the foregoing docu*ent '8hibit DAD( D)8ed a #eriodD and Dthe ob&igation as therefore, i**ediate&y de*andab&e as soon as the tobacco as so&dD 'Cecision, #" 5( as against the theory of the #etitioner that the ob&igation does not )8 a #eriod, but fro* its nature and the circu*stances it can be inferred that a #eriod as intended in hich case the on&y action that can be *aintained is a #etition to as/ the court to )8 the duration thereof" @e&d: %t is c&ear in the agree*ent, 8hibit DAD, that the #roceeds of the sa&e of the tobacco shou&d be turned over to the co*#&ainant as soon as the sa*e as so&d, or, that the ob&igation as i**ediate&y de*andab&e as soon as the tobacco as dis#osed of" @ence, Artic&e 119< of the Ee ivi& ode, hich #rovides that the courts *ay )8 the duration of the ob&igation if it does not )8 a #eriod, does not a##&y"
Saure vs. Pentecostes atio: A decision of res!ondent "unici!al #udge Prudencio S. Pentecostes of Ca$iling% &arlac e'ecting !etitioner as lessee fro$ the building owned b( !rivate res!ondents% the s!ouses &elesforo and )ieves *alang% as well as his order den(ing a $otion for relief fro$ 'udg$ent. &he !oint stressed% and rightl( so% is that res!ondent #udge disregarded the !lain co$$and of Presidential +ecree )o. ,- 11 which sus!ended indefinitel( the filing of e'ect$ent cases ece!t when the lease is for a definite !eriod and which !rohibited the increase in rentals of dwelling units where the $onthl( rentals do not eceed P/--.-- a $onth. &here is no evidence whatsoever that dis!roves the allegation that !etitioner Saure is occu!(ing the !re$ises in 0uestion as his residence. &he fact that he has a s$all !hotogra!h( sho! undoubtedl( to su!!le$ent his inco$e does not transfor$ it into a co$$ercial establish$ent 1,. Petitioner did not deposit during the pendency of this litigation the monthly rental of P-.-- agreed u!on. 2t could be argued that in Salaria% there was at least a de!osit of P,--.-- during the !endenc( of the litigation3 the failure of petitioner to deposit the rental is mitigated by the fact that he did offer to pay the former rental, but private respondents made it clear that they would not accept. Counsel for !etitioner ought
11 -o&ice #oer *easures are retroactive&y a##&ied, in order to faci&itate the #ur#ose of such &a" %t *ay a&so a##&y to e8isting contracts u#on its a##&ication" $ince the very #ur#ose of the -C is to #rotect and to ease &essees hose renta&s do not e8ceed the a*ount of -300"00 Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
32
to have advised hi$ to $a4e the necessar( consignation. &his is one instance however where the client should not be $ade to suffer for the o$ission of counsel. At an( rate% it can be stated legall( that the action for e'ect$ent not being allowable in law at all, and a clear case of jurisdictional infirmity being apparent, such failure could be considered excusable. Petitioner% however% $ust !a( all the bac4 rentals due and owing. 2n according hi$ 'ustice through law% no in'ustice should be visited on !rivate res!ondents. 5677FO7% the !etition for certiorari is granted nullif(ing the decision of res!ondent #udge dated )ove$ber 18% 198 and the writ of eecution issued on +ece$ber 1% 198 b( virtue thereof. &he order of "arch 1-% 1988 of res!ondent #udge den(ing the !etition for relief fro$ the aforesaid decision is li4ewise declared of no force and effect. &he writ of !rohibition is granted en'oining res!ondent #udge and res!ondent +e!ut( Sheriff ;ivencio Palancio or an( !erson acting on their stead or behalf fro$ ta4ing an( further action in connection with Civil Case )o. /- of the "unici!al Court of Ca$iling between the s!ouses &elesforo and )ieves *alang% now !rivate res!ondents% as !laintiffs% and Francisco Saure% now !etitioner% as one of the defendants. &he restraining order issued b( this Court on #ul( 1<%1988 is hereb( $ade !er$anent. Petitioner Francisco aure is granted a period of ninety days within which to pay the bac! rentals. )o costs. "cLaughlin vs. CA Facts: On Februar( ,<% 1988% !etitioner "uisa F# $c"aughlin and private respondent %amon Flores entered into a contract of conditional sale of real property. Paragra!h one of the deed of conditional sale fied the total !urchase !rice of P1=-%---.-- !a(able as follows: a> P,%-.-- u!on the eecution of the deed3 and b> the balance of P11/%=-.-- to be !aid not later than "a( /1% 1988. &he !arties also agreed that the balance shall bear interest at the rate of &' per month to commence from December &, &()*% until the full !urchase !rice was !aid. On #une 19% 1989% !etitioner filed a co$!laint in the then Court of First 2nstance of i?al @Civil Case )o. //8/> for the rescission of the deed of conditional sale due to the failure of private respondent to pay the balance due on $ay +&, &()). On +ece$ber ,8% 1989% the !arties submitted a Compromise greement on the basis of which the court rendered a decision on #anuar( ,,% 19<-. 2n said co$!ro$ise agree$ent% private respondent ac!nowledged his indebtedness to !etitioner under the deed of conditional sale in the a$ount of P119%--.81% and the !arties agreed that said a$ount would be !a(able as follows: a> P-%---.-- u!on signing of the agree$ent3 and b> the balance of P9%-9.81 in two e-ual installments on #une /-% 19<- and +ece$ber /1% 19<-. As agreed u!on% !rivate res!ondent !aid P-%---.-- u!on the signing of the agree$ent and in addition he also !aid an escalation cost of P,%---.--. nder !aragra!h / of the Co$!ro$ise Agree$ent% !rivate res!ondent agreed to !a( one thousand @P1%---.--> !esos monthly rental beginning December ., &()( until the obligation is duly paid, for the use of the property sub'ect $atter of the deed of conditional sale.1/
12 The -C a&&oed any business attached to a residentia& &ot, #rovided that it *ust not e8ceed the ca#ita& a*ount of -,000"00" in this case, the a*ount of the ca#ita& as on&y -2,00"00 and it as not even o#erated by a stranger to their househo&d" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
33
On October October 1% 19<-% 19<-% !etiti !etitione onerr wrote wrote to private respondent demanding that the latter pay the balance of P*(,.(#)& on or before 0ctober +&, &(1# &his de$and included not only the installment due on 2une +, &(1 but also the installment due on December +&, &(1 . (In short, the petitioner is
asking for the compliance before the agreed date in their compromise)
On October October /-% 19<-% private respondent sent a letter to petitioner signifying his willingness and the full full bala balanc ncee of P9% P9%- -9. 9.81 81%% and and at the the sa$e sa$e ti$e ti$e de$a de$and ndin ing g to see see the the intent intention ion to pay the certificate of title of the !ro!ert( and the ta !a($ent recei!ts. Private Private responden respondentt states states on page &3 of his brief that on November November +, &(1, the first first wor!ing wor!ing day of said month, he tendered payment to petitioner but this was refused acceptance by petitioner# 4owever, this does n not ot appear in the decision de cision of the th e Cour Co urtt of ppe p peal alss#
On )ove$ber 1=% 19<-% the trial court granted the $otion for writ of eecution. 1= On )ove$ber 18% 19<-% 19<-% !rivate !rivate res!ondent res!ondent filed a $otion $otion for reconside reconsideratio ration n tendering at the same time a Pacific 5an!ing Corporation C6%78F86D manager9s chec! in the amount of P)*,.(# P)*, .(#)&, )&, !a(able to the order of !etitioner of !etitioner and covering the entire obligation including the install$ent due on +ece$ber /1% 19<-. 6owever% the trial court denied the $otion for reconsideration in an order dated )ove$ber ,1% 19<- and issued the writ of eecution on )ove$ber ,% 19<-. On )ove$ber ,<% 19<-% !rivate res!ondent res!ondent filed with the Court of A!!eals. A!!eals. 2ssues: 1. 5hether 5hether the action action for recissi recission on could could be granted granted under under the circu$st circu$stances ances )o% there there was no substantial breach that warrants such. ,. 5heth 5hether er there was a valid valid tender tender of !a($en !a($ent t – Des Presen Presence ce of Certif Certifica icatio tion n of chec4 chec4 o!erates as cash. 6eld eld: 5e agree gree with ith the the a!! a!!ella ellatte cour courtt that hat it would be ine-uitab table to cancel the contract of conditional sale and to have the amount ofP&&,..# :P&31,&;*#() according to private respondent in his brief< already paid by him under said contract % ecluding the $onthl( rentals rentals !aid% !aid% forfeited forfeited in favor favor of !etitioner !etitioner%% !articula !articularl( rl( after !rivate !rivate res!onden res!ondentt had tendered tendered the a$ount of P8%-9.81 in full !a($ent of his obligation. 2n the analog analogou ouss case case of +e *u?$a *u?$an n vs. Court Court of A!!eal A!!eals% s% this this Court Court susta sustaine ined d the order order of the res!ondent 'udge den(ing the !etitionersE $otion for eecution on the ground that the !rivate res!ondent had substa substanti ntiall ally y compli complied ed with with the ter terms ms and condit condition ionss of the compromise agreement% and directing the !etitioners to i$$ediatel( eecute the necessar( docu$ents transferring to the !rivate
13 Bf #articu&ar notice is that: %n the co*#ro*ise entered by the*, it as stated that the fai&ure of a #arty to co*#&y ith such i&& auto*atica&&y forfeit his right to a##ea& and therefore, therefore, the rit of e8ecution e8ecution 'as to recission recission of their contract( is i**ediate&y enforced against hi* and a&& #ay*ents *ade are forfeited a&so in favor of #etitioner" 14 or his fai&ure to co*#&y on June 30, 190 as evidenced by their agree*ent above" Christian Arbiol 1A – San Beda College Alabang Alabang School of Law
Obligations and Contracts Case Notes/Digests
34
res!ondent the title to the !ro!erties @#ul( ,/% 19<% 1/8 SCA 8/->. 2n the case at bar% there was also substantial co$!liance with the co$!ro$ise agree$ent.
Section = of e! e!ubl ublic ic Act )o. , , which too4 effect on Se!te$ber 1=% 198, !rovides as follows: 2n case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. 2f the bu(er fails to !a( the install$ents due at the e!iration of the grace
!eriod% the seller may cancel the contract after thirty days from receipt b( the bu(er of the notice of the cancellation or the de$and for rescission of the contract b( a notarial act. Section 8 of said law !rovides as follows: ny ny stip stipul ulat atio ion n in any any cont contra ract ct here hereaf afte terr ente entere red d into into cont contra rary ry to the the provisions of ections ect ions +, 3, . and *, shall be null and void#=
6owever% assu$ing that under the ter$s of said agree$ent the +ece$ber /1% 19<- install$ent was due and !a(able when on October 1% 19<-% !etitioner de$anded !a($ent of the balance of P9%-9.81 on or before October /1% 19<-% !etitioner could cancel the contract after thirt( da(s fro$ recei!t b( !rivate res!ondent of the notice of cancellation. Considering !etitionerEs $otion for eecution filed on )ove$ber 8% 19<- as a notice of cancellation% !etitioner !etitioner could cancel the contract of conditional sale after thirt( da(s fro$ recei!t recei!t b( !rivate !rivate res!onden res!ondentt of said said $otio $otion. n. Private respondent9s tender of payme pa yment nt of the amount of P)*,.(#)& together with his motion for reconsideration on November &), &(1 was, therefore, well within the thirty>day period granted by law# 746 76ND6% $D6 5? P%8@76 P%8@76 %6P0ND6N7 0F C6%78F86D 5NA $NB6%9 C46CA C46 CA P? P?5" 5"6 6 70 P6787 P67 8780N 80N6% 6% @"8 @"8D D 76ND6% 76ND 6% 0F P?$6 P?$6N7 N7##&.
"oreover% Section =9% ule 1/- of the evised ules of Court !rovides that: An offer in writing to !a( a !articular su$ of $one( or to deliver a written instru$ent or s!ec s!ecif ific ic !ro! !ro!er ert( t( is% is% if rejec rejected ted,, e-u e-uiva ivalen lentt to the actual actual produc productio tion n and tender of the money, instrument, instrument, or property.
As the Court held in the case of Soco vs. "ilitante% !ro$ulgated on #une ,<% 19
7ender nder is the the
antecedent of consignation% that is% an act preparatory to the consignation% which is
1 onsidering the case of Seneris as cited by J" Jurado in his boo/, that a certi)ed chec/ can be used as a va&id tender of #ay*ent of *oney" *oney" $ince the #resence # resence of its certi)cation it is a&ready treated as cash" Christian Arbiol 1A – San Beda College Alabang Alabang School of Law
Obligations and Contracts Case Notes/Digests the !rinci!al% !rinci!al% and fro$ which which are derived the i$$ediate i$$ediate conse0uences conse0uences which the debtor debtor desire desiress or see4s see4s to obtain obtain.. &ende &enderr of !a($en !a($entt $a( be etra' etra'udi udicia cial% l% while while consignat consignation ion is necessaril( necessaril( 'udicial% 'udicial% and the priority of the first is the attempt to ma!e a private settlement before proceeding procee ding to the solemnities of consignation# consigna tion# @<
"anresa /,>. 2n the case at bar% although as above stated !rivate res!ondent had !reserved his rights as a vendee in the contract contract of condi condition tional al sale of real !ro!ert( !ro!ert( b( a ti$el( valid valid tender tender of !a($ent !a($ent of the balance balance of of his his obligation which was not acce!ted b( !etitioner% he remains liable for the payment of his obligatio oblig ation n because bec ause of his failure failu re to deposit the amo amount unt due with the cour co urtt# 2n his $anifestation dated Se!te$ber 19% 19<% !rivate res!ondent states that on Se!te$ber 1% 19<-% he !urchased a "etroban4 CashierEs Chec4 )o. CC --=,// in favor of !etitioner Luisa F. "cLaughlin "cLaughlin in the a$ount of P8%-9.81% a !hotoco!( of which was enclosed and $ar4ed as Anne AG13 but that he did not not cont contin inue ue !a(in !a(ing g the the $o $ont nthl( hl( rent rental al of P1%P1%----..-- beca becaus use% e% !urs !ursua uant nt to the the deci decisi sion on of the the a!!ellate court% !etitioner herein was ordered to acce!t the aforesaid a$ount in full !a($ent of herein res!ondentEs obligation obligation under the contract sub'ect $atter thereof. 6owever% inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on private respondent to deposit the same with the court court in order to be released from responsibility# Since
!rivate res!ondent did not de!osit said a$ount with the court% his obligation was not !aid and he is liable in addition for the !a($ent of the $onthl( rental of P1%---.-- fro$ #anuar( 1% 19<1 until said obligation is dul( !aid% in accordance accordance with !aragra!h !aragra!h / of the the Co$!ro$is Co$!ro$isee Agree$en Agree$ent. t. !on full !a($ent !a($ent of the the a$ount ofP8%-9.81 and the rentals in arrears% !rivate res!ondent shall be entitled to a deed of absolute sale in his favor of the real !ro!ert( in 0uestion.
ural Ban4 of Caloocan Cit( vs. CA Facts: On +ece$ber 8% 199% res!ondent "ai$a Castro% acco$!anied b( Severino ;alencia% went to the ural Ban4 of Caloocan Caloocan to a!!l( for an industri industrial al loan. loan. 2t was Severino Severino ;alencia lencia who arranged arranged ever(thing about the loan with the ban4 and who su!!lied to the latter the !ersonal data re0uired for Cast Castro roEs Es loan loan a!!l a!!lic icat atio ion. n. On +ece$ +ece$be berr 11% 11% 199 199%% afte afterr the the ban4 ban4 a!!r a!!rov oved ed the the loan loan for for the the a$ount of P/%P /%----.-.--%% Castro Castro,, accom accompani panied ed by the @alencia lencia spouse spouses, s, signed signed a promis promissor sory y note note corresponding to her loan in favor of the ban! .
On the the sa$e sa$e da(% da(% +ece$ +ece$be berr 11% 11% 199 199%% the the ;alenc lencia ia s!ou s!ouse sess obta obtain ined ed fro$ fro$ the the ban4 ban4 an e0ua e0uall a$ount of loan for P/%---.--. &he( signed a !ro$issor( note @7hibit ,> corres!onding to their loan in favor of the ban4 and had Castro affied thereon her signature as coG$a4er.
Christian Arbiol 1A – San Beda College Alabang Alabang School of Law
3
Obligations and Contracts Case Notes/Digests 7he two loans were secure secured d by a real> real>est estate ate mortg mortgage age :6xhibit :6xhibit *< *< on Castro Castro9s 9s house house and
covered d b( &rans &ransfer fer Certif Certifica icate te of &itle &itle )o. )o. 8=1 8=19 9 of the the Office Office of the lot of &. s-uare s-uare meters meters% covere egister of +eeds of "anila. On Februar( 1/% 191% the sheriff of "anila% thru Acting Chief +e!ut( Sheriff Basilio "agsa$bol% sent a notice of sheriffEs sale addressed to Castro% announcing that her !ro!ert( covered b( &.C.&. )o. 8=19 would be sold at !ublic auction on "arch 1-% 191 to satisf( the obligation covering the two !ro$issor( notes !lus interest and attorne(Es fees. 1 Castro Castro alleged alleged that that it was only when she received the letter from the cting Deputy heriff on February &+, &(*&, when she learned for the first time that the mortgage contract :6xhibit *< which was an encumbrance on her property was for P*,# and not for P+,# and that she
@7hib ibiit ,> ,> with was was made ade to sign sign as co>m co>ma! a!er er of the the prom promis isso sory ry note note @7h withou outt her her bein being g informed informed of this# this# (Because she was ignorant of such, she had mistakenly took the mortgage due to
misrepresentation of the Valencias. She thought that it will only cover her original loan of k. !lso, taking into consideration that "astro was an illiterate person who cannot read nor write in #nglish$ as she only finished second %rade %rade in #lementary #lementary School)
&hat &hat in +ece$b +ece$ber er 19 199% 9% she needed needed $on $one( e( in the a$ount a$ount of P/%--P/%---.-.-- to invest invest in the business business :dru :drugs gsto tore re
busi busine ness ss<< of the the
defe defend ndan antt
spou spouse sess
@alenc lencia ia%
who
acco$!anied
her
to
the
defendant defendant ban4 for the !ur!ose !ur!ose of of securin securing g a loan of P/%--P/%---.-.--33 that that while while at the defend defendant ant ban4% ban4% an employee handed to her several forms already prepared which she was asked to sign on the places indicated, with no one explaining to her the nature and contents of the documents3 that she did not even
receive a co!( thereof3 that she was given a chec4 in the a$ount of P,%<<,.< which she delivered to defendant s!ouses. Castro !ra(ed% a$ongst other% for the annul$ent as far as she is concerned of the !ro$issor( note @7h @7hib ibit it ,> ,> and and $o $ort rtga gage ge cont contra ract ct @7h @7hib ibit it > > inso insofa farr as it exce exceed edss P+, P+, # # 3 for for the the discharge of her personal personal obligati obligation on with the ban! by reason reason of a deposit deposit of P+,+1+# P+,+1+# with the
court a &uo u!on the filing of her co$!laint3 for the annul$ent of the foreclosure sale of her !ro!ert(. 2ssue: 5hether the CA is correct in affir$ing the 'udg$ent of the &C in favor of Castro. 6eld: 5e cannot agree with the contention of !etitioners that the ban4 was defrauded b( the ;alencias. For, one, no claim was made on this in the lower court# For another, petitioners did not submit proof to support its contention.18
15 Acting on the reuest of astro and the Va&encias, Va&encias, it as reschedu&ed, hoever hen that day arrived, it as subseuent&y dec&ared as a ho&iday, therefore it as *ade the fo&&oing business day" day" Christian Arbiol 1A – San Beda College Alabang Alabang School of Law
35
Obligations and Contracts Case Notes/Digests
3<
At an( rate% 5e observe that while the ;alencias defrauded Castro b( $a4ing her sign the !ro$issor( note @7hibit ,> and the $ortgage contract @7hibit >% they also misrepresented to the ban! Castro9s the loan. loan. 'his must be the reason which personal -ualifications in order to secure its consent to the prompted prompted the bank to contend that it was defrauded by the Valencias Valencias . But to reiterate% 5e cannot agree
with the contention for reasons aboveG$entioned. 6owever% if the contention deserves an( consideration at all% it is in indicating the ad$ission of !etitioners that the ban4 co$$itted $ista4e in giving its consent to the contracts. &hus% as a result of the fraud u!on Castro and the $isre!resentation to the ban4 inflicted b( the ;alencias% ;alencias% both Castro and the ban4co$$itted $ista4e in giving their consents to the contracts. 8n other words, substantial mista!e vitiated their consents given# For if Castro had been aware of what she signed signe d and an d th thee ban ba n! of the true tr ue -ualificati -u alifications ons of the loan applicants, it is evident that they would not have given their consents to the contracts. A contract $a( be annulled on the ground of vitiated consent% if
deceit b( a third !erson% even without connivance or co$!licit( with one of the contracting !arties% resulted in $utual error on the !art of the !arties to the contract. "oreover "oreover%% consideri considering ng CastroEs CastroEs !ersonal !ersonal circu$stan circu$stances ces H her lac4 of education education%% ignorance ignorance and old age H she cannot be considere considered d utterl( utterl( neglectfu neglectfull for having been defrauded. defrauded. 0n the contrary, it is demanded demande d of petitioners petition ers to exercise the highest highes t order of care care and prudence in its business dealings with the @alencias considering that it is engaged in a ban!ing business H a business affected with
!ublic interest. 2t should have ascertained CastroEs awareness of what she was signing or $ade her understand what obligations she was assu$ing% considering that she was giving acco$$odation to% without an( consideration fro$% the ;alencia s!ouses. Petitioners further argue that CastroEs act of holding the ;alencias ;alencias as her agent led the ban4 to believe that the( were authori?ed to s!ea4 and bind her. She cannot now be !er$itted to den( the authorit( of the ;alencias to act as her agent for one who clothes another with a!!arent authorit( as her agent is not !er$itted to den( such authorit(. authorit(. Cd!r &he authorit( of the ;alencias was onl( to followGu! CastroEs loan a!!lication with the ban4. They were not authorized to borrow for her. This is apparent from the fact that Castro went to the Bank to to sign the promissory note for her loan of P,!!!.!!. 2f her act had been understood b( the Ban4 to be a
grant grant of an autho authorit( rit( to the ;alencia lenciass to borro borrow w in her behalf behalf%% it sho should uld have have re0ui re0uired red a s!eci s!ecial al !ower of attorne( eecuted b( Castro in their favor. Since the ban4 did not% 5e can rightl( assu$e that it did not entertain the notion% that the ;alencia s!ouses were in an( $anner acting as an agent of Castro. 7he 5an! should should have exercised exercised due care and pruden prudence ce by ma!ing ma!ing proper proper in-uiry in-uiry if Castro9s Castro9s consent to the mortgage was without any taint or defect#
1< The fraudu&ent act co**itted by the $#ouses Va&encia as #roven ith suOcient evidence before the +T, +T, and no c&ai* as *ade by the #etitioners as to the fraud co**itted against the* by the s#s" Christian Arbiol 1A – San Beda College Alabang Alabang School of Law
Obligations and Contracts Case Notes/Digests s to the effect of Consignation made by Castro for the full amount of her obligation
2t is contended that the consignation was $ade without !rior offer of tender of !a($ent to the Ban4% and is therefore% not valid. 2n holding that there is a substantial co$!liance with the !rovision of Article 1, of the Civil Code% res!ondent court considered the fact that the Ban4 was holding Castro liable for the su$ of P%---.-- !lus 1,I interest !er annu$% while the a$ount consigned was onl( P/%---.-- !lus 1,I interest3 that at the ti$e of consignation% the Ban4 had long foreclosed the $ortgage etra'udiciall( and the sale of the mortgaged property had already been scheduled for "pril #!, #$%# for non& payment of the obligation, and that despite the fact that the Bank already knew of the deposit made by Castro because of receipt of the deposit was attached to the record of the case% said Ban4 had not $ade
an( clai$ of such de!osit% and that therefore% Castro was right in thin!ing that it was futile and useless for her to ma!e previous offer and tender of payment directly to the 5an! only in the aforesaid amount of P+,# plus &;' interest# Ender the foregoing circumstances, the consignation made by Castro was valid, 8F N07 END6% 746 7%8C7 P%0@880N 0F 746 ", END6% 746 $0%6 "856%" C0N8D6%780N 0F 6E87?# :6mphasis supplied<
70uitable PC2 Ban4 vs. )g Sheung )gor or Jen Business "4tg. atio: On October 8% ,--1% res!ondents )g Sheung )gor% Jen A!!liance +ivision% 2nc. and Ben'a$in 7. *o filed an action for annul$ent andKor refor$ation of docu$ents and contracts against !etitioner 70uitable PC2 Ban4 @70uitable> and its e$!lo(ees% Ai$ee Du and Be'an Lionel A!as% in the egional &rial Court @&C>% Branch 1 of Cebu Cit(. &he( clai$ed that 70uitable induced the$ to avail of its !eso and dollar credit facilities b( offering low interest rates so the( acce!ted 70uitableEs !ro!osal and signed the ban4 Es !reG!rinted 1< !ro$issor( notes on various dates beginning 199 # 7hey, however, were
unaware
that
the
documents
contained
identical
escalation
clauses
granting 6-uitable authority to increase interest rates without their consent.
70uitable% in its answer% asserted that res!ondents 4nowingl( acce!ted all the ter$s and conditions contained in the !ro$issor( notes. ( 8n fact, they continuously availed of and benefited from 6-uitable9s credit facilities for five years# 7he trial court, however, invalidated the escalation clause contained therein because it violated the principle of mutuality of contracts#
1 The notes ere dec&ared by the ourt as contracts of adhesion" Christian Arbiol 1A – San Beda College Alabang School of Law
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39
)evertheless% it too4 'udicial notice of the stee! de!reciation of the !eso during the intervening !eriod and declared the eistence of etraordinar( deflation. 19 Conse'uently, the (TC ordered the use of the #$$% dollar exchange rate in computing respondents) dollar&denominated loans .
&he &C u!held the validit( of the !ro$issor( notes des!ite res!ondentsE assertion that those docu$ents were contracts of adhesion. A contract of adhesion is a contract whereb( al$ost all of its !rovisions are drafted b( one !art(. &he !artici!ation of the other !art( is li$ited to affiing his signature or his adhesion to the contract. For this reason, contracts of adhesion are strictly construed against the party who drafted it#
2t is erroneous% however% to conclude that contracts of adhesion are invalid per se. &he( are% on the contrar(% as binding as ordinar( contracts. party is in reality free to accept or reject it. A contract of adhesion beco$es void onl( when the do$inant !art( ta4es advantage of the wea4ness of the other !art(% co$!letel( de!riving the latter of the o!!ortunit( to bargain on e0ual footing. As the trial court noted% if the ter$s and conditions offered b( 70uitable had been trul( !re'udicial to res!ondents% the( would have wal4ed out and negotiated with another ban4 at the first available instance. But the( did not. 2nstead% the( continuousl( availed of70uitableEs credit facilities for five long (ears. hile the '" categorically found that respondents had outstanding dollar* and peso*denominated loans with #&uitable, *T, +-/(, 0"*12 T "3C(T"*4 T+ TT"1 "564T 26 (principal, interest and penalties, if any) as of +uly , -/. 'he trial court did not e0plain how it arrived at the amounts of 1S2--3,- and 4/,,. 46NC6, 6 0%D6%6D 746 P%78" %6$ND 0F 746 C6 F0% 746 0"6 PE%P06 0F D676%$8N8NB 746 $0EN7 0F C7E" D$B6 .
7scalation clauses are not void per se. 4owever, one which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement is void#
For this reason% we have consistentl( held that a valid escalation clause !rovides: 1. &hat the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by the $onetary 5oard3 and
19 The +T too/ udicia& notice that at the ti*e it as decided, the cost of #urchasing do&&ars in the year 199 as on&y 25"0, years thereafter, the #rice increased to as *uch as 200P or to "00 #er 1 at 2001" The +T conc&uded e8traordinary inRation therein" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests ,. &hat the sti!ulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or by the $onetary 5oard @deGescalation
clause>. 70uitable dictated the interest rates if the ter$ @or !eriod for re!a($ent> of the loan was etended. %espondents had no choice but to accept them. &his was a violation of Article 1/-< of the Civil Code. Further$ore% the assailed escalation clause did not contain the necessar( !rovisions for validit(% that is% it neither !rovided that the rate of interest would be increased onl( if allowed b( law or the "onetar( Board% nor allowed deGescalation. For these reasons% the escalation clause was void. !on $aturit(% the a$ount due was sub'ect to legal interest at the rate of 1,I !er annu$. (Since the escalation clause was declared as void, therefore, only the legal interests will be applied in this case) As to the issue of 7traordinar( 2nflation For etraordinar( inflation @or deflation> to affect an obligation% the following re0uisites $ust be !roven: 1. that there was an official declaration of extraordinary inflation or deflation from the 5ang!o entral ng Pilipinas @BSP>3
,. that the obligation was contractual in nature3 and /. that the parties 6GP%6"? agreed to consider the effects of the extraordinary inflation or deflation.
+es!ite the devaluation of the !eso% the BSP never declared a situation of etraordinar( inflation. "oreover% although the obligation in this instance arose out of a contract% the !arties did not agree to recogni?e the effects of etraordinar( inflation @or deflation>. 7he %7C never mentioned that there was a such stipulation either in the promissory note or loan agreement# 7herefore, respondents should pay their dollar>denominated loans at the exchange rate fixed by the 5P 0N 746 D76 0F $7E%87?#
Christian Arbiol 1A – San Beda College Alabang School of Law
40
Obligations and Contracts Case Notes/Digests
41
Ay al aLi f ev s .Bur t on Facts: On "arch ,-% 19<=% Jara$fil 2$!ortG7!ort Co$!an( Ltd. @JAA"F2L> bought fro$ ADALA a !iece of land identified as Lot ,% Bloc4 , consisting of 1%1<< s0uare $eters% located at what is now 4nown as 6.;. de la Costa Street% Salcedo ;illage% "a4ati Cit(. &he transaction was docu$ented in a +eed of Sale of even date% which !rovides% a$ong others% that the vendee would comply with certain special conditions and restrictions on the use or occupancy of the land% a$ong which areG Deed %estrictions:
a> &he total height of the building to be constructed on the lot shall not be $ore than fort(Gtwo @=,> $eters% nor shall it have a total gross floor area of $ore than five@> ti$es the lot area3 and b> &he sewage dis!osal $ust be b( $eans of connection into the sewerage s(ste$ servicing the area. pecial Conditions:
a> &he vendee $ust obtain final a!!roval fro$ ADALA of the building !lans and s!ecifications of the !ro!osed structures that shall be constructed on the land3 b> &he lot shall not be sold without the building having been co$!leted3 and c> An( breach of the sti!ulations and restrictions entitles ADALA to rescission of the contract. On Februar( 1<% 19<<% JAA"F2L sold the lot to Pal$crest +evelo!$ent and ealt( Cor!oration @PAL"C7S&> under a +eed of Absolute Sale of even date. &his deed was sub$itted to ADALA for a!!roval in order to obtain the latterEs waiver of the s!ecial condition !rohibiting the resale of the lot until after JAA"F2L shall have constructed a building thereon. ?" gave its written conformity to the sale but reflecting in its approval the same special conditions/restrictions as in the previous sale. Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
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PAL"C7S& in turn sold the lot to a( Burton +evelo!$ent Cor!oration @B+C>% now res!ondent% on A!ril 11% 19<<% with the agree$ent that ADALA retains !ossession of the OwnerEs +u!licate co!( of the title until a building is erected on said parcel of land in accordance with the re-uirements and/or restrictions of ?"H ADALA gave its confor$it( to the sale% sub'ect to B+CEs co$!liance with the s!ecial conditionsKrestrictions which were annotated in the deed of sale. So$eti$e in #une of 19<9% B+C sub$itted to ADALA for a!!roval a set of architectural !lans for the construction of a Gstore( office building on the sub'ect lot. &he building was to be 4nown as &rafalgar &ower but later rena$ed &rafalgar Pla?a. Since the building was well within the =,G$eter height restriction% ADALA a!!roved the architectural !lans. "eanwhile% on )ove$ber ,<% 19<9% B+C% together with the "a4ati +evelo!ers Association% 2nc. @"A+A2>% of which B+C is a $e$ber% and other lot owners% filed a co$!laint against ADALA before the 6ousing and Land se egulator( Board. &he co$!laint sought the nullification of the ver( sa$e +eed estrictions incor!orated in the deeds of sale of the lots !urchased b( the co$!lainants fro$ ADALA. &o wit: # @2t> !laces unreasonable control over the lots sold b( ADALA% thereb( de!riving the vendees of the full en'o($ent of the lots the( bought. 5# 7hey are contracts of adhesion since ADALA would not sell the lots unless the bu(ers agree to the deed restrictions.
7arl( in #une of 199-% B+C $ade another set of building !lans for &rafalgar Pla?a and sub$itted the sa$e for a!!roval% this ti$e to the Building Official of the "a4ati Cit( 7ngineerEs Office% not to ADALA. After having obtained the necessar( building !er$its fro$ the Cit( 7ngineerEs Office% B+C began to construct &rafalgar Pla?a in accordance with these new !lans. On #ul( 11% 199-% the $a'orit( of the lot owners in the "a4ati Cit( area% including the Salcedo and Legas!i ;illage areas% in a general asse$bl( of the "a4ati Co$$ercial 7state Association% 2nc. @"AC7A>% a!!roved the revision of the +eed estrictions% wherein direct height restrictions were abolished in favor of floor area li$its co$!uted on the basis of floor area ratios. %5DC did not vote for the approval of the %evised Deed %estrictions and, therefore, it continued to be bound by the original Deed %estrictions. 5hile the a!!eal was !ending before the Office of the President% the Se!te$ber ,1% 199- issue of the Business orld $aga?ine featured the 7rafalgar PlaIa as a modern 78&storey structure which will soon rise in Salcedo ;illage% "a4ati Cit(. Stunned b( this infor$ation% ADALA% through counsel% then sent a letter to B+C demanding the latter to cease the construction of the building which dimensions do not conform to the previous plans it earlier approved.,-
20 or +KCs fai&ure to heed the de*and, ANALA )&ed an action for s#eci)c #erfor*ance of the contract or for recission of the sa*e" $ince the 2< storey unit bui&ding #er*it acuired by +KC fro* the .B contravened their origina& agree*ent" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
43
B+C alleged in essence that even if said deed restrictions eist% the sa$e are not econo$icall( viable and should not be enforced because they constitute unreasonable restrictions on its property rights and are, therefore, contrary to law, morals, good customs, public order or public policy#;& 2ssue: 5hether a contract of adhesion is invalid per se. 6eld: A contract of adhesion in itself is not an invalid agreement. &his t(!e of contract is as binding as a $utuall( eecuted transaction. 5e have e$!haticall( ruled in the case of 5ng 6iu vs. "ourt of !ppeals% et . al . that contracts of adhesion wherein one !art( i$!oses a read(G$ade for$ of contract on the other . . # are contracts not entirely prohibited. 7he one who adheres to the contract is in reality free to reject it entirely3 if he adheres he gives his consent. &his ruling was reiterated in 4hilippine !merican %eneral Insurance "o.% Inc. vs. Sweet 7ines% Inc.% et . al .% 9# wherein we further declared through #ustice Floren? egalado that not even an allegation of ignorance of a party excuses non> compliance with the contractual stipulations since the responsibility for ensuring full comprehension of the provisions of a contract of carriage :a contract of adhesion< devolves not on the carrier but on the owner, shipper, or consignee as the case may be#= Contracts of adhesion% however% stand out fro$ other contracts @which are bilaterall( drafted b( the !arties> in that the former is accorded inordinate vigilance and scrutiny by the courts in order to shield the unwar( fro$ dece!tive sche$es contained in read(G$ade covenants. &he stringent treat$ent towards contracts of adhesion which the courts are en'oined to observe is in !ursuance of the $andate in rticle ;3 of the New Civil Code that @i>n all contractual% !ro!ert( or other relations% when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap% the courts $ust be vigilant for his !rotection. &he Court ruled against B+C for violating the sti!ulations of their contract. Obiter: &he fact that B+C was issued b( the "7O the authorit( to construct its own building even if it was be(ond the agree$ent $ade b( the !arties is not a 'ustifiable reason for the for$er to violate their agree$ent% which includes the s!ecial restrictions i$!osed b( ADALA in their agree$ent. &o rule otherwise would violate the ver( tran0uilit( of contracts% As Art. 119 !rovides that it should be the law between the !arties which also re0uires that both of the$ should co$!l( with their agree$ents in good faith.
)avarra vs. Planters +evelo!$ent Ban4 Facts: On #ul( % 19<,% the )avarras obtained a loan of P1%,--%---.-- fro$ Planters Ban4 and% b( wa( of securit( therefor% eecuted a deed of $ortgage over their afore$entioned five @> !arcels of land. nfortunatel(% the couple failed to pay their loan obligation . 6ence% Planters Ban4 foreclosed on the
21 The +T ru&ed in favor of +KC e*#hasiing on the fact that the contract as i&&ega& because of the *ere fact that it is a contract of adhesion" 'or #ur#oses of re&ating the case to the subect( ANALA a##ea&ed, but the A aOr*ed in toto the udg*ent of the +T" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
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$ortgage and the $ortgaged assets were sold to it for P1%/=1%<-.--% it being the highest bidder in the auction sale conducted on "a( 1% 19<=. &he oneG(ear rede$!tion !eriod e!ired without the )avarras having redee$ed the foreclosed !ro!erties. 2n the $eanti$e% #orge )avarra sent a letter to Planters Ban4% !ro!osing to re!urchase the five @> lots earlier auctioned to the Ban4% with a re0uest that he be given until August /1% 19< to !a( the down !a($ent of P/--%---.--. which was subse0uentl( agreed b( the res!ondents. Because the a$ount of P/--%---.-- was sourced fro$ a different transaction between C and Planters Ban4 and involved different debtors% the Ban4 re0uired )avarra to sub$it a board resolution fro$ C authori?ing hi$ to negotiate for and its behalf and e$!owering hi$ to a!!l( the ecess a$ount of P/--%---.-- in CEs rede$!tion !a($ent as down !a($ent for the re!urchase of the )avarrasE foreclosed !ro!erties. ,, Accordingl(% #orge )avarra went to the Office of "r. ene Castillo on August ,-% 19<% bringing with hi$ a letter re0uesting that the ecess !a($ent of P/--%---.-- in connection with the rede$!tion $ade b( the C be a!!lied as down !a($ent for the )avarrasE re!urchase of their foreclosed !ro!erties. &hen% on #anuar( ,1% 19<8% Planters Ban4 sent a letter to #orge )avarra infor$ing hi$ that it could not !roceed with the docu$entation of the !ro!osed re!urchase of the foreclosed !ro!erties on account of his non>compliance with the 5an!9s re-uest for the submission of the needed board resolution of %%%C# 2n his re!l(Gletter of #anuar( ,<% 19<8% )avarra clai$ed having alread( delivered co!ies of the re0uired board resolution to the Ban4. 7he 5an!, however, did not receive said copies# &hus% on Februar( 19% 19<8% the Ban4 sent a notice to the )avarras de$anding that the( surrender and vacate the !ro!erties in 0uestion for their failure to eercise their right of rede$!tion. &he )avarras filed their co$!laint for Specific 4erformance with In8unction against Planters Ban4. 2n their co$!laint doc4eted in said court as "ivil "ase 9o. /:/; and raffled to Branch thereof% the )avarras% as !laintiffs% alleged that a perfected contract of sale was made between them and Planters 5an! whereby they would repurchase the subject properties for P&,1,# with a down payment of P+,## 2n its Answer% Planters Ban4 asserted that there was no !erfected contract of sale because the ter$s and conditions for the re!urchase have not (et been agreed u!on. ,/
22 $ince there as 2 transactions that too/ #&ace, '1( Eavarras 'hose rede*#tion has e8#ired( and '2( the +++ 'A cor#oration oned by the #arents of ar*e&ita Eavarra 'one of the #arties(7 hoever, +++ retained its right to redee* the #ro#erty" 23 The +T ru&ed in favor of the s#ouses that there as a&ready a #erfected contract of sa&e, on a##ea&, hoever, the A reversed the ru&ing *ade by the +T hich is the subect *atter of the dis#ute" Christian Arbiol 1A – San Beda College Alabang School of Law
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2ssue: 5hether there was a !erfected contract of sale between the !arties. 6eld: 2n general% contracts undergo three distinct stages% to wit: negotiation% !erfection or birth% and consu$$ation. Negotiation begins fro$ the ti$e the !ros!ective contracting !arties $anifest their interest in the contract and ends at the $o$ent of their agree$ent. Perfection or birth of the contract ta4es !lace when the !arties agree u!on the essential ele$ents of the contract% i.e.% consent% ob'ect and !rice. Consummation occurs when the !arties fulfill or !erfor$ the ter$s agreed u!on in the contract% cul$inating in the etinguish$ent thereof. A negotiation is for$all( initiated b( an offer which should be certain with res!ect to both the ob'ect and the cause or consideration of the envisioned contract. 2n order to !roduce a contract% there $ust be acceptance% which $a( be e!ress or i$!lied% but it $ust not 0ualif( the ter$s of the offer. 7he acceptance of an offer must be un-ualified and absolute to perfect the contract. 2n other words% it $ust be identical in all res!ects with that of the offer so as to !roduce consent or $eeting of the $inds. &his Court held that before a valid and binding contract of sale can eist% the manner of payment of the purchase price must first be established since the agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price# Clearl(% then% the lac4 of a definite offer on the !art of the s!ouses could not !ossibl( serve as the basis of their clai$ that the saleKre!urchase of their foreclosed !ro!erties was !erfected. &he reason is obvious: one essential ele$ent of a contract of sale is wanting: the !rice certain. &here can be no contract of sale unless the following ele$ents concur: @a> consent or $eeting of the $inds3 @b> deter$inate sub'ect $atter3 and @c> !rice certain in $one( or its e0uivalent. Such contract is born or !erfected fro$ the $o$ent there is a $eeting of $inds u!on the thing which is the ob'ect of the contract and u!on the !rice. 6ere% what is dra$aticall( clear is that there was no $eeting of $inds vis*a*vis the !rice% e!ressl( or i$!liedl(% directl( or indirectl(. &he letter s!ecificall( stated that there is a need to negotiate on the other details of the transaction before the sale $a( be for$ali?ed. uch statement in the 5an!9s letter clearly manifests lac! of agreement between the parties as to the terms of the purported contract of sale/repurchase% !articularl( the $ode of !a($ent of the !urchase !rice and the !eriod for its !a($ent. 7videntl(% what trans!ired between the !arties was onl( a !rolonged negotiation to bu( and to sell% and% at the $ost% an offer and a counterGoffer with no definite agree$ent having been reached b( the$. 5ith the hard realit( that no !erfected contract of saleKre!urchase eists in this case% an( inde!endent transaction between the Planters Ban4 and a thirdG!art(% li4e the one involving the *atchalian ealt(% cannot be affected.
Mendezona vs. Ozamis Civil Case No. CEB-10766 is a suit for quieting of title. It as instituted on $e#te*ber 2, 1991 !" #etitioner s#ouses Mario $. Mendezona and %eresita M. Mendezona as initial #laintiffs and in t&e amended 'om#laint filed on Bctober <, 1991 ( &erein 'o-#etitioner s#ouses )uis
Christian Arbiol 1A – San Beda College Alabang School of Law
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$. Mendezona and Mari'ar ). Mendezona and %eresita *dad +da. ,e Mendezonaoined as 'o#laintiffs. In t&eir 'om#laint( t&e #etitioners( as #laintiffs t&erein( alleged t&at #etitioner s#ouses Mario $. Mendezona and %eresita M. Mendezona( #etitioner s#ouses )uis $. Mendezona andMari'ar ). Mendezona( and #etitioner %eresita *dad +da. ,e Mendezona on a #ar'el of land ea'& in t&e Banilad Estate( )a&ug( Ce!u Cit". %&e #etitioners ultimatel" traced their titles of ownership over their respective properties from a notarized Deed of Absolute Sale 7/ dated *#ril ( 122 e3e'uted in t&eir favor !" Carmen Ozamiz for and in 'onsideration of t&e sum of One Million 4ort" %&ousand 5esos 51(00(000.008. The petitioners initiated the suit to remove a cloud on their said respective titles caused by the inscription thereon of a notice of lis pendens, which came about as a result of an incident in Special Proceeding No. 190 of t&e :%C of Oroquieta Cit". ;#e'ial 5ro'eeding No. 190 is a #ro'eeding for guardianship over the person and properties of Carmen Ozamiz initiated !" t&e res#ondents $ulio <. Ozamiz( $ose Ma. Ozamiz( Carmen <. Ozamiz( 5az O. Montalvan( Ma. %eresa O.4. =arraga( Carlos O. 4orti'&( $ose )uis O. :os( 5aulita O. :odriguez and Lourdes O. )on. It a##ears t&at on $anuar" 19( 1221( t&e res#ondents instituted t&e #etition for guardians&i# it& t&e :egional %rial Court of Oroquieta Cit"( alleging t&erein t&at Carmen Ozamiz( t&en 6 "ears old( after an illness in $ul" 127( had become disoriented and could not recognize most of her friends; that she could no longer tae care of herself nor manage her properties by reason of her failing health! wea mind and absent"mindedness# Mario Mendezona and )uis Mendezona( &erein #etitioners &o are ne#&es of Carmen Ozamiz( and 5ilar Mendezona( a sister of Carmen Ozamiz( filed an o##osition to t&e guardians&i# #etition. In t&e 'ourse of t&e guardians&i# #ro'eeding( t&e #etitioners and t&e o##ositors t&ereto agreed t&at Carmen Ozamiz needed a guardian over &er #erson and &er #ro#erties( and t&us res#ondent 5az O. Montalvan as designated as guardian over t&e #erson of Carmen Ozamiz &ile #etitioner Mario $. Mendezona( res#ondents :o!erto $. Montalvan and $ulio <. Ozamizere designated as oint guardians over t&e #ro#erties of t&e said ard. In t&eir *nser 1/ in Civil Case No. CEB-10766 t&e res#ondents o##osed t&e #etitioners 'laim of oners&i# of t&e )a&ug #ro#ert" and alleged t&at t&e titles issued in t&e #etitioners names are defe'tive and illegal( and t&e oners&i# of t&e said #ro#ert" as a'quired in !ad fait& and without value inasmuch as the consideration for the sale is grossly inade$uate and unconscionable# %espondents further alleged that at the time of the sale on April *6' ,-6- Carmen Ozamiz was already ailing and not in full possession of her mental faculties> and t&at &er #ro#erties &aving !een #la'ed in administration( s&e as in effe't in'a#a'itated to 'ontra't it& #etitioners.
Christian Arbiol 1A – San Beda College Alabang School of Law
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%&e #etitioners as ell as t&e notar" #u!li' &o notarized t&e do'uments testified t&at on t&e da" of e3e'ution of t&e said 'ontra't t&at Carmen Ozamiz as of sound mind and t&at s&e voluntaril" and ?noingl" e3e'uted t&e said deed of sale. On a##eal to t&e Court of *##eals( t&e a##ellate 'ourt reversed t&e fa'tual findings of t&e trial 'ourt and ruled t&at t&e ,eed of *!solute ;ale dated *#ril ( 122 was a simulated contract since the petitioners failed to prove that the consideration was actually paid! and! furthermore! that at the time of the e&ecution of the contract the mental faculties of CarmenOzamiz ere alread" seriousl" im#aired. %&us( t&e a##ellate 'ourt de'lared t&at t&e ,eed of *!solute ;ale of A#ri& 2, 199 is null and void. It ordered t&e 'an'ellation of t&e 'ertifi'ates of title issued in t&e #etitioners names and dire'ted t&e issuan'e of ne 'ertifi'ates of title in favor of Carmen Ozamiz or &er estate. Issue@ A&et&er t&e 'ontra't involved is a simulated 'ontra't.
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It &as !een &eld t&at a #erson is not in'a#a'itated to 'ontra't merel" !e'ause of advan'ed "ears or !" reason of #&"si'al infirmities. Onl" &en su'& age or infirmities im#air &er mental fa'ulties to su'& e3tent as to #revent &er from #ro#erl"( intelligentl"( and fairl" #rote'ting &er #ro#ert" rig&ts( is s&e 'onsidered in'a#a'itated. Ae note t&at t&e res#ondents soug&t to im#ugn onl" one do'ument( namel"( t&e ,eed of *!solute ;ale dated A#ri& 2, 199 ( e3e'uted !" Carmen Ozamiz.
The +T ru&ed in favor of the #etitioner: Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
H The ourt is inc&ined to agree ith the contention of o##ositor that the su##osed deed of sa&e in favor of herein #etitioner is )ctitious and si*u&ated and thus void ab initio" The a&&;i*#ortant factor that hat a##ears in the notaria& register of the notary #ub&ic, a&beit in &oose for*, is not a deed of sa&e "ut a $ere aJdavit of a di?erent person .aria J" $egis*undo ;;, as shon in 8hibit 10;A, is suOcient to #rove that no e>ective, va&id and &ega& sa&e of the #ro#erties in uestion as e8ecuted beteen the $i&verio unc&e and ne#he"I %ssue: ?hether the a&&eged contract of sa&e e8ecuted beteen +icardo and d*undo 'res#ondent( is a si*u&ated contract" @e&d: An a!solutel" simulated 'ontra't( under *rti'le 16 of t&e Civil Code( is void. It ta?es /
place when the parties do not intend to be bound at all ./ %&e '&ara'teristi' of simulation is t&e fa't t&at t&e a##arent 'ontra't is not reall" desired or intended to #rodu'e legal effe'ts or in an" a" alter t&e uridi'al situation of t&e #arties. 9/ %&us( where a person! in order to place his property beyond the reach of his creditors! simulates a transfer of it to another! he does not really intend to divest himself of his title and control of the property; hence! the deed of transfer is but a sham .6/ )a'?ing( t&erefore( in a fi'titious and simulated 'ontra't is 'onsent &i'& is essential to a valid and enfor'ea!le 'ontra't. 7/ In &erein 'ase( !adges of fraud and simulation #ermeate t&e &ole transa'tion( t&us( e 'annot !ut refuse to give t&e sale validit" and legitima'". %&ere is no #roof t&at t&e said sale too? #la'e #rior to t&e date of t&e atta'&ment. %&e notarized deed of sale( &i'& ould &ave served as t&e !est eviden'e of t&e transa'tion( did not materialize until $ul" 122( or t&ree 8 "ears after %MBC 'aused t&e annotation of its lien on t&e titles su!e't matter of t&e alleged sale. %&e fa't t&at t&e assailed deed of sale is not one of t&ose su!mitted !" *tt". )a'anilao to t&e Cler? of Court of t&e :%C of Ma?ati Cit" / renders it virtuall" ort&less in t&e a!sen'e of 'orro!oration as to its due e3e'ution ot&er t&an #etitioner no #rivate res#ondent8 Edmundos self-serving statements. %&is !eing t&e 'ase( Edmundo 'ould sim#l" &ave #resented t&e itnesses to t&e transa'tion &is ife and &is la"er8( *tt". )a'anilao or t&e seller &imself( :i'ardo ;r.( to testif" as to t&e e3e'ution of t&e 'ontra't of sale on 11 ;e#tem!er 122. %&is &e did not do( t&us lending more 'reden'e to t&e t&eor" of %MBC t&at t&e sale as entered into onl" as an aftert&oug&t( &at'&ed to #revent t&e transfer of t&e #ro#erties to %MBC after t&e latter &ad alread" annotated its lien t&ereon. Edmundo( to sa" t&e least( as ver" evasive &en questioned regarding details of t&e alleged sale. %&e deed of sale mentioned %&ree Million One
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%&e onl" logi'al 'on'lusion is t&at t&ere as a'tuall" no 'onsideration for t&e said sale. +eril"( a deed of sale in &i'& t&e stated 'onsideration &as not in fa't !een #aid is a false 'ontra't t&at is void ab initio .2/ )i?eise( a 'ontra't of #ur'&ase and sale is null and void and #rodu'es no effe't &atsoever &ere it a##ears t&at t&e/ same is it&out 'ause or 'onsideration &i'& s&ould &ave !een t&e motive t&ereof( or t&e #ur'&ase #ri'e a##ears t&ereon as #aid !ut &i'& in fa't &as never !een #aid !" t&e #ur'&aser to t&e vendor. %&e most #rotu!erant inde3 of simulation is t&e 'om#lete a!sen'e of an attem#t in an" manner on t&e #art of t&e ostensi!le !u"er/ to assert &is rig&ts of oners&i# over t&e #ro#erties/ in question. %&e su##osed !u"ers failure to ta?e e3'lusive #ossession of t&e #ro#ert" allegedl" sold or( in t&e alternative( to 'olle't rentals( is 'ontrar" to t&e #rin'i#le of oners&i#. 90/ ;u'& failure is a 'lear !adge of simulation t&at renders t&e &ole transa'tion void #ursuant to *rti'le 102 of t&e Civil Code.
Abso&ute si*u&ation i*#&ies that there is no e8isting contract, no rea& act e8ecuted7 hi&e fraudu&ent a&ienation *eans that there is a true and e8isting transfer or contract" The for*er can be attac/ed by any creditor, inc&uding one subseuent to the contract7 hi&e the &atter can be assai&ed on&y by the creditors before the a&ienation" %n abso&ute si*u&ation, the inso&vency of the debtor *a/ing the si*u&ated transfer is not a #rereuisite to the nu&&ity of the contract7 hi&e in fraudu&ent a&ienation, the action to rescind, or accion &auliana, reuires that the creditor cannot recover in any other *anner hat is due hi*" ina&&y, the action to dec&are a contract abso&ute&y si*u&ated does not #rescribe 'artic&es 1409 and 1410(7 hi&e the accion &auliana to rescind a fraudu&ent a&ienation #rescribes in four years 'artic&e 139("
Ce&a ru v" Ce&a ru &his !etition see4s to annul and set aside the decision & of the Court of A!!eals% !ro$ulgated on Se!te$ber 1=% ,---% in CAG*.. C; )o. /89% affir$ing the decision ; of the egional &rial Court @&C> of "alolos% Bulacan% Branch 18% dated +ece$ber 1=% 199% in Civil Case )o. /8G"G<9. &he trial court dis$issed the co$!laint in Civil Case )o. /8G"G<9 and held that herein res!ondents Clar4 and +ivina *utierre? are the lawful owners of the !ro!ert( in dis!ute. Petitioners also see4 to annul the a!!ellate courtEs resolution% + dated )ove$ber ,<% ,---% den(ing their $otion for reconsideration. Paciencia dela Cru?% the original !laintiff in Civil Case )o. /8G"G<9% was the owner of a !arcel of land with an area of two @,> ares 3 and ninet( @9-> centares% . located at Lolo$bo(% Bocaue% Bulacan. Said !arcel was registered in her na$e under &ransfer Certificate of &itle @&C&> )o. &G1=.< @">. A flea $ar4et @talipapa> with fift( or so vendors was located on the !ro!ert( and Paciencia collected fro$ the$ their dail( stall rentals. Paciencia had si @> children% na$el( Priscilla% 7rlinda% Fortunato% Flora% Angelita and Menaida% all surna$ed dela Cru?.
Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
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On Se!te$ber ,% 19<-% Paciencia allegedly executed a Deed of ale whereb( for and in consideration of P,1%---% she conve(ed said !arcel in favor of her son% Fortunato dela Cru?. * On )ove$ber ,% 19<-% the egister of +eeds of Bulacan issued &C& )o. &G/=.8,/ @"> in FortunatoEs na$e. ) Fortunato declared the !ro!ert( for taation !ur!oses and !aid realt( taes due thereon. 1 ometime between ugust &(1. to eptember &(11, Fortunato mortgaged the property three :+< times to one 6rlinda de BuIman for the sums of P;.,, P., and P&,# ( Fortunato was unable to pay these loans. On #anuar( 11% 19<9% Fortunato eecuted a
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considered in good faith% according to res!ondents% it is enough that he ea$ined the latest certificate of title% which was issued in the na$e of the i$$ediate transferor. 7his the ButierreIes did# $oreover, they had reason to believe that respondent Fortunato dela CruI9s title was free from flaws and defects upon learning that the latter was the one collecting the daily stall rentals from the tenants and the fact that respondent Fortunato had mortgaged the said property three :+< times and was then selling the !ro!ert( to !a( off his loans. 2ssue: 5hether the Contract is a Si$ulated Sale 6eld: 2n the !resent case% it is not dis!uted that Paciencia dela Cru? eecuted a +eed of Sale in favor of her son% res!ondent Fortunato dela Cru?. 6owever% !etitioners insist that the said docu$ent does not reflect the true intention and agree$ent of the !arties. According to !etitioners% Fortunato was to $erel( hold the !ro!ert( in trust for their $other and that ownershi! thereof would re$ain with the $other. Petitioners, however, failed to produce even one credible witness who could categorically testify that such was the intent of Paciencia and Fortunato# &here is nothing on record to su!!ort sufficientl( !etitionersE contention. 2nstead% the evidence is unclear on whether Paciencia in her lifeti$e% or later the !etitioners the$selves% actuall( asserted or atte$!ted to assert rights of ownershi! over the sub'ect !ro!ert( after the alleged sale thereof to Fortunato. &he lot in dis!ute was thrice $ortgaged b( Fortunato with nar( a !rotest or co$!laint fro$ !etitioners. hen they learned that Fortunato mortgaged the property to 6rlinda de BuIman on three occasionsJ ugust ;*, &(1., pril *, &(1) and eptember ), &(11, they refused to redeem the property. &he( reasoned that if the( would redee$ the !ro!ert( and !a( the debts of Fortunato% the !ro!ert( would $erel( return to hi$. &1 2ndeed% how could Fortunato have thrice obtained a $ortgage over the !ro!ert(% without having do$inion over it Fortunato declared the !ro!ert( in his na$e for taation !ur!oses and !aid the realt( taes% without any protest fro$ Paciencia or !etitioners. 6is actions are contrar( to !etitionersE allegation that the !arties never intended to be bound b( the assailed contract. 7ax receipts and declaration of ownership for taxation purposes are strong evidence of ownership# For Article 1//, to a!!l(% it $ust first be convincingl( established that the illiterate or disadvantaged !art( could not read or understand the language in which the contract was written% ;& or that the contract was left une!lained to said !art(. Petitioners failed to discharge this burden. &he +eed of Absolute Sale dated Se!te$ber ,% 19<- was dul( ac4nowledged before a notar( !ublic. As a notari?ed docu$ent% it has in its favor the !resu$!tion of regularit( and it carries the evidentiar( weight conferred u!on it with res!ect to its due eecution. 2t is ad$issible in evidence without further !roof of its authenticit( and is entitled to full faith and credit u!on its face. &his
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to !urchase the !ro!ert(. 6ence% we entertain no doubt that the res!ondent *utierre?es were !urchasers for value and in good faith. Arrogante v. +eliarte Facts: 2t a!!ears that the lot in controvers(% Lot )o. =8,GA @sub'ect lot>% is situated in 4oblacion +aanbanta(an% Cebu% and was originally conjugal property of the s!ouses Bernabe +eliarte% Sr. and *regoria Placencia who had nine children% including herein res!ondent Beethoven +eliarte and !etitioner Fe +eliarteArrogante. &he other !etitioners% Lordito% #ohnston% and Ar$e% #r.% all surna$ed Arrogante% are the children of Fe and% thus% ne!hews of Beethoven. es!ondent Leonora +uenas is the wife of Beethoven. A series of $isfortunes struc4 the +eliarte fa$il(. &he first traged( occurred when a brother of Beethoven and Fe was hos!itali?ed and eventuall( died in +avao. Beethoven shouldered the hos!itali?ation and other related e!enses% including the trans!ort of the bod( fro$ +avao to Cebu and then to +aanbanta(an. &he net occurrence too4 !lace a (ear after% when *regoria was li4ewise hos!itali?ed and subse0uentl( died on #ul( ,9% 198<. Once again% Beethoven !aid for all necessar( e!enses. Soon thereafter% it was Bernabe% the !artiesE ailing father% who died on )ove$ber 8% 19<-. )ot sur!risingl(% it was Beethoven who s!ent for their fatherEs hos!itali?ation and burial. 2n between the deaths of *regoria and Bernabe% on )ove$ber 1% 198<% the +eliarte siblings agreed to waive and conve( in favor of Beethoven all their rights% interests% and clai$s to the sub'ect lot in consideration of P1%---.--. + At the signing of the deed of absolute sale% the siblings who failed to attend the fa$il( gathering% either because the( were dead or were si$!l( unable to% were represented by their respective spouses who signed the document on their behalf . 3 Bernabe% who was alread( blind at that ti$e% was li4ewise !resent and 4new of the sale that too4 !lace a$ong his children. &hus% fro$ then on% Beethoven occu!ied and !ossessed the sub'ect lot o!enl(% !eacefull(% and in the conce!t of owner. 6e eercised full ownershi! and control over the sub'ect lot without an( ob'ection fro$ all his siblings% or their heirs% until 199/ when the controvers( arose. . 2n fact% on "arch ,% 19<% all of BeethovenEs siblings% ece!t Fe% signed a deed of confir$ation of sale in favor of Beethoven to ratif( the 198< !rivate deed of sale. So$eti$e in August 199/% !etitioner Lordito Arrogante installed !lacards on the fence erected b( res!ondents% clai$ing that the sub'ect lot was illegall( ac0uired b( the latter. * 7he placards depicted 5eethoven as a land grabber who had unconscionably ta!en the subject lot from "ordito who claimed that the lot is a devise from his grandfather. ) Allegedl(% the be0ueathal was $ade in BernabeEs last will and testa$ent which was% unfortunatel(% torn u! and destro(ed b( Beethoven. 2n their answer% the !etitioners averred that Beethoven does not own the whole of the sub'ect lot because Bernabe was still alive in 198< when BeethovenEs siblings sold to hi$ all their rights and clai$s to and interests in that lot. &hus% the siblings could sell onl( their res!ective inheritance fro$ oneGhalf of the sub'ect lot% re!resenting *regoriaEs share in the con'ugal !ro!ert(. Corollaril(% the !etitioners clai$ed that Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests Fe continues to own &/( of one>half of the subject lot% co$!rising BernabeEs share of the !ro!ert(% which allegedl( was not conte$!lated in the conve(ance in 198<. According to !etitioners% this contention is su!!orted b( FeEs failure to sign the deed of confir$ation of sale in 19<.
On a!!eal% the CA affir$ed the trial courtEs decision but deleted the award of attorne(Es fees and litigation e!enses. 8n ruling for the respondents, both the trial and appellate courts upheld the validity of the &()1 sale as between the parties# Considering that petitioner Fe signed the document and consented to the transaction, she is now barred from repudiating the terms thereof# 2n this regard% the &C and the CA a!!lied the !arole evidence rule and allowed the introduction of evidence on the additional consideration for the conve(ance% na$el(% the e!enses incurred b( Beethoven during the three tragedies that had befallen the +eliarte fa$il(. Both courts found that the sale was alread( co$!letel( eecuted% thus re$oving it fro$ the a$bit of the Statute of Frauds. 2ssue: 5hether the waiver of their future inheritance is a valid ob'ect of a contract. 6eld: Article 1/=8% !aragra!h , of the Civil Code characteri?es a contract entered into u!on future inheritance as void. & &he law a!!lies when the following re0uisites concur: @1> the succession has not (et been o!ened3 @,> the ob'ect of the contract for$s !art of the inheritance3 and @/> the !ro$issor has% with res!ect to the ob'ect% an e!ectanc( of a right which is !urel( hereditar( in nature. &rue% the !rohibition on contracts res!ecting future inheritance ad$its of ece!tions% as when a !erson !artitions his estate b( an act inter vivos under Article 1-<- of the Civil Code. &; 6owever% the !rivate deed of sale does not !ur!ort to be a !artition of BernabeEs estate as would ee$!t it fro$ the a!!lication of Article 1/=8. )owhere in the said docu$ent does Bernabe se!arate% divide% and assign to his children his share in the sub'ect lot effective onl( u!on his death. &+ 2ndeed% the docu$ent does not even bear the signature of Bernabe.
Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
Londres v. CA Facts: &he !resent case ste$$ed fro$ a battle of ownershi! over Lots 1/,- and 1/// both located in Barrio Ba(ba(% oas Cit(% Ca!i?. Paulina Arcenas @Paulina for brevit(> originall( owned these two !arcels of land. After PaulinaEs death% ownershi! of the lots !assed to her daughter% Filo$ena ;idal @Filo$ena for brevit(>. &he surviving children of Filo$ena% na$el(% Sonia Fuentes Londres @Sonia for brevit(>% Ar$ando ;. Fuentes% ChiGChita Fuentes Nuintia% oberto ;. Fuentes% Leo!oldo ;. Fuentes and "arilou Fuentes 7s!lana @!etitioners for brevit(> now clai$ ownershi! over Lots 1/,- and 1///. On the other hand% !rivate res!ondents Consolacion Alivio Alovera @Consolacion for brevit(> and 7lena Alovera Santos @7lena for brevit(> anchor their right of ownership over "ots &+; and &+++ on the bsolute ale eecuted b( Filo$ena on A!ril ,=% 199 @Absolute Sale for brevit(>. Filo$ena sold the two lots in favor of Consolacion and her husband% #ulian Alovera @#ulian for brevit(>. 7lena is the daughter of Consolacion and #ulian @deceased>. On "arch /-% 19<9% petitioners filed a complaint for the declaration of nullity of contract% da$ages and 'ust co$!ensation. Petitioners sought to nullif( the Absolute Sale conve(ing Lots 1/,- and 1/// and to recover 'ust co$!ensation fro$ !ublic res!ondents +e!art$ent of Public 5or4s and 6ighwa(s @+P56 for brevit(> and +e!art$ent of &rans!ortation and Co$$unication @+O&C for brevit(>. &he case was raffled to the egional &rial Court% Branch 1<% oas Cit(% Ca!i? and doc4eted as Civil Case )o. ;G<.
Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests Petitioners clai$ed that these two lots were never sold to #ulian. Petitioners doubt the validity of the bsolute ale because it was tampered# &he cadastral lot nu$ber of the second lot $entioned in the Absolute Sale was altered to read Lot 1/// when it was originall( written as Lot ,-/=. Petitioners !ointed out that Lot ,-/=% situated in Barrio Culasi% oas Cit(% Ca!i?% was also owned b( their grand$other% Paulina. !on further in0uir(% petitioners discovered that there exists a notariIed bsolute ale executed on pril ;3, &(.( registered only on eptember ;;, &(1; in the Office of the egister of +eeds of oas Cit(. &he !rivate res!ondentsE co!( of the Absolute Sale was ta$!ered so that the second !arcel oflot sold% Lot ,-/= would read as Lot 1///. 6owever% the ecords "anage$ent and Archives Office 4e!t an unaltered co!( of the Absolute Sale. &his other co!( shows that the ob'ects of the sale were Lots 1/,and ,-/=. 2n their Answer% !rivate res!ondents $aintained that the( are the legal owners of Lots 1/// and 1/,-. 2ulian purchased the lots from Filomena in good faith and for a valid consideration# Private respondents explained that 2ulian was deaf and dumb and as such, was placed in a disadvantageous position compared to Filomena. 2ulian had to rely on the representation of other persons in his business transactions# After the sale% #ulian and Consolacion too4 !ossession of the lots. ! to now% the s!ousesE successorsGinGinterest are in !ossession of the lots in the conce!t of owners. Private res!ondents clai$ed that the alteration in the Absolute Sale was $ade b( Filo$ena to $a4e it confor$ to the descri!tion of the lot in the Absolute Sale. Private res!ondents filed a counterclai$ with da$ages. 7he cross>claim of petitioners against public respondents was for the recovery of just compensation# Petitioners clai$ed that during the lifeti$e of Paulina% !ublic res!ondents too4 a +,;> s-uare meter portion of "ot &+;# 7he land was used as part of the rnaldo 5oulevard in %oxas City without an( !a($ent of 'ust co$!ensation. 8n &(11, public respondents also appropriated a &,)1*>s-uare meter portion of "ot &+++ as a vehicular par!ing area for the %oxas City irport# Sonia% one of the !etitioners% eecuted a deed of absolute sale in favor of the e!ublic of the Phili!!ines over this !ortion of Lot 1///. According to !etitioners% the vendee agreed to !a( !etitioners P,1=%/,-.--. +es!ite de$ands% the vendee failed to !a( the sti!ulated a$ount. ,= uling of the &rial Court &he trial court further noted that while !etitioners and !rivate res!ondents clai$ed that Lots 1/,- and 1/// are titled% both failed to account for the certificates of title. 7he trial court then concluded that there is merely a disputable presumption that "ots &+; and &+++ are titled and covered by certificates of title# &he trial court further declared that ownershi! over the two lots can still be ac0uired
b( ordinar( !rescri!tion as in this case.
24 The +T ru&ed in favor of the res#ondents decå Ju&ian A&overa as the oner of the dis#uted &ots hich as subseuent&y aOr*ed by the A, as the dis#uted reso&ution" Christian Arbiol 1A – San Beda College Alabang School of Law
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Private respondents and their predecessors>in>interest have been in continuous possession of "ots &+; and &+++ for nearly + years in good faith and with just title# &he ta declarations issued in the
na$e of Consolacion and the real estate taes !aid b( !rivate res!ondents are strong evidence of ownershi! over Lots 1/,- and 1///. Petitioners9 late filing of the complaint, + years after the execution of the bsolute ale or seven years after the registration of the same, was considered by the trial court as laches#
&he trial court gave $ore credence to the e!lanation of !rivate res!ondents as to wh( the Absolute Sale was altered. Consolacion noticed that the lot nu$ber of the second !arcel of land sold to the$ b( Filo$ena under the Absolute Sale a!!eared to be Lot ,-/= and not Lot 1///. &ogether with her husband% #ulian% Consolacion went to Filo$ena. 8t was Filomena who erased "ot ;+3 in the deed of sale and changed it to "ot &+++# 4owever, the copies of the document in the custody of the Notary Public were not correspondingly corrected# Conse0uentl(% the co!ies 4e!t b(
the ecords "anage$ent and Archives Office still referred to the second !arcel of land sold as Lot ,-/=. uling of the CA &he Court of A!!eals sustained the factual findings of the trial court% s!ecificall( the si !oints enu$erated b( the trial court establishing Lots 1/,- and 1/// as the ob'ects of the Absolute Sale. A!!l(ing Article 1/8- of the Civil Code% ( the Court of ppeals agreed with the trial court that there could be no room for interpretation as to the intention of the parties on the objects of their contract# &here was nothing in the records to indicate that !etitioners had actual or constructive 4nowledge of the sale of the two lots to #ulian. &he docu$ent on file with the ecords "anage$ent Archives Office alluded to a !arcel of land deno$inated as Lot ,-/= which is different fro$ the !ro!ert( in 0uestion% Lot 1///. 8t was only during the hearing of the case that it was made clear through the presentation of evidence that the lot referred to in the bsolute ale was "ot &+++, not "ot ;+3, in addition to "ot &+;# 8ssueJ hether the deed of absolute sale can be declared as void since there was no certainty as to the object of the sale#;. %uling of the C
&he Absolute Sale is clear as to the first !arcel of lot sold% which is Lot 1/,-. 5hat raises so$e doubt is the identit( of the second !arcel of lot sold. 2s it Lot ,-/= as indicated in the registered co!( of the Absolute Sale Or is it Lot 1/// as $ade to a!!ear in the co!( of the Absolute Sale of !rivate res!ondents 5e are not !ersuaded. Petitioners rely on the technical descriptions of "ots &+; and &+++ that were issued by the 5ureau of "ands on November 1, &(11# 2t $ust be !ointed out that when !rivate
2 The &ot in uestion as Lot 2034, instead of the rea& &ot hich is Lot 1333 Christian Arbiol 1A – San Beda College Alabang School of Law
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res!ondents and Filo$ena eecuted the sale in 199% the( based the descri!tion of the two lots on the ta declarations of Filo$ena. 6arly tax declarations are, more often than not, based on approximation or estimation rather than on computation# &( &his is understandabl( so because of the absence then of technical 4nowledge in the accurate $easure$ent of lands. ; 5hat reall( defines a !iece of land is not the area $entioned in its descri!tion% but the boundaries therein laid down% as enclosing the land and indicating its li$its. ;& 8n this case, the boundaries of the two lots are sufficiently designated in the bsolute ale, leaving no room to doubt the identity of the objects of the sale# Proof of the conve(ance of ownershi! is the fact that fro$ the ti$e of the sale% or after $ore than /(ears% !rivate res!ondents have been in !ossession of Lots 1/,- and 1///. Petitioners on the other hand have never been in possession of the two lots# 8n the first place, "ot ;+3 could not have been contemplated by the parties since this parcel of land was never owned by Filomena, or by her mother, Paulina# Secondl(% Lot ,-/= does not fit the description of the second !arcel of lot $entioned in the Absolute Sale. &he Absolute Sale describes the second lot as located in Baranga( Ba(ba(% oas Cit(. Lot ,-/= is situated in Baranga( Culasi% oas Cit(.
2n resolving the si$ilar case of !tilano vs. !tilano% ;3 where there was also a mista!e in the designation of the lot number sold% the Court too4 into account facts and circu$stances to uncover the true intentions of the !arties. 7he Court held that when one sells or buys real property, one sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds % and not b( the $ere lot nu$ber assigned to it in the certificate oftitle. s long as the true intentions of the parties are evident, the mista!e will not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them# 2n this case% the evidence shows that the designation of the second parcel of land sold as "ot ;+3 was merely an oversight or a typographical error# &he intention of the !arties to the Absolute Sale beca$e un$ista4abl( clear when !rivate res!ondents% as vendees% too4 !ossession of Lots 1/,- and 1/// in the conce!t of owners without the ob'ection of Filo$ena% the vendor. Petitioners harp on the fact that the notariIed and registered copy of the bsolute ale should have been correspondingly corrected# Petitioners believe that the notariIed and archived copy should prevail# 5e disagree. A contract of sale is !erfected at the $o$ent there is a $eeting of the $inds u!on the thing which is the ob'ect of the contract and u!on the !rice. ;. Being consensual% a contract of sale has the force of law between the contracting !arties and the( are e!ected to abide in good faith with their res!ective contractual co$$it$ents. ;* rticle &+.1 of the Civil Code, which re-uires certain contracts to be embodied in a public instrument, is only for convenience, and registration of the instrument is needed only to adversely affect third parties# ;) For$al re0uire$ents are% therefore% for the !ur!ose of binding or infor$ing third !arties. ;1 )onGco$!liance with for$al re0uire$ents does not adversel( affect the validit( of the contract or the contractual rights and obligations of the !arties.
Al$ira v. CA Before us is a !etition for review on certiorari assailing the decision rendered b( the Court of A!!eals in C.A. *.. C; )o. =-9= & which reversed the decision of the egional &rial Court% Branch /,% of San Pedro% Laguna that rescinded the Jasunduan ng Pagbibilihan ; entered into between !etitioners and !rivate res!ondent over a !ortion of a !arcel of land situated in Sta. osa% Laguna. Christian Arbiol 1A – San Beda College Alabang School of Law
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Petitioners are the wife and the children of the late #ulio *arcia who inherited fro$ his $other% "aria Alibudbud% a !ortion of a 9-% s0uareG$eter !ro!ert( deno$inated as Lot 1=, of the Sta. osa 7state in Baranga( Caingin% Sta. osa% Laguna and covered b( &C& )o. &G1-8. Lot 1=, was coGowned and registered in the na$es of three !ersons with the following shares: ;icente de *u?$an @1K,>% 7nri0ue 6e$edes @1K=>% and Francisco Alibudbud% the father of "aria Alibudbud @1K=>. lthough there was no separate title in the name of 2ulio Barcia, there were tax declarations in his name to the extent of his grandfather9s share covering an area of ,1%=- s0uare $eters. On #ul( % 19<=% !etitioners% as heirs of #ulio *arcia% and res!ondent Federico Briones entered into a
Christian Arbiol 1A – San Beda College Alabang School of Law
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&he a!!ellate court , o!ined that the !arties intended to refer to a se!arate title over the ,1%=- s0uare $eter lot when the
&hat the !arties agreed on deliver( of a se!arate title in the na$e of #ulio *arcia as a condition for res!ondentEs !a($ent of the balance of the !urchase !rice is bolstered by the fact that there was already an approved subdivision plan of the ,1%=- s0uareG$eter lot (ears before !etitioners filed an action in court for rescission.
25 %t reversed the ru&ing of the +T" 2< $ince it ou&d be i*#ossib&e to have the se#arate tit&e issued in his favor ithin the ti*e sti#u&ated '5 *os"( Christian Arbiol 1A – San Beda College Alabang School of Law
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Finall(% we note that% as 0uoted earlier% the
!aragra!hof the
the
&here is nothing in the
Christian Arbiol 1A – San Beda College Alabang School of Law
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waive the !erfor$ance of the condition i$!osed on his obligation to !a( the balance of the !urchase !rice.
Constantino v. Sandigan"ayan Before us are two @,> consolidated !etitions% the deter$ination of both rests ulti$atel( on whether Feli!e J. Constantino @Constantino>% $a(or of "alungon% Sarangani Province% was indeed guilt( be(ond reasonable doubt of violating Section / @e> of e!ublic Act )o. /-19 @.A. )o. /-19>% otherwise 4nown as 'he !nti*%raft and "orrupt 4ractices !ct . &he co$!laint against hi$ is read: &hat on or about Februar( ,<% 199% in +avao Cit(% Phili!!ines% and within the 'urisdiction of this 6onorable Court% accused Felipe A# Constantino, a public officer, being then the $ayor of the $unicipality of $alungon, arangani Province, committing the crime herein>charged in relation to, while in the performance and ta!ing advantage of his official functions, with evident bad faith, manifest partiality or through gross inexcusable negligence, and conspiring and confederating with accused Norberto N# "indong% President and Chair$an of the Board of the )orlovanian Cor!oration% +avao Cit(% did then and there willQfull(% unlawfull( and criminally enter into a "ease greement for the rental of various heavy e-uipments (sic) for a period of six :*< years for and in consideration of the su$ of P7SOS: &5O 6)+7+ F2F&DGS7;7) &6OSA)+ O)7 6)+7+ 7L7;7) and 11K1-@P,8%111.11> !er $onth or a total consideration of P60J 68B4766N $8""80N F8@6 4END%6D 6"6@6N 740END N8N6 4END%6D N8N67?>N8N6 and (;/& :P&1,.&&,(((#(;< and a guarant( de!osit of P60J 0N6 $8""80N 6@6N 4END%6D 68B47? 740END @P1%8<-%---.--> contrar( to the e!ress $andate of esolution )o. ,% series of 199% of the "unici!al Planning and +evelo!$ent Council i$!le$enting Sangguniang Ba(an esolution )o. 19<% series of 199 and Sangguniang Ba(an esolution )o. ,1 dated Februar( ,,% 199 authori?ing the "unici!al "a(or of "alungon to enter into an agree$ent for the !urchase of heav( e0ui!$ents (sic) on a fiveG(ear ter$ basis for and in consideration of the a$ount of P7SOS: 70 $8""80N 70 4END%6D 740END :P;,;,#< !er (ear or a total consideration of only P60J 6"6@6N $8""80N :P&&,,#<% thus, giving said Norlovanian Corporation, which was full( !aid for the *uarant( +e!osit and was actuall( !aid heav( e0ui!$ent rentals for the !eriod "arch to "a( % 199 in the aggregate su$ of P60J 70 $8""80N 0N6 4END%6D 6@6N7?>6@6N 740END N8N67? and (&/& :P;,&)),(#(&>% unwarranted benefits and advantage and causing undue injury to the government#
&he "unici!alit( of "alungon listed as one of its priority programs % the ac0uisition of a fleet of heav( e0ui!$ent needed b( the $unici!alit( in its develo!$ent !ro'ects. . For this !ur!ose% it a!!ro!riated an a$ount of P,., "illion per annum for a !eriod of five @> (ears beginning in 199 for the a$orti?ation of such !urchase. * Pursuant thereto% the municipality conducted two :;< public biddings for suppliers of the re-uired fleet of heavy e-uipment# 5oth attempts, however, failed# 6ence% the Sangguniang Bayan instead !assed esolution )o. ,1 on ,, Februar( 199% authori?ing !etitioner Constantino to enter into a negotiated contract for the leaseK!urchase of the needed fleet of heav( e0ui!$ent. On ,< Februar( 199% Constantino entered into a 7ease !greement 1 with )orlovanian Cor!oration% re!resented b( Lindong. 7he agreement re-uired, among others, the municipality to provide Norlovanian Corporation with a guaranty deposit# &he following da(% Lindong a!!eared before theSangguniang Bayan to discuss the 7ease !greement . )ot one of the $e$bers of the Sanggunian 0uestioned the legalit( of the agree$ent. Christian Arbiol 1A – San Beda College Alabang School of Law
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1< A!ril 199%
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the Sangguniang Bayan unani$ousl( !assed esolution )o.
/< &; re0uesting !etitioner to o!erate the newl( ac0uired fleet of heav( e0ui!$ent. &he $unici!alit( subse0uentl( utili?ed the fleet. &+ 6owever% onl( five @> da(s later% or on ,/ A!ril 199% Sanggunian $e$bers Ben'a$in C. Asga!o% afael #. Suson% Sr. @Suson>% Leo *. 2nga( @2nga(>% Pablo ;. Octavio @Octavio> and 5ilfredo P. 7s!inosa @7s!inosa>% and ;ice "a(or Pri$itiva L. 7s!inosa @;ice "a(or 7s!inosa> filed a for$al co$!laint against !etitioners Constantino and Lindong for violation of .A. )o. /-19. On #une 199% the Sangguniang Bayan !assed esolution )o. =8% urging the $unici!alit( to sto! all for$s of unauthori?ed !a($entKe!enditure relative to the illegall( ac0uired !ool of heav( e0ui!$ent b( the "unici!alit( of "alungon. 2n #anuar( 1998% &o$anan ,< sub$itted his re!ort detailing the following adverse findings relative to the !urchase of the sub'ect fleet of heav( e0ui!$ent: @a> the lease/purchase contract was disadvantageous to the municipal government because of the rigid terms and conditions therein re-uired of the municipality before the latter could ac-uire ownership over the pool of heavy e-uipment3 @b> Norlovanian Corporation had no proof of ownership of the fleet of e-uipment as the audit revealed that title to the e-uipment was in the name of "indong;(3 @c> the lease/purchase procedure violated ections ;) and ;1 of the %ules and %egulations on Su!!l( and Pro!ert(
"anage$ent in Local *overn$ents3 &* and @d> the lease/purchase procedure utiliIed by the municipality was uneconomical and resulted to a wastage of P(,*.1,# of government funds
&he defense !resented Lindong as its sole witness. According to Lindong% after negotiations between hi$self and !etitioner Constantino% together with so$e $e$bers of the Sanggunian% the !arties agreed to a leaseK!urchase sche$e in accordance with the $andate of esolution )o. ,1. &he( agreed that since the $unici!alit( did not have sufficient funds to bu( the fleet of heav( e0ui!$ent outright at P<.9 "illion% the latter would !urchase the sub'ect e0ui!$ent on install$ent basis but with allowance for )orlovanian Cor!oration to recover so$e incre$ental cost. 7hus, on the very same day, ;1 February &((*, "indong as representative of Norlovanian Corporation and Constantino as representative of the municipality entered into the lease/purchase agreement# 7hey contemporaneously executed the
2 An oOcer of the o**ission of Audit6-rovincia& auditor 29 o;accused of the #etioner Christian Arbiol 1A – San Beda College Alabang School of Law
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"ease greement and Enderta!ing in the presence of the members of the 3anggunian who accompanied the mayor#
Lindong further testified that he attended the $unici!al council $eeting on ,9 Februar( 199 to !rovide the $e$bers thereof with a co!( of the lease contract and to e!lain the transaction. $oreover, he explained that notwithstanding the fact that the main agreement was captioned only as a "ease greement, the same being a standard pre>printed form of his corporation, the intent of the parties was to enter into a lease/purchase agreement# 4ence, he clarified that the Enderta!ing he executed bound him to convey ownership over the fleet of heavy e-uipment to the municipality upon the full payment thereof# 5ith the de$ise of Constantino during the !endenc( of his a!!eal , the same should normally be regarded as moot and academic following the norm that the death of the accused mar!s the extinction of his criminal liability . ;* 6owever% the !resent two !etitions are so intertwined that the
absolution of Constantino is ulti$atel( deter$inative of the absolution of Lindong. 8ndeed, the exoneration of Constantino will necessarily signify the injustice of carrying out the penalty imposed on "indong# &hus% the Court in this instance has to ascertain the $erits of ConstantinoEs a!!eal to !revent
a develo!ing $iscarriage of 'ustice against Lindong. &he $oot and acade$ic !rinci!le is not a $agical for$ula that can auto$aticall( dissuade the courts in resolving a case. 2n the instant case% the ece!tional character of the a!!eals of Constantino and Lindong in relation to each other% as well as the higher interest of 'ustice% re0uires that the Court deter$ine the $erits of the !etition and not dis$iss the sa$e outright on the ground of $ootness. s to the finding of andiganbayan
6owever% the res!ondent court found that ConstantinoEs act of entering into a !ur!ortedl( pure lease agreement instead of a lease/purchase agreement was a flagrant violation of %esolution No# ;&# 2n view of the rigid ter$s of the sub'ect contract to which Constantino assented% cou!led b( his failure to secure the concurrence of the Sangguniang Bayan before entering into the agree$ent% the Sandiganba(an found that his conduct constituted gross inecusable negligence. 3; Li4ewise% the antiG graft court ruled that ConstantinoEs acts resulted in undue in'ur( to the "unici!alit( of "alungon. 3+ )otabl(% in the course of trial% the !rosecution ad$itted that it had no !roof that unwarranted benefits and advantage had been given to )orlovanian Cor!oration. uling of the Court Petitioner Constantino i$!ugned his conviction and asserted that the Sandiganba(an erred in convicting hi$ based on its finding that he violated esolution )o. ,1 b( entering into a Lease Agree$ent with the )orlovanian Cor!oration and for his failure to sign the accompanying Enderta!ing# Li4ewise% he argued that the evidence adduced b( the !rosecution was insufficient to overco$e the constitutional Christian Arbiol 1A – San Beda College Alabang School of Law
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!resu$!tion of innocence in his favor. Finall(% Constantino contended that it was error for the Sandiganba(an to disregard the findings of the Su!re$e Court en banc in the earlier case of "onstantino v. >on. 5mbudsman ?esierto. ndoubtedl(% the standard of cul!abilit( i$!osed b( Section / of .A. )o. /-19 is -uite high which, in this case, was not hurdled by the evidence presented against Constantino# ;eril(% the !rosecution failed to satisf( the re0uisite !roof to de$onstrate ConstantinoEs guilt be(ond reasonable doubt. 5hile Constantino should have eercised $ore !rudence when he transacted with )orlovanian Cor!oration% he could not however be held liable for gross inecusable negligence as conte$!lated in .A. )o. /-19. 2ndeed% in the earlier case of "onstantino v. ?esierto % 3. the Court had alread( $ade an e!ress finding that !etitioner Constantino did not violate the mandate of %esolution No# ;& but instead merely carried out its directive: 8t is difficult to see how the transaction between the $ayor and Norlovanian Corporation L entered into pursuant to %esolution No# ;& L and tacitly accepted and approved by the town Council through its %esolution No# +1 L could be deemed an infringement of the same %esolution No# ;&# 8n truth, an examination of the pertinent writings :the resolution, the two :;< instruments constituting the negotiated contract, and the certificate of delivery< unavoidably confirms their integrity and congruity# 8t is in fine, difficult to see how those pertinent written instrument, could establish a prima facie case to warrant the preventive suspension of $ayor Constantino# person with the most elementary grasp of the 6nglish language would, from merely scanning those material documents, at once realiIe that the $ayor had done nothing but carry out the expressed wishes of the angguniang 5ayan#
&he investigator also o!ined that esolution )o. ,1 should be inter!reted in light of other official docu$ents% eecuted a (ear earlier. 6e *raft Prosecutor BuenaQ does not e!lain wh( he did not ado!t the $ore obvious construction of esolution )o. ,1 indicated b( the ele$entar( doctrine that it is within the !ower and !rerogative of the town council to re!eal its !rior acts% either e!ressl(% or b( the !assage of essentiall( inconsistent resolutions. hen the town council passed %esolution No# ;& without any mention whatever of those prior official documents respecting the ac-uisition to heavy e-uipment, the evident intention was to supersede them and to have such ac-uisition governed solely by %esolution No# ;&# 7his conclusion is strongly supported by the fact that the anggunian expressly admitted L in the econd hereas Clause of its %esolution No# ;& L that there had been a ;failure of bidders to submit bids despite of two biddings . . . public announcement; Msic L the two biddings being obviously related to said earlier official acts of the town council# 7he conclusion is further bolstered by the fact that the Council :with full awareness of said negotiated contract ,< and of the delivery of e-uipment thereunder, had re-uested the $ayor to put the e-uipment into operation for the town projects# 7he Court is thus satisfied that it was in fact the Council9s intention, which it expressed in clear language, to confer on the $ayor ample discretion to execute a negotiated contract with any interested party, without regard to any official acts of the Council prior to %esolution No# ;&#
2t is also difficult to see wh( the !atent inaccuracies in the affidavitGco$!laint and esolution )o. =8 were ignored R as difficult to understand how the eecution of two writings @the contract and the attached underta4ing> to e$bod( one contract of leaseK!urchase could be regarded as fatall( defective% and even indicative of a cri$inal cons!irac(% or wh( said two writings should be inter!reted in such a wa ( as to $agnif( their see$ing inconsistencies. 7he fundamental and familiar legal principle L which the 0ffice of the 0mbudsman ignored L is that it is perfectly legitimate for a bilateral contract to Christian Arbiol 1A – San Beda College Alabang School of Law
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be embodied in two or more separate writings, and that in such an event the writings should be read and interpreted together in such a way as to eliminate seeming inconsistencies and render the parties9 intention effectual#
2t $a( be true that the basis of ad$inistrative liabilit( differs fro$ cri$inal liabilit( as the !ur!ose of ad$inistrative !roceedings on the one hand is $ainl( to !rotect the !ublic service% based on the ti$eG honored !rinci!le that a !ublic office is a !ublic trust. On the other hand% the !ur!ose of the cri$inal !rosecution is the !unish$ent of cri$e. . 6owever% the dis$issal b( the Court of the ad$inistrative case against Constantino based on the sa$e sub'ect $atter and after ea$ining the sa$e crucial evidence o!erates to dis$iss the cri$inal case because of the !recise finding that the act fro$ which liabilit( is anchored does not eist. 2t is li4ewise clear fro$ the decision of the Court in "onstantino that the level of proof re&uired in administrative cases which is substantial evidence was not mustered therein. 'he same evidence is again before the "ourt in connection with the appeal in the criminal case. *neluctably, the same evidence cannot with greater reason satisfy the higher standard in criminal cases such as the present case which is evidence beyond reasonable doubt .@ 7he elementary principle is that it is perfectly legitimate for a bilateral contract + to be embodied in two or more separate writings, and that in such an event the writings should be read and interpreted together in such a wa( as to eli$inate see$ing inconsistencies and render the intention of
the !arties effectual. 2n construing a written contract% the reason behind and the circu$stances surrounding its eecution are of !ara$ount i$!ortance to !lace the inter!reter in the situation occu!ied b( the !arties concerned at the ti$e the writing was eecuted. Construction of the ter$s of a contract% which would a$ount to i$!air$ent or loss of right% is not favored. Conservation and !reservation% not waiver% abandon$ent or forfeiture of a right% is the rule. 2n case of doubts in contracts% the sa$e should be settled in favor of the greatest reci!rocit( of interests. 7scano v. Ortigas &he $ain contention raised in this !etition is that !etitioners are not under obligation to rei$burse res!ondent% a clai$ that can be easil( debun4ed. &he $ore !er!leing 0uestion is whether this obligation to re!a( is solidar(% as contended b( res!ondent and the lower courts% or $erel( 'oint as argued b( !etitioners.
30 The one referred to is the &ease6#urchase agree*ent as e&& as the attached underta/ing" Christian Arbiol 1A – San Beda College Alabang School of Law
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On ,< A!ril 19<-% Private +evelo!$ent Cor!oration of the Phili!!ines @P+CP> & entered into a loan agreement with Falcon "inerals% 2nc. @Falcon> whereb( P+CP agreed to $a4e available and lend to Falcon the a$ount of S/,-%---.--% for s!ecific !ur!oses and sub'ect to certain ter$s and conditions. ; On the sa$e da(% three stoc4holdersGofficers of Falcon% na$el(: res!ondent afael Ortigas% #r. @Ortigas>% *eorge A. Schole( and *eorge &. Schole( executed an ssumption of olidary "iability whereby they agreed to assume in Mtheir individual capacity % solidar( liabilit( with FalconQ for the due and !unctual !a($ent of the loan contracted b( Falcon with P+CP. + 2n the $eanti$e% two separate guaranties were executed to guarantee the payment of the sa$e loan b( other stoc4holders and officers of Falcon% acting in their !ersonal and individual ca!acities. One *uarant( 3 was eecuted b( !etitioner Salvador 7scao @7scao>% while the other . b( !etitioner "ario ". Silos @Silos>% icardo C. Silverio @Silverio>% Carlos L. 2nductivo @2nductivo> and #oa0uin #. odrigue? @odrigue?>. &wo (ears later% an agree$ent develo!ed to cede control of Falcon to 7scao% Silos and #ose!h ". "atti @"atti>. &hus% contracts were eecuted whereb( Ortigas% *eorge A. Schole(% 2nductivo and the heirs of then alread( deceased *eorge &. Schole( assigned their shares of stoc4 in Falcon to 7scao% Silos and "atti. * Part of the consideration that induced the sale of stoc! was a desire by 0rtigas, et al #, to relieve themselves of all liability arising from their previous joint and several underta!ings with Falcon% including those related to the loan with P+CP. Falcon eventuall( availed of the su$ of S18<%.9 fro$ the credit line etended b( P+CP. 2t would also eecute a +eed of Chattel "ortgage over its !ersonal !ro!erties to further secure the loan. 6owever% Falcon subse0uentl( defaulted in its !a($ents. After P+CP foreclosed on the chattel $ortgage% there re$ained a subsisting deficienc( of P%-/1%--=.-8% which Falcon did not satisf( des!ite de$and. On ,< A!ril 19<9% in order to recover the indebtedness% P+CP filed a co$!laint for su$ of $one( with the egional &rial Court of "a4ati @&C> against Falcon% Ortigas% 7scao% Silos% Silverio and 2nductivo. &he crossGclai$ lodged against 7scao and Silos was predicated on the &(1; Enderta!ing, wherein they agreed to assume the liabilities of 0rtigas with respect to the PDCP loan# +& 7scao% Ortigas and
Silos each sought to see4 a settle$ent with P+CP. &he first to co$e to ter$s with P+CP was 7scao% who in +ece$ber of 199/% entered into a co$!ro$ise agree$ent whereb( he agreed to !a( the ban4 P1%---%---.--. 8n exchange, PDCP waived or assigned in favor of 6scaOo one>third :&/+< of its entire claim in the complaint against all of the other defendants in the case# && 7he compromise agreement was approved by the %7C in a 2udgment &; dated * 2anuary &((3#
&hen on ,= Februar( 199=% Ortigas entered into his own co$!ro$ise agree$ent &+ with P+CP% allegedly without the !nowledge of 6scaOo, $atti and ilos# &hereb(% Ortigas agreed to !a( P+CP
P1%/--%---.-- as full satisfaction of the P+CPEs clai$ against Ortigas% &3 in echange for P+CPEs
31 They e8ecuted an underta/ing hereby the guarantors '#etitioner( i&& assu*e a&& &iabi&ities of the defendant, #rovided it is *ade ith #ro*#t and due notice" Bbiter: The cross;c&ai* is suOcient notice #ursuant to their agree*ent" Christian Arbiol 1A – San Beda College Alabang School of Law
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release of Ortigas fro$ an( liabilit( or clai$ arising fro$ the Falcon loan agree$ent% and a renunciation of its clai$s against Ortigas. 2n 199% Silos and P+CP entered into a Partial Co$!ro$ise Agree$ent whereb( he agreed to !a( P--%---.-- in echange for P+CPEs waiver of its clai$s against hi$. 2n the $eanti$e% after having settled with P+CP% Ortigas !ursued his clai$s against 7scao% Silos and "atti% on the basis of the 19<, nderta4ing. 6e initiated a thirdG!art( co$!laint against "atti and Silos% &* while he $aintained his crossGclai$ against 7scao. 2n 199% Ortigas filed a $otion for Su$$ar( #udg$ent in his favor against 7scao% Silos and "atti. On October 199% the &C issued the Su$$ar( #udg$ent% ordering 7scao% Silos and "atti to !a( Ortigas% jointly and severally, the amount of P&,+,#, as well as P;,# in attorney9s fees# &he a!!ellate court found that the &C did
not err in rendering the Su$$ar( #udg$ent since the three a!!ellants did not effectivel( den( their eecution of the 19<, nderta4ing. 2ssue: 5hether !etitioners are liable to the defendant according to the 19<, underta4ing eecuted b( the$ as suret(3 to wit: Par. / G &hat whether or not S7&27S are able to i$$ediatel( cause P+CP and PA2C to release OBL2*OS fro$ their said guarantees sicQ% E%6786+; hereby irrevocably agree and underta!e to assume all of 05"8B0%s++9 said guarantees M sic to PDCP and P8C under the following ter$s and
conditions. a.
b.
!on recei!t b( an( of theQ OBL2*OS of an( de$and fro$ P+CP andKor PA2C for the !a($ent of FALCO)Es obligations with it% an( of theQ 05"8B0% 4"" 8$$6D876"? 8NF0%$ E%6786 746%60F 0 747 746 "776% CN 78$6"? 7A6 PP%0P%876 $6E%63 Should suit be i$!leaded b( P+CP andKor PA2C against an( andKor all of OBL2*OS for collection of said loans andKor credit facilities% S7&27S agree to defend OBL2*OS at their own e!ense% without !re'udice to an( andKor all of OBL2*OS i$!leading S7&27S therein for contribution% inde$nit(% subrogation or other relief in res!ect to an( of the clai$s of P+CP andKor PA2C3 and
32 #etitioner 33 res#ondent Christian Arbiol 1A – San Beda College Alabang School of Law
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2n the event that an( of theQ OBL2*OS 8 F0% N? %60N $D6 70 P? an( a$ount to P+CP andKor PA2C% S7&27S shall rei$burse OBL2*OS for said a$ountKs within seven @8> calendar da(s fro$ such !a($ent3
6eld: As !ointed out b( Ortigas% the !hrase for an( reason reasonabl( includes an( etraG'udicial settle$ent of obligation such as what Ortigas had underta4en to !a( to P+CP% as it is indeed obvious that the !hrase was incor!orated in the clause to render the eventual !a($ent adverted to therein unli$ited and un0ualified. &he inter!retation !osed b( !etitioners would have held water had the nderta4ing $ade clear that the right of Ortigas to see4 rei$burse$ent accrued onl( after he had delivered !a($ent to P+CP as a conse-uence of a final and executory judgment. 0n the contrary, the clear intent of the Enderta!ing was for petitioners and $atti to relieve the burden on 0rtigas and his fellow 05"8B0% as soon as possible, and not only after 0rtigas had been subjected to a final and executory adverse judgment#
&here is no argu$ent to su!!ort !etitionersE !osition on the i$!ort of the !hrase $ade to !a( in the nderta4ing% other than an undul( literalist reading that is clearl( inconsistent with the thrust of the docu$ent. nder the Civil Code% the various sti!ulations of a contract shall be inter!reted together% attributing to the doubtful ones that sense which $a( result fro$ all of the$ ta4en 'ointl(. + "i!ewise applicable is the provision that if some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most ade-uate to render it effectual.+& As a $eans to effect the general intent of the docu$ent to relieve Ortigas fro$ liabilit( to
P+CP% it is his inter!retation% not that of !etitioners% that holds swa( with this Court. )either do !etitioners i$!ress us of the nonGfulfill$ent of an( of the other conditions set in !aragra!h /% as the( clai$. Following the general assertion in the !etition that Ortigas violated the ter$s of the nderta4ing% !etitioners add that Ortigas !aid P+CP BA)J the a$ount of P1./ $illion without !etitioners 7SCA)O and S2LOSEs 4nowledge and consent. +; Paragra!h / @a> of the nderta4ing does i$!ose a re0uire$ent that an( of the OBL2*OS shall i$$ediatel( infor$ S7&27S if the( received an( de$and for !a($ent of FALCO)Es obligations to P+CP% but that re0uire$ent is reasoned so that the S7&27SQ can ti$el( ta4e a!!ro!riate $easures ++ !resu$abl( to settle the obligation without having to burden the OBL2*OS. &his notice re0uire$ent in !aragra!h / @a> is $ar4edl( wa(
Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests off fro$ the suggestion of !etitioners that Ortigas% after alread( having been i$!leaded as a defendant in the collection suit% was obliged under the 19<, nderta4ing to notif( the$ before settling with P+CP. At the sa$e ti$e% the nderta4ing did not !reclude Ortigas fro$ relieving his distress through a settle$ent with the creditor ban4. 2ndeed% !aragra!h 1 of the nderta4ing e!ressl( states that nothing herein shall !revent OBL2*OS% or an( one of the$% fro$ the$selves negotiating with P+CP . . . for the release of their said guarantees sicQ. +* Si$!l( !ut% the Enderta!ing did not bar 0rtigas from pursuing his own settlement with PDCP# Neither did the Enderta!ing bar 0rtigas from recovering from petitioners whatever amount he may have paid PDCP through his own settlement# &he
sti!ulation that if Ortigas was for an( reason $ade to !a( an( a$ount to P+CP%Q . . . S7&27S shall rei$burse OBL2*OS for said a$ountKs within seven @8> calendar da(s fro$ such !a($ent +) $a4es it clear that !etitioners re$ain liable to rei$burse Ortigas for the su$s he !aid P+CP. Petitioners sub$it that the( could onl( be held 'ointl(% not solidaril(% liable to Ortigas% clai$ing that the nderta4ing did not !rovide for e!ress solidarit(. &he( cite Article 1,-8 of the )ew Civil Code% which states in !art that tQhere is a solidar( liabilit( onl( when the obligation e!ressl( so states% or when the law or the nature of the obligation re0uires solidarit(. &hese Civil Code !rovisions establish that in case of concurrence of two or $ore creditors or of two or $ore debtors in one and the sa$e obligation% and in the absence of e!ress and indubitable ter$s characteri?ing the obligation as solidar(% the !resu$!tion is that the obligation is onl( 'oint. 2t thus beco$es incu$bent u!on the !art( alleging that the obligation is indeed solidar( in character to !rove such fact with a !re!onderance of evidence. &he nderta4ing does not contain an( e!ress sti!ulation that the !etitioners agreed to bind the$selves 'ointl( and severall( in their obligations to the Ortigas grou!% or an( such ter$s to that effect. 6ence% such obligation established in the Enderta!ing is presumed only to be joint# rtigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome the presumption of
Ortigas !laces !ri$ar( reliance on the fact that the !etitioners and "atti identified the$selves in the nderta4ing as S7&27S% a ter$ re!eated no less than thirteen @1/> ti$es in the docu$ent. Ortigas
Christian Arbiol 1A – San Beda College Alabang School of Law
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clai$s that such $anner of identification sufficientl( establishes that the obligation of !etitioners to hi$ was solidar( in nature. &he ter$ suret( has a s!ecific $eaning under our Civil Code. Article ,-=8 !rovides the statutor( definition of a suret( agree$ent% thus: Art. ,-=8. B( guarant( a !erson% called the guarantor% binds hi$self to the creditor to fulfill the obligation of the !rinci!al debtor in case the latter should fail to do so. 2f a !erson binds hi$self solidaril( with the !rinci!al debtor% the !rovisions of Section =% Cha!ter /% &itle 2 of this Boo4 shall be observed. 8n such case the contract is called a suretyship
Again% as indicated b( Article ,-=8% a suret(shi! re0uires a !rinci!al debtor to who$ the suret( is solidaril( bound b( wa( of an ancillar( obligation of segregate identit( fro$ the obligation between the !rinci!al debtor and the creditor. &he suret(shi! does bind the suret( to the creditor% inas$uch as the latter is vested with the right to !roceed against the for$er to collect the credit in lieu of !roceeding against the !rinci!al debtor for the sa$e obligation. 3& t the same time, there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to# 7he moment the surety fully answers to the creditor for the obligation created by the principal debtor, such obligation is extinguished# :rt# &;&) NCC< At the sa$e ti$e% the suret( $a( see4 rei$burse$ent fro$ the !rinci!al debtor for the a$ount !aid% for the suret( does in fact beco$e subrogated to all the rights and re$edies of the creditor 7here is a difference between a solidary co>debtor and a fiador in solidum :surety<# 7he latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansaH while a solidary co>debtor has no other rights than those bestowed upon him in ection 3, Chapter +, 7itle 8, 5oo! 8@ of the Civil Code
2n the case of 'oint and several debtors% Article 1,18 $a4es !lain that the solidar( debtor who effected the !a($ent to the creditor $a( clai$ fro$ his coGdebtors only the share which corresponds to each % with the interest for the !a($ent alread( $ade. Such solidar( debtor will not be able to recover fro$ the coG debtors the full a$ount alread( !aid to the creditor% because the right to recover( etends onl( to the !ro!ortional share of the other coGdebtors% and not as to the !articular !ro!ortional share of the solidar( debtor who alread( !aid. 2n contrast% even as the suret( is solidaril( bound with the !rinci!al debtor to the creditor% the suret( who does !a( the creditor has the right to recover the full a$ount !aid% and not 'ust an( !ro!ortional share% fro$ the !rinci!al debtor or debtors. Such right to full rei$burse$ent falls within the other rights% actions and benefits which !ertain to the suret( b( reason of the subsidiar( obligation assu$ed b( the suret(. 5hat is the source of this right to full rei$burse$ent b( the suret( 5e find the right under Article ,- of the Civil Code% which assures that tQhe guarantor who !a(s for a debtor $ust be inde$nified b( the Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests latter% such inde$nit( co$!rising of% a$ong others% the total a$ount of the debt. 3)Further% Article ,-8 of the Civil Code li4ewise establishes that tQhe guarantor who !a(s is subrogated b( virtue thereof to all the rights which the creditor had against the debtor. Accordingl(% the rights to inde$nification and subrogation as established and granted to the guarantor b( Articles ,- and ,-8 etend as well to sureties as defined under Article ,-=8. &hese rights granted to the suret( who !a(s $ateriall( differ fro$ those granted under Article 1,18 to the solidar( debtor who !a(s% since the inde$nification that !ertains to the latter etends onl( toQ the share which corres!onds to each coGdebtorQ. 2t is for this reason that the Court cannot accord the conclusion that because !etitioners are identified in the nderta4ing as S7&27S% the( are conse0uentl( 'oint and severall( liable to Ortigas. 2f the Court were to give full fruition to the use of the ter$ S7&27S as conclusive indication of the eistence of a suret( agree$ent that in turn gives rise to a solidar( obligation to !a( Ortigas% the necessar( i$!lication would be to la( down a corres!onding set of rights and obligations as between the S7&27S which !etitioners and "atti did not clearl( intend. 5e do not doubt that a finding of solidar( liabilit( a$ong the !etitioners wor4s to the benefit of Ortigas in the facilitation of these goals% (et the nderta4ing itself contains no sti!ulation or clause that establishes !etitionersE obligation to Ortigas as solidar(. "oreover% the ai$s adverted to b( Ortigas do not b( the$selves establish that the nature of the obligation re0uires solidarit(. 7ven if the liabilit( of !etitioners and "atti were ad'udged as $erel( 'oint% the full relief and rei$burse$ent of Ortigas arising fro$ his !a($ent to P+CP would still be acco$!lished through the co$!lete eecution of such a 'udg$ent. Since what was the constituted in the nderta4ing consisted of a !a($ent in a su$ of $one(% the rate of interest thereon shall be 1,I per annum to be co$!uted fro$ default% i.e.% fro$ 'udicial or etra'udicial de$and. &he interest rate i$!osed b( the &C is thus !ro!er. 6owever% the co$!utation should be rec4oned fro$ 'udicial or etra'udicial de$and. Per records% there is no indication that Ortigas $ade an( etra'udicial de$and to !etitioners and "atti after he !aid P+CP% but on 1= "arch 199=% Ortigas $ade a 'udicial de$and when he filed a &hirdGPart( Co$!laint !ra(ing that !etitioners and "atti be $ade to rei$burse hi$ for the !a($ents $ade to P+CP. 2t is the filing of this &hirdGPart( Co$!laint on 1= "arch 199= that should be considered as the date of 'udicial de$and fro$ which the co$!utation of interest should be rec4oned. .+ Since the &C held that interest should be co$!uted fro$ ,< Februar( 199=% the a!!ro!riate redefinition should be $ade.
Christian Arbiol 1A – San Beda College Alabang School of Law
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+e!art$ent of 6ealth v. C.; Canchela &he +e!art$ent of 6ealth assails% via !etition for review on certiorari% & the consolidated #une ,<% ,--decision of the Court of A!!eals affir$ing that of the Sole Arbitrator of the Construction 2ndustr( Arbitration Co$$ission @C2AC> ; which granted the $onetar( clai$ of herein !rivate res!ondents. &he following facts are not undis!uted. Petitioner entered into 74%66 0wner>Consultant greements @Agree$ents> with !rivate res!ondents covering infrastructure !ro'ects for the Baguio *eneral 6os!ital and "edical Center @Baguio Pro'ect>% the Batangas egional 6os!ital @Batangas Pro'ect> and the Cora?on L. "ontelibano "e$orial egional 6os!ital in Bacolod Cit( @Bacolod Pro'ect>. &he Agree$ents% which contained almost identical language% re0uired the !re!aration b( !rivate res!ondents of the following docu$ents: detailed architectural and engineering design !lans3 technical s!ecifications and detailed esti$ates of cost of construction of the hos!ital% including the !re!aration of bid docu$ents and re0uire$ents3 and construction su!ervision until co$!letion of handGover and issuance of final certificate./= &he Agree$ents contained a co$$on !rovision stating that !rivate res!ondentsE consultancy or professional fees would be )#.' of the project fund allocation% bro4en down into detailed architectural and engineering services @ *'<, and full>time construction su!ervision :&#.'< 5hile the Agree$ents were witnessed b( the res!ective chief accountants of the hos!itals and were dul( a!!roved b( the Secretar( of 6ealth% & the former did not issue corresponding certificates of availability of funds to cover the professional or consultancy fees# Petitioner% acting through its re!resentative Architect "a. ebecca ". Peafiel% b( se!arate letters &; to the res!ective chiefs of hos!itals% all dated October 1% 199% confirmed its acceptance of private respondents9 complete Contract or 5id Documents. FullGti$e construction su!ervision having been ecluded / fro$ !rivate res!ondentsE sco!e of wor4% their !rofessional fee was correspondingly reduced fro$ 8.I of the !ro'ect fund allocation to I of the project contract cost# +uring the construction of the !ro'ects% various deficiencies in the !erfor$ance of the agreed sco!e of !rivate res!ondentsE wor4 were allegedl( discovered &) which were not% however, communicated to private respondents. &1 +ue to such deficiencies% P678780N6% 87446"D !a($ent of the
34 To su**arie: it as divided into 2 #roects, na*e&y: Architectura& and ngineering and onstruction $!-+V%$%BE" 3 The #etitioners a*ended the 3 agree*ents instead of having fu&& $u#ervision, they indicated -+%BC% V%$%T$" Christian Arbiol 1A – San Beda College Alabang School of Law
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consultanc( fees due to !rivate res!ondents. And !etitioner did not return the docu$ents% !lans% s!ecifications and esti$ates sub$itted b( !rivate res!ondents. &he de$ands for !a($ent re$ained unheeded% !ro$!ting !rivate res!ondents to file on Se!te$ber ,1% 199< with the C2AC their re0uest for ad'udication of their clai$ for !a($ent of !rofessional fees% escalation costs% attorne(Es fees and costs of arbitration. Petitioner alleged% inter alia% that !a($ent was withheld because the hos!itals concerned were not satisfied with the !erfor$ance of !rivate res!ondents who did not fulfill the ter$s and conditions of the contracts3 &he es!ondent% however% $aintains that the I !a($ent $ust be based u!on the actual pro8ect contract cost of each building which is defined as the cost of the winning bid price of the contractor which performed the work ./ Petitioner asserts that the C2AC should have dis$issed the !etition on the ground that the tate is immune from suits% the Agree$ents% 568NB 70 P%0$076 746 46"74 ND 6"">568NB 0F 746 C878Q6N, 4@8NB 566N 6N76%6D 8N70 PE%EN7 70 746 7769 0@6%68BN ND B0@6%N$6N7" P06% . Petitioner filed its "e$orandu$ %88NB F0% 746 @6%? F8%7 78$6 the argu$ent that the Agree$ents are void fro$ the beginning for failure to include therein a certification of availability of funds which is re'uired under existing law . As such% !etitioner concludes that the consultanc( fees cannot be based on the !ro'ect fund allocation but on the basis of the reasonable value or on the !rinci!le of &uantum meruit . %uling of the Court
&he !ara$ount and overriding !ublic !olic( is that no $one( shall be !aid out of the &reasur( ece!t EP0N N PP%0P%8780N $D6 5? ". 7hat public funds are involved in the present controversy thus 'ustifies a relaation of technical rules of !rocedure in order to serve the de$ands of substantial 'ustice. &he Agree$ents% it bears noting% e!ressl( stated that !a($ents arising therefro$ shall be sub'ect to the usual accounting and auditing rules and regulations. 31 Being govern$ent contracts% &67D A7 *O;7)7+ A)+ 7*LA&7+ BD SP7C2AL LA5S% failure to co$!l( with which renders the$ void. &he certificate signed b( the !ro!er accounting official and the auditor who verified it shall be attached to and become an integral part of the proposed contract . . An( contract entered into contrar( to the foregoing re0uire$ents is void. @Both Auditing and Ad$inistrative Code i$!ose such re0uire$ent> &he for$alities e!ressl( re0uired b( the Auditing Code of the Phili!!ines and &he Ad$inistrative Code of 19<8 not having been co$!lied with% the sub'ect three Agree$ents %6 NE"" ND @08D F%0$ 746 @6%? 56B8NN8NB. &he signatures of the chief accountants as instrumental witnesses do not constitute substantial compliance with the explicit re-uirements of said Codes.
35 The %A ru&ed in favor of res#ondents" The A reaOr*ed the udg*ent *ade by the for*er" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
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As Aelchor v. "ommission on !udit .3 teaches% the certification% not the accountantEs signature as contract witness% is the basic and $ore i$!ortant validating docu$ent% and the $ore reliable indiciu$ of fund availabilit(. &he illegalit( of the sub'ect Agree$ents !roceeds% it bears emphasis, from an express declaration or prohibition by law, not from any intrinsic illegality . /8As such% the Agree$ents are not illegal per se and the !art( clai$ing thereunder $a( recover what had been !aid or delivered. &he sa$e !atentl( /< contravenes Section , of the *overn$ent Accounting and Auditing @*AA> "anual directing that fees for architectural% engineering design% and si$ilar !rofessional services should be 0*=2 *4 54T"(> ( P3 "564T3 % instead of as percentage of the pro8ect cost . As the i$$ediatel(G0uoted !rovisions of law $andate% the issuance of a certification that funds are available is a legal dut( i$!osed on the chief accountant or the head of the accounting unit. And ascertain$ent that such certification eists !rior to entering into an( govern$ent contract or incurring an( obligation chargeable against !ublic funds is a res!onsibilit( which devolves on the officer concerned. /9 2n the case at bar then% the nullit( of the herein Agree$ents notwithstanding% the ends of substantial 'ustice and e0uit( will be better served if !a($ent to !rivate res!ondents for their consultanc( services is allowed on a &uantum meruit basis. &he $easure of recover( under the !rinci!le of &uantum meruit should relate to the reasonable value of the services !erfor$ed% *( ta4ing into account the standard of !ractice in the !rofession% the architectural and engineering s4ills of !rivate res!ondents% and their !rofessional e!ertise and standing. ) es!ecting !etitionerEs argu$ent that the State is i$$une fro$ suit% the sa$e deserves scant consideration. &o sustain the argu$ent would not onl( !er!etuate a grave in'ustice on !rivate res!ondents who performed their services in good faith and were given the run>around for over eight years% but would sanction as well un'ust enrich$ent on the !art of the State.
"enchave? v. &eves On Februar( ,<% 19<% a Contract of "ease was eecuted b( #ose S. "enchave?% #uan S. "enchave? Sr.% #uan S. "enchave? #r.% odolfo "enchave?% Si$eon "enchave?% e(naldo "enchave?% Cesar "enchave?% Charito ". "aga% Fe ". Potot% &hel$a . ero$a% "(rna
3< -ar" < of Art" 1409 te&&s us that the contract is va&id ere it not for the dec&aration of &a that the sa*e is void" 3 The #ercentage '<" to 5P( i*#osed to onsu&tancy fees is dec&ared inva&id as against the #rovision of &a" 39 or their fai&ure, the $ he&d that they are &iab&e for the Fovern*ent the res#ondent in their contract" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests Dbae?% Sonia S. "enchave?% Sarah ;illaver% Al$a S. "enchave?% and 7l$a S. "enchave?% as lessors3 and Florentino &eves #r. as lessee. On #une ,% 19<<% Cebu &C Sheriffs *u$ersindo *i$ene? and Arturo Cabigon de$olished the fish!ond di4es constructed b( res!ondent and delivered !ossession of the sub'ect !ro!ert( to other !arties. 2n his Co$!laint% he alleged that the lessors had violated their Contract of Lease% P6C8F8C""? 746 P6C6FE" ND D6E76 6N20?$6N7 0F 746 P%0P6%7? for the entire duration of the Contract. 6e clai$ed P18%1<=.=- as conse0uential da$ages for the de$olition of the fish!ond di4es% P/9%/9-.-- as unearned inco$e% and an a$ount not less than P1--%---.-- for rentals !aid.
uling of the &C. As a conse0uence of these !rovisions% and the declared !ublic !olic( of the State under the egalian +octrine% the lease contract between Florentino &eves% #r. and #uan "enchave? Sr. and his fa$il( is a !atent nullit(. Being a !atent nullit(% !etitionersQ could not give an( rights to Florentino &eves% #r. under the !rinci!le: E)7"O +A& NO+ )O) 6AB7&E R $eaning O)7 CA))O& *2;7 56A& 67 +O7S )O& 6A;7% considering that this property in litigation belongs to the tate and not to Mpetitioners# &herefore% the first issue is resolved in the negative% as the court declares the contract of lease as invalid and void ab*initio. On the issue of whether res!ondentQ and !etitionersQ are guilt( of mutual fraud% the court rules that the res!ondentQ and !etitionersQ are in pari&delicto . As a conse0uence of this% the court $ust leave the$ where the( are found. 5h( Because the defendants ought to have 4nown that the( cannot lease what does not belong to the$ for as a $atter of fact% the( the$selves are still a!!l(ing for a lease of the sa$e !ro!ert( under litigation fro$ the govern$ent. On the other hand% Florentino &eves% being full( aware that !etitioners wereQ not (et the ownersQ% had assu$ed the ris4s and under the !rinci!le of ;OL7)&2 )O) F2& 2)#2A )7N7S +OLS R 6e who voluntaril( assu$es a ris4% does not suffer da$agesQ thereb(. As a conse0uence% when &eves leased the fish!ond area fro$ !etitionersQ R who were $ere holders or !ossessors thereof% he too4 the ris4 that it $a( turn out later that his a!!lication for lease $a( not be a!!roved. nfortunatel( however% even granting that the lease of !etitionersQ and theirQ a!!lication in 198, were to be a!!roved% still the(Q could not sublease the sa$e. 2n view therefore of these% the !arties $ust be left in the sa$e situation in which the court finds the$% under the !rinci!le 2) PA2 +7L2C&O )O) O2&O AC&2O% $eaning:Q 5here both are at fault% no one can found a clai$. =CA uling 2t contended that while there was negligence on the !art of res!ondent for failing to verif( the ownershi! of the sub'ect !ro!ert(% there was no evidence that he had 4nowledge of !etitionersE lac4 of ownershi!.
40 The dis#uted reso&ution of the A reversed the )ndings and decision of the +T" Christian Arbiol 1A – San Beda College Alabang School of Law
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2ssue: 2n Pari +elicto and ;oid Contracts uling of the Court &he !arties do not dis!ute the finding of the trial and the a!!ellate courts that the Contract of Lease was void. &) 2ndeed% the &C correctl( held that it was the State% not !etitioners that owned the fish!ond. &he 19<8 Constitution s!ecificall( declares that all lands of the !ublic do$ain% waters% fisheries and other natural resources belong to the State. &1 8ncluded here are fishponds, which may not be alienated but only leased. &( Possession thereof% no $atter how long% cannot ri!en into ownershi!. Being $erel( a!!licants for the lease of the fish!onds% !etitioners had no transferable right over the$. And even if the State were to grant their a!!lication% the law3& expressly disallowed sublease of the fishponds to res!ondent. ;& ;oid are all contracts in which the cause% ob'ect or !ur!ose is contrar( to law% !ublic order or !ublic !olic(. A void contract is e0uivalent to nothing3 it !roduces no civil effect. ;+ 2t does not create% $odif( or etinguish a 'uridical relation. ;3 Parties to a void agree$ent cannot e!ect the aid of the law3 the courts leave the$ as the( are% because the( are dee$ed in pari delicto or in e0ual fault. ;. &o this rule% however% there are ece!tions that !er$it the return of that which $a( have been given under a void contract. n0uestionabl(% !etitioners leased out a !ro!ert( that did not belong to the$% one that the( had no authorit( to sublease. &he trial court correctl( observed that !etitioners still had a !ending lease a!!lication with the State at the ti$e the( entered into the Contract with res!ondent. es!ondent% on the other hand% clai$s that !etitioners $isled hi$ into eecuting the Contract. +3 6e insists that he relied on their assertions regarding their ownershi! of the !ro!ert(. 6is own evidence% however% rebuts his contention that he did not 4now that the( lac4ed ownershi!. At the ver( least% he had notice of their doubtful ownershi! of the fish!ond. es!ondent hi$self ad$itted that he was aware that the !etitionersE lease application for the fishpond had not yet been approved. +. &hus% he 4nowingl( entered into the Contract with the ris4 that the a!!lication $ight be disa!!roved. Noteworthy is the fact that the existence of a fishpond lease application necessarily contradicts a claim of ownership . &hat res!ondent did not 4now of !etitionersE lac4 of ownershi! is therefore incredible. &he evidence of res!ondent hi$self shows that he negotiated the lease of the fish!ond with both #uan "enchave? Sr. and #uan "enchave? #r. in the office of his law(er% Att(. #orge 7s!arago?a. +* 6is counselEs !resence during the negotiations% !rior to the !artiesE $eeting of $inds% further debun4s his clai$ of lac4 of 4nowledge. "awyers are expected to !now that fishponds belong to the tate and are inalienable# 8t was reasonably expected of the counsel herein to advise his client regarding the matter of ownership# 2ndeed% the evidence !resented b( res!ondent de$onstrates the contradictor( clai$s of !etitioners regarding their alleged ownershi! of the fish!ond. On the one hand% the( clai$ed ownershi! and% on the
41 -C"<04 at that ti*e #rohibited the $!KLA$ of the )sh#ond" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests other% the( assured hi$ that their fish!ond lease a!!lication would be a!!roved. +) &his circu$stance should have been sufficient to !lace hi$ on notice. 2t should have co$!elled hi$ to deter$ine their right over the fish!ond% including their right to lease it. &he Contract itself stated that the area was still covered b( a fish!ond a!!lication. +1 )onetheless% although !etitioners declared in the Contract that the( coGowned the !ro!ert(% their erroneous declaration should not be used against the$. A cursor( ea$ination of the Contract suggests that it was drafted to favor the lessee. 2t can readil( be !resu$ed that it was he or his counsel who !re!ared it R a $atter su!!orted b( !etitionersE evidence. +( &he a$biguit( should therefore be resolved against hi$% being the one who !ri$aril( caused it. As to the issue of da$ages 2n the !resent case% it was sti!ulated that the !art( res!onsible for the violation of the ter$s% conditions and warranties of the Contract would !a( not less than P-%--- as li0uidated da$ages. Since the !rinci!al obligation was void% there was no contract that could have been breached b( !etitioners3 thus% the sti!ulation on li0uidated da$ages was ineistent. &he nullit( of the !rinci!al obligation carried with it the nullit( of the accessor( obligation of li0uidated da$ages. As e!lained earlier% the a!!licable law in the !resent factual $ilieu is Article 1=1, of the Civil Code. &his law $erel( allows innocent !arties to recover what the( have given without an( obligation to co$!l( with their !restation. )o da$ages $a( be recovered on the basis of a void contract3 being noneistent% the agree$ent !roduces no 'uridical tie between the !arties involved. Since there is no contract% the in'ured !art( $a( onl( recover through other sources of obligations such as a law or a 0uasiGcontract. 3) A !art( recovering through these other sources of obligations $a( not clai$ li0uidated da$ages% which is an obligation arising fro$ a contract.
&ana( ecreation v. Fausto Petitioner &ana( ecreation Center and +evelo!$ent Cor!. @&C+C> is the lessee of a /%-9-Gs0uare $eter !ro!ert( located in Sitio *a(as% &ana(% i?al% owned b( Catalina "atien?o Fausto% & under a Contract of "ease eecuted on August 1% 1981. On this property stands the 7anay Coliseum Coc!pit o!erated b( !etitioner. &he lease contract !rovided for a ,-G(ear ter$% sub'ect to renewal within sit( da(s !rior to its e!iration. &he contract also !rovided that should Fausto decide to sell the !ro!ert(% !etitioner shall have the !riorit( right to !urchase the sa$e. On #une 18% 1991% !etitioner wrote Fausto infor$ing her of its intention to renew the lease. + 6owever% it was FaustoEs daughter% res!ondent Anunciacion F. Pacuna(en% who re!lied% as4ing that !etitioner re$ove the i$!rove$ents built thereon% as she is now the absolute owner of the !ro!ert(. 3 2t a!!ears that Fausto had earlier sold the property to Pacuna(en on August <% 199-% for the su$ of P1-%---.-- under a
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After trial on the $erits% the egional &rial Court of "orong% i?al @Branch 8<>% rendered 'udg$ent extending the period of the lease for another seven years fro$ ugust &, &((& at a $onthl( rental of P1-%---.--% and dis$issed !etitionerEs clai$ for da$ages. ( On a!!eal% doc4eted as CAG*.. C; )o. =/88-% the Court of A!!eals @CA> affir$ed with $odifications the trial courtEs 'udg$ent !er its +ecision dated 2une &3, &(((# 2n arriving at the assailed decision% the CA ac4nowledged the !riorit( right of &C+C to !urchase the !ro!ert( in 0uestion. 6owever% the C interpreted such right to mean that it shall be applicable only in case the property is sold to strangers and not to Fausto9s relative# &he CA stated that @&>o inter!ret it otherwise as to co$!rehend all sales including those $ade to relatives and to the co$!ulsor( heirs of the seller at that would be an absurdit(% and her @FaustoEs> onl( $otive for such transfer was !recisel( one of !reserving the !ro!ert( within her bloodline and that so$eone ad$inister the !ro!ert(. &; &he CA also ruled that !etitioner alread( ac4nowledged the transfer of ownershi! and is dee$ed to have waived its right to !urchase the !ro!ert(. &+ &he CA even further went on to rule that even if the sale is annulled% !etitioner could not achieve an(thing because the !ro!ert( will be eventuall( transferred to Pacuna(en after FaustoEs death. 5hen a lease contract contains a right of first refusal% the lessor is under a legal dut( to the lessee not to sell to an(bod( at an( !rice until after he has $ade an offer to sell to the latter at a certain !rice and the lessee has failed to acce!t it. 7he lessee has a right that the lessor9s first offer shall be in his favor. &1 PetitionerEs right of first refusal is an integral and indivisible !art of the contract of lease and is inse!arable fro$ the whole contract. 7he consideration for the lease includes the consideration for the right of first refusal &( and is built into the reciprocal obligations of the parties# 2n this case% the wording of the sti!ulation giving !etitioner the right of first refusal is !lain and una$biguous% and leaves no roo$ for inter!retation. 2t si$!l( $eans that should Fausto decide to sell the leased !ro!ert( during the ter$ of the lease% such sale should first be offered to !etitioner. &he sti!ulation does not !rovide for the 0ualification that such right $a( be eercised onl( when the sale is $ade to strangers or !ersons other than FaustoEs 4in. &hus% under the ter$s of !etitionerEs right of first refusal% FE70 4 746 "6B" DE7? 70 P678780N6% N07 70 6"" 746 P%0P6%7? 70 N?50D?, 6@6N 46% %6"78@6, 7 N? P%8C6 EN78" F76% 46 4 $D6 N 0FF6% 70 6"" 70 P678780N6% 7 C6%78N P%8C6 ND 8D 0FF6% %626C76D 5? P678780N6% . Pursuant to their contract% it was essential that Fausto should have first offered the !ro!ert( to !etitioner before she sold it to res!ondent. 2t was onl( after !etitioner failed to eercise its right of first !riorit( could Fausto then lawfull( sell the !ro!ert( to res!ondent. &he rule is that a sale $ade in violation of a right of first refusal is @"8D. 6owever% it may be rescinded, or, as in this case, may be the subject of an action for specific performance# ?uzman, Bocaling @ Co. v. Bonnevie and 'uatorial (ealty 2evelopment, *nc. v. 5ayfair Theater, *nc.% held that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the price for which they were finally sold to a third person should have likewise been first offered to the former. urther, there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be
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rendered illusory . 7astly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer .
&he !revailing doctrine therefore% is that a right of first refusal $eans identit( of ter$s and conditions to be offered to the lessee and all other !ros!ective bu(ers and a contract of sale entered into in violation of a right of first refusal of another !erson% while valid% is rescissible. 2t was also incorrect for the CA to rule that it would be useless to annul the sale between Fausto and res!ondent because the !ro!ert( would still re$ain with res!ondent after the death of her $other b( virtue of succession% as in fact% Fausto died in "arch 199% and the !ro!ert( now belongs to res!ondent% being FaustoEs heir. ;. For one% Fausto was bound b( the ter$s and conditions of the lease contract. nder the right of first refusal clause% she was obligated to offer the !ro!ert( first to !etitioner before selling it to an(bod( else. 5hen she sold the !ro!ert( to res!ondent without offering it to !etitioner% the sale while valid is rescissible so that !etitioner $a( eercise its o!tion under the contract. 5ith the death of Fausto% whatever rights and obligations she had over the property, including her obligation under the lease contract, were transmitted to her heirs by way of succession % a $ode of ac0uiring the !ro!ert(% rights and obligation of the decedent to the etent of the value of the inheritance of the heirs. @Article 1/11 of the Civil Code> A lease contract is not essentiall( !ersonal in character. =, &hus% the rights and obligations therein are trans$issible to the heirs. s to 6stoppel
Petitioner cannot be faulted for $erel( see4ing a renewal of the lease contract because obviousl(% it was wor4ing on the assu$!tion that title to the !ro!ert( is still in FaustoEs na$e and the latter has the sole authorit( to decide on the fate of the !ro!ert(. 2nstead% it was res!ondent who re!lied% advising !etitioner to re$ove all the i$!rove$ents on the !ro!ert(% as the lease is to e!ire on the 1st of August 1991. es!ondent also infor$ed !etitioner that her $other has alread( sold the !ro!ert( to her. +. 8n order to resolve the matter% a $eeting was called a$ong !etitionerEs stoc4holders% including res!ondent% on #ul( ,8% 1991% where !etitioner% again% !ro!osed that the lease be renewed. es!ondent% however% declined. 5hile !etitioner $a( have sought the renewal of the lease% it cannot be construed as a relin0uish$ent of its right of first refusal. 670PP6" $E7 56 8N76N780N" ND EN6E8@0C"# Also% in the ecer!ts fro$ the $inutes of the s!ecial $eeting% it was further stated that the possibility of a sale was li!ewise considered . +) But res!ondent also refused to sell the land% while the i$!rove$ents% if for sale shall be sub'ect for a!!raisal. +1 After respondent refused to sell the land% it was then that !etitioner filed the co$!laint for annul$ent of sale% s!ecific !erfor$ance and da$ages. +( PetitionerEs acts of see4ing all !ossible avenues for the a$enable resolution of the conflict do not a$ount to an intentional and une0uivocal abandon$ent of its right of first refusal. &he circu$stances of this case% however% dictate the a!!lication of a different ruling. n offer of the property to petitioner under identical terms and conditions of the offer previously given to respondent Pacunayen would be ine-uitable. &he sub'ect !ro!ert( was sold in 199- to res!ondent
42 Eeither there as a sti#u&ation nor a #rovision of a &a #rovide otherise Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests Pacuna(en for a $easl( su$ of P1-%---.--. Obviousl(% the value 8 8N $"" $0EN7 56CE6 746 "6 56766N $0746% ND DEB476%# As ad$itted b( said res!ondent% the sale made in her favor by her mother was just a formality so that she may have the proper representation with 7%CDC in the absence of her parents. . . 3; Conse0uentl(% the offer to be $ade to !etitioner in this case should be under reasonable ter$s and conditions% ta4ing into account the fair $ar4et value of the !ro!ert( at the ti$e it was sold to res!ondent. :7o consider the hereditary rights of Pacunayen and to avoid unnecessary proceedings< Sound reason therefore dictates that title should re$ain in the na$e of res!ondent Pacuna(en% for and in behalf of the other heirs% if an(% to be cancelled onl( when !etitioner successfull( eercises its right of first refusal and !urchases the sub'ect !ro!ert(.
iviera Fili!ina v. CA Civil Case )o. NG<9G//81 is a suit instituted b( iviera Fili!ina% 2nc. @iviera> on August /1% 19<9 3 to co$!el the defendants therein #uan L. e(es% now deceased% Phili!!ine C(!ress Construction T +evelo!$ent Cor!oration @C(!ress>% Cornhill &rading Cor!oration @Cornhill> and rban +evelo!$ent Ban4 to transfer the title covering a 1%-1< s0uare $eter !arcel of land located along 7+SA% Nue?on Cit( for alleged violation of %ivieraEs right of first refusal. 2t a!!ears that on )ove$ber ,/% 19<,% res!ondent #uan L. e(es @e(es% for brevit(> eecuted a Contract of Lease with iviera. &he tenG(ear @1-> renewable lease of iviera% which started on August 1% 19<,% involved a 1%-1< s0uare $eter !arcel of land located along 7dsa% Nue?on Cit(% covered and described in &ransfer Certificate of &itle )o. 1</, of the egistr( of +eeds of Nue?on Cit( in the na$e of #uan L. e(es. &he said !arcel of land was sub'ect of a eal 7state "ortgage eecuted b( e(es in favor of Prudential Ban4. Since the loan with Prudential Ban4 re$ained un!aid u!on $aturit(% the $ortgagee ban4 etra'udiciall( foreclosed the $ortgage thereon. At the !ublic auction sale% the $ortgagee ban4 e$erged as the highest bidder. &he rede$!tion !eriod was set to e!ire on "arch 8% 19<9. eali?ing that he could not !ossibl( raise in ti$e the $one( needed to redee$ the sub'ect !ro!ert(% e(es decided to sell the sa$e. Since !aragra!h 11 of the lease contract e!ressl( !rovided that the 7#SS## shall have the right of first refusal should the 7#SS5 decide to sell the property during the term of the lease, 8 e(es offered to sell the sub'ect !ro!ert( to iviera% through its President ;icente C. Angeles% for Five &housand Pesos @P%---.--> !er s0uare $eter. 6owever% Angeles bargained for &hree &housand Five 6undred Pesos @P/%--.--> !er s0uare $eter. Since e(es was not a$enable to the said !rice and insisted on Five &housand Pesos @P%---.--> !er s0uare $eter% Angeles re0uested e(es to allow hi$ to consult the other $e$bers of the Board of +irectors of iviera. < Seven @8> $onths later% or so$eti$e in October 19<<% Angeles co$$unicated with e(es ivieraEs offer to !urchase the sub'ect !ro!ert( for Four &housand Pesos @P=%---.--> !er s0uare $eter. 6owever% e(es did not acce!t the offer. &his ti$e he as4ed for Si &housand Pesos @P%---.--> !er s0uare $eter since
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the value of the !ro!ert( in the area had a!!reciated in view of the !lans of Araneta to develo! the vicinit(. =/ &o answer the foregoing letter and confir$ their tele!hone conversation on the $atter% iviera sent a letter dated )ove$ber ,,% 19<< to Att(. #uan% counsel for e(es% e!ressing ivieraEs interest to !urchase the sub'ect !ro!ert( and that iviera is alread( negotiating with e(es which will ta4e a cou!le of da(s to for$ali?e. 11 iviera increased its offer to Five &housand Pesos @P%---.--> !er s0uare $eter but e(es did not accede to said !rice as it was still lower than his 0uoted !rice of Si &housand Pesos @P%---.--> !er s0uare $eter. 1, Angeles as4ed e(es to give hi$ until the end of )ove$ber 19<< for ivieraEs final decision. 2n a letter dated +ece$ber ,% 19<<% Angeles wrote e(es confir$ing ivieraEs intent to !urchase the sub'ect !ro!ert( for the fied and final 1/ !rice of Five &housand Pesos @P%---.--> !er s0uare $eter% co$!lete !a($ent within sit( @-> to ninet( @9-> da(s which Coffer is what we feel should be the market price of your property.C Angeles as4ed that the decision of e(es and his written re!l( to the offer be given within fifteen @1> da(s since there are also other !ro!erties being offered to the$ at the $o$ent. 2n res!onse to the foregoing letter% Att(. #uan sent a letter to iviera dated +ece$ber % 19<< infor$ing iviera that ivieraEs offer is not acce!table to his client. After considering the reasons == cited b( &raballo for his 0uoted !rice% e(es acce!ted the sa$e. 6owever% since &raballo did not have the a$ount with which to !a( e(es% he told the latter that he will loo4 for a !artner for that !ur!ose. &) e(es told &raballo that he had alread( afforded iviera its right of first refusal but the( cannot agree because %ivieraEs final offer was for Five &housand Pesos @P%---.--> !er s0uare $eter. Att(. Alinea = conve(ed to e(es ivieraEs offer of Five &housand Pesos @P%---.--> !er s0uare $eter but e(es did not agree. Conse0uentl(% Att(. Alinea contacted again Angeles and as4ed hi$ if he can increase his !rice. Angeles% however% said he cannot add an($ore. ;; e(es did not e!ressl( offer his sub'ect !ro!ert( to iviera at the !rice of Five &housand &hree 6undred Pesos @P%/--.--> !er s0uare $eter. So$eti$e in Februar( 19<9% C(!ress and its !artner in the venture% Cornhill &rading Cor!oration% were able to co$e u! with the a$ount sufficient to cover the rede$!tion $one(% with which e(es !aid to the Prudential Ban4 to redee$ the sub'ect !ro!ert(. ;3 On "a( 1% 19<9% a +eed of Absolute Sale covering the sub'ect !ro!ert( was eecuted b( e(es in favor of C(!ress and Cornhill for the consideration of Five "illion &hree 6undred )inet(GFive &housand Four 6undred Pesos @P%/9%=--.-->. ;. On the sa$e date% C(!ress and Cornhill $ortgaged the sub'ect !ro!ert( to rban +evelo!$ent Ban4 for &hree "illion Pesos @P/%---%---.-->.
43 ro* the initia& o>er of ,000"00 to 5/ 44 @e *et ith Traba&&o, #resident of y#ress" 4 @is ne#he ho tried to negotiate again ith #etitioner, as the &atter as rea&&y #ersistent in his )na& o>er of /" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests &he trial court dis$issed the co$!laint of iviera as well as the counterclai$s and crossGclai$s of the other !arties. 6owever% the a!!ellate court% through its S!ecial Seventh +ivision% rendered a +ecision dated #une % 199= which affir$ed the decision of the trial court in its entiret(. uling of the Court &hus% the !revailing doctrine is that a right of first refusal $eans identit( of ter$s and conditions to be offered to the lessee and all other !ros!ective bu(ers and a contract of sale entered into in violation of a right of first refusal of another !erson% while valid% is rescissible. ather% laws are inter!reted in the contet of the !eculiar factual situation of each !roceeding. 7ach case has its own flesh and blood and cannot be ruled u!on on the basis of isolated clinical classroo$ !rinci!les. 3& Anal(sis and construction should not be li$ited to the words used in the contract% as the( $a( not accuratel( reflect the !artiesE true intent. 3; &he court $ust read a contract as the average !erson would read it and should not give it a strained or forced construction. 2n the case at bar% the Court finds relevant and significant the cardinal rule in the inter!retation of contracts that the intention of the !arties shall be accorded !ri$ordial consideration and in case of doubt% their conte$!oraneous and subse0uent acts shall be !rinci!all( considered. 33 5here the !arties to a contract have given it a !ractical construction b( their conduct as b( acts in !artial !erfor$ance% such construction $a( be considered b( the court in construing the contract% deter$ining its $eaning and ascertaining the $utual intention of the !arties at the ti$e for contracting. &he !artiesE !ractical construction of their contract has been characteri?ed as a clue or inde to% or as evidence of% their intention or $eaning and as an i$!ortant% significant% convincing% !ersuasive% or influential factor in deter$ining the !ro!er construction of the contract. As clearl( shown b( the records and transcri!ts of the case% the actions of the !arties to the contract of lease% e(es and iviera% sha!ed their understanding and inter!retation of the lease !rovision right of first refusal to $ean si$!l( that should the lessor e(es decide to sell the leased property during the term of the lease, such sale should first be offered to the lessee iviera. And that is what eactl( ensued between e(es and iviera% a series of negotiations on the !rice !er s0uare $eter of the sub'ect !ro!ert( with neither !art(% es!eciall( %iviera% unwilling to budge fro$ his offer% as evidenced b( the echange of letters between the two contenders. iviera was so intractable in its !osition and &OOJ OB;2OS A+;A)&A*7 OF &67 J)O5L7+*7 OF &67 &2"7 7L7"7)& 2) 2&S )7*O&2A&2O)S with e(es as the rede$!tion !eriod of the sub'ect foreclosed !ro!ert( drew near. iviera strongl( ehibited a ta4eGit or leaveGit attitude in its negotiations with e(es. 2t 0uoted its fied and final !rice as Five &housand Pesos @P%---.--> and not an( !eso $ore. 2t voiced out that it had other !ro!erties to consider so e(es should decide and $a4e 4nown its decision within fifteen da(s. iviera% in its letter dated Februar( =% 19<9% ad$ittedl(% even downgraded its offer when e(es offered anew the !ro!ert( to it% such that whatever a$ount e(es initiall( receives fro$ iviera would absolutel( be insufficient to !a( off the rede$!tion !rice of the sub'ect !ro!ert(. )aturall(% e(es had to disagree with ivieraEs highl( disadvantageous offer.
Christian Arbiol 1A – San Beda College Alabang School of Law
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Obligations and Contracts Case Notes/Digests
4
2ts stubborn a!!roach in its negotiations with e(es showed cr(stalGclear that there was never an( need to disclose such infor$ation = and doing so would be 'ust a futile effort on the !art of e(es. e(es was under no obligation to disclose the sa$e. Pursuant to Article 1//9 3* of the )ew Civil Code% silence or conceal$ent% b( itself% does not constitute fraud% unless there is a s!ecial dut( to disclose certain facts% or unless according to good faith and the usages of co$$erce the co$$unication should be $ade. 3) 5e a!!l( the general rule in the case at bar since iviera failed to convincingl( show that either of the ece!tions are relevant to the case at bar.
S!s. Cannu v. S!s. *alang A co$!laint + for S!ecific Perfor$ance and +a$ages was filed b( !etitionersGs!ouses Feli!e and Leticia Cannu against res!ondentsGs!ouses *il and Fernandina *alang and the )ational 6o$e "ortgage Finance Cor!oration @)6"FC> before Branch 1/ of the &C of "a4ati% on ,= #une 199/. &he case was doc4eted as Civil Case )o. 9/G,-9. es!ondentsGs!ouses *il and Fernandina *alang obtained a loan fro$ Fortune Savings T Loan Association for P18/%<--.-- to !urchase a house and lot located at Pulang Lu!a% Las Pias% with an area of 1- s0uare $eters covered b( &ransfer Certificate of &itle @&C&> )o. &G<- in the na$es of res!ondentsGs!ouses. &o secure !a($ent% a real estate $ortgage was constituted on the said house and lot in favor of Fortune Savings T Loan Association. 2n earl( 199-% )6"FC !urchased the $ortgage loan of res!ondentsGs!ouses fro$ Fortune Savings T Loan Association for P18/%<--.--. es!ondent Fernandina *alang authori?ed = her attorne(GinGfact% Adelina . &i$bang% to sell the sub'ect house and lot. Petitioner Leticia Cannu agreed to bu( the !ro!ert( for P1,-%---.-- and to assu$e the balance of the $ortgage obligations with the )6"FC and with C7F ealt( @the +evelo!er of the !ro!ert(>. A +eed of Sale with Assu$!tion of "ortgage Obligation & dated ,- August 199- was $ade and entered into b( and between s!ouses Fernandina and *il *alang @vendors> and s!ouses Leticia and Feli!e Cannu @vendees> over the house and lot in 0uestion. +es!ite re0uests fro$ Adelina . &i$bang and Fernandina *alang to !a( the balance of P=%---.-in the alternative to vacate the !ro!ert( in 0uestion% !etitioners refused to do so.
=8
or
2n a letter &1 dated ,9 "arch 199/% !etitioner Leticia Cannu infor$ed "r. Fer$in &. Ar?aga% ;ice President% Fund "anage$ent *rou! of the )6"FC% that the ownershi! rights over the land covered b( &C& )o. &G<- in the na$es of res!ondentsGs!ouses had been ceded and transferred to her and her husband !er +eed of Sale with Assu$!tion of "ortgage% and that the( were obligated to assu$e the $ortgage and !a( the re$aining un!aid loan balance. PetitionersE for$al assu$!tion of $ortgage was not
45 The negotiations ensued beteen +eyes and y#ress and ornhi&& 4< The a*ount hich re#resents the un#aid ba&ance of the *ortgage" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
a!!roved b( the )6"FC. Because the Cannus failed to full( co$!l( with their obligations% res!ondent Fernandina *alang% on ,1 "a( 199/% !aid P,//%98.= as full !a($ent of her re$aining $ortgage loan with )6"FC. Petitioners o!!osed the release of &C& )o. &G<- in favor of res!ondentsGs!ouses insisting that the sub'ect !ro!ert( had alread( been sold to the$. Conse0uentl(% the )6"FC held in abe(ance the release of said &C&. &hereu!on% a Co$!laint for S!ecific Perfor$ance and +a$ages was filed as4ing% a$ong other things% that !etitioners @!laintiffs therein> be declared the owners of the !ro!ert( involved sub'ect to rei$burse$ents of the a$ount $ade b( res!ondentsGs!ouses @defendants therein> in !reter$inating the $ortgage loan with )6"FC. 2n their Answer% ;; res!ondentsGs!ouses alleged that because of !etitionersGs!ousesE failure to full( !a( the consideration and to u!date the $onthl( a$orti?ations with the )6"FC% the( !aid in full the eisting obligations with )6"FC as an initial ste! in the rescission and annul$ent of the +eed of Sale with Assu$!tion of "ortgage. 2n their counterclai$% &67D "A2)&A2) &6A& &67 AC&S OF P7&2&2O)7S 2) )O& FLLD CO"PLD2)* 52&6 &672 OBL2*A&2O)S *2;7 2S7 &O 7SC2SS2O) OF &67 +77+ OF SAL7 52&6 ASS"P&2O) OF "O&*A*7 52&6 &67 CO7SPO)+2)* +A"A*7S.=< uling of the Court 6owever% after going over the record of the case% $ore !articularl( the Answer of res!ondentsGs!ouses% the evidence shows the consideration therefore is P1,-%---.--% !lus the !a($ent of the outstanding loan $ortgage with )6"FC% and of the e0uit( or second $ortgage with C7F ealt( @+evelo!er of the !ro!ert(>. Settled is the rule that rescission or% $ore accuratel(% resolution% ++ of a !art( to an obligation under Article 1191 +3 is !redicated on a breach of faith b( the other !art( that violates the reci!rocit( between the$. escission will not be !er$itted for a slight or casual breach of the contract. escission $a( be had onl( for such breaches that are substantial and funda$ental as to defeat the ob'ect of the !arties in $a4ing the agree$ent. +* &he 0uestion of whether a breach of contract is substantial de!ends u!on the attending circu$stances +) and not $erel( on the !ercentage of the a$ount not !aid. 2n the case at bar% we find !etitionersE failure to !a( the re$aining balance of P=%---.-- to be substantial. 7ven assu$ing arguendo that onl( said a$ount was left out of the su!!osed consideration of P,-%---.--% or eighteen @1 !ercent thereof% this !ercentage is still substantial. &a4en together with the fact that the last !a($ent $ade was on ,< )ove$ber 1991% eighteen $onths before the res!ondent
4 Koth the +T and A decided in favor of res#ondents and ho&ding that the breach co**itted by the #etitioner in *a/ing on&y si8 '5( #ay*ents fro* 1990;1993 constitutes substantia& breach of contract ustifying the rescission granted" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
5
Fernandina *alang !aid the outstanding balance of the $ortgage loan with )6"FC% the intention of !etitioners to renege on their obligation is utterl( clear. &he fact that !etitioners tendered a "anagerEs Chec4 to res!ondentsGs!ouses *alang in the a$ount of P,8<%98.-- seven $onths after the filing of this case is of no $o$ent. &ender of !a($ent does not b( itself !roduce legal !a($ent% )L7SS 2& 2S CO"PL7&7+ BD CO)S2*)A&2O). 3 &heir failure to fulfill their obligation gave the res!ondentsGs!ouses *alang the right to rescission. Anent the second assigned error% we find that !etitioners were not religious in !a(ing the a$orti?ation with the )6"FC. As ad$itted b( the$% in the s!an of three (ears fro$ 199- to 199/% their !a($ents covered onl( thirt( $onths. 3& &his% indeed% constitutes another breach or violation of the +eed of Sale with Assu$!tion of "ortgage. O) &OP OF &62S% &677 5AS )O FO"AL ASS"P&2O) OF &67 "O&*A*7 OBL2*A&2O) 52&6 )6"FC B7CAS7 OF &67 LACJ OF APPO;AL BD &67 )6"FC O) ACCO)& OF P7&2&2O)7SE )O)GSB"2SS2O) OF 7N27"7)&S 2) O+7 &O B7 CO)S2+77+ AS ASS2*)77SKSCC7SSOSG2)G2)&77S& O;7 &67 POP7&D CO;77+ BD &67 "O&*A*7 OBL2*A&2O). On the third assigned error% !etitioners clai$ there was no clear evidence to show that res!ondentsG s!ouses *alang de$anded fro$ the$ a strict andKor faithful co$!liance of the +eed of Sale with Assu$!tion of "ortgage. 5e do not agree. &here is sufficient evidence showing that de$ands were $ade fro$ !etitioners to co$!l( with their obligation. Adelina . &i$bang% attorne(GinGfact of res!ondentsGs!ouses% !er instruction of res!ondent Fernandina *alang% $ade constant followGu!s after the last !a($ent $ade on ,< )ove$ber 1991% but !etitioners did not !a(. == es!ondent Fernandina *alang stated in her Answer = that u!on her arrival fro$ A$erica in October 199,% she de$anded fro$ !etitioners the co$!lete co$!liance of their obligation b( !a(ing the full a$ount of the consideration @P1,-%---.--> or in the alternative to vacate the !ro!ert( in 0uestion% but still% !etitioners refused to fulfill their obligations under the +eed of Sale with Assu$!tion of "ortgage. So$eti$e in "arch 199/% due to the fact that full !a($ent has not been !aid and that the $onthl( a$orti?ations with the )6"FC have not been full( u!dated% she $ade her intentions clear with !etitioner Leticia Cannu that she will rescind or annul the +eed of Sale with Assu$!tion of "ortgage. 5e li4ewise rule that there was no waiver on the !art of !etitioners to de$and the rescission of the +eed of Sale with Assu$!tion of "ortgage. &he fact that res!ondentsGs!ouses acce!ted% through their attorne(G inGfact% !a($ents in install$ents +O7S )O& CO)S&2&&7 5A2;7 on their !art to eercise their right to rescind the +eed of Sale with Assu$!tion of "ortgage. Adelina &i$bang $erel( acce!ted the install$ent !a($ents as an acco$$odation to !etitioners since the( 4e!t on !ro$ising the( would !a(. 6owever% after the la!se of considerable ti$e @1< $onths fro$ last !a($ent> and the !urchase !rice was not (et full( !aid% res!ondentsGs!ouses eercised their right of rescission when the( !aid the outstanding balance of the $ortgage loan with )6"FC. 2t was onl( after !etitioners sto!!ed !a(ing that res!ondentsG s!ouses $oved to eercise their right of rescission.
Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests
<
Petitioners cite the case of !ngeles v. "alasanD 3* to su!!ort their clai$ that res!ondentsGs!ouses waived their right to rescind. 5e cannot a!!l( this case since it is not on all fours with the case before us. First% in !ngeles% the breach was onl( slight and casual which is not true in the case before us. Second% in !ngeles% the bu(er had alread( !aid $ore than the !rinci!al obligation% while in the instant case% the bu(ers @!etitioners> did not !a( P=%---.-- of the P1,-%---.-- the( were obligated to !a(. 2f one !art( has co$!lied or fulfilled his obligation% and the other has not% then the for$er can eercise his right to rescind. 2n this case% res!ondentsGs!ouses co$!lied with their obligation when the( gave the !ossession of the !ro!ert( in 0uestion to !etitioners. &hus% the( have the right to as4 for the rescission of the +eed of Sale with Assu$!tion of "ortgage. On the fourth assigned error% !etitioners% rel(ing on Article 1/ with Counterclai$ see4s for the rescission of the +eed of Sale with Assu$!tion of "ortgage% it behooves the court to settle the $atter once and for all than to have the case reGlitigated again on an issue alread( heard on the $erits and which this court has alread( ta4en cogni?ance of . 6aving found that !etitioners seriousl( breached the contract% we% therefore% declare the sa$e is rescinded in favor of res!ondentsGs!ouses. "5SS v. CA So$eti$e in 19% !etitioner "5SS @then 4nown as )A5ASA> leased around one hundred twent( eight @1,<> hectares of its land @hereafter% sub'ect !ro!ert(> to res!ondent C6*CC2 @for$erl( the 2nternational S!orts +evelo!$ent Cor!oration> for twent( five @,> (ears and renewable for another fifteen @1> (ears or until the (ear ,--% with the sti!ulation allowing the latter to eercise a right of first refusal should the sub'ect !ro!ert( be $ade o!en for sale. &he ter$s and conditions of res!ondent C6*CC2Es !urchase thereof shall nonetheless be sub'ect to !residential a!!roval. Pursuant to Letter of 2nstruction @LO2> )o. ==- issued on #ul( ,9% 198 b( then President Ferdinand 7. "arcos directing !etitioner "5SS to negotiate the cancellation of the "5SSGC6*CC2 lease agree$ent for the dis!osition of the sub'ect !ro!ert(% Oscar 2lustre% then *eneral "anager of !etitioner "5SS% so$eti$e in )ove$ber of 19<- infor$ed res!ondent C6*CC2% through its !resident herein res!ondent Pablo o$an% #r.% of its !referential right to bu( the sub'ect !ro!ert( which was u! for sale. ;aluation thereof was to be $ade b( an a!!raisal co$!an( of !etitioner "5SSE choice% the Asian A!!raisal Co.% 2nc. which% on #anuar( /-% 19<1% !egged a fair $ar4et value of P=-.-- !er s0uare $eter or a total of P/%<--%---.-- for the sub'ect !ro!ert(. Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests !on being infor$ed that !etitioner "5SS and res!ondent C6*CC2 had alread( agreed in !rinci!le on the !urchase of the sub'ect !ro!ert(% President "arcos e!ressed his a!!roval of the sale as shown in his $arginal note on the letter sent b( res!ondents #ose oas and Pablo o$an% #r. dated +ece$ber ,-% 19<,3 &he Board of &rustees of !etitioner "5SS thereafter !assed esolution /G (ear fro$ the transfer of the title to res!ondent S2L6O7&&7 as vendee with interest at 1,I !er annu$. &he balance was also secured b( an irrevocable letter of credit. A Su!!le$ental Agree$ent was forged between !etitioner "5SS and res!ondent S2L6O7&&7 on August 11% 19 hectares of the sub'ect !ro!ert( at P11-.-- !er s0uare $eter. Of the total !rice of around P8= "illion% P, "illion was to be !aid b( res!ondent ADALA directl( to !etitioner "5SS for res!ondent S2L6O7&&7Es account and P, "illion directl( to res!ondent S2L6O7&&7. P11%--%--- was to be !aid u!on the issuance of title in favor of res!ondent ADALA% and the re$aining balance to be !a(able within one @1> (ear with 1,I !er annu$ interest. es!ondent ADALA develo!ed the land it !urchased into a !ri$e residential area now 4nown as the A(ala 6eights Subdivision. Al$ost a decade later% !etitioner "5SS on "arch ,% 199/ filed an action against all herein na$ed res!ondents before the egional &rial Court of Nue?on Cit( see4ing for the declaration of nullit( of the "5SSGS2L6O7&&7 sales agree$ent and all subse0uent conve(ances involving the sub'ect !ro!ert(% and for the recover( thereof with da$ages. Petitioner "5SS a!!ealed to this Court that !ortion of the res!ondent CourtEs decision affir$ing the trial courtEs dis$issal of its co$!laint against res!ondent ADALA% doc4eted as *.. )o. 1,---. &he !ortion dis$issing the !etition for certiorari @CAG* )os. /=-% /=881< and /-> of res!ondents o$an% C6*CC2 and S2L6O7&&7% however% beca$e final and eecutor( for their failure to a!!eal therefro$. )onetheless% these res!ondents were able to thereafter file before the trial court another $otion to dis$iss grounded% again% on !rescri!tion which the trial court in an Order of October 199 granted. uling of the Court
49 2. as initia& #ay*ent u#on the sa&es a##rova& and the re*aining is to be #aid ithin 1 year" 0 Koth +T and A dis*issed the co*#&aint" Christian Arbiol 1A – San Beda College Alabang School of Law
Obligations and Contracts Case Notes/Digests Petitioner "5SS clai$s as erroneous both the lower courtsE unifor$ finding that the action has !rescribed% arguing that its co$!laint is one to declare the "5SSGS2L6O7&&7 sale% and all subse0uent conve(ances of the sub'ect !ro!ert(% void which is i$!rescri!tible. &he ver( allegations in !etitioner "5SSE co$!laint show that the sub'ect !ro!ert( was sold through contracts which% at $ost% can be considered onl( as voidable% and not void. 1 &he three ele$ents of a contract R consent% the ob'ect% and the cause of obligation & are all !resent. 2t cannot be otherwise argued that the contract had for its ob'ect the sale of the !ro!ert( and the cause or consideration thereof was the !rice to be !aid @on the !art of res!ondents C6*CC2KS2L6O7&&7> and the land to be sold @on the !art of !etitioner "5SS>. Li4ewise% !etitioner "5SSE consent to the "a( 11% 19
1 That there as an a&&eged induce*ent on the #art of +es#ondents that induced the a##rova& of -res" .arcos and the subseuent reso&ution issued7 thereby causing unarranted bene)ts on their #art to the #reudice of the govern*ent" Christian Arbiol 1A – San Beda College Alabang School of Law
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