Chapter 7: Voidable Contracts

Article 1390

Ang mga sumusunod na kontrata ay maaaring walang bisa o ipawalang bisa, kahit na walang
nging pinsala sa bawat partido:

(1) Sa mga kasong walang kakayahang sumang-ayon ang isang partido.

(2) Sa mga kasong ang pagsang-ayon ay bunga lamang ng pagkakamali, pananakot, o

impluwensya ng panlilinlang.

Ang mga kontratang ito ay magkakabisa lamang kung maisaayos sa korte ang mga pagkakamali
nito. Sila ay mahaharap sa pagtitibay.

Case Digest by Ainna Fathi:

Case: Katipunan vs. Katipunan, Jr. (375 SCRA 199)

PETITIONER: Miguel Katipunan, Inocencio Valdez, Edgardo Balguma and
Leopoldo Balguma, Jr.
RESPONDENT: Braulio Katipunan, Jr.

PONENTE: Sandoval-Gutierrez, J.

This is a petition for review on certiorari assailing the decision of the CA in Braulio
Katipunan, Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo Balguma, Sr.,
Edgardo Balguma and Leopoldo Balguma, Jr. which reversed the decision of the
RTC of Manila for the annulment of a Deed of Absolute Sale.

Braulio Katipunan, Jr. owns a 203 square meter lot and a five-door apartment in San
Miguel, Manila and is registered under his name in the Registry of Deeds in Manila.

Braulio, herein respondent, was assisted by his brother, petitioner – Miguel

Katipunan, into entering a Deed of Absolute Sale with brothers Edgardo Balguma,
Leopoldo Balguma, Jr., represented by Atty. Leopoldo Balguma, Sr. – for the subject
FACTS property for a consideration of 187,000PHP.

Respondent filed a complaint for the annulment of the Deed of Absolute Sale and
averred that the petitioners convinced him to work abroad and that through insidious
words and machinations, they made him sign a document that he thought was a
contract of employment. This document turned out to be the Deed of Absolute Sale.
He also claimed that he did not receive the consideration stated in the contract. He
argued that the petitioners, with evident bad faith, conspired with one another in
taking advantage of his ignorance. The RTC dismissed this complaint on grounds
that the respondent failed to prove his causes of action since he admitted that he
obtained loans from the Balgumas, he signed the Deed of Absolute sale and he
acknowledged selling the property and that he stopped collecting rentals.

On the other hand, the CA gave credit to the testimony of Dr. Ana Marie Revilla, a
psychiatrist at the UP-PGH, as an expert witness – explaining that the respondent is
slow in comprehension and has a very low IQ. They ruled that the contract entered
into by respondent and petitioners was voidable pursuant to the provisions of Article
1390 of the NCC. The petitioners filed a MFR but was denied. Hence, this petition.
Whether the contract entered into by Braulio Katipunan, Jr. and Atty Leopoldo
ISSUE/S
Balguma, Jr. is voidable.
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 Article 1390.
The following contracts are voidable or annullable, even though there may have
LAWS been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification. (n)
Yes. The contract entered into by respondent and petitioners was voidable pursuant
to the provisions of Article 1390 of the NCC.

A contract of sale is born from the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. This meeting of the
minds speaks of the intent of the parties in entering into the contract respecting the
subject matter and the consideration thereof. Thus, the elements of a contract of sale
are consent, object, and price in money or its equivalent. Under Article 1330 of the
Civil Code, consent may be vitiated by any of the following: (a) mistake, (2)
violence, (3) intimidation, (4) undue influence, and (5) fraud. The presence of any
HOLDINGS
of these vices renders the contract voidable.

The circumstances surrounding the execution of the contract manifest a vitiated

consent on the part of respondent. Undue influence was exerted upon him by his
brother Miguel and Inocencio Valdez (petitioners) and Atty. Balguma. It was his
brother Miguel who negotiated with Atty. Balguma. However, they did not explain
to him the nature and contents of the document. Worse, they deprived him of a
reasonable freedom of choice. It bears stressing that he reached only grade three.
Thus, it was impossible for him to understand the contents of the contract written in
English and embellished in legal jargon.

Article 1391

Ang aksyon na maipawalang bisa ay dapat na gawin sa loob ng apat na taon:

Ito ay dapat na magsimula: Sa mga kaso ng pananakot, hadas o masamang impluwensya, sa oras
na nagging depektibo ang pagpayag sa mga kamalian.

Sa mga kaso ng pagkakamali o pandaraya, o sa oras na madiskubre ang mga ito.

At kapag ang aksyon upang ipawalang bisa ito ay tumutukoy sa mga kasunduan ng mga menor
de edad, sa oras na matuklasan ito ng mga kumukupkop sa kanila.

CASE. DIONE

FELIX ULLMAN, plaintiff-appellee,

vs.
VICENTE HERNAEZ, defendant-appellant.

FACTS: Vicente Hernaez contracted a debt in favor of Felix Ullman on April 5, 1900,
amounting to 3,525 pesos Mexican currency, to be paid says Hernaez, “as soon as I receive the
portion that as an heir must come to me from the estate of Juana Espinosa, widow of Hernaez:
without prejudice to paying on it, during the time that may elapse until I get possession of said
property, interest at six per cent a year, but not, however, compound interest.”

On June 2, 1913, Ullman filed suit against Vicente Hernaez, alleging therrein, as the fifth fact:
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 ‘That the defendant did on January 5, 1913, cede, alienate, and convey to Rosendo
Hernaez for the sum of twenty-five thousand pesos (P25,000) Philippine currency, all his
rights and rights of action in the property left by the deceased Juana Espinosa.

This fact was expressly admitted by the defendant in the agreement of facts. Moreover, the
instrument of indebtedness was inserted in the complaint and has not been denied under oath in
the reply.

ISSUES: Can the right of action for nullity of the defendant prosper?

HELD: No. True it is that the defendant lacked three months and fifteen days when he executed
the note for the sum stated, the price of some jewelry he had bought from the plaintiff; but the
attained his majority on July 20 of the same year 1900, and he did not then nor in the four years
following attempt to enforce the nullity that he now assigns as a ground of error.

The right of action for nullity shall only last four years . . . When it refers to contracts executed
by minors or incompetents, from the date when they were released from guardianship. (Civil
Code, art. 1301.)

Article 1392
Ang pagtitibay ay nagpapawalang bisa sa pag-aksyon sa mga kontratang walang bisa.

Article 1393

Ang pagtitibay ay maaaring hayagan o hindi ipinahayag. Ito ay maliwanag na naintindihan ng

magkabilang partido kung ang bawat isa ay may kaalaman na maaaring mawalan ng bisa ang
kanilang kasunduan sa oras na labagin ang pinagkasunduan. Ang taong di tumupad ay maaaring
habulin at ang taong may karapatang maghabol ay maaring umaksyon ng naaayon sa kanyang
mga karapatan.

Case: Petrona Tacalinar , Plaintiff- appellant, (For Art 1393 JN Robillon)

vs.
Lorenzo Corro Y Manalili, Defendant- appellees

G.R. No. 11040 Sept. 7, 1916 (Torres)

PETITIONER: , Petrona Tacalinar plaintiffs-appellants,

RESPONDENT: Lorenzo Corro Y Manalili, Defendant- appellees, defendant-appellee

FACTS

On July 9, 1913, counsel for the widow and children of Leoncio Alfon y Visitacion filed a
written complaint in the Court of First Instance of Occidental Negros alleging as a cause of
action that Leoncio Alfon, during his lifetime, was the owner in fee simple of an estate known as
the “Santo Niño Hacienda ,” situated in Guadalupe, Calatrava, now pueblo of San Carlos,
Occidental Negros, (together with a steam engine, grist mill and certain dwelling houses for
laborers) the metes and bounds of which estate are set forth in paragraph 3 of the complaint; that
in the year 1897 Leoncio Alfon, through his daughter Asuncion Alfon, leased the said Santo Niño
Hacienda to Lorenzo Corro y Manalili for the sum of P1,500, the lessee Corro taking possession
of the said leased property in that year and holding the same until 1909 when he unlawfully sold
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it to his codefendant Juan Perez who was in possession thereof at the time of the filing of the
complaint; that the lessee Lorenzo Corro had paid only the sum of P1,500 as the rent for the first
year, and had not paid the rent for the subsequent years, notwithstanding the demands made upon
him by the plaintiffs; that the latter had suffered damages in the amount of P10,000, as rents
unpaid by the said lessee during the last seven years of the lease; and that the present possessor
of the said hacienda , Juan Perez, refused to deliver to the plaintiffs the possession thereof and to
pay them the amount of damages, P6,000, which by his conduct he had caused to the plaintiffs.
The latter’s counsel therefore prayed the court to render a judgment restoring the ownership and
possession of the Santo Niño Hacienda to the plaintiffs and ordering Juan Perez y Gonzalez to
deliver and to return the possession of the said hacienda , in addition to the payment of the
damages demanded; and ordering Lorenzo Corro to pay to the plaintiffs the sum of P10,000 as
damages.

defendant, Juan Perez y Gonzalez, denied each and all of the allegations of the foregoing
complaint and in special defense set forth that the Santo Niño Hacienda , measuring 40 hectares,
as part of other conjugal partnership property, belonged to Lorenzo Alfon and his wife, Petrona
Tacalinar, the first of whom about the year 1898 had broken in jail and was a fugitive from
justice; that in the said year 1898 his wife, Petrona Tacalinar, through her daughter Asuncion
whom she duly authorized for the purpose, sold the said hacienda to Lorenzo Corro for the sum of
P3,500; that the said Corro paid P2,000 in cash and gave the vendor his promissory note for the balance
of P1,500; that subsequently, on April 27, 1899, the fugitive husband Leoncio Alfon approved and ratified
the sale, collected from the wife of the purchaser the sum of P800 on account of the promissory note for
P1,500 and later on obtained the balance of P700 in a draft drawn on the Compania General de Tabacos
de Filipinas, which sums were received by the said Leoncio Alfon, as attested by the receipts issued by
him,

ISSUE/S

Whether or not it was a contract of absolute sale of the said hacienda to Corro. or sale with right
to repurchase should be declared as an equitable mortgage.

LAWS

Article 1393 Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which render the contract voidable and such reason
having ceased , the person who has a right to invoke it should execute an act which necessarily
implies an intention to waive his rights.

Holding

1. Although there may have been some defect in the contract of sale, by virtue of which the
defendants Corro and Samorro acquired the Santo Niño Hacienda , the subsequent approval
made by its owner Leoncio Alfon purged the contract of such defect.

2. The owner of the hacienda in question, may not have authorized any one, not even his wife
and children, to sell his property, yet after he was informed of the said conveyance, if instead of
demanding its annulment he proceeded to collect in installments the amount of the promissory
note for P1,500,

3. The ratification or confirmation of a contract by the person in whose name the contract was
made by a third party who had no authority therefor, validates the act from the moment of its
celebration, not merely from the time of its confirmation, for the confirmation operates upon or
applies to the act already performed.

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Article 1394

Ang pagtitibay ay mayroong epekto sa kumukupkop sa taong walang kakayahan gawin ang mga
obligasyon sa kontrata.

Illustrative case digest (by Allan Pailan)

G.R. No. 2819 May 30, 1951

Marciano Escoto-plaintiff-appellant vs. Benito M. Arcilla Et al – Defendants -appellees

FACTS:

a.) May 2, 1932, in a document (Exhibit 5) termed “Escrotora de Venta cen Pacto de retro”,
Manuel Tangcungco(deceased) purported to convey two parcels of land situated in Angeles,
Pampanga to Jacinto Hilario in Consideration of P3,500.

b.) The contract provide that the vendor would remain in possession of the parcels and could
purchase them in two years and that in the meanwhile he was to pay as lessee in the sum P420 a
year.

c.) May 5, Tancungco conveyed to Amada Hilario of another parcel, residential under the same
terms as the except that he purchase price was P2,000 and the rent was P240 yearly.

d.)October 18, 1939, Amada Hilario died, leaving as heirs her husband and children who are now
defendants and appellees .

e.) Having failed to purchase the lands, Tangcungco continued in the possession thereof paying
the agreed amounts for their use and occupation.

g.) July 18, 1940, Benito M. Arcilla and his children brought a possessory action in justice of the
peace of court of Angeles for unlawful detainer.

h.) July 19, the parties submitted a compromise agreement whereby that the plaintiff allowed the
defendants the right to repurchased the lands in question for the sum of P700 within 2 years from
the date of said agreement, on condition that Tangcungco would pay them P500 within six
months.

i.) February 10, 1941, tangcungco did not pay either the sum of P7,000 or P500 within the period
stipulated, the parties renewed their agreement known as exhibit A.

j.) March 24, 1941, Arcilla appointed as administrator of his wife estate and named guardian for
the minors on April 2, 1941.

k.) August 2, 1941, Arcilla filed motion in the intestate proceeding.

l.) August 11, 1941, judge Pedro Magsalin said that he could not sanction the sale becouse
Tancungco was a chinese citizen and so denied the request.

m.) August 18, 1941, Arcilla demanded on September 9, 1941 that Tancungco vacate the
properties with a wishing that will be charged monthly rent of P 150 instead of P55 beginning
October.

n.) Manuel Tancungco died May 12, 1943, his widow was appointed administratrix of his estate.

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o.) December 6, 1943, the court (judge Pablo Angeles David) authorized Arcilla as administrator
of his wife’s estate to sell the lands under consideration to tancungco’s widow within the period
of ten days for the sum of P6,750 Arcilla paid.

p.) February 29, 1944, the honorable made a preemptory direction to Arcilla to execute a deed of
conveyance in favor of Tancungco’s estate.

q.) Arcilla instituted certiorari proceedings before the S.C. attaching their validity on the grounds
that the heirs of A manda Hilario had not been notified the propose sale required by the Rule of
Court and granted by S.C..

r.) April 16, 1947, Tancungco’s widow commenced action against Benito M. Arcilla to compel to
get from the court authority to sell the lands for P6,750.00.

s.) July 18, 1948, the complaint was amended by including Amada Hilario’s children as Arcilla’s
co-defendant.

t.) The court dismissed the action and ordered the plaintiff to deliver the possession of the
disputed lots to Arcilla with costs.

ISSUE:

Whether or not that the plaintiff can represent as guardian of the children agreeable to the
projected side to defendant.

HELD:

Yes, Our (S.C.) considered opinion is that the trial court took a strict too legalistic view of
exhibit A, entirely overlooking its antecedents. The view that in our judgment , best accords with
good conscience and with the intention of parties is that this compromise was a part of the
original contract of “pacto de retro” sale. It directly stemmed from the original sale and was
executed in consideration of Tancungco’s recognized equities in the lands. Exhibit “A” and the
compromise agreement in the justice of the peace court were in point of fact and in spirit an
extension and continuation of the period of repurchase provided in the initial contract. The fact
that period had expired was no legal obstacle to the granting to the seller; if the purchaser so
wished of renewed opportunity to redeem or repurchase the subject matter of the sale, so long as
the combined period did not exceed ten years.

It is said that the minors were not parties to exhibit A, however it has been seen that through their
duly appointed guardian “ad litem” they ratified that the compromised in open court, when not
only the guardian but the oldest two of the children as well personally appeared and expressed
their conformity to the proposed sale. This ratification validate the agreement effectively as if the
minors or their guardian ad litem had signed it. Lastly it said that Tancungco sold his right to the
lands in litigation to Dr. Bundalian and that he or his heirs no longer have any share or interest in
his properties.

The judgment of the CFI of pampanga is reversed, on the defendant are ordered to execute a
deed of conveyance covering the lost described in the complaint in favor of the plaintiff upon
payment by her of P6,750.00 which she shall make within 30 days from the date this decision
becomes final and pay the cost.

Article 1395
Ang pagtitibay ng mga kontrata ay hindi nangangailangan ng pahintulot ng partido na walang
karapatan para kumilos na ipawalang bisa ang kontrata.

Discussion by Ainna Fathi:

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Conformity of the Party who has no right to bring an action for annulment is not needed. – The
innocent party has the prerogative to annul or not to annul a voidable contract.

“He who comes to the court, must come with clean hands”

Further, there is also no need for the innocent party to require the guilty party’s conformity
before he ratifies the defective contract.

Article 1396

Ang pagtitibay ay nagpapalinis sa mga kontrata sa lahat ng mga depekto nito sa oras na maitatag
ito.

CASE. DIONE

TANG AH CHAN and his wife KWONG KAM KOON, plaintiffs-appellants,

vs.
EDUARDO B. GONZALEZ, HELEN DAHLKE and her husband A.H.
DAHLKE, defendants-appellees.

FACTS: On July 28,1924, Eduardo B. Gonzalez, as the result of negotiations conducted by the
broker, Mrs. Helen Dahlke, conveyed to Tang Ah Chan and his wife Kwong Kam Koon three
parcels of land contiguous to each other of an aggregate area of 5,635.40 square meters for the
sum of P106,000. Of this amount, Tang Ah Chan paid P6,000 in cash. To secure the payment of
the balance of P100,000, Tang Ah Chan mortgaged to Gonzales the land thus conveyed and
another property located on Calle Echague in the City of Manila. The interest on the mortgage
was paid up to and including December, 1924, but since that time Tang Ah Chan has been in
default.

The broker Dahlke delivered to Tang Ah Chan at the beginning of the negotiations a blueprint
plan of the land with the border cut off so that Tang Ah Chan would not know who the owner
was, and this plan showed the property to be at the mouth of the Estero San Antonio Abad and
some distance from Fort San Antonio Abad. This is admitted by all the parties and is inconsistent
with the theory of fraud.

Mr. Tang Ah Chan asked Emilio Pacheco why he did not prolong the line which is marked by
point 2 that is to say, the monument No. 2 of the land and line 3 of lot 1, why it was not
prolonged parallel to the water of the sea. Pacheco told Chan that that portion enclosed by that
line of the point 3 of lot 1, 13 of lot 3, and 5 of lot 3, the portion between those points and the sea
was not included in his property and for that reason I could not include it in that location.

ISSUES: Can the action for the rescission of the contract on the ground of deceit prosper?

HELD: No. The case comes squarely within the purview of the provisions of the Civil Code
under the subject of Nullity of Contracts which pertain to ratification. Codal article 1309
provides: “The action of nullity is extinguished from the moment the contract may have been
validly ratified.” Article 1311 following provides: “Ratification may be either express or implied.
It shall be deemed that there is an implied ratification when a person entitled to avail himself of
any ground for the annulment of the contract should, with knowledge of its existence and after it
has ceased, do anything which necessarily implies an intention to waive such right.” Finally
comes article 1313 which provides: “Ratification purges the contract of all defects to which it
may have been subject as from the moment it was entered into.” It results, therefore, that
after a contract is validly ratified, no action to annul the same can be maintained based upon
defects relating to its original validity. (Gutierrez Hermanos vs. Orese [1914], 28 Phil., 571;
Vales vs. Villa [1916], 35 Phil., 769.) With this state of the facts and the law, the case is
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essentially different from Gomez Marino vs. Linton ([1924], 45 Phil., 652), for while in the latter
case the defendants were deceived as to the true boundaries of the land, it also appeared that the
plaintiff could not make a good title to all of the land within the proposed boundaries, while the
defendants never ratified the sale. The present case is more nearly akin in principle to Tacalinar
vs. Corro ([1916], 34 Phil., 898), and Ruhl vs. Mott ([1898], 120 CAl., 668).

Before the sale was made, the purchaser had every opportunity to inform himself as to the true
location of the property. But with the plan of the land in his possession, the purchaser was
content to accept this information as sufficient. His failure to check the truth of the
manifestations made by the broker and the vendor which might readily have been ascertained by
ordinary care and attention, discloses either acquiescence or negligence. Any acts evincive of an
intent to abide by the contract, and in this instance there are a number of such acts, are evidence
of the affirmance of the contract and of a waiver of the right of rescission. There is ratification of
the contract where, with the knowledge of the true nature of the transaction before him or with
means available to obtain that knowledge, the party alleged to be defrauded performs his part of
the contract. That terminates the right to rescind.

Article 1397

Ang mga aksyon upang maipawalang bias ang mga kontrata ay maaaring ihain ng sinumang may
obligasyon pangunahin man o ikalawang tao. Gayun pa man, ang sino mang partido ay di
maaaring paratangan ng kawalang kakayahan ang kabilang partido, kung sila man ay nagpakita
ng pananakit, dahas, hindi magandang inpluwensya o pandaraya, o pagkakamali base sa naging
problema sa pinagkasunduan.

Article 1398

Kapag ang mga obligasyon kapag naipawalang bisa na, ang mga partidong nagkasundo ay
maaaring magbalik ng mga bagay na sumailalim sa kanilang kasunduan noong mag bisa pa ang
kontrata, ang mga bunga nito, at mga halaga ng mga interest, maliban sa mga kaso na labag sa
batas.

Sa mga obligayong serbisyo ang pinagkasunduan, ang mga halaga ng danyos perwisyo ang
magiging batayan ng mga pinsala dito.

CASE : THE MUNICIPALITY OF CAVITE, plaintiff-appellant, (Art 1398 JN Robillon)

vs.
HILARIA ROJAS and her husband TIUNG SIUKO, alias SIWA, defendants-appellees.
Case: G.R. No. L-9069 March 31, 1915 (Torres)

FACTS

PETITIONER: Municipality of Cavite, plaintiffs-appellants,

RESPONDENT: Hilaria Rojas, defendant-appellee

March 14, 1912, the provincial fiscal of Cavite, representing the municipality of that name,
filed a complaint in the Court of First Instance of said province alleging that the plaintiff
municipal corporation, duly organized and constituted in accordance with Act No. 82, and as the
successor to the rights s aid entity had under the late Spanish government, and by virtue of Act
No. 1039, had exclusive right, control and administration over the streets, lanes, plazas, and
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public places of the municipality of Cavite; that the defendants, by virtue of a lease secured from
the plaintiff municipality, occupy a parcel of land 93 square meters in area that forms part o the
public plaza known under the name of Soledad, belonging to the municipality of Cavite.

The defendants having constructed thereon a house, through payment to the plaintiff for
occupation thereof of a rental of P5,58 a quarter in advance, said defendants being furthermore
obligated to vacate the leased land within sixty days subsequent to plaintiff’s demand to that
effect; that the defendants have been required by the municipality to vacate and deliver
possession of the said land, but more than the sixty days within which they having done so to
date; that the lease secured from the municipality of Cavite, by virtue whereof the defendants
occupy the land that is the subject matter of the complaint, is ultra vires and therefore ipso facto
null and void and of no force or effect, for the said land is an integral portion of a public plaza of
public domain and use, and the municipal council of Cavite has never at any time had any power
or authority to withdraw it from public use, and to lease it to a private party for his own use, and
so the defendants have never had any right or occupy or to retain the said land under leasehold,
or in any other way, their occupation of the parcel being furthermore illegal; and therefore prayed
that judgment be rendered declaring that possession of the sad land lies with the plaintiff and
ordering the defendants to vacate the land and deliver possession thereof to said plaintiff, with
the costs against the defendants.

Duly proven in the record that, upon presentation of an application by Hilaria Rojas, he
municipal council of Cavite by resolution No. 10, dated July 3, 107, leased to the said Rojas
some 70 or 80 square meters of Plaza Soledad, on condition that she pay rent quarterly in
advance according to the schedule fixed in Ordinance No. 43, land within sixty days subsequent
to notification to that effect. The record shows that she has paid the land tax on the house erected
on the lot.

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could
not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it could not dispose, nor is it empowered so
to do.

ISSUE/S

Whether or not the contract agreed by petitioner and defendant is valid and binding?

LAWS

Article 1398 The obligation having been annulled the contracting parties shall restore to each
other the things which have been the subject matter of the contract, with their fruit, and the price
with its, except in cases provided by law. In obligations to render service, the value thereof shall
be the basis for damages.

HOLDINGS

1 Reverse the judgment appealed from and declare, as we do declare, that the land occupied by
Hilaria Rojas forms part of the public plaza called Soledad, and as the lease of said parcel of land
is null and void, we order the defendant to vacate it and release the land in question within thirty
days, leaving it cleared as it was before hr occupation. There is no ground for the indemnity
sought in the nature of damages, but the municipality must in its turn to the defendant the rentals
collected; without finding as to the costs. .

2. The contract, whereby he municipality of Cavite leased to Hilaria Rojas a portion of the Plaza
Soledad is null and void and of no force or effect, because it is contrary to the law and the thing
leased cannot be the object of a contract.
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3. The Civil Code, articles 1271, prescribes that everything which is not outside he commerce of
man may be the object of a contract, and plazas and streets are outside of this commerce, as was
decided by the supreme court of Spain in its decision of February 12, 195, which says:
“Communal things that cannot be soud because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains,
etc.”

Article 1399

Kapag ang depekto ng isang kontrata ay naglalaman ng kawalang kakayahan ng isang partido na
gampanan ang kanyang mga tungkulin, ang taong ito ay hindi na oobligahin na magbayad pa ng
mga pinsala o anumang benepisyo na napunta sa kanya o natanggap niya.

Illustrative case digest (by Allan Pailan):

G.R. No. 11524 October 12, 1916

The Government of the Phil. Islands- plaintiff- appellee vs.

El Monte De Piedad Y Caja De Ahorros De Manila- defendant -Appellant

FACTS:

a.) July 8, 1880, Monte De Piedad Y Caja De Ahorros De Manila is an institution organized in
accordance with the canon law, having been created by the royal order of the King of Spain,
made under the royal patronate powers then existing in the Crown of Spain.

b.) The royal order , an institution for the safe investment of the savings of the poor classes and
to assist the needy by loaning such savings to the them at a low rate of interest. Its statutes and
by laws are subject to the will of the catholic Arcbishop of Manila and may be changed by him
of his pleasure and provide 4% to the depositors.

c.) During the tax litigation assesment, defendant had a place of business in Manila City where
credits were opened by the deposit or collection of money or currency subject to be paid by
order.

d.) Tax to be collected is that the defendant institution is a bank base on Section 110 of Act no.
1189, known as the internal revenue law and that it is subject to a tax of one eighteenth of one
percentum each month upon the average amount of deposits money, payment by check or draft,
certificate of deposits, or payable on demand, imposed by par. 4, sect. 111 and to further tax of
one -twentyfourth of one percentum each month upon capital by defendant in banking.

e.) The defendant seek to escape the tax payment on its deposit by a claim that it is savings bank
denied by exception in par. 4 of section 111.

f.) P549,912.52- capital employed by any bank.

ISSUE:

Whether or not that the defendant is liable for tax payment or can claim an exemption as
subjected by tax revenue law.

HELD:

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Even though the complaint in this regard were well founded, it would have little learning on the
result of the litigation when we take into consideration the universal rule that he who claims an
exemption from his share of the commom burden of taxation must justify his claim by showing
that the legislature intended to exempt him by words too plain to be mistaken. It being
undisputed in this case that the defendant is a bank engaged in the banking business as it is
immediately fall within the imposing clause of the statute placing taxes on banks and institutions
doing a banking business. To escape that imposition the defendant must produce an act of the
legislature showing an intention to exempt it from the operation of the imposing clause by words
too plain to be mistaken. That being the case matters little whether we say that the admission of
the defendant that is engaged in banking business carries with it the presumption that it is liable
to pay the taxes which the law imposes on all person engaged in that business which the
defendant must overcome.

Judgment appealed from is affirmed with cost against the appellant.

Article 1400

Kapag ang isang tao ay obligadong magbalik ng isang bagay dahil ipinawalang bisa na ang pag-
aari nya dito ngunit dahil sa kanyang kapabayaan ito ay nawala na, dapat niyang ibalik ang mga
bunga nito at mga interest ng kaparehong halaga mula ng mawala ito kasama ang mga interest ng
kaparehong petsa.

Discussion by Ainna Fathi:

Whenever a contract is annulled and then person obliged by the decree of annulment is supposed
to return something and is not able to do so as it was lost through his fault, that person shall
return the value of the thing at the time of the loss, including the fruits received, with interest
from the date it was lost.

*** this law is anchored in Article 1174:

Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a)

*** The exemption from liability is bolstered by Article 1262:

Article 1262. An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and before he has
incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the
loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The
same rule applies when the nature of the obligation requires the assumption of risk. (1182a)

Article 1401

Kapag ang desisyon na ipawalang bisa ang ang kontrata ay dapat na ipawalang saysay kapag ang
bagay na pinag-uusapan ay nawala sa pamamagitan ng panloloko o pagkukulang ng tao na may
karapatan na magsagawa ng pagsasakdal.

Kapag ang karapatan na magdesisyon ay nakabase sa kawalang kakayahan ng kabilang partido,

ang pagkawala ng bagay ay hindi dapat na maging balakid sa pagpapatupad ng desisyon,
maliban kung ito ay nangyari sa pamamagitan ng panloloko o pagkukulang ng nagsakdal.

Article 1402

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Hangga’t ang isa sa nagkasundong partido ay hindi makapagbalik ng magandang katangian ng
pagpapawalang bisa sa dahilang hindi magawa ng maayos ang mga tungkulin na nakaatas na
gawin, ang kabila ay di maaaring pilitin na sumunod sa kung ano man ang nakaatas niyang
gawin.

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