ANTONINO V.

REGISTER OF DEEDS

KEY WORDS: PERSONAL ACTION – ENFORCEMENT OF CONTRACT vs REAL ACTION –

RECOVERY OF OWNERSHIP OVER PROPERTY, ENFORCEMENT OF CONTRACT / SPECIFIC
PERFORMANCE AT ISSUE, OWNERSHIP ONLY UPON DELIVERY BUT NO DELIVERY YET,
SPECIFIC PERFORMANCE CASE MUST BE FILED IN VENUE WHERE THE PARTIES RESIDE

FACTS

Remedios Antonino (Antonino) had been leasing a residential property located at Makati City and owned
by private respondent Tan Tian Su (Su). Under the governing lease contract, Antonino was accorded with
the right of first refusal in the event Su would decide to sell the subject property.
 On July 7, 2004, the
parties executed a document denominated as Undertaking Agreement where Su agreed to sell to
Antonino the subject property for P39,500,000.00. However, the sale did not proceed. On July 9, 2004,
Antonino filed a complaint against Su with the Regional Trial Court (RTC) of Makati City to enforce
the Undertaking Agreement and compel Su to sell to her the subject property.

The RTC dismissed Antonino’s complaint on the grounds of improper venue and non-payment of
the appropriate docket fees. According to the RTC, Antonino’s complaint is one for specific
performance, damages and sum of money, which are personal actions that should have been filed
in the court of the place where any of the parties resides. Antonino and Su reside in Muntinlupa and
Manila, respectively, thus Makati City is not the proper venue.

On January 3, 2005, Antonino filed a Motion for Reconsideration, claiming that her complaint is a real
action and the location of the subject property is determinative of its venue. This was denied by the RTC
in an Order dated January 6, 2005, holding that there was non-compliance with Sections 4 and 5 of
Rule 15 of the Rules of Court. Antonino thus filed a Motion for Reconsideration dated January 21,
2005, claiming that there was due observance of the rules on motions. The RTC also denied Antonino’s
January 21, 2005 Motion for Reconsideration.

Antonino filed with the CA a petition for annulment of judgment. Antonino prayed for the nullification
of the RTCs Order dated December 8, 2004 dismissing her complaint, Order dated January 6, 2005
denying her motion for reconsideration and Joint Resolution dated February 24, 2005 denying her motion
for reconsideration of the January 6, 2005 Order. According to Antonino, the RTC committed grave
abuse of discretion amounting to lack of jurisdiction when it ruled that her action for the enforcement
of the Undertaking Agreement is personal and when it deprived her of an opportunity to pay the correct
amount of docket fees. CA dismissed.

ISSUE

The propriety of Antonino’s use of the remedy of a petition for annulment of judgment as against the final
and executory orders of the RTC.

HELD

1. Annulment of judgment is a recourse equitable in character, allowed only in exceptional cases as

where there is no available or other adequate remedy. Rule 47 of the 1997 Rules of Civil Procedure, as
amended, governs actions for annulment of judgments or final orders and resolutions, and Section 2
thereof explicitly provides only two grounds for annulment of judgment, i.e., extrinsic fraud and
lack of jurisdiction. The underlying reason is traceable to the notion that annulling final judgments goes
against the grain of finality of judgment. Litigation must end and terminate sometime and somewhere, and
it is essential to an effective administration of justice that once a judgment has become final, the issue or
cause involved therein should be laid to rest. Apart from the requirement that the existence of extrinsic
fraud or lack of jurisdiction should be amply demonstrated, one who desires to avail this remedy must
convince that the ordinary and other appropriate remedies, such as an appeal, are no longer
available for causes not attributable to him.
a) Antonino cannot pursue the annulment of the various issuances of the RTC, primary of which is the
Order dated December 8, 2004, in order to avoid the adverse consequences of their becoming final and
executory because of her neglect in utilizing the ordinary remedies available. She didn’t appeal
when she had the opportunity.

b) Lack of jurisdiction as a ground for the annulment of judgments pertains to lack of jurisdiction over
the person of the defending party or over the subject matter of the claim. It does not contemplate grave
abuse of discretion considering that jurisdiction is different from the exercise thereof. Jurisdiction
is the authority to decide a cause, and not the decision rendered therein.

2. The RTC was correct in classifying Antonino’s cause of action as personal and in holding that it was
instituted in the wrong venue. Personal action is one that is founded on privity of contracts between
the parties; and in which the plaintiff usually seeks the recovery of personal property, the
enforcement of a contract, or recovery of damages. Real action, on the other hand, is one
anchored on the privity of real estate, where the plaintiff seeks the recovery of ownership or
possession of real property or interest in it. Antonino’s allegations in her amended complaint show
that one of her causes of action is one for the enforcement or consummation of a contract, hence, a
personal action.

Antonino’s cause of action is premised on her claim that there has already been a perfected contract of
sale by virtue of their execution of the Undertaking Agreement and Su had refused to comply with his
obligations as seller. However, by claiming the existence of a perfected contract of sale, it does not
mean that Antonino acquired title to the subject property. She does not allege otherwise and
tacitly acknowledges Su’s title to the subject property by asking for the consummation of the sale.

That there is a private document supposedly evidencing the alleged sale does not confer to Antonino title
to the subject property. Ownership is transferred when there is actual or constructive delivery and
the thing is considered delivered when it is placed in the control or possession of the buyer or
when the sale is made through a public instrument and the contrary does not appear or cannot be
clearly inferred. In other words, Antonino’s complaint is not in the nature of a real action as ownership of
the subject property is not at issue.

Moreover, that the object of the alleged sale is a real property does not make Antoninos complaint real in
nature in the absence of a contrary claim of title. After a contract of sale is perfected, the right of the
parties to reciprocally demand performance, thus consummation, arises the vendee may require the
vendor to compel the transfer the title to the object of the sale and the vendor may require the payment of
the purchase price. The action to cause the consummation of a sale does not involve an adverse
claim of ownership as the vendors title is recognized and the vendor is simply being asked to
perform an act, specifically, the transfer of such title by any of the recognized modes of delivery.
GAITE V. FONACIER

KEY WORDS: GAITE = EXPLORATION OF MINING CLAIMS = REVOKED = REVOCATION

CONTRACT = 75K , 10K DOWNPAYMENT AND 65K WILL BE PAID OUT OF FIRST LETTER OF
CREDIT COVERING FIRST SHIPMENT OF IRON ORES AND FIRST AMOUNT DERIVED FROM
LOCAL SALE, SALE = COMMUTATIVE = SUSPENSIVE PERIOD NOT CONDITION = “GREATER
RECIPROCITY OF INTERESTS”, NOT ENTITLED TO PERIOD ANYMORE (UNTIL FIRST SHIPMENT)
CUZ FAILURE TO RENEW SECURITY / BOND

FACTS

Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims, known as the
Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte. By a
"Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed
plaintiff- appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract
with any individual or juridical person for the exploration and development of the mining claims
aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom.

On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19)
conveying the development and exploitation of said mining claims into the Larap Iron Mines, a
single proprietorship owned solely by and belonging to him, on the same royalty basis provided for
in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims in
question, opening and paving roads within and outside their boundaries, making other improvements and
installing facilities therein for use in the development of the mines, and in time extracted therefrom what
he claim and estimated to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to
Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to
certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims,
the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents
relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests
over the "24,000 tons of iron ore, more or less" that the former had already extracted from the
mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the
signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the
first letter of credit covering the first shipment of iron ores and of the first amount derived
from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns,
administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of
Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated
December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty
as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by
Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on
December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a
bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their
price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated
December 8, 1954 (Exhibit "B"),was executed.

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety
and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by
the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been
paid to Gaite.

ISSUE

W/N the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the
P65,000.00 (balance of the price of the iron ore in question) is one with a period or term and not one
with a suspensive condition, and that the term expired on December 8, 1955
HELD

1.
The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights
and interests over the 24,000 tons of iron ore, more or less, above-referred to together with all his
rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE
THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the
first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting
Co., Inc., its assigns, administrators, or successors in interest.

The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of
the balance of P65,000.00, but was only a suspensive period or term.

1) The words of the contract express no contingency in the buyer's obligation to pay: "The
balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of
credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the
payment will have to be made sooner or later; what is undetermined is merely the exact date
at which it will be made. By the very terms of the contract, therefore, the existence of the
obligation to pay is recognized; only its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the
parties assume a correlative obligation (the seller to deliver and transfer ownership of the
thing sold and the buyer to pay the price),but each party anticipates performance by the other
from the very start. While in a sale the obligation of one party can be lawfully subordinated to
an uncertain event, so that the other understands that he assumes the risk of receiving
nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is
not in the usual course of business to do so; hence, the contingent character of the obligation
must clearly appear. Nothing is found in the record to evidence that Gaite desired or
assumed to run the risk of losing his right over the ore without getting paid for it, or
that Fonacier understood that Gaite assumed any such risk. This is proved by the fact
that Gaite insisted on a bond not only upon a bond by Fonacier, the Larap Mines &
Smelting Co., and the company's stockholders, but also on one by a surety company; and the
fact that appellants did put up such bonds indicates that they admitted the definite existence
of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the
ore as a condition precedent, would be tantamount to leaving the payment at the discretion of
the debtor, for the sale or shipment could not be made unless the appellants took steps to sell
the ore. Appellants would thus be able to postpone payment indefinitely. The desireability of
avoiding such a construction of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties
 indented a suspensive condition or a suspensive period (dies ad quem) for the payment of
the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater
reciprocity of interests", since sale is essentially onerous.

The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.
and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to
be actually existing, with only its maturity (due date) postponed or deferred, that if such obligation
were viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale
on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk
of not being paid at all; and that the previous sale or shipment of the ore was not a
suspensive condition for the payment of the balance of the agreed price, but was intended
merely to fix the future date of the payment.

2.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the
right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment.

We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to renew the bond of the Far
Eastern Surety Company or else replace it with an equivalent guarantee. The case squarely comes
under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full
knowledge that on its face it would automatically expire within one year was a waiver of its renewal after
the expiration date. No such waiver could have been intended,
BUENAVENTURA V. CA

KEY WORDS: CHILDREN (P) AND CHILDREN (D) OVER DEED OF SALE OF PROP EXECUTED BY
PARENTS TO CHILDREN (D), CONTRACT OF SALE IS CONSENSUAL NOT REAL CONTRACT, SO
MEETING OF MINDS > MANNER OF PAYMENT FOR VALIDITY OF SALE BUT IF PRICE
SIMULATED = VOID, VALUE OF PROP > PRICE = DOESN’T MATTER (INADEQUACY) = STILL
VALID AS LONG AS COMMUTATIVE

FACTS

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs, Consolacion,
Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and
Gavino. The married Joaquin children are joined in this action by their respective spouses.

Sought to be declared null and void ab initio are certain deeds of sale of real property executed by
defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children
and the corresponding certificates of title issued in their names

In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in their
complaint, aver:

The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are NULL AND
VOID AB INITIO because

a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties in
litis;

b) Secondly, assuming that there was consideration in the sums reflected in the questioned
deeds, the properties are more than three-fold times more valuable than the measly sums
appearing therein;

c) Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors and
vendees); and

d) Fourthly, the purported sale of the properties in litis was the result of a deliberate conspiracy
designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their
legitime.

ISSUE

1. W/N respondent siblings did not actually pay the prices stated in the Deeds of Sale to their
respondent father
2. Assuming that there is a consideration, the same is grossly inadequate as to invalidate the Deeds
of Sale.
3. W/N the purported sale of the properties in litis was the result of a deliberate conspiracy designed
to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime.

HELD

1.

A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of
sale becomes a binding and valid contract upon the meeting of the minds as to price. If there is a
meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner
of payment, or even the breach of that manner of payment. If the real price is not stated in the
contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price stipulated in the contract is simulated, then
the contract is void (Article 1471 of the Civil Code).

It is not the act of payment of price that determines the validity of a contract of sale. Payment of
the price has nothing to do with the perfection of the contract. Payment of the price goes into the
performance of the contract. Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or cancellation of the
obligation under an existing valid contract while the latter prevents the existence of a valid
contract.

Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove
simulation, petitioners presented Emma Joaquin Valdozs testimony stating that their father, respondent
Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale without need for her
payment of the purchase price.The trial court did not find the allegation of absolute simulation of price
credible. Petitioners failure to prove absolute simulation of price is magnified by their lack of knowledge of
their respondent siblings financial capacity to buy the questioned lots. On the other hand, the Deeds of
Sale which petitioners presented as evidence plainly showed the cost of each lot sold. Not only did
respondents minds meet as to the purchase price, but the real price was also stated in the Deeds of Sale.
As of the filing of the complaint, respondent siblings have also fully paid the price to their respondent
father .

2.
Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate
a contract, unless there has been fraud, mistake or undue influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may
indicate a defect in the consent, or that the parties really intended a donation or some other act or
contract. (Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code
which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the
price be equal to the exact value of the subject matter of sale. All the respondents believed that
they received the commutative value of what they gave.

3.

Petitioners strategy was to have the Deeds of Sale declared void so that ownership of the lots
would eventually revert to their respondent parents. If their parents die still owning the lots, petitioners
and their respondent siblings will then co-own their parents estate by hereditary succession.

It is evident from the records that petitioners are interested in the properties subject of the Deeds of Sale,
but they have failed to show any legal right to the properties.

Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the
appellate court stated, petitioners right to their parents properties is merely inchoate and vests only
upon their parents death. While still living, the parents of petitioners are free to dispose of their
properties.
CELESTINO V COLLECTOR

KEY WORDS: SEC 186 OF NIR (7%) VS SEC 191 OF NIR (3%), CONTRACT OF SALE VS
CONTRACT FOR A PIECE OF WORK, HABITUALITY, SASH, DOORS ETC CREATED AFTER
ORDER BUT MATERIALS TO MAKE DOORS, ETC ARE MANUFACTURED AND MADE AVAILABLE
TO THE GENERAL MARKET, TEST OF SPECIAL ORDERS = NATURE OF WORK AND PRODUCT
NOT TIMING, NEED SPECIAL EQUIPMENT = PIECE OF WORK CONTRACT

FACTS

Celestino Co & Company is a duly registered general copartnership doing business under the trade name
of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts
of its sash, door and window factory, in accordance with section 186 of the National Revenue Code
imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the
contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code

ISSUE

Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows
and doors only for special customers and upon their special orders and in accordance with the desired
specifications of the persons ordering the same and not for the general market: since the doors ordered
by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have
existed but for the order of the party desiring it; and since petitioner's contractual relation with his
customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it
follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185
of the same Code."

HELD

The important thing to remember is that Celestino Co & Company habitually makes sash, windows
and doors, as it has represented in its stationery and advertisements to the public. That it
"manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are
made by it only when customers place their orders, does not alter the nature of the establishment, for it is
obvious that it only accepted such orders as called for the employment of such material-moulding,
frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture.

Any builder or homeowner, with sufficient money, may order windows or doors of the kind
manufactured by this appellant. Therefore it is not true that it serves special customers only or
confines its services to them alone. And anyone who sees, and likes, the doors ordered by Don Toribio
Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price.
Surely, the appellant will not refuse, for it can easily duplicate or even mass-produce the same doors-it is
mechanically equipped to do so.

The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually
makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as
its customers may desire.

On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody
would regard the doing of two window panels a construction work in common parlance.

Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for
windows and doors according to specifications, it did not sell, but merely contracted for particular pieces
of work or "merely sold its services".

Said article reads as follows:

 A contract for the delivery at a certain price of an article which the vendor in the ordinary course
of his business manufactures or procures for the general market, whether the same is on hand at
the time or not, is a contract of sale, but if the goods are to be manufactured specially for the
customer and upon his special order, and not for the general market, it is contract for a piece of
work.

It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio
Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is
that it sold materials ordinarily manufactured by it — sash, panels, mouldings — to Teodoro & Co.,
although in such form or combination as suited the fancy of the purchaser. Such new form does not divest
the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the
category of sales under Article 1467 above quoted, because although the Factory does not, in the
ordinary course of its business, manufacture and keep on stock doors of the kind sold to
Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used
therefor (some of them at least).

In our opinion when this Factory accepts a job that requires the use of extraordinary or additional
equipment, or involves services not generally performed by it-it thereby contracts for a piece of
work — filing special orders within the meaning of Article 1467. The orders herein exhibited were not
shown to be special. They were merely orders for work — nothing is shown to call them special requiring
extraordinary service of the factory.
CIR v. ENGINEERING

KEY WORDS: CENTRAL AIR-CONDITIONING, SEC 185 OF NIR VS SEC 191 OF NIR
(MANUFACTURER V PIECE OF WORK / CONTRACTOR), CENTRAL AIRCONDITIONING NOT THE
SAME AS ROOM AIRCONS FOR THE PUBLIC, CENTRAL AIR = NO TWO PLACES HAVE SAME
KIND SINCE IT DEPENDS ON ARCHITECTURE ETC

FACTS: Engineering Equipment and Supply Co. is engaged in the design and installation of central type
air conditioning system, pumping plants and steel fabrications.

Juan de la Cruz wrote the CIR denouncing Engineering for tax evasion by misdeclaring its imported
articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign
suppliers. Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its
dollar allocations.

A raid and search was conducted by the CB and NBI where records of the firm were seized and
confiscated. It was recommended to the CIR that Engineering be assessed for P480,912.01 as deficiency
advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts
which are subject to tax under Section 185(m) of the Tax Code, instead of Section 186 of the same
Code. This was later raised to P916,362.56 representing deficiency advance sales tax and manufacturers
sales tax, inclusive of the 25% and 50% surcharges. Also, the CIR suggested that P10,000 be paid as
compromise in extrajudicial settlement of Engineering's penal liability for violation of the Tax Code.

ISSUE: whether or not Engineering is a manufacturer of air conditioning units under Section
185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a contractor under Section
191 of the same Code. Contractor.

HELD: The distinction between a contract of sale and one for work, labor and materials is tested by the
inquiry whether the thing transferred is one not in existence and which never would have existed
but for the order of the party desiring to acquire it, or a thing which would have existed and has
been the subject of sale to some other persons even if the order had not been given. If the article
ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to
anyone, and no change or modification of it is made at defendant's request, it is a contract of sale, even
though it may be entirely made after, and in consequence of, the defendants order for it.


Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market, whether
the same is on hand at the time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order and not for the
general market, it is a contract for a piece of work.

The word "contractor" has come to be used with special reference to a person who, in the pursuit of the
independent business, undertakes to do a specific job or piece of work for other persons, using his own
means and methods without submitting himself to control as to the petty details.

The true test of a contractor would seem to be that he renders service in the course of an independent
occupation, representing the will of his employer only as to the result of his work, and not as to the means
by which it is accomplished.

Engineering did not manufacture air conditioning units for sale to the general public, but imported
some items, which were used in executing contracts entered into by it. Engineering, therefore,
undertook negotiations and execution of individual contracts for the design, supply and
installation of air conditioning units of the central type. Engineering designed and engineered
complete each particular plant and that no two plants were identical but each had to be
engineered separately. Engineering is a contractor rather than a manufacturer.
The supply of air conditioning units to Engineer's various customers, whether the said machineries were
in hand or not, was especially made for each customer and installed in his building upon his special order.
The air conditioning units installed in a central type of air conditioning system would not have existed but
for the order of the party desiring to acquire it and if it existed without the special order of Engineering's
customer, the said air conditioning units were not intended for sale to the general public. Therefore, We
have but to affirm the conclusion of the Court of Tax Appeals that Engineering is a contractor rather than
a manufacturer, subject to the contractors tax prescribed by Section 191 of the Code.

Note: Other issues: fraud and prescription. Engineering committed fraud by misdeclaring its importation of
air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. It is made
to pay the 50% surcharge that the CTA absolved it from. It did not prescribe since there is an exception
as to period of limitation of assessment and collection of taxes when the purpose is to evade taxes.
QUIROGA V. PARSONS

KEY WORDS: RIGHT TO SELL QUIROGA BEDS IN VISAYAS, BREACH BY SELLING AT HIGHER
PRICE, NOT ORDERING BY DOZEN ETC, MOST OBLIGATIONS NOT IN CONTRACT BUT IMPLIED
FOR AGENCY CONTRACTS, CONTRACT OF SALE NOT AGENCY = PRICE + BEDS, “COMMISSION
ON SALES” (MERE DISCOUNT) AND “AGENCY” (EXCLUSIVE RIGHT TO SELL IN VISAYAS) DOES
NOT MEAN IT IS A CONTRACT OF AGENCY, CONTRACT IS WHAT LAW DEFINES IT TO BE

FACTS

Quiroga and Parsons Hardware entered into a contract where the former granted the latter the
exclusive right to sell Quiroga Beds in the Visayas. It provided for a discount of 25% as commission for
the sales, among other conditions. Quiroga alleged that Parsons breached its contractual obligations by
selling the beds at a higher price, not having an open establishment in Iloilo, not maintaining a public
exhibition, and for not ordering beds by the dozen. Only the last imputation was provided for by the
contract, the others were never stipulated. Quiroga argued that since there was a contract of agency
between them, such obligations were necessarily implied.

ISSUES

whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent
of the plaintiff for the sale of his beds.

HELD

In order to classify a contract, due regard must be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to
furnish the defendant with the beds, which the latter might order, at the price stipulated, and that the
defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined
by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to
their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or
in cash, if the defendant so preferred, and in these last two cases an additional discount was to be
allowed for prompt payment. These are precisely the essential features of a contract of purchase
and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part
of the defendant, to pay their price. These features exclude the legal conception of an agency or
order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its
price, but delivers to the principal the price he obtains from the sale of the thing to a third person,
and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term
fixed, without any other consideration and regardless as to whether he had or had not sold the beds.

Examining the clauses of this contract, none of them is found that substantially supports the plaintiff's
contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words
commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract
itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3,
only expresses that the defendant was the only one that could sell the plaintiff's beds in the
Visayan Islands.

It must be understood that a contract is what the law defines it to be, and not what it is called by the
contracting parties.
PUYAT V. ARCO

KEY WORDS: SOUND REPRODUCING EQUIPMENT AT 1.7K AND 1.6K (LIST PRICES),
REIMBURSEMENT TO PRINCIPAL (IF AGENCY), NOT AGENCY BUT CONTRACT OF SALE,
LETTERS OF CONTRACT = FIXED AND DETERMINATE PRICES, UNFORSEEN EVENTS = STILL
PAY FIXED PRICE = INCONSISTENT WITH IDEA OF AGENCY WHERE THE AGENT CANNOT BE
LIABLE, 10% COMMISSION = ADDITIONAL PRICE = DOES NOT MAKE AN AGENCY, GONZALO IS
ALREADY AGENT OF STARR COMPANY, GONZALO ENTITLED TO PROFIT = BUSINESS

FACTS: Arco Amusement Company desiring to equipt its cinematograph with sound reproducing devices,
approached Gonzalo Puyat & Sons, Inc. It was agreed that the Gonzalo would, on behalf of Arco,
order sound reproducing equipment from the Starr Piano Company and that the Arco would pay the
Gonzalo, in addition to the price of the equipment, a 10 per cent commission, plus all expenses, such as,
freight, insurance, banking charges, cables, etc.

Gonzalo sent a cable to the Starr Piano Company, inquiring about the equipment desired and making the
said company to quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc.,
with the price, evidently the list price of $1,700. The defendant did merely informed Arco of the price of
$1,700. Being agreeable to this price, the plaintiff, by letter, formally authorized the order. The equipment
arrived, and the price was paid. The following year, another order for sound reproducing equipment was
placed by the Arco with Gonzalo the same terms as the first order. This agreement or order was
confirmed by the plaintiff by letter stating that plaintiff would pay for the equipment the amount of $1,600,
with 10% commission. The equipment arrived and payment was made.

3 years later, when a civil case was filed against Gonzalo Puyat & Sons, Inc. by one Fidel Reyes, Arco
discovered that the price quoted to them by the defendant with regard to their two orders
mentioned was not the net price but rather the list price, and that the defendants had obtained a
discount from the Starr Piano Company. They sought to obtain a reduction from the defendant or
rather a reimbursement, and failing in this they brought the present action.

The trial court held that the contract was one of outright purchase and sale, and absolved that petitioner
from the complaint. The CA however ruled that the relation was that of agent and principal, and ordered
petitioner to pay the respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04,

ISSUE: W/N the relation between petitioner and respondent was that of agent and principal or
purchaser and seller? Purchase and sale.

HELD: The contract is the law between the parties and should include all the things they are supposed to
have been agreed upon. What does not appear on the face of the contract should be regarded merely as
"dealer's" or "trader's talk", which cannot bind either party. The letters, where respondent accepted the
prices of $1,700 and $1,600 are clear that the respondent in question at the prices indicated which
are fixed and determinate. Respondent admitted in the complaint it filed with the CFI that the petitioner
agreed to sell to it the first sound reproducing equipment and machinery.

"Whatever unforseen events might have taken place unfavorable to the petitioner, such as change
in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the
Starr Piano Company to properly fill the orders as per specifications, the Arco might still legally
hold the defendant to the prices fixed of $1,700 and $1,600." This is incompatible with the alleged
agency because in agency, the agent is exempted from all liability in the discharge of his
commission provided he acts in accordance with the instructions received from his principal, and
the principal must indemnify the agent for all damages which the latter may incur in carrying out the
agency without fault or imprudence on his part.

It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining
a discount from the home office, sometimes add to the list price when they resell to local
purchasers. It was apparently to guard against an exhorbitant additional price that the respondent sought
to limit it to 10 per cent, and the respondent is estopped from questioning that additional price. If the
respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame, and it
cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground
alone.

The 10% commission does not necessarily make the petitioner an agent of the respondent, as this
provision is only an additional price which the respondent bound itself to pay, and which stipulation is
not incompatible with the contract of purchase and sale. To hold the petitioner an agent of the respondent
in the purchase of equipment and machinery from the Starr Piano Company is incompatible with the
admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. It is out of
the ordinary for one to be the agent of both the vendor and the purchaser. Petitioner as vendor is
not bound to reimburse the respondent as vendee for any difference between the cost price and
the sales price which represents the profit realized by the vendor out of the transaction. This is the
very essence of commerce without which merchants or middleman would not exist.
LO V. KJS

KEYWORDS: SALE OF STEEL SCAFFOLDING BUT DEFAULT, ASSIGNED A CREDIT BUT

EXTINGUISHED DUE TO COMPENSATION, ASSIGNMENT OF CREDIT = TRANSFER CREDIT AND
ACCESSORY RIGHTS TO ASSIGNEE WHO CAN ENFORCE IT AGAINST DEBTOR, DACION EN
PAGO = 1) PERFORMANCE OF PRESTATION IN LIEU OF PAYMENT, 2) DIFFERENCE AFTER
SUBSTITUTION, 3) EXTINGUISH AFTER PERFORMANCE, ASSIGNMENT OF CREDIT = SALE =
CREDITOR BUY PROPERTY OF DEBTOR USING DEBT = DATION = EXTINGUISH

FACTS

KJS Inc was engaged in the sale of steel scaffolding. Sonny Lo, a contractor, purchased scaffolding
equipment worth P540,000. He made a deposit of P150,000, the balance payable within 10 months. Due
to financial difficulties, Lo defaulted after paying only 2 installments. A debt of some P335,000 remained.
Thus, Lo assigned in favor of KJS all his receivables from Jomero Realty Corp. which refused to pay and
raised the defense of compensation—claiming that Lo also had debts in its favor. KJS thus again sought
to collect from Lo who them averred that his debts have already been extinguished by the said
assignment.

ISSUE

W/N assignment of credit can extinguish the debt

HELD

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it
against the debtor.

Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. In order that there
be a valid dation in payment, the following are the requisites: (1) There must be the performance of the
prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal
thing or a real right or a credit against the third person; (2) There must be some difference
between the prestation due and that which is given in substitution (aliud pro alio); (3) There must
be an agreement between the creditor and debtor that the obligation is immediately extinguished
by reason of the performance of a prestation different from that due.

The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtors
debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at
the time of the sale but not for the solvency of the debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property, produced the effects of a dation in payment which may extinguish the obligation.
However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality
of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to
petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to
petitioner has been extinguished by compensation. In other words, respondent alleged the non-
existence of the credit and asserted its claim to petitioners warranty under the assignment.
Therefore, it behooved on petitioner to make good its warranty and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit:

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his
heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further
acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to
recover whatever collectibles said ASSIGNOR has in accordance with the true intent and
meaning of these presents.

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the
performance thereof in case the same is later found to be inexistent. He should be held liable to pay to
respondent the amount of his indebtedness.
PARAGAS V. HEIRS OF BALACANO

KEY WORDS: GREGORIO = SICK / ADVANCED AGE / SENILE = SIGN THE DEED = VOID = BUT
BOOK SAID SHOULD BE VOIDABLE, DOMINGO RULING: NOT ALL SENILE = NO CAPACITY TO
ACT = DEPENDS ON THE STATE OF ONE’S MENTAL FACULTIES,

FACTS

Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot 1175-E and Lot 1175-
F of the Subd. Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo.
Gregorio, on died on July 28, 1996.

Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva
Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He was transferred in the afternoon of
July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was confined until his death.

Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot
1175-E and the whole Lot 1175-F to the Spouses Rudy (Rudy) and Corazon Paragas (collectively,
the Spouses Paragas) for the total consideration of P500,000.00. This sale appeared in a deed of
absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on the same
date July 22, 1996 and witnessed by Antonio Agcaoili (Antonio) and Julia Garabiles (Julia). Gregorios
certificates of title over Lots 1175-E and 1175-F were consequently cancelled and new certificates of title
were issued in favor of the Spouses Paragas. The Spouses Paragas then sold on October 17, 1996 a
portion of Lot 1175-E consisting of 6,416 square meters to Catalino for the total consideration of
P60,000.00.

Domingos children filed on October 22, 1996 a complaint for annulment of sale and partition against
Catalino and the Spouses Paragas. They essentially alleged in asking for the nullification of the deed of
sale that: (1) their grandfather Gregorio could not have appeared before the notary public on July 22,
1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in Quezon City;
(2) at the time of the alleged execution of the deed of sale, Gregorio was seriously ill, in fact dying
at that time, which vitiated his consent to the disposal of the property; and (3) Catalino manipulated
the execution of the deed and prevailed upon the dying Gregorio to sign his name on a paper the
contents of which he never understood because of his serious condition. and

Atty. De Guzman explained that the execution of the deed was merely a confirmation of a previous
agreement between the Spouses Paragas and Gregorio that was concluded at least a month prior
to Gregorios death; that, in fact, Gregorio had previously asked him to prepare a deed that Gregorio
eventually signed on July 18, 1996. He also explained that the deed, which appeared to have been
executed on July 22, 1996, was actually executed on July 18, 1996; he notarized the deed and
entered it in his register only on July 22, 1996.

ISSUES

W/N deed of sale is void due to Gregorio’s lack of capacity to act

HELD

We do not consider Atty. de Guzmans testimony sufficient evidence to establish the fact that there
was a prior agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-E and
1175-F. Atty. de Guzman merely declared that he was asked by Gregorio to prepare a deed; he did
not clearly narrate the details of this agreement. We cannot assume that Gregorio and the
Spouses Paragas agreed to a P500,000.00 consideration based on Atty. de Guzmans bare
assertion that Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally
aware of the agreed consideration in the sale of the lots, not being privy to the parties agreement.
Given that Gregorio purportedly executed a deed during the last stages of his battle against his
disease, we seriously doubt whether Gregorio could have read, or fully understood, the contents
of the documents he signed or of the consequences of his act. We note in this regard that Gregorio
was brought to the Veterans Hospital at Quezon City because his condition had worsened on or about the
time the deed was allegedly signed. This transfer and fact of death not long after speak volumes about
Gregorios condition at that time. We likewise see no conclusive evidence that the contents of the
deed were sufficiently explained to Gregorio before he affixed his signature. The evidence the
defendants- appellants offered to prove Gregorios consent to the sale consists of the testimonies
of Atty. de Guzman and Antonio. As discussed above, we do not find Atty. de Guzman a credible
witness.

Article 24 of the Civil Code tells us that in all contractual, property 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 must be vigilant for his protection.

Based on the foregoing, the Court of Appeals concluded that Gregorios consent to the sale of the lots
was absent, making the contract null and void. Consequently, the spouses Paragas could not
have made a subsequent transfer of the property to Catalino Balacano.

In Domingo v. Court of Appeals, the Court declared as null and void the deed of sale therein inasmuch as
the seller, at the time of the execution of the alleged contract, was already of advanced age and senile.
We held

. . . The general rule is that a person is not incompetent to contract merely because of advanced
years or by reason of physical infirmities. However, when such age or infirmities have impaired
the mental faculties so as to prevent the person from properly, intelligently, and firmly protecting
her property rights then she is undeniably incapacitated.
CALILIM-CANULLAS V. FORTUN

KEY WORDS: LAND AND HOUSE SOLD TO CONCUBINE, HOUSE AND LAND = CONJUGAL
PROPERTIES = SALE IS VOID, CONJUGAL PROP = NEED CONSENT TO SELL, SALE ALSO VOID
= CONTRARY TO PUBLIC MORALS, NO DONATION OR SALE BETWEEN COMMON LAW
SPOUSES

FACTS:

 Petitioner MERCEDES Calimlim-Canullas and FERNANDO Canullas were married with five
children. They lived in a small house located at Bacabac, Bugallon, Pangasinan. After
FERNANDO's father died in 1965, FERNANDO inherited the land.
 FERNANDO abandoned his family and was living with private respondent Corazon
DAGUINES. FERNANDO sold the subject property with the house thereon to DAGUINES
 DAGUINES initiated a complaint for quieting of title and damages against MERCEDES. The latter
resisted and claimed that the house in dispute where she and her children were residing,
including the coconut trees on the land, were built and planted with conjugal funds and through
her industry; that the sale was void since it was conjugal property.
 The CFI, in its MoR declared Mercedes as the true and lawful owner of the land in question and
the 10 coconut trees, and declared the sale to Daguines as void.

ISSUE:

(1) whether or not the construction of a conjugal house on the exclusive property of the husband ipso
facto gave the land the character of conjugal property; and

(2) whether or not the sale of the lot together with the house and improvements thereon was valid under
the circumstances surrounding the transaction.

HELD:

1) Buildings constructed at the expense of the partnership during the marriage on land
belonging to one of the spouses also pertain to the partnership, but the value of the land
shall be reimbursed to the spouse who owns the same. It is conjugal property, but
Fernando must be reimbursed.

As held in Maramba v. Lozano, land belonging to one of the spouses, upon which the
spouses have built a house, becomes conjugal property only when the conjugal
partnership is liquidated and indemnity paid to the owner of the land. It follows that
FERNANDO could not have alienated the house and lot to DAGUINES since MERCEDES
had not given her consent to said sale.

2) The contract of sale was null and void for being contrary to morals and public policy. The
sale was made by a husband in favor of a concubine after he had abandoned his family and left
the conjugal home where his wife and children lived and from whence they derived their support.

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purpose
is contrary to law, morals, good customs, public order, or public policy are void and
inexistent from the very beginning.


Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce
no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs,
public order, or public policy."
While Art. 133 of the Civil Code considers as void a donation between the spouses during the
marriage, policy considerations of the most exigent character as wen as the dictates of
morality require that the same prohibition should apply to a common-law relationship. “To
prohibit donations in favor of the other consort and his descendants because of fear of undue
influence and improper pressure upon the donor, a prejudice deeply rooted in our ancient
law, ..., then there is every reason to apply the same prohibitive policy to persons living together
as husband and wife without benefit of nuptials.” (JBL Reyes)
RUBIAS V BATILLER

KEY WORDS: CLAIM OVER LAND BUT DISMISSED BY COURT THEN PENDING APPEAL SOLD IT
TO COUNSEL, SALE TO LAWYER OF PROP IN LITIGATION IS NOT ALLOWED = VOID, NOT
VOIDABLE = AGAINST PUBLIC POLICY, GUARDIANS, AGENTS, AND ADMINISTRATORS = CAN
BE RATIFIED BY NEW CONTRACT UNLIKE LAWYERS AND JUDGES = AGAINST PUBLIC
SERVICE / PUBLIC WRONG, ANY PARTY CAN BRING ACTION, COURT NECESSARY TO
DECLARE SALE VOID

FACTS

Militante claimed ownership over a parcel of land and applied for the registration of the same with
the CFI; his counsel was his son-in-law, Atty. Rubias. His claim was dismissed by the trial court, thus
he appealed. Pending appeal, he sold the lot to Atty. Rubias for P2,000. Batiller, on the other hand,
claimed to have inherited the same lot from his ancestors who have been in open, public, peaceful,
and actual possession thereof under a claim of title. Atty. Rubias filed an ejectment suit against Batiller
who assailed the validity of the sale to Rubias. Given the dismissal of Militante’s application, he had thus
no right over the said land that he may have validly transferred to Atty. Rubias.

ISSUE

Whether or not the contract of sale between appellant and his father-in-law, the late Francisco Militante
over the property subject of Plan Psu-99791 was void because it was made when plaintiff was counsel of
his father-in-law in a land registration case involving the property in dispute;

HELD

ART. 1491. The following persons cannot acquire any purchase, even at a public auction, either in person
of through the mediation of another:

xxx xxx xxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights of in
litigation or levied upon an execution before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the act of acquiring an assignment
and shall apply to lawyers, with respect to the property and rights which may be the object
of any litigation in which they may take part by virtue of their profession.'

Plaintiff's purchase of the property in litigation from his client (assuming that his client could sell
the same since as already shown above, his client's claim to the property was defeated and
rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our
Civil Code which provides that contracts "expressly prohibited or declared void by law' are
"inexistent and that "(T)hese contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived."

The 1911 case of Wolfson vs. Estate of Martinez relied upon by plaintiff as holding that a sale of property
in litigation to the party litigant's lawyer "is not void but voidable at the election of the vendor" was
correctly held by the lower court to have been superseded by the later 1929 case of Director of Lands vs.
Abagat.

The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the
Spanish Civil Code as merely voidable at the instance and option of the vendor and not void —
"that the Code does not recognize such nullity de pleno derecho" — is no longer true and
applicable to our own Philippine Civil Code which does recognize the absolute nullity of contracts
"whose cause, object, or purpose is contrary to law, morals, good customs, public order or public
policy" or which are "expressly prohibited or declared void by law" and declares such contracts
"inexistent and void from the beginning”

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by
ratification. The public interest and public policy remain paramount and do not permit of compromise or
ratification.

In his aspect, the permanent disqualification of public and judicial officers and lawyers grounded
on public policy differs from the first three cases of guardians, agents and administrators (Article
1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by means of
and in "the form of a new contact, in which cases its validity shall be determined only by the
circumstances at the time the execution of such new contract. The causes of nullity which have
ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the
time of the first contract, may have already become lawful at the time of the ratification or second
contract; or the service which was impossible may have become possible; or the intention which could not
be ascertained may have been clarified by the parties. The ratification or second contract would then be
valid from its execution; however, it does not retroact to the date of the first contract."

The principles governing the nullity of such prohibited contracts and judicial declaration of their nullity
have been well restated by Tolentino in his treatise on our Civil Code, as follows:

Parties Affected. — Any person may invoke the in existence of the contract whenever juridical
effects founded thereon are asserted against him.

Action On Contract. — Even when the contract is void or inexistent, an action is necessary to declare
its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, the
intervention of the competent court is necessary to declare the absolute nullity of the contract and
to decree the restitution of what has been given under it. The judgment, however, will retroact to the
very day when the contract was entered into.

If the void contract is still fully executory, no party need bring an action to declare its nullity; but if
any party should bring an action to enforce it, the other party can simply set up the nullity as a
defense.
PHIL TRUST CO V ROLDAN

KEY WORDS: STEPMOTHER SOLD TO BROTHER IN LAW WHO SOLD 17 PARCELS BACK TO
HER AFTER 1 WEEK (OR 1 DAY FROM APPROVAL OF FIRST SALE), STEPMOTHER SOLD TO
THIRD PERSON, GUARDIANSHIP CANNOT SELL PROPERTY TO HERSELF = VOID = TRUST
ISSUE, NO NEED FOR PROOF OF COLLUSION TO MAKE SALE VOID, ADVANTAGE TO MINOR IS
IMMATERIAL AS WELL

FACTS

Mariano Bernardo, a minor, inherited among others 17 parcels of land from his deceased father. Soccoro
Roldan was appointed as his guardian. Soccoro sought and was granted authority to sell the lots to her
brother-in-law Ramos for P14,700. Very shortly after, Ramos sold back to Soccoro the same properties
for P15,000. She then sold 4 parcels to Emilio Cruz. Phil. Trust Co. replaced Soccoro as guardian and
sought to annul all the aforesaid sales.

ISSUE

W/N SALE IS VALID

HELD

Remembering the general doctrine that guardianship is a trust of the highest order, and the trustee
cannot be allowed to have any inducement to neglect his ward’s interest and in line with the
court’s suspicion whenever the guardian acquires the ward’s property, we have no hesitation to
declare that in this case, in the eyes of the law, Socorro Roldan took by purchase her ward’s
parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.
She acted it may be true without malice; there may have been no previous agreement between her and
Dr. Ramos to the effect that the latter would buy the lands for her. But the stubborn fact remains that she
acquired her protege’s properties, through her brother-in-law. That she planned to get them for herself
at the time of selling them to Dr. Ramos, may be deduced from the very short time between the
two sales (one week). The temptation which naturally besets a guardian so circumstanced,
necessitates the annulment of the transaction, even if no actual collusion is proved (so hard to
prove) between such guardian and the intermediate purchaser. This would uphold a sound principle
of equity and justice. 2
We are aware of course that in Rodriguez vs. Mactal:
“In order to bring the sale in this case within the part of Article 1459, quoted above, it is essential
that the proof submitted establish some agreement between Silverio Chioco and Trinidad
Mactal to the effect that Chioco should buy the property for the benefit of Mactal. If there
was no such agreement, either express or implied, then the sale cannot be set aside”
However, the underlined portion was not intended to establish a general principle of law
applicable to all subsequent litigations. It merely meant that the subsequent purchase by Mactal
could not be annulled in that particular case because there was no proof of a previous agreement
between Chioco and her. The court then considered such proof necessary to establish that the
two sales were actually part of one scheme — guardian getting the ward’s property through
another person — because two years had elapsed between the sales. Such period of time was
sufficient to dispel the natural suspicion of the guardian’s motives or actions. In the case at bar,
however, only one week had elapsed. And if we were technical, we could say, only one day had
elapsed from the judicial approval of the sale (August 12), to the purchase by the guardian (Aug.
13).
Attempting to prove that the transaction was beneficial to the minor, Appellee’s attorney alleges
that the money (P14,700) invested in the house on Tindalo Street produced for him rentals of
P2,400 yearly; the parcels of land yielded to his step-mother only an average of P1,522 per year.
The argument would carry some weight if that house had been built out of the purchase price of P14,700
only. One thing is certain: the calculation does not include the price of the lot on which the house was
erected. Estimating such lot at P14,700 only, (ordinarily the city lot is more valuable than the
building) the result is that the price paid for the seventeen parcels gave the minor an income of
only P1,200 a year, whereas the harvest from the seventeen parcels netted his step-mother a
yearly profit of P1,522.00. The minor was thus on the losing end.
Hence, from both the legal and equitable standpoints these three sales should not be sustained =
VOID: the first two for violation of article 1459 of the Civil Code; the third because Socorro Roldan
could pass no title to Emilio Cruz. The annulment carries with is (Article 1303 Civil Code) the obligation
of Socorro Roldan to return the 17 parcels together with their fruits and the duty of the minor, through his
guardian to repay P14,700 with legal interest.
FABILLO V. IAC

KEY WORDS: RECOVERY OF HOUSE AND LOT IN TWO AREAS, ATTY MURILLO IF WIN = 40% OF
VALUE OF PROPERTIES, CONTINGENT FEE ALLOWED BECAUSE IT COMES AFTER LITIGATION
SO LONG AS NO UNDUE INFLUENCE, FRAUD, EXCESSIVE AMOUNT, VAGUE PROVISION AS TO
WHAT HAPPENS IF PROPERTY NOT SOLD = INTERPRETED AGAINST MURILLO SINCE HE
DRAFTED IT

FACTS

In her last will and testament, Justina Fabillo bequeathed to her brother, Florencio, a house and lot in San
Salvador Street, Palo, Leyte, and to her husband, Gregorio D. Brioso, a piece of land in Pugahanay, Palo,
Leyte.

After Justina's death, Florencio filed a petition for the probate of said will. The probate court approved the
project of partition "with the reservation that the ownership of the land and the house erected thereon be
litigated and determined in a separate proceedings."

Florencio sought the assistance of lawyer Alfredo M. Murillo in recovering the San Salvador property.
They entered into a contract whereby Florencio stated that “I hereby promise and bind myself to pay Atty.
ALFREDO M. MURILLO, in case of success in any or both cases the sum equivalent to FORTY PER
CENTUM (40%) of whatever benefit I may derive from such cases…” in case the house and lot is
awarded to him, mortgaged or rented. If the house and lot or a portion thereof is just occupied by the
undersigned or his heirs, Atty. Murillo shall have the option of either occupying or leasing to any
interested party FORTY PER CENT of the house and lot.

Pursuant to said contract, Murillo filed for Florencio Fabillo against Gregorio D. Brioso to recover the San
Salvador property. Florencio Fabillo was declared as the lawful owner not only of the San Salvador
property but also the Pugahanay parcel of land.

Murillo proceeded by taking possession and exercising rights of ownership over 40% of said properties.
He installed a tenant in the Pugahanay property. Fabillo claimed exclusive right over the two properties
and refused to give Murillo his share of their produce.

Murillo prayed that he be declared the lawful owner of forty per cent of the two properties. In their answer,
the defendants stated that the consent to the contract of services of the Fabillo spouses was vitiated by
old age and ailment; that Murillo misled them into believing that the probate of Justina's will was already
terminated when actually it was still pending resolution; and that the contingent fee of 40% of the value of
the San Salvador property was excessive, unfair and unconscionable. They prayed that the contract of
services be declared null and void.

ISSUE: W/N the contract of services violated the prohibition in Article 1491. No.

HELD: Article 1491 of the Civil Code, specifically paragraph 5 thereof, prohibits lawyers from acquiring by
purchase even at a public or judicial auction, properties and rights which are the objects of litigation in
which they may take part by virtue of their profession. The said prohibition, however, applies only if
the sale or assignment of the property takes place during the pendency of the litigation involving
the client's property.

Hence, a contract between a lawyer and his client stipulating a contingent fee is not covered by said
prohibition under Article 1491 (5) of the Civil Code because the payment of said fee is not made
during the pendency of the litigation but only after judgment has been rendered in the case handled
by the lawyer. In fact, under the 1988 Code of Professional Responsibility, a lawyer may have a lien over
funds and property of his client and may apply so much thereof as may be necessary to satisfy his lawful
fees and disbursements
As long as the lawyer does not exert undue influence on his client, that no fraud is committed or
imposition applied, or that the compensation is clearly not excessive as to amount to extortion, a
contract for contingent fee is valid and enforceable.

A careful scrutiny of the contract shows that the parties intended forty percent of the value of the
properties as Murillo's contingent fee. This is borne out by the stipulation that "in case of success of
any or both cases," Murillo shall be paid "the sum equivalent to forty per centum of whatever
benefit" Fabillo would derive from favorable judgments.

Worth noting are the provisions of the contract which clearly states that in case the properties are sold,
mortgaged, or leased, Murillo shall be entitled respectively to 40% of the "purchase price,"
"proceeds of the mortgage," or "rentals." The contract is vague, however, with respect to a
situation wherein the properties are neither sold, mortgaged or leased because Murillo is allowed "to
have the option of occupying or leasing to any interested party forty per cent of the house and lot." The
ambiguity of said provision, however, should be resolved against Murillo as it was he himself who
drafted the contract. Considering the nature of the case, the value of the properties subject matter
thereof, the length of time and effort exerted on it by Murillo, we hold that Murillo is entitled to the amount
of Three Thousand Pesos (P3,000.00) as reasonable attorney's fees for services rendered in the case
which ended on a compromise agreement.