CASE 16

CASE 25

CASE 26

CASE 28

CASE 29

CASE 30

CASE 37

CASE 43

CASE 55

CASE 56

CASE 57

CASE 58

CASE 60

CASE 61

CASE 62

CASE 63

CASE 66

CASE 67
CASE 47

Mactal vs. Melegrito

111 Phil. 363

FACTS:

Plaintiff gave to defendant P1,770 to be used in the purchase of palay, with the obligation to
return said amount within 10 days, if not spent for said purpose. The latter never bought palay
nor returned said amount. As a result, the former accused him of estafa. When the case was about
to be heard, a common friend, acting upon defendant’s request, prevailed upon plaintiff to move
for the dismissal of the case and be contented with a promissory note to be executed by the
defendant. The note was executed and, accordingly, the criminal case was dismissed. Defendant,
however, was unable to comply with his promise despite repeated demands. Subsequently,
plaintiff brought this action against him for the recovery of the P1,770.

ISSUE:

Whether or not the promissory note is void because the consideration thereof is the dismissal of
the estafa case which is certainly contrary to public policy

HELD:

This contention is untenable. It is admitted that defendant had received the P1,770 from plaintiff
to be used for the purchase of palay. The cause or consideration, therefore, for the promise was
the pre-existing debt of said defendant, not the dismissal of the estafa case, which merely
furnished the occasion for the execution of the promissory note.

CASE 48

Dauden-Hernaez vs. De los Angeles

27 SCRA 1276

FACTS:

Marlene Dauden, a movie actress, fi led a complaint against the Hollywood Far East
Productions, Inc. and its President and General Manager, Ramon Valenzuela, to recover P14,700
representing the balance of her compensation as leading actress in two motion pictures produced
by the defendant company. Upon motion of defendants, the lower court dismissed the complaint
because “the claim of plaintiff was not evidenced by any written document, either public or
private’’ in violation of Art. 1358 of the New Civil Code. As a last recourse, plaintiff appealed to
the Supreme Court on the ground that the court below had abused its discretion.

ISSUE:
Whether or not the trial court had abused its discretion

HELD:

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable
misunderstanding of the role of the written form in contracts, as ordained in the present Civil
Code. In the matter of formalities, the contractual system of our Civil Code still follows that of
the Spanish Civil Code of 1889 and of the “Ordenamiento de Alcala” of upholding the spirit and
intent of the parties over formalities; hence, in general, contracts are valid and binding from their
perfection regardless of form, whether they be oral or written. This is plain from Articles 1315
and 1356 of the present Civil Code. To this general rule, the Code admits two exceptions, to wit:
(1) Contracts for which the law itself requires that they be in some particular form in order to
make them valid and enforceable (the so called solemn contracts). Examples of these are the
contracts or agreements contemplated in Arts. 748, 749, 1744, 1773, 1874, 1956, and 2134 of the
present Civil Code. (2) Contracts that the law requires to be proved by some writing
(memorandum) of its terms, as in those covered by the Statute of Frauds, now Art. 1403(2) of the
Civil Code. Their existence not being probable by mere oral testimony (unless wholly or partly
executed), these contracts are exceptional in requiring a writing embodying the terms thereof for
their enforceability by action in court. The contract sued upon by petitioner herein does not
come under either exception. It is true that it appears included in the last clause of Art. 1358, but
it nowhere provides that the absence of written form in this case will make the agreement invalid
or unenforceable. On the contrary, Art. 1357 clearly indicates that contracts covered by Art. 1358
are binding and enforceable by action despite the absence of writing. Wherefore, the order
dismissing the complaint is set aside, and the case is ordered remanded to the court of origin for
further proceedings not at variance with this decision.

CASE 49

Gov’t. of the Phil. v. Derham Bros.

36 Phil. 960

FACTS:

In a contract, it was agreed that a metalled roadway would be built on the street where the real
property was located to “its entire length.” Now the pronoun “its” may refer either to the street
or the real property. The government contended that the whole street should be metalled, alleging
that the antecedent of “its” was the street. Upon the other hand, the contractor said that “its”
referred throughout the length of the real property (and not the whole street) should be metalled.
It was the government that drafted the contract.

ISSUE:

Whether or not the contention of the contractor is correct

HELD:

The contractor is correct. It was the government that cause the ambiguity, so the interpretation of
“its” should not be in the government’s favor and, therefore, it may be concluded that it was not
intended by the contracting parties that the whole street would be metalled. When different
interpretations of a provision are otherwise equally proper, that construction is to be taken which
is the most favorable to the party in whose favor the provision was made, and did not cause the
ambiguity.

CASE 50

Enriquez v. A.S. Watson and Co.

22 Phil. 623

FACTS:

In a contract of lease, it was provided that the lessee could make “obras” (improvements) on the
property of the lessor without the necessity of asking the lessor’s permission every time an
improvement is to be made. The lessee demolished an old wall and erected one of reinforced
concrete in its place. The lessor is now blaming the lessee for having demolished the old wall,
claiming that the lessee was allowed to make only improvements, not demolitions.

ISSUE:

Whether or not the demolition of the old one and its substitution by a new one constitute
“improvements” or “obras”

HELD:

The term “obras” or “improvements” is susceptible of different interpretations, and since the
ambiguity here was caused by the lessor, the term should not be interpreted in his favor. Hence,
it was all right for the lessee to do what he did.

CASE 51

Olino v. Medina

13 Phil. 379

FACTS: Olino was indebted to Isidora Rendon for P175. Because Olino had no money, Medina
offered to pay, and actually paid P175 to Rendon. Because he was grateful, Olino consented to
the transfer of his land to Medina.
ISSUE: Whether or not this is to be considered as a mere loan with the land as security

HELD: This should be considered as a mere loan with the land as security instead of a sale to C,
inasmuch as the former involves both the lesser transmission of rights as well as greater
reciprocity of interest. Said the Supreme Court: “Inasmuch as we are in doubt as to which of the
two contracts it was by reason of which Medina (C) furnished the P175, with which Olino (A)
redeemed his land from Isidora Rendon (B), and Olino in turn consented to the transfer of the
land to Medina, the party who furnished the money, we elect to consider that said contract was
that of loan, because such a contract involves a smaller transmission of rights and interest, and
the debtor does not surrender all rights to his property, but simply confers upon the creditors the
right to collect what is owing from the value of the thing given as security, there existing
between the parties a greater reciprocity of rights and obligations.”

CASE 52

Aquino vs. Tañedo

31 Phil. 517

FACTS:

The records show that plaintiff purchased some lands from the defendant and, as a consequence,
took possession of the same and collected their products. Subsequently, they dissolved the
contract of sale, and, as a result thereof, plaintiff returned the lands, while defendant bound
himself to return the part of the purchase price which plaintiff has paid.

ISSUE:

Whether or not the plaintiff is obliged to return to the defendant the products of the lands which
he had collected during his possession

HELD:

“The rescission mentioned in the contract is not the rescission referred to in Article 1295 (now
Art. 1385). Although the plaintiff and the defendant employed the word rescind, it has not, in the
contract executed by them, either the scope or the meaning of the word rescission to which
Article 1295 (now Art. 1385) refers and which takes place only in the cases mentioned in the
preceding Articles, 1291 and 1292 (now Arts. 1381 and 1382). Rescission, in the light of these
provisions, is a relief which the law grants, on the premise that the contract is valid, for the
protection of one of the contracting parties and third persons from all injury and damage that the
contract may cause, or to protect some incompatible and preferential right created by the
contract. Article 1295 (now Art. 1385) refers to contracts that are rescissible in accordance with
law in the cases expressly fi xed thereby, but it does not refer to contracts that are rescinded by
mutual consent and for the mutual convenience of the contracting parties. The rescission in
question was not originated by any of the causes specifi ed in Articles 1291 and 1292 (now Arts.
1381 and 1382), nor is it any relief for the purposes sought by these articles. It is simply another
contract for the dissolution of a previous one, and its effects, in relation to the contract so
dissolved, should be determined by the agreement made by the parties, or by the application of
other legal provisions, but not by Article 1295 (now Art. 1385), which is not applicable.’’

CASE 53

Sikatuna vs. Guevara

45 Phil. 371

FACTS:

The records show that a contract of a lease of certain lot situated in Manila was entered into
between the partnership Jacinto, Palma y Hnos, as lessor, and Potenciana Guevara, as lessee.
This contract contained an option by which the lessor is given the right to purchase within a
period of one year from the time of the execution thereof a house which the lessee had
constructed on the lot, but in case of failure to exercise such right, the lessee is given the right to
purchase the lot. The period for the option having expired without the lessor exercising its right,
Guevara offered to purchase the lot, but the said lessor refused. In view of such refusal, Guevara
brought an action to compel the lessor to sell the lot to her. There was, however, no notice of the
commencement of such action filed with the office of the Register of Deeds. During the
pendency of such case, the aforesaid lessor sold the lot under litigation to the Sikatuna
Corporation. This sale was recorded in the Registry in accordance with Act No. 496, otherwise
known as the Land Registration Act. Subsequently, judgment was rendered in the civil case in
favor of Guevara, but it was not executed because the lot had already been sold to the Sikatuna
Corporation. Later, the new owner ordered Guevara to vacate the premises. Having declined to
do so, the corporation commenced these proceedings against her for unlawful detainer. In her
answer, she contended that since the contract involves the sale of property under litigation
without the approval of the litigants or of competent judicial authority, it should be rescinded.
This contention was upheld by the lower court.

ISSUE:

Whether or not the sale should be rescinded.

HELD:

The Supreme Court, speaking through Justice Romualdez, however, ruled: “As the appellant
rightfully contends the rescission of the sale does not lie in the present case because the property
is now in the legal possession of a third person who has not acted in bad faith. There is no doubt
but that in this case the plaintiff corporation has the character of a third person, and it has not
been shown that it had acted in bad faith. This case has a special circumstance in that it deals
with property registered under the Land Registration Act No. 496, Section 78, which provides
that acts concerning properties registered under the law shall affect only the parties litigant,
unless a notice of the commencement of the action is recorded, which does not appear to have
been done in the case before us. There was, therefore, no legal obstacle to the transfer of the title
of the said property, and for this special reason the said transfer cannot be rescinded.”

CASE 54

Honrado vs. Marcayda, et al.

49 Off. Gaz. 1492, C.A.

FACTS:

This is an action commenced by plaintiff against the defendants for the rescission of a contract of
sale on the ground that such contract was entered into in fraud of creditors. The records show
that Felipe Lotivio purchased a parcel of land from Luisa Marcayda for P1,000, although at the
time the contract was executed there was already a judgment in favor of the plaintiff against the
latter with regard to the property and a writ of attachment had already been issued. The plaintiff
contends that the sale is fraudulent in accordance with the rule stated in the second paragraph of
Art. 1297 (now Art. 1387) of the Civil Code; the defendant Felipe Lotivio, on the other hand,
contends that he is a purchaser in good faith and for value.

ISSUES:

(1) Whether or not Felipe Lotivio was a purchaser in good faith and for value, and

(2) Whether or not the contract of sale executed could be rescinded.

HELD:

“The sale was consummated on January 6, 1936, in consideration of P1,000. Original certificate
of title No. 14567 showed that the land was free from any lien or encumbrance. Felipe Lotivio
was not, under the law, supposed to go farther to find out whether the land has any other lien not
appearing on the face of the title as held in the cases of Reynes vs. Barrera, 68Phil. 656;
Hernandez vs. Vda. de Salas, 69 Phil. 744; Visayan Surety and Insurance Corp. vs. Verzosa, 72
Phil. 362. It is well settled that when the property sold on execution is registered under the
Torrens system, registration is the operative act and a purchaser on execution is not required to
go behind the registry to determine the condition of the property, and he is only charged with
notice of the burdens of the certificate of title. To require him to do more is to defeat one of the
primary objects of the Torrens system. In the present case, the writ of attachment issued by the
justice of the peace court of Daraga, Albay was not annotated on the back of the original
certificate of title. True enough that it was filed with the office of the Register of Deeds of Albay,
but such fact is not a notice to the whole world. Consequently, such unregistered order of
attachment does not create any lien or burden upon the land in question. The valuable
consideration of P1,000 paid to Luisa Marcayda by Felipe Lotivio, who does not appear to be her
relative is, in our opinion, not small for the property since its improvements are assessed at no
less than P800. It is fitting to apply in this case the principle of ‘innocent purchaser for value’ as
declared and applied in the case of Bailon vs. Cacias, et al., 40 Off. Gaz., p. 1896, August, 1941.
“According to our Supreme Court in the case of Cui, et al. vs. Henson, 51 Phil. 600: ‘A
purchaser in good faith is one who buys property of another without notice that some other
person has a right to, or an interest in, such property and pays a full and fair price for the same, at
the time of such purchase, or before he has notice of the claim or interest of some other person in
the property. Good faith consists in an honest intention to abstain from taking any
unconscientious advantage of another. Good faith is the opposite of fraud and of bad faith and its
nonexistence must be established by competent proofs.

Tested by these doctrines, we hold and declare that defendant Felipe Lotivio was, under the
foregoing circumstances, a purchaser in good faith and for value; and for this reason, we also
hold that the presumption of fraud as contemplated in Article 1297 of the old Civil Code (now
Art. 1387 of the new Civil Code) can be considered overcome and overthrown as held in the
cases of Peña vs. Mitchell, 9 Phil. 587; Guash vs. Espiritu, 11 Phil. 184; Kuenkle vs. Watson &
Co., 13 Phil. 26; Golinko vs. Monjardin, 31 Phil. 643; Asia Banking Corp. vs. Corcuera, 51

Phil. 781. Therefore, the contract of sale, for the reasons above stated, is not rescissible.’’
CASE 59

Carbonnel vs. Poncio

103 PHIL 655

FACTS:

The records show that plaintiff purchased from defendant Poncio a parcel of land; that she paid
part of the agreed price with the understanding that she will pay the balance upon the execution
of the deed of conveyance; that defendant refused to execute the deed in spite of repeated
demands; and that defendant sold the land to his co-defendants who knew of the first sale.
Defendants, however, contend that plaintiff’s claim is unenforceable under the Statute of Frauds.

ISSUE:

Whether or not the claim of the plaintiff is unenforceable under the Statute of Frauds

HELD:

It is well settled in this jurisdiction that the Statute of Frauds is applicable only to executory
contracts (Facturan vs. Sabanal, 81 Phil. 512), not to contracts that are totally or partially
performed. (Almirol, et al. vs. Monserrat, 48 Phil. 67, 70; Robles vs. Lizarraga Hermanos, 50
Phil. 387; Diana vs. Macalibo, 74 Phil. 70) The reason is simple. In executory contracts there is a
wide field for fraud because unless they be in writing there is no palpable evidence of the
intention of the contracting parties. The statute has precisely been enacted to prevent fraud.
(Moran, Comments on the Rules of Court, Vol. III, 1957 ed., p. 178) However, if a contract has
been totally or partially performed, the exclusion of parol evidence would promote fraud or bad
faith, for it would enable the defendant to keep the benefits already derived by him from the
transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities
assumed or contracted by him thereby. So that when the party concerned has pleaded partial
performance, such party is entitled to a reasonable chance to establish by parol evidence the truth
of his allegation, as well as the contract itself.”
CASE 64

Badillo vs. Ferrer

152 SCRA 407, 409

FACTS:

Macario died intestate in 1966, leaving a widow, Clavita and five minor children. He left a parcel
of land. In 1967, Clarita, in her own behalf and as natural guardian of the minor plaintiff
executed a deed of extra-judicial partition and sale of the property through which she sold the
property to Gregorio. Modesta, a sister of Macario, was able to obtain guardianship over the
property and persons of the minor children on 1968. In 1970, Modesta caused the minor children
to file a complaint to annul the sale of their participation in the property and asked that as co-
owner they be allowed to execute the right of legal redemption with respect to Clarita’s
participation therein. The trial court annulled the sale to Gregorio of the minor children’s
participation in the property and allowed them to redeem the participation of their mother
therein.

ISSUE:

Whether or not the contention is correct

HELD:

The contention is untenable. The Deed of Extrajudicial Partition and Sale is not a voidable or an
annullable contract under Article 1390 of the New Civil Code. Article 1390 renders a contract
voidable if one of the parties is incapable of giving consent to the contract or if the contracting
party’s consent is vitiated by mistake, violence, intimidation, undue influence or fraud. In this
case, however, the appellee minors are not even parties to the contract involved. Their names
were merely dragged into the contract by their mother who claimed a right to represent them,
purportedly in accordance with Article 320 of the New Civil Code. A contract entered into in the
name of another by one who has no authority or legal representation, or who has acted beyond
his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other contracting party. Clearly,
Clarita Ferrer Badillo has no authority or has acted beyond her powers in conveying to the
appellants that 5/12 undivided share of her minor children in the property involved in this case.
The powers given to her by the laws as the natural guardian covers only matters of
administration and cannot include the power of disposition. She should have first secured the
permission of the court before she alienated that portion of the property in question belonging to
her minor children. The appellee minors never ratifi ed this Deed of Extrajudicial Partition and
Sale. In fact, they question its validity as to them. Hence, the contract remained unenforceable or
unauthorized. No restitution may be ordered from the appellee minors either as to that portion of
the purchase price which pertains to their share in the property or at least as to that portion which
benefited them because the law does not sanction any.

CASE 65

Bank of the P.I. vs. McCoy

52 Phil. 831

FACTS:

This action was originally instituted by plaintiff bank against McCoy and six other solidary
debtors for the payment of an indebtedness of P16,000. When the case was ready for hearing,
McCoy entered into a compromise with plaintiff and paid P12,000 in satisfaction of the debt.

ISSUE:

Whether or not McCoy can be substituted as plaintiff against her former co-defendants for the
purpose of compelling them to reimburse to her their proportionate shares in the obligation

HELD:

By paying off the claim which was originally the subject of litigation, the executrix was
subrogated to the rights of the original plaintiff, and if the situation was one involving a joint and
several liability on the part of all of the original defendants, the executrix, upon paying off the
claim, necessarily acquired the right to prosecute the action for contribution against her co-
defendants. But it is said that the amendment by which the executrix was permitted to substitute
the original plaintiff had the effect of changing the cause of action entirely, since the original
action was founded upon a debt supposedly owing to the bank from the seven defendants,
whereas after the instant debt was paid, the only right of action vested in the executrix was the
right to obtain contribution. It must be remembered, however, that if the original action had
proceeded to its end against all of the defendants, the court, in giving judgment, would have
taken account of the obligation of each to contribute his proportionate share to the payment of
the judgment, and what has been finally done, as the case shaped itself here, is to give effect to
the same obligation. It was in our opinion a proper case of substitution of parties resulting from
the subrogation of one of the defendants to the right of the plaintiff.
CASE 68

Bueno, et al. vs. Reyes, et al.

27 SCRA 1179

FACTS:

The lot which is the subject matter of this litigation originally belonged to Jorge Bueno. When he
died, the property descended by intestate succession to his three children, Brigida, Eugenia and
Rufino. Subsequently, Brigida and Eugenia died. In 1936, by agreement among the heirs,
Francisco Reyes, Eugenia’s husband, was entrusted with the job of filing the answer in the
cadastral proceedings and in obtaining title to the property for and in behalf of the heirs of Jorge
Bueno. Reyes filed the answer, claiming the lot as property belonging to himself and to his two
brothers, Juan and Mateo. Subsequently, the lot was adjudicated in favor of the claimants, in
whose names an original certificate of title was issued in 1939. In 1962, the heirs of Jorge Bueno,
who had always been in possession of the property, discovered the fraud committed by Francisco
Reyes. As a consequence, they brought this action for reconveyance of the lot to them.
Defendants, however, interposed the defense or prescription of action which was reiterated in a
motion to dismiss. The trial court a quo held that the action is predicated on the existence of an
implied trust and that such action prescribes in ten years. Consequently, the case was dismissed.
Plaintiffs appealed.

ISSUE:

Whether or not the action has already prescribed

HELD:

While there are some decisions which hold that an action based upon a trust is imprescriptible,
with better rule, as laid down by this Court in other decisions, is that prescription does supervene
where the trust is merely an implied one. Upon the general proposition that an action for
reconveyance such as the present is subject to prescription in ten years to the appellees and the
court a quo are correct. The question here, however, is: from what time should the prescriptive
period be counted? It should be remembered that the constructive trust arose by reason of the bad
faith of Francisco Reyes, compounded by the connivance of his brothers. Consequently, the
cause of action upon such trust must be deemed to have accrued only upon the discovery of such
bad faith, or to put it more specifically, upon the discovery by the appellants that. Francisco
Reyes, in violation of their agreement with him, had obtained registration of the disputed
property in his own name and in the names of his brothers? It would not do to say that the
cadastral proceeding itself, by virtue of its nature as a proceeding in rem, was constructive notice
to the appellants, for as far as they were concerned the cadastral answer they had authorized
Francisco Reyes to file was not adverse to them; and neither he nor the appellees may invoke the
constructive notice rule on the basis of their own breach of the authority thus given. On top of all
these, it was the appellants and not the appellees who were in possession of the property as
owners, continuously up to 1962, when for the first time the latter appeared upon the scene and
tried to get such possession, thereby revealing to them the fact of the fraudulent registration. It
would be more in keeping with justice, therefore, to afford the plaintiffs as well as the defendants
the opportunity to lay their respective claims and defenses before the court in a full-blown
litigation. Wherefore, the order appealed from is set aside and the case is remanded for further
proceedings.

CASE 69

Constantino vs. Espiritu

39 SCRA 206

FACTS:

A, married to B, executed a fi ctitious deed of sale of a two-storey house and four subdivision
lots in favor of his mistress, M, who at that time was pregnant, with the understanding that the
latter shall hold the properties in trust for their unborn illegitimate child. After securing a new
transfer certificate of title in her name, M mortgaged the properties twice to a bank, and
subsequently, she tried to sell them. A then brought an action against her praying for the issuance
of a writ of preliminary injunction restraining her from further alienating or disposing of the
properties and for judgment ordering her to convey the properties to their illegitimate child, X,
who by that time was already five years old. A motion to dismiss was filed on the ground that the
illegitimate child, who is the beneficiary of the alleged trust, is not included as a party-plaintiff,
and that the action in question is unenforceable under the Statute of Frauds. Subsequently, A
amended his complaint so as to include X as party-plaintiff. The lower court, however, dismissed
the case.

ISSUES:

(a) Whether or not there was a valid cause of action in the instant case

(b) Whether or not the action is unenforceable under the Statute of Frauds

HELD:

(a) There is a valid cause of action in the instant case. Upon the facts alleged in the complaint,
the contract between appellant and appellee was a contract pour autrui, although couched in the
form of an absolute deed of sale, and that appellant’s action was, in effect, one for specific
performance. That one of the parties to a contract is entitled
to bring an action for its enforcement or to prevent its breach

is too clear to need any extensive discussion. Upon the other

hand, that the contract involved contained a stipulation pour

autrui amplifi es this settled rule only in the sense that the third

person for whose benefi t the contract was entered into may

also demand its fulfi llment provided he had communicated his

acceptance thereof to the obligor before the stipulation in his

favor is revoked.

It appearing that the amended complaint submitted by

appellant to the lower court impleaded the benefi ciary under

the contract as a party co-plaintiff, it seems clear that the

three parties concerned therewith would, as a result, be before

the court and the latter’s adjudication would be complete and

binding upon them.

(b) On the other hand, the contention that the contract

in question is not enforceable by action by reason of provisions

of the Statute of Frauds does not appear to be indubitable, it

being clear upon the facts alleged in the amended complaint

that the contract between the parties had already been partially

performed by the execution of the deed of sale, the action brought

below being only for the enforcement of another phase thereof,

namely, the execution by appellee of a deed of conveyance in

favor of the benefi ciary thereunder.

CASE 70
Coquia vs. Fieldmen’s Insurance Co.

26 SCRA 178

On Dec. 1, 1961, the Fieldmen’s Insurance Co. issued

in favor of the Manila Yellow Taxicab Co. a common carrier

accident insurance policy, covering the period from Dec. 1,

1961 to Dec. 1, 1962. It was stipulated in said policy that “the

Company will indemnify the Insured in the event of accident

against all sums which the Insured will become legally liable

to pay for death or bodily injury to any fare-paying passenger

including the driver, conductor and/or inspector who is riding

in the motor vehicle insured at the time of accident or injury.”

On Feb. 10, 1962, as a result of a vehicular accident, Carlito

Coquia, driver of one of the vehicles covered by said policy, was

killed. Because of the failure of the Company and the Insured

to agree with respect to the amount to be paid to the heirs of

the driver, the Insured and the parents of Carlito, the Coquias,

fi nally brought this action against the Company to collect the

proceeds of the aforementioned policy. The latter now contends,

among others, that the Coquias have no cause of action because

they have no contractual relation with the Company.

Held: “Although in general, only parties to a contract may

bring an action based thereon, this rule is subject to exceptions,

one of which is found in the second paragraph of Art. 1311 of

the Civil Code of the Philippines. This is but a restatement of

a well-known principle concerning contracts pour autrui, the

enforcement of which may be demanded by a third party for

whose benefi t it was made, although not a party to the contract, before the stipulation in his
favor has been revoked by the

contracting parties. Does the policy in question belong to such

class of contracts pour autrui?

“The policy provides, inter alia, that the Company ‘will indemnify

any authorized driver who is driving the motor vehicle’

of the Insured and, in the event of death of said driver, the Company

shall, likewise, ‘indemnify his personal representatives.’

“Thus, the policy is typical of contracts pour autrui, this

character being made more manifest by the fact that the deceased

driver, paid fi fty percent of the premiums, which were

deducted from his weekly commissions. Under these conditions,

the Coquias — who, admittedly are the sole heirs of the deceased

— have a direct cause of action against the Company, and, since

they could have maintained this action by themselves, without

the assistance of the Insured, it goes without saying that they

could and did properly join the latter in fi ling the complaint

hereon.”

CASE 71

Country Bankers Insurance Corp. v. CA

GR 85161, Sep. 11, 1991

FACTS: Lessor Ventanilla and Lessee Sy, entered into a

lease agreement over a theater. The lease was for six years. After

more than two years of the operation of the theaters, Ventanilla

made demands for the repossession of the leased properties

in view of Sy’s arrears in monthly rentals and non-payment

of amusement taxes. In pursuance of their latter agreement,

Sy’s arrears in rental in the amount of P125,445 was reduced

to P71,028. However, the accrued amusement tax liability of

the three theaters to the City Government had accumulated to

P84,000 despite the fact that Sy had been deducting the amount

of P4,000 from his monthly rental with the obligation to remit

the said deductions to the city government. Hence, letters of

demand were sent to Sy demanding payment of the arrears

in rentals and amusement tax delinquency. When Sy failed to

pay the amounts in full, despite demands, Ventanilla padlocked

the gates of the three theaters under lease and took possession

thereof. Sy fi led an action for reformation and injunction. By

virtue of the injunction, Sy regained possession of the theater.

The trial court held that Sy is not entitled to reformation. On

the counterclaim, the court found that Ventanilla was deprived

of the enjoyment of the leased premises and suffered damages

as a result of the fi ling of the case by Sy and his violation of the terms and conditions of the
agreement. It held that Ventanilla

is entitled to recover the damages in addition to the arrears in

rentals and amusement tax delinquency of Sy and the accrued

interest thereon. It found that as of the end of Nov. 1980, when

Ventanilla regained possession of the three theaters, Sy’s unpaid

rentals and amusement tax liability amounted to P289,534.

In addition, it held Sy under obligation to pay P10,000 every

month from Feb. to Nov. 1980 or the total amount of P100,000

with interest on each amount of P10,000 from the time the same

became due. Thus, P10,000 portion of the monthly lease rental

was supposed to come from the remaining cash deposit of Sy

but with the consequent forfeiture of the remaining cash deposit

of P290,000, there was no more cash deposit from which said

amount could be deducted further. It adjudged Sy to pay attorney’s

fees equivalent to 10% of the amounts above-mentioned. Finally, the court held Sy thru the
injunction bond liable to

pay P10,000 every month from Feb. to Nov. 1980. The amount

represents the supposed increase in rental from P50,000 to

P60,000 in view of the offer of someone to lease the three theaters

involved for P60,000 a month. The Court of Appeals (CA)

sustained the trial court.

HELD: The Supreme Court affi rmed the CA’s decision and

held that inasmuch as the forfeiture clause provides that the

deposit shall be deemed forfeited, without prejudice to any other

obligation still owing by the lessee to the lessor, the penalty

cannot substitute for the P100,000 supposed damage resulting

from the issuance of the injunction against the P29,000 remaining

cash deposit. This supposed damage suffered by OVEC was

the alleged P10,000 a month increase in rental (from P50,000

to P60,000), which OVEC failed to realize for ten months from

Feb. to Nov. 1980 in the total sum of P100,000. This opportunity

cost which was duly proven before the trial court, was correctly

made chargeable by the said court against the injunction bond

posted by CISCO. The undertaking assumed by CISCO under

subject injunction refers to “all such damages as such party may

sustain by reason of the injunction if the Court should fi nally

decide that the Plaintiff was not entitled thereto.” The CA correctly

sustained the trial court in holding that the bond shall and may answer only for damages which
OVEC may suffer as

a result of the injunction. The arrears in rental, the unremitted

amounts of the amusement tax delinquency, the amount of

P100,000 (P10,000 portions of each monthly rental which were

not deducted from plaintiff’s cash deposit from Feb. to Nov. 1980

after the forfeiture of said cash deposit on Feb. 11, 1980) and

attorney’s fees which were all charged against Sy were correct

and considered by the CA as damages which OVEC sustained

not as a result of the injunction.

CASE 72

CASE 73

De la Cerna, et al. vs. De la Cerna, et al.

72 SCRA 514

This is a direct appeal from an order of the lower court

dismissing the complaint of plaintiffs for partition and

reconveyance of property with damages on the ground that the

action has already prescribed. The factual backdrop of the case

is as follows: Narciso de la Cerna died in 1945. His widow and

their two legitimate children subsequently executed a deed of

extrajudicial partition, which they registered on September 14,

1946 in the Offi ce of the Register of Deeds, wherein they stated

that they are the only owners of the subject property and that

one-half thereof is the share of the widow and the other onehalf

is the share of the children. On the basis of such deed, a

transfer certifi cate of title was issued to them. Twenty years

later, plaintiffs, children of Narciso by a prior marriage, brought

the instant action against defendants. Has their right of action

prescribed?

Held: His Honor committed no error in ruling that the

action has already prescribed. It is idle to bother as to whether

the action here is one founded exclusively on fraud which

prescribed in four years or one based on constructive trust

which is barred after ten years, there being no question that the

appellees secured their title more than twenty years before the

fi ling of the complaint, and it is from the date of the issuance of

such title that the effective assertion of adverse title for purposes

of the statute of limitations is counted. (Gerona vs. De Guzman,

11 SCRA 153.)

CASE 74
Fabian vs. Fabian

22 SCRA 231

The land in question was acquired by Pablo Fabian in

1909. In 1928, Pablo died survived by four children, Esperanza,

Benita I, Benita II, and Silvina. Later, in 1937, through a

series of fraudulent acts, Silvina Fabian and Teodora Fabian,

a niece of Pablo, were able to secure an original certifi cate of

title in their name. In 1945, they subdivided the lot into two

equal parts and as a result, two new transfer certifi cates of title

were issued in their names. On July 18, 1960, the other heirs of

Pablo Fabian brought an action against them for reconveyance

on the ground of the existence of an implied or constructive

trust. Defendants, however, interposed the defenses of laches,

extinctive prescription, and acquisition of absolute ownership

of the property by acquisitive prescription. From an order of

dismissal of the complaint, plaintiffs have appealed.

Held: As far as the defense of laches is concerned, appellants

are in error in believing that like express trust, constructive

trust may not be barred by lapse of time. The express trusts

disable the trustee from acquiring for his own benefi t the property

committed to his management or custody, at least while he

does not openly repudiate the trust, and make such repudiation

known to the benefi ciary. But in constructive trusts, the rule is

that laches constitutes a bar to actions to enforce the trust, and

repudiation is not required, unless there is a concealment of the

facts giving rise to the trust.

As far as defense of extinctive prescription is concerned, it

is well-settled in this jurisdiction that an action for reconveyance

of real property based upon a constructive or implied trust

resulting from fraud may be barred by the statute of limitations.

Upon the undisputed facts in the case at bar, not only had laches

set when the appellants instituted their action for reconveyance

in 1960, but their right to enforce the constructive trust had

already prescribed. It logically follows from the above disquisition that

acquisitive prescription has likewise operated to vest absolute

title in the appellees, pursuant to the provisions of Section 41 of

Act 190 which was then the law in force.

CASE 75

Fisher vs. Robb

69 Phil. 101

The defendant was one of the organizers of a certain enterprise

known as the Philippine Greyhound Club, Inc. which

was formed for the purpose of introducing dog racing in the

Philippines, while the plaintiff was one of those who had invested

a certain sum of money in the venture. It appears that

this venture did not succeed, and, as a result, the defendant

wrote a letter to the plaintiff explaining the critical condition of

the company, and, at the same time, stating that he felt “a moral

responsibility for those who had sent in the second payment of

their subscription” and that he will see to it that “stockholders

who had made such payment shall be reimbursed such amount

as soon as possible out of his own personal funds.” This action

now is brought to enforce the “obligation.” The principal question

to be decided, among others, is whether there is a suffi cient

cause or consideration to justify the promise made by the defendant

in his letter. Answering this question in the negative, the

Supreme Court, speaking through Justice Villareal, held: “The contract sought to be judicially
enforced by the

plaintiff appellee against the defendant is onerous in character,

because it supposes the deprivation of the latter of an amount

of money which impairs his property, which is a burden, and

for it to be legally valid it is necessary that it should have a

consideration consisting in the lending or promise of a thing or

service by such party. The defendant-appellant is required to

give a thing, namely the payment of the sum of P2,000, but the

plaintiff-appellee has not given or promised anything or service

to the former which may compel him to make such payment.

The promise which said defendant-appellant has made to the

plaintiff-appellee to return to him P2,000 which he had paid to

the Philippine Greyhound Club, Inc. as a second installment

of the amount of the shares for which he had subscribed, was

prompted by a feeling of pity which said defendant-appellant

had for the plaintiff-appellee as a result of the loss which the

latter had suffered because of the failure of the enterprise. The obligation which the said
defendant-appellant had contracted
with the plaintiff-appellee is, therefore, purely moral, and, as

such, is not demandable in law, but only in conscience, over

which human judges have no jurisdiction.”

CASE 76

Garcia vs. Lim Chiu Sing

59 Phil. 562

The defendant, who is indebted to the Mercantile Bank

of China for P9,105.17, contends in this action brought by the

Bank against him for payment of the debt that such debt must

be compensated by his shares of stock with the Bank. The

Supreme Court, however, held:

“According to the weight of authority, a share of

stock or the certifi cate thereof is not an indebtedness

and, therefore, it is not a credit. Stockholders, as such,

are not creditors of the corporation. It is the prevailing

doctrine of American courts, repeatedly asserted in the

broadest terms, that the capital stock of a corporation is a

trust fund to be used more particularly for the security of

creditors of the corporation, who presumably deal with it

on the credit of its capital stock. (4 Corpus Juris, p. 383,

Sec. 505.) Therefore, the defendant-appellant Lim Chiu

Sing, not being a creditor of the Mercantile Bank of China,

although the latter is a creditor of the former, there is no

suffi cient ground to justify a compensation. (Art. 1195 —

now Art. 1278, Civil Code.)’’

CASE 77

CASE 78

CASE 79

CASE 80

House International Building Tenants

Association, Inc. v. IAC

GR 75287, Jun. 30, 1987

FACTS: To secure payment of his obligation to the

GSIS, FA mortgaged a parcel of land and a 14-storey building

on said land. After the GSIS foreclosed the mortgage

and after it had consolidated ownership in its name [i.e.,

after FA failed to redeem the property], the GSIS sold the

property to CENTERTOWN under a deed of conditional

sale, without notice to the tenants of the building and

without securing prior clearance of the Ministry of Human

Settlements. Because CENTERTOWN is not authorized

to engage in real estate business, it organized a sister

corporation, TOWERS, to engage in real estate business.

Later, CENTERTOWN assigned to TOWERS all its rights

and obligations under the Deed of Conditional Sale, with

the consent and approval of the GSIS. The association of tenants of the building sued

CENTERTOWN, TOWERS, and GSIS for annulment of the

deed of conditional sale and the subsequent assignment of

the sale by CENTERTOWN to TOWERS, on the ground

that the sale is VOID ab initio because it is ultra vires, since

CENTERTOWN is not qualifi ed to acquire real estate or

engage in real estate transactions, and also because “its

consideration is illicit” pursuant to Art. 1409.

HELD: The Tenant’s Association is neither a party nor

a privy to the Deed of Conditional Sale and the assignment

thereof. Hence, it cannot assail the validity of said contracts.

The interest one has in a given contract determines

the right of a party obligated principally or subsidiarily

to enable him to bring an action to nullify the contract in

which he intervenes. He who has no right in a contract is

not entitled to prosecute an action for nullity. The person

who is not a party to a contract or has no cause of action

or representation from those who intervened therein has

no right of action and personality so as to enable him to

assail the validity of the contract. The main thrust of the Association’s challenge on

the validity of the conditional sale is that the contract

is ultra vires because CENTERTOWN is not qualifi ed to

acquire properties under its articles of incorporation. The

Association has confused a void contract with an ultra vires

contract which is merely voidable. Cited to support its assertion that the conditional

sale is against public policy are the provisions of the 1973

Constitution on eminent domain (Art. IV, Sec. 2; Art.

XIV, Sec. 3), agrarian reform (Art. XIV, Sec. 12) and the
Declaration of Principles and State Policies, particularly

those emphasizing the “stewardship concept, under which

property is supposed to be held by the individual only as

trustee for the people in general, who are its real owners.”

(Art. II, Secs. 6 and 7). These constitutional provisions are

inapposite as bases for a declaration that the conditional

sale is null and void. Not one of these provisions render

unlawful the contract in question. Except for the prohibition

against the taking of a private property for public use

without just compensation, the other provisions require

implementing legislation to confer a legal right and impose

a legal duty which can be judicially invoked.

CASE 81

CASE 82

CASE 83

Kauffman vs. Phil. National Bank

42 Phil. 182

The defendant bank, for a valuable consideration paid by

the Philippine Fiber and Produce Co., agreed to cause a certain

sum of money to be paid to the plaintiff in New York City.

Subsequently, however, the bank cabled its representative in

New York to withhold payment of the amount to the plaintiff. Because of this development,
plaintiff fi led this action to recover

the amount. The question now is whether or not the lack of

privity with the contract on the part of the plaintiff is fatal to

the maintenance of this action.

Held: “The only express provision of law that has been

cited as bearing directly on this question is the second paragraph

of Article 1257 (now Art. 1311) of the Civil Code; and unless

the present action can be maintained under that provision, the

plaintiff admittedly has no case.

“In the case of Uy Tam vs. Leonard (30 Phil. 471), Justice

Trent, speaking for the Court, sums up its conclusions in the

following words:

“So, we believe the fairest test in this jurisdiction

whereby to determine whether the interest of a third

person in a contract is a stipulation pour autrui or merely

an incidental interest, is to rely upon the intention of the

parties as disclosed by their contract.

“If a third person claims an enforcible interest in the

contract, that question must be settled by determining

whether the contracting parties desired to tender him

such an interest. Did they deliberately insert terms in

their agreement with the avowed purpose of conferring

a favor upon such third person? In resolving this

question, of course, the ordinary rules of construction and

interpretation of writings must be observed.’

“Further on in the same opinion he adds: ‘In

applying this test to a stipulation pour autrui, it matters

not whether the stipulation is in the nature of a gift or

whether there is an obligation owing from the promisee

to the third person. That no such obligation exists may

in some degree assist in determining whether the parties

intended to benefi t a third person.’

“In the light of the conclusions thus stated, the right

of the plaintiff to maintain the present action is clear

enough, for it is undeniable that the bank’s promise to

cause a defi nite sum of money to be paid to the plaintiff

in New York City is a stipulation in his favor within

the meaning of the paragraph above quoted; and the

circumstances under which the promise was given disclose

an evident intention on the part of the contracting parties

that the plaintiff should have that money upon demand in

New York City. The recognition of this unqualifi ed rightin the plaintiff to receive the money
implies in our opinion

the right in him to maintain an action to recover it; and

indeed if the provision in question were not applicable to

the facts now before us, it would be diffi cult to conceive of

a case under it.

“It will be noted that under the paragraph cited

a third person seeking to enforce compliance with a

stipulation in his favor must signify his acceptance to the

bank by demanding payment; and although the Philippine

National Bank has already directed its New York agency

to withhold payment when this demand was made, the

right of the plaintiff cannot be considered to have been

prejudiced by that fact. The ‘revoked,’ as there used, must

be understood to imply revocation by the mutual consent

of the contracting parties, or at least by direction of the

party purchasing the exchange.”

CASE 84

CASE 85

Legarda Hermanos v. Suldano

L-26578, Jan. 28, 1974

FACTS: A vendor sold two lots on the installment plan to

a buyer who subsequently was able to pay (in installments) an

amount, which by itself already exceeded the purchase price of

one of the lots. If the buyer does not continue paying, may the

vendor successfully ask for the rescission (actually, resolution)

of the sale of the two lots?

HELD: No, otherwise unfairness would result. Here, the

vendor was ordered to convey to the buyer one of the two lots.

CASE 86

Liebenow vs. Phil. Vegetable Oil Co.

39 Phil. 60

This is an action to recover a sum of money to which the

plaintiff considered himself entitled by way of bonus in addition

to his salary while employed by the defendant. The basis of his

claim was a letter of the president of the defendant company

promising to pay him in addition to his salary “such further

amount as the Board of Directors may see fi t to grant.” It was

established that the plaintiff had in fact received P4,500 by

installments from the defendant after the termination of his

services. The defendant contends that this amount is the bonus

which the Board of Directors had seen fi t to grant, but the

plaintiff maintains that it is merely an addition to his salary,

and since the bonus has not yet been paid, its amount must

therefore be fi xed by the court because otherwise there would be

a violation of the prohibitions imposed in Arts. 1115 and 1256

(now Arts. 1182 and 1308) of the Civil Code. Holding that the

bonus had already been paid since the contract itself specifi es

that the amount thereof should depend upon the discretion of

the Board of Directors of the defendant company, the Supreme

Court, considering the nature and legal effect of the contract,

declared: “We see no reason to doubt that a promise of this character

creates a legal obligation binding upon the promisor, although

in its actual results it may not infrequently prove to be illusory.

Such a promise is not, in our opinion, nugatory under Article

1115 (now Art. 1182) of the Civil Code, as embodying a condition

dependent exclusively upon the will of the obligor. Nor can it be

held invalid under Article 1256 (now Art. 1308) of the same Code, which declares that the
validity and performance of a contract
cannot be left to the will of one of the contracting parties. The

uncertainty of the amount to be paid by way of bonus is also no

obstacle to the validity of the contract (Article 1273 — now Art.

1349, Civil Code), since the contract itself specifi es the manner

in which the amount payable is to be determined, namely, by

the exercise of the judgment and discretion of the employer.”

CASE 87

CASE 88

CASE 89

CASE 90

CASE 91

CASE 92

CASE 93

CASE 94

CASE 95

CASE 96

Wilson vs. Berkenkotter

49 Off. Gaz. 1410

On June 30, 1938, Berkenkotter, Wilson and Gulick

executed a promissory note promising jointly and severally

to pay an indebtedness of P90,000 to the Chartered Bank of

India, Australia and China plus interest. Payment was made

by Berkenkotter in November, 1944, with Japanese military

notes. After liberation, Berkenkotter demanded from his codebtors

reimbursement of their shares in the obligation. Wilson

tendered payment of P625.51 in accordance with the Ballantyne

Schedule, which Berkenkotter refused to accept. As a result,

Wilson deposited the amount in the Court of First Instance of

Manila and fi nally brought this action to compel Berkenkotter to

accept the said amount. The question now is — is the Ballantyne

Schedule applicable?

Held: “In several cases involving the application of the

Ballantyne Schedule, this Court has held that said schedule

is applicable to obligations contracted during the Japanese

occupation where said obligations are made payable on demand

or during said Japanese occupation but not after the war or at

a specifi ed date speculating on the continuation or cessation of

the war at the time of payment. If the obligation on the part

of Wilson to pay Berkenkotter the amount paid by the latter

to wipe out their debt to the Bank was created during the

occupation, then the Ballantyne Schedule is applicable, but if

said obligation was created before the war, particularly on the

date when plaintiff and defendant signed the promissory note

in favor of the Bank then the Ballantyne Schedule may not be

applied.

“Counsel for the appellant contends that said obligation

was created in 1938 because by signing the promissory note,

Wilson impliedly undertook to pay anyone of his co-debtors who

might pay off the whole debt. He also claims that by paying the entire loan in 1944 to the Bank,
appellant became a subrogee of

said Bank and the entire credit was transmitted to him with all

the rights inherent therein against the debtor or against third

persons. (Art. 1212 — now Art. 1303, Civil Code.)

“We regret to disagree. When appellant paid the entire

loan plus interests in November, 1944, the whole obligation was

extinguished. The solidary co-debtors were no longer under any

obligation to the Bank but a new obligation was created in favor

of the appellant to enforce his claim against the appellee. That

is why the appellant to enforce his claim against the appellee

has based his claim not on the obligation created in 1938 in

favor of the Bank by virtue of the promissory note signed by the

co-debtors, but on his having paid the entire loan. The present

is not a real case of subrogation as contended by appellant

because as Manresa says, in a case like the present the original

obligation is extinguished and a new one is created. In other

words, appellant does not, as claimed by his counsel, step into

the shoes of the Bank. He cannot enforce the original obligation

created in 1938. The Bank could collect the whole amount of the

loan from any one of the solidary co-debtors, and in fact did from

one of them. This, the appellant may not do just because he paid

the entire loan.

“In conclusion, we fi nd and hold that the obligation in

favor of the appellant to pay to him the share of the appellee in

the original loan was created during the Japanese occupation,

particularly in November 1944, and so comes under the ruling of

this Court regarding the application of the Ballantyne Schedule.

Finding no reversible error in the decision appealed from the

same is hereby affi rmed. No costs.’’

CASE 97