CHAPTER 2 Essential Requisites of Contracts

General Provisions
1. Manila Metal Container vs. PNB (G.R. No. 166862, 20 December 2006)
Facts
Manila Metal Container Corporation (MMCC) obtained a loan from the Philippine National
Bank (PNB) and executed a real estate mortgage over its property as security. When
MMCC defaulted, PNB foreclosed the mortgage and sold the property at public auction.
MMCC later sought to repurchase the property, claiming there was a perfected contract
of sale between it and PNB.
MMCC argued that it had accepted PNB’s offer to sell the property for P1,574,560.00 and
deposited P725,000.00 as partial payment. However, PNB’s Special Assets Management
Department (SAMD) only had the authority to recommend, not to bind PNB to a sale. The
PNB Board of Directors later approved the sale but set a higher price (P2,660,000.00)
and imposed additional conditions. MMCC did not accept these new terms and instead
sought reconsideration, which PNB denied. MMCC then filed suit for specific performance,
claiming a perfected contract of sale existed.
The trial court and Court of Appeals both ruled against MMCC, finding no perfected
contract of sale. The case was elevated to the Supreme Court.
Issue
Whether there was a perfected contract of sale between MMCC and PNB over the subject
property, considering the requisites of a valid contract under Article 1318 of the Civil
Code.
Court Ruling
The Supreme Court ruled that there was no perfected contract of sale between
MMCC and PNB. The Court explained that a contract requires the concurrence of three
elements: (1) consent, (2) object certain, and (3) cause or consideration. In this case,
the acceptance by PNB was not absolute but qualified, as it imposed new
terms (higher price and other conditions). This qualified acceptance amounted
to a counter-offer, which MMCC did not accept. Thus, there was no meeting of
the minds, and consequently, no perfected contract.
The Court also clarified that the P725,000.00 deposited by MMCC was not earnest money
but merely a deposit, as the sale price and other terms were still subject to approval by
PNB’s Board of Directors. Since MMCC did not accept the counter-offer, no binding
contract arose.
Doctrine
A contract of sale is perfected by a meeting of the minds between the seller and the
buyer on the object of the sale and the price. A qualified acceptance constitutes a
counter-offer, and unless the counter-offer is accepted, there is no perfected contract.
Earnest money presupposes an existing contract of sale; a mere deposit pending
approval of terms does not amount to earnest money or proof of a perfected contract.

2. Montecillo vs. Reynes (G.R. No. 138018, 26 July 2002)

Facts
Rido Montecillo (petitioner) claimed ownership over a parcel of land in Mabolo, Cebu City,
based on a deed of sale executed by Ignacia Reynes (respondent). Reynes, together with
Spouses Redemptor and Elisa Abucay, filed a complaint for declaration of nullity and
quieting of title, asserting that the deed of sale in favor of Montecillo was void. Reynes
alleged that she never received the purchase price of P47,000.00 stated in the deed of
sale, and that Montecillo had no authority to discharge a chattel mortgage on the
property. The Abucay Spouses had previously purchased a portion of the lot and built a
house on it.
Montecillo argued that the consideration for the sale was his payment to release a
mortgage debt owed by a third party (Jayag House, which was a mortgage, not the land)
to Cebu Ice and Cold Storage Corporation, which he claimed was necessary to clear the
title. Reynes countered that she had no involvement with Jayag’s debt, and that the
mortgage was on a house, not the land itself. The trial court found that Montecillo never
paid Reynes the purchase price, and that the deed of sale was without cause or
consideration. The Court of Appeals affirmed this decision.
Issue
Whether the deed of sale executed by Reynes in favor of Montecillo is valid and effective,
considering the alleged lack of consideration (i.e., non-payment of the purchase price),
and whether the essential requisites of a contract under Article 1318 of the Civil Code
are present.
(Montecillo v. Reynes, G.R. No. 138018 (2002))
Court Ruling
The Supreme Court affirmed the decisions of the trial court and the Court of Appeals,
declaring the deed of sale null and void ab initio. The Court found that there was no valid
consideration for the sale, as the purchase price was never paid to Reynes. The Court
distinguished between mere non-payment (which may give rise to rescission) and total
lack of consideration (which renders the contract void). The Court ordered the
cancellation of Montecillo’s title and the issuance of a new title in favor of the Abucay
Spouses.
Doctrine
A contract of sale is void and produces no effect whatsoever where the price, which
appears thereon as paid, has in fact never been paid by the purchaser to the vendor.
The essential requisites of a valid contract under Article 1318 of the Civil Code are: (1)
consent; (2) object certain; and (3) cause of the obligation. Absence of any of these
requisites, particularly cause or consideration, prevents the existence of a valid contract.
Where the deed of sale states that the purchase price has been paid but in fact has
never been paid, the deed is null and void ab initio for lack of consideration.

3. Soler vs. Court of Appeals (G.R. No. 123829, 21 May 2001)

Facts
Jazmin Soler, a professional interior designer, was engaged by Nida Lopez, an officer of
Commercial Bank of Manila (COMBANK), to design the bank’s Ermita Branch. During their
meeting, Lopez provided Soler with specifications for the renovation and supplied her
with the building’s blueprints. Soler, relying on Lopez’s apparent authority, proceeded to
prepare the designs, hiring assistants to meet the bank’s deadline for its December 1986
board meeting. Lopez assured Soler that she would be paid a professional fee of P10,000
upon submission of the designs. Soler completed and submitted the designs as agreed.
However, COMBANK later refused to pay Soler, claiming there was no contract between
them. Soler filed a complaint for payment of her professional fees. The trial court ruled in
her favor, but the Court of Appeals reversed the decision, holding that no contract
existed between Soler and the bank.
Issue
Whether there was a perfected contract between Soler and COMBANK, considering the
requisites of a valid contract under Philippine law.
Court Ruling
The Supreme Court reversed the Court of Appeals and reinstated the trial court’s
decision in favor of Soler. The Court found that there was a perfected oral contract
between Soler and COMBANK. The elements of a valid contract—consent, object, and
cause—were all present:
 Consent: There was a meeting of the minds between Soler and Lopez (acting for
COMBANK) regarding the engagement and payment for Soler’s services.
 Object: The subject matter was the design services to be rendered by Soler.
 Cause: The consideration was the agreed professional fee of P10,000.
The Court also held that, even if there was doubt as to the existence of a contract, Soler
was entitled to compensation on the basis of quantum meruit( “as much as he has
earned/deserved.”), as COMBANK benefited from her services.
Doctrine
A contract is perfected when there is a meeting of the minds on the object and cause of
the contract. The three stages of a contract are: (a) preparation (negotiation), (b)
perfection (birth), and (c) consummation (performance). If a party accepts the benefits of
another’s services under circumstances indicating an expectation of payment,
compensation may be awarded on the basis of quantum meruit to prevent unjust
enrichment. Apparent authority of an agent binds the principal to contracts entered into
in good faith by third parties.
SECTION 1 Consent
4. Rockland Construction Company vs. Mid-Pasig Land Development (G.R. No.
164587, 04 February 2008)
Facts
Rockland Construction Company, Inc. (Rockland) sought to lease a 3.1-hectare property
in Pasig City owned by Mid-Pasig Land Development Corporation (Mid-Pasig), which was
under the control of the Presidential Commission on Good Government (PCGG). Rockland
sent an offer to lease the property, first to Mid-Pasig and then, upon instruction, to the
PCGG. Mid-Pasig did not respond to the offer.
Subsequently, Rockland sent a letter to Mid-Pasig with a P1 million check as a sign of
good faith, believing this would perfect the lease. Mid-Pasig received the letter but
denied receiving the check. Later, Rockland learned that the check had been credited to
Mid-Pasig’s account and presumed this constituted acceptance of its offer.
Mid-Pasig, upon learning of the deposit, immediately informed Rockland that it could not
entertain the lease application and suggested applying the amount to another existing
lease. Rockland then filed an action for specific performance to compel Mid-Pasig to
execute a lease contract. The Regional Trial Court ruled in favor of Rockland, but the
Court of Appeals reversed, finding no perfected contract of lease. Rockland appealed to
the Supreme Court.

Issue (on Contracts: Requisites of Contracts)

Whether there was a perfected contract of lease between Rockland and Mid-Pasig,
specifically whether the requisites of a valid contract—consent, object, and cause—were
present.
Court Ruling
The Supreme Court affirmed the Court of Appeals’ decision, ruling that no perfected
contract of lease existed between the parties. The Court found that there was no
meeting of the minds as to the offer and acceptance. Mid-Pasig did not accept Rockland’s
offer, either expressly or impliedly. The mere deposit of the P1 million check into Mid-
Pasig’s account did not amount to acceptance, especially since Mid-Pasig was unaware of
the source and purpose of the deposit at the time. Furthermore, Mid-Pasig immediately
rejected the offer upon learning of the deposit.
The Court also held that estoppel in pais did not apply, as Mid-Pasig never made any
representation or act that would have led Rockland to believe that its offer was accepted.

Doctrine
A contract undergoes three stages: preparation, perfection, and
consummation. Perfection occurs when there is a meeting of the minds upon the
essential elements of the contract. For a contract to be perfected, the offer must be
certain and the acceptance absolute. An offer that is not accepted, either expressly or
impliedly, precludes the existence of consent, which is an essential element of a
contract. The mere act of depositing a check does not constitute acceptance if the
recipient is unaware of its purpose and promptly rejects the offer upon learning of it.
Estoppel requires unequivocal and intentional acts that would mislead another to their
detriment, which was not present in this case.
“A contract has three distinct stages: preparation, perfection, and consummation. ...
Negotiation is formally initiated by an offer. Accordingly, an offer that is not accepted,
either expressly or impliedly, precludes the existence of consent, which is one of the
essential elements of a contract. Consent, under Article 1319 of the Civil Code, is
manifested by the meeting of the offer and acceptance upon the thing which are to
constitute a contract. To produce a contract, the offer must be certain and the
acceptance absolute.”

5. Palattao vs. Court of Appeals (G.R. No. 131726, 07 May 2002)

Facts
Yolanda Palattao leased a house and a 490-square-meter lot in Caloocan City to Marcelo
Co for three years, starting January 1, 1991, with a monthly rental that increased each
year. The lease contract included a first option to purchase the property in favor of Co. As
the lease neared expiration, Palattao offered to sell 413.28 square meters of the lot to Co
at a specified price. Co replied, expressing his intent to exercise the option to buy but
requested clarification on the discrepancy in lot size, as he wanted to purchase the entire
490-square-meter property.
Negotiations stalled due to the disagreement on the area to be sold. Later, Palattao
made a final offer, requiring a 50% downpayment by a certain date, with the balance
payable in one year and a monthly lease/interest payment. Co accepted the offer but
reiterated his request for clarification on the lot size. Palattao gave Co until November
24, 1993, to pay the downpayment, warning that failure to do so would allow her to sell
the property to others. Co did not pay the downpayment or manifest conformity to the
new terms. Instead, he wrote to Palattao, expressing his intention to renew the lease for
another three years, which Palattao rejected. She then demanded that Co vacate the
premises, but he refused.
Co filed a case for specific performance to compel Palattao to sell the property, while
Palattao filed an ejectment case. The lower court initially ruled in favor of Co, but the
higher courts, including the Court of Appeals, ultimately ruled in favor of Palattao and
ordered Co to vacate the premises, with reduced monthly rental payments until he left
the property.

Issue (on Contracts: Requisites of Contracts)

Whether a contract of sale was perfected between Palattao and Co, considering the
requisites of contracts under Philippine law.
Palattao v. Court of Appeals, G.R. No. 131726 (2002)
Court Ruling
The Supreme Court ruled that no contract of sale was perfected between the parties. The
Court explained that for a contract to be perfected, there must be a meeting of the
minds upon the object and the price. In this case, there was no absolute agreement as to
the subject matter (the exact area of the lot to be sold) and the terms of payment (the
required downpayment and schedule). Co’s acceptance was not absolute but qualified,
as he sought clarification and modification regarding the lot size. This qualified
acceptance amounted to a counter-offer, not an acceptance. Furthermore, Co failed to
comply with the new terms set by Palattao regarding the downpayment. Thus, there was
no concurrence of offer and acceptance, and consequently, no perfected contract of sale.
Palattao v. Court of Appeals, G.R. No. 131726 (2002)
Doctrine
Contracts that are consensual in nature, like a contract of sale, are perfected upon the
mere meeting of the minds. The offer must be certain, and the acceptance must be
absolute, unequivocal, unconditional, and without variance from the proposal. A qualified
acceptance constitutes a counter-offer and is a rejection of the original offer. If there is
no absolute agreement on the object and price, no contract is perfected.

6. Limson vs. Court of Appeals (G.R. No. 135929, 20 April 2001)

Facts
Petitioner Lourdes Ong Limson entered into negotiations with respondent spouses
Lorenzo de Vera and Asuncion Santos-de Vera for the purchase of a parcel of land. The
parties executed an agreement, which Limson claimed was a contract to sell, while the
respondents contended it was merely an option contract. Limson alleged that she was
ready and willing to pay the balance of the purchase price, but the transaction did not
push through because the respondents failed to pay the back taxes on the property. She
further claimed to have given checks to the respondents for the settlement of these
taxes and for the payment of quitclaims to tenants, considering these as part of the
purchase price.
Subsequently, Limson discovered that the property was being negotiated for sale to
Sunvar Realty Development Corporation (SUNVAR), represented by Tomas Cuenca, Jr. The
respondent spouses eventually sold the property to SUNVAR, and a new title was issued
in its favor. Limson filed an Affidavit of Adverse Claim, asserting her right to purchase the
property. She argued that SUNVAR was in bad faith, having knowledge of her prior
agreement with the respondent spouses.
The trial court initially ruled in favor of Limson, but the Court of Appeals reversed the
decision, finding that the agreement was an option contract, not a perfected contract to
sell. Limson then elevated the case to the Supreme Court.
Issue
Whether the agreement between Limson and the respondent spouses was a perfected
contract to sell or merely an option contract, and whether the essential requisites of a
contract were present.
Court Ruling
The Supreme Court held that the agreement between Limson and the respondent
spouses was an option contract, not a perfected contract to sell. The Court found that
there was no clear and affirmative acceptance by Limson of the offer to buy the property
within the option period. The acts and conduct of Limson did not manifest a present
intention to accept the offer within the stipulated time. As there was no concurrence of
offer and acceptance within the option period, no contract to sell was perfected.
Consequently, the sale of the property by the respondent spouses to SUNVAR was valid
and made in good faith, as there was no perfected contract to sell between Limson and
the respondent spouses at the time of the sale. The Court affirmed the decision of the
Court of Appeals, which ordered the lifting of Limson’s adverse claim and awarded
damages to the respondents.
Doctrine
For a contract to be perfected, there must be a clear concurrence of offer and
acceptance regarding the object and the cause of the contract. An option contract is not
a contract to sell; it is merely a privilege granted to the optionee to buy the property
within a certain period, and acceptance must be made within that period for a contract
to sell to be perfected.

7. Mendezona vs. Ozamiz (G.R. No. 143370, 06 February 2002)

Facts
The case centers on a dispute over a Deed of Absolute Sale involving properties in Cebu
City. Petitioners Mario J. Mendezona and others filed a suit for quieting of title to remove
a cloud on their property titles caused by a notice of lis pendens. The respondents,
relatives of the seller Carmen Ozamiz, alleged that the Deed of Absolute Sale was
simulated and that Carmen Ozamiz was mentally incapacitated at the time of the sale.
Key factual points:
 The Deed of Absolute Sale was executed on April 28, 1989, with Carmen Ozamiz as
the vendor and the petitioners as vendees.
 The contract included a reservation of usufructuary rights to Carmen Ozamiz
during her lifetime, confirmed by the vendees in a sworn statement and annotated
on the property titles.
 Capital gains tax was paid, and the Bureau of Internal Revenue authorized the
transfer of the property.
 After the sale, a petition for guardianship over Carmen Ozamiz was filed, and a
notice of lis pendens was annotated on the property.
 The trial court ruled in favor of the petitioners, upholding the validity of the sale.
The Court of Appeals reversed this, declaring the sale null and void, citing
simulation and mental incapacity.
 Petitioners sought review by the Supreme Court, arguing that the appellate court
erred in its findings and in disregarding statutory presumptions of regularity and
capacity.
Issue (on Contracts: Requisites of Contracts)
Whether the Deed of Absolute Sale executed by Carmen Ozamiz in favor of the
petitioners was valid, specifically:
 Whether the contract was simulated or lacked consideration.
 Whether Carmen Ozamiz had the mental capacity to contract at the time of
execution.
Court Ruling
The Supreme Court ruled in favor of the petitioners, reinstating the trial court’s decision.
The Court found that:
 The Deed of Absolute Sale was not simulated; there was actual and sufficient
consideration.
 There was no clear and convincing evidence that Carmen Ozamiz was mentally
incapacitated at the time of the sale.
 The statutory presumptions of regularity in notarized documents and of capacity to
contract were not overcome by the respondents.
The dispositive portion ordered the recognition of the petitioners’ title, the correction of
property records, and the removal of the notice of lis pendens.
Doctrine
A notarized Deed of Absolute Sale enjoys the presumption of regularity and truthfulness,
including the existence of consideration and the capacity of the parties to contract. The
burden of proof lies on the party assailing the contract to show, by clear and convincing
evidence, the absence of consideration or the incapacity of a party. Mere allegations or
evidence of old age or physical infirmity are insufficient to establish mental incapacity; it
must be shown that such infirmity impaired the party’s mental faculties to the extent of
preventing intelligent and fair protection of property rights.

8. Catalan vs. Basa (G.R. No. 159567, 31 July 2007)

Facts
Feliciano Catalan, after being discharged from military service in 1948 due to a diagnosis
of schizophrenia, executed an "Absolute Deed of Donation" on June 16, 1951, donating
half of a parcel of land to his sister, Mercedes Catalan. The donation was registered, and
the corresponding tax declaration was issued in Mercedes' name. In 1953, Feliciano was
judicially declared incompetent and placed under guardianship. Years later, Mercedes
sold the donated property to her children, Delia and Jesus Basa, who registered the sale
in 1992. After Feliciano’s death in 1997, his heirs, through BPI as guardian, filed a
complaint to nullify the donation and subsequent sale, alleging that Feliciano was
mentally incompetent at the time of the donation, rendering it void. They also
questioned the validity of the sale, claiming it was simulated and fraudulent due to the
late registration and Mercedes’ prior death. The trial court dismissed the complaint,
finding insufficient evidence to overcome the presumption of Feliciano’s sanity and
capacity at the time of the donation. The Court of Appeals affirmed, holding that the
donation was valid and the subsequent sale proper.
Issue (on Contracts: Requisites of Contracts)
Whether the donation executed by Feliciano Catalan in favor of Mercedes Catalan was
void for lack of capacity to give consent, a requisite of a valid contract.
Court Ruling
The Supreme Court held that the donation was valid. The Court emphasized that the
presumption is in favor of sanity and capacity to contract. The evidence presented by the
petitioners (medical discharge in 1948 and judicial declaration of incompetency in 1953)
was insufficient to prove that Feliciano was mentally incapacitated at the precise time of
the donation in 1951. The Court noted that schizophrenia does not automatically equate
to legal incapacity, and there was no substantial proof that Feliciano had lost total
control of his mental faculties when he executed the donation. The presumption of
capacity stands until the contrary is shown, and such contrary proof was only established
in 1953, after the donation.
Doctrine
A person is presumed sane and competent to contract. The burden of proof lies on the
party alleging incapacity, and such incapacity must be shown to exist at the precise time
of the contract’s execution. The existence of a mental disorder does not automatically
render a person incapable of contracting unless it is proven that the disorder rendered
the person incapable of giving intelligent consent at the time of the contract.

9. Lim vs. Court of Appeals (G.R. No. L-55201, 03 February 1994)

Facts
The case concerns the partition of properties left by the deceased spouses Tan Quico and
Josefa Oraa, who died intestate in 1932. They were survived by four children: Crescencia,
Lorenzo, Hermogenes, and Elias (who died in 1935 without issue). After Crescencia’s
death in 1967, her heirs (husband and children) sought partition of the properties,
totaling about 96 hectares in Albay.
A dispute arose between Crescencia’s heirs and her brothers, Lorenzo and Hermogenes.
The latter claimed that the properties had already been orally partitioned and that
Crescencia had sold her share, as evidenced by a Deed of Confirmation and a receipt for
partial payment. The Deed was in English, a language Crescencia did not understand,
and was prepared by Lorenzo, a lawyer and CPA. The trial court found the Deed invalid,
holding that Crescencia did not understand its contents and that the alleged sale was not
sufficiently proven. The Court of Appeals reversed, finding the partition and sale valid.

2. Issue (on Contracts: Requisites of Contracts)

Whether the Deed of Confirmation of Extra Judicial Settlement and Sale, signed by
Crescencia, was valid and binding, considering the requisites of contracts under the Civil
Code, particularly consent and understanding of the contract’s terms.

3. Court Ruling
The Supreme Court reversed the Court of Appeals and reinstated the trial court’s
decision in favor of Crescencia’s heirs. The Court held that the Deed of Confirmation was
not valid because Crescencia, being illiterate and not understanding English, was not
shown to have fully understood the document’s contents. The party enforcing the
contract (Lorenzo) failed to prove that the terms were fully explained to her, as required
by Article 1332 of the Civil Code. The Court also found the evidence of sale (the receipt)
inconsistent and insufficient to prove a valid sale of Crescencia’s share.

4. Doctrine
When a party to a contract is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former. Failure to do
so renders the contract invalid as to that party. This rule is rooted in Article 1332 of the
Civil Code and is intended to protect the disadvantaged and promote social justice.

10. Dela Cruz vs. Sison (G.R. No. 163770, 17 February 2005)
Facts
Epifania Dela Cruz owned a rice land in Bugallon, Pangasinan. She claimed that her
nephew, Eduardo Sison, transferred the land to himself without her knowledge and
consent by tricking her into signing a Deed of Absolute Sale. Epifania alleged that the
deed was inserted among other documents she was signing for the transfer of her other
properties. The property was subsequently registered in Eduardo’s name. Epifania filed a
complaint to nullify the deed, asserting fraud and lack of consent.
Eduardo and his wife, Eufemia, denied any fraud, claiming they purchased the property
for P20,000.00 and that the deed was duly notarized. They presented various documents
supporting the sale and transfer, including affidavits, certifications, and tax documents,
many of which bore Epifania’s signature. They also asserted open, continuous, and
peaceful possession of the land since the sale.
The trial court ruled in favor of Epifania, declaring the deed void due to alleged trickery.
However, the Court of Appeals reversed this, upholding the validity of the deed. Epifania,
substituted by her niece after her death, appealed to the Supreme Court.
Issue (on Contracts: Requisites of Contracts)
Whether the Deed of Absolute Sale executed by Epifania Dela Cruz in favor of Eduardo
Sison is valid, specifically considering the requisite of consent under Article 1318 of the
Civil Code.
Court Ruling
The Supreme Court affirmed the Court of Appeals’ decision, declaring the Deed of
Absolute Sale valid. The Court found no convincing evidence of fraud or trickery. It held
that the presumption of due execution and regularity of a notarized document was not
overcome by bare allegations. The Court noted that the documents presented by the
respondents were too varied to have been accomplished through fraud, and even the
supposed victim’s foster child admitted the sale and transfer.
Doctrine
A contract is valid if all the essential requisites under Article 1318 of the Civil Code are
present: consent, object, and cause. The presumption of due execution and regularity
attaches to notarized documents, and allegations of fraud must be proven by clear and
convincing evidence. Mere allegations, without substantial proof, cannot overcome this
presumption. The issue of fraud is factual and must be established by evidence, not by
mere assertions.
“The presumption of due execution of a notarized document, except a last will and
testament, is not easily overturned by bare allegations of fraud or trickery. The essential
requisites of a contract—consent, object, and cause—must be shown to be lacking by
clear and convincing evidence to nullify a contract.”

11. Rural Bank of Sta. Maria vs. Court of Appeals (G.R. No. 110672, 14
September 1999)
Facts
Manuel Behis owned a parcel of land in Baguio City, which he mortgaged to the Rural
Bank of Sta. Maria, Pangasinan as security for loans totaling P156,750.00. On January 9,
1985, Behis sold the land to Rosario R. Rayandayan and Carmen R. Arceño through a
Deed of Absolute Sale with Assumption of Mortgage for P250,000.00, with his wife
Cristina Behis also signing. On the same day, a separate Agreement was executed,
stating that Rayandayan and Arceño owed Behis P2,400,000.00, payable in installments,
with P10,000.00 paid upon signing. If they defaulted, Behis could reclaim portions of the
land equivalent to the unpaid balance.
Rayandayan and Arceño did not immediately register the sale or annotate the contracts
on the title, nor did they promptly inform the bank. They made partial payments to Behis
and paid for his medical and burial expenses upon his death. The bank later learned of
the sale and entered into a Memorandum of Agreement with Rayandayan and Arceño
regarding the mortgage.
The bank later claimed that its consent to the Memorandum of Agreement was vitiated
by fraud, alleging that Rayandayan and Arceño concealed the true consideration of the
sale (P2,400,000.00 instead of P250,000.00). The bank argued that, had it known the
real consideration, it would not have agreed to the arrangement, doubting the buyers’
financial capacity to assume the mortgage.

Issue (on Contracts: Requisites of Contracts)

Whether the Memorandum of Agreement entered into by the bank was voidable due to
vitiated consent, specifically on the ground of fraud, because the real consideration of
the sale was concealed from the bank.
Court Ruling
The Supreme Court ruled that the non-disclosure of the real consideration
(P2,400,000.00) did not constitute the kind of fraud that would vitiate consent under
Article 1338 of the Civil Code. The Court found that the real consideration for the sale
between Behis and the buyers was not the determining cause for the bank to enter into
the Memorandum of Agreement. The bank’s main concern was the payment of the
mortgage debt, and its security remained unimpaired regardless of the consideration
between the original parties. The Court also noted that the bank’s claim of fraud was an
afterthought, as its initial objection was based on an alleged forgery of a signature, not
on the issue of consideration.

Doctrine
The kind of fraud that vitiates consent in contracts refers to insidious words or
machinations resorted to by one of the contracting parties to induce the other to enter
into a contract, which, without them, he would not have agreed to. The fraud must be
the determining cause of the contract or must have caused the consent to be given.
Mere non-disclosure of the real consideration, when not the inducement for consent,
does not constitute such fraud.

12. Heirs of the Late Spouses Balite vs. Lim (G.R. No. 152168, 10 December
2004)
Facts
The spouses Aurelio and Esperanza Balite owned a parcel of land in Catarman, Northern
Samar. Upon Aurelio’s death in 1985, Esperanza and their children inherited the property
as co-owners. Later, Esperanza, needing funds for medical expenses, offered to sell her
undivided share (9,751 sq. m.) to Rodrigo N. Lim for P1,000,000. However, to reduce tax
liabilities, the Deed of Absolute Sale executed on April 16, 1996, stated a purchase price
of only P150,000. Simultaneously, a Joint Affidavit was executed by Esperanza and Lim,
declaring the real price as P1,000,000, payable in installments.
Only Esperanza and two of her children, Antonio and Cristeta, were aware of the
transaction. A subdivision survey was conducted, and a sketch plan was prepared. Later,
Esperanza executed a Special Power of Attorney authorizing her son Antonio to collect
the balance of the purchase price. Subsequently, Esperanza wrote to Lim, withdrawing
her commitments due to her children’s objections. She died intestate on October 31,
1996.
The heirs of Esperanza filed a complaint to annul the sale, claiming the price was grossly
inadequate and that the contract was an equitable mortgage, not a sale. The trial court
and the Court of Appeals upheld the validity of the sale, ruling that a co-owner may sell
his/her undivided share without the consent of other co-owners.
Issue (on Contracts: Requisites of Contracts)
Whether the Deed of Absolute Sale executed by Esperanza Balite in favor of Rodrigo Lim
is valid and enforceable, considering the alleged inadequacy of price and the simulation
of the contract.

Court Ruling
The Supreme Court affirmed the validity of the sale. It held that all the essential
requisites of a contract—consent, object, and cause—were present. The contract was not
void for simulation because the real agreement (sale for P1,000,000) was reflected in the
Joint Affidavit, and the simulation pertained only to the price stated in the deed to reduce
taxes. The contract was not an equitable mortgage, as there was no evidence that the
parties intended the transaction to secure a debt. The sale was valid as to Esperanza’s
undivided share, and the buyer became a co-owner to that extent.

Doctrine
A contract of sale is valid and enforceable if all the essential requisites—consent, object,
and cause—are present. Relative simulation of a contract, where the true agreement is
not concealed and the essential requisites are present, does not render the contract
void. The motives for stating a lower price (e.g., tax avoidance) do not affect the validity
of the contract, provided the real agreement is lawful and established. A co-owner may
validly sell his/her undivided share without the consent of other co-owners; the buyer
merely steps into the shoes of the seller as co-owner.

13. Suntay vs. Court of Appeals (G.R. No. 114950, 19 December 1995)
Facts
Federico C. Suntay was the registered owner of a valuable parcel of land in Sto. Niño,
Hagonoy, Bulacan, which included a rice mill and warehouse. In 1960, Federico, facing
several unpaid loans, sought to apply as a miller-contractor with the National Rice and
Corn Corporation (NARIC). However, due to his financial encumbrances, his application
was disapproved. To circumvent this, Federico allowed his nephew and lawyer, Rafael G.
Suntay, to apply in his stead. To facilitate this, Rafael prepared an absolute deed of sale,
whereby Federico purportedly sold the property to Rafael for P20,000.00. This deed was
notarized and registered, resulting in the transfer of the title to Rafael.
A few months later, Rafael executed a counter-deed of sale, ostensibly selling the
property back to Federico for the same amount. However, this counter-deed was not
properly notarized. Despite the transfer of title, Federico remained in possession of the
property, continued to operate the rice mill, and paid the taxes. Rafael never took
possession, never declared the property in his Statement of Assets and Liabilities, nor
paid taxes on it.
When Federico later requested the return of the title to use the property as collateral for
a loan, Rafael refused, insisting on his ownership based on the deed of sale. Federico
then filed a complaint for reconveyance and damages. The trial court ruled in favor of
Rafael, upholding the first deed and voiding the counter-deed. On appeal, the Court of
Appeals initially affirmed the trial court but, upon reconsideration, reversed itself,
declaring both deeds simulated and void. Rafael’s heirs appealed to the Supreme Court.
Issues
 1. Was the deed of sale executed by Federico Suntay in favor of Rafael Suntay a valid
and binding contract, or was it simulated and therefore void?
2. If the first deed of sale was simulated, what is the effect on the counter-deed of
sale executed by Rafael Suntay in favor of Federico Suntay?
Court’s Ruling
On the First Issue
The Supreme Court held that the deed of sale executed by Federico in favor of Rafael
was absolutely simulated and fictitious, and therefore null and void. The Court identified
several badges of simulation:
 The close familial relationship between the parties.
 The gross inadequacy of the consideration (P20,000 for a valuable and productive
property).
 The fact that Rafael never took possession, never asserted ownership, and never
declared the property as his asset.
 The continued possession and enjoyment of the property by Federico.
The Court emphasized that the intention of the parties is the primary consideration in
determining the true nature of a contract. Here, the evidence showed that the parties did
not intend to be legally bound by the sale transaction. The transaction was merely an
accommodation to allow Rafael to apply as a miller-contractor with NARIC.
On the Second Issue
Since the first deed of sale was simulated and void, no property was validly conveyed to
Rafael. Consequently, the counter-deed of sale executed by Rafael in favor of Federico
was also ineffective and unavailing. Rafael had no title to reconvey, and both documents
were part of a single, simulated transaction and were therefore equally void.

Doctrine
A contract that is absolutely simulated—where the parties do not intend to be bound by
its terms—is void. The intention of the parties is the controlling factor in determining the
validity of a contract. Where the initial transfer is void for absolute simulation, any
subsequent reconveyance based on that transfer is likewise void, as no title or right was
ever transferred.

SECTION 2 Object of Contracts

14. Chavez vs. Public Estates Authority (G.R. No. 133250, 09 July 2002)
Facts
Petitioner Francisco I. Chavez, a concerned citizen, filed a petition to compel the Public
Estates Authority (PEA) to disclose all facts regarding its ongoing renegotiations with
Amari Coastal Bay and Development Corporation (Amari) for the reclamation and
development of portions of Manila Bay. Chavez also sought to enjoin PEA from signing
any new agreement with Amari. The controversy centered on the Amended Joint Venture
Agreement (JVA) between PEA and Amari, which involved the transfer of reclaimed lands
to Amari, a private corporation.
PEA argued that the petition was moot because the Amended JVA had already been
signed and approved by the Office of the President. The petitioner, however, insisted that
the agreement violated the constitutional prohibition against the transfer of lands of the
public domain to private corporations. The case also raised issues about the right to
information, the requirement of public bidding in the disposition of government lands,
and the locus standi of the petitioner.
Issue (on Contracts: Requisites of Contracts)
Whether the Amended Joint Venture Agreement (JVA) between PEA and Amari is valid,
considering the requisites of contracts under Philippine law, particularly the legality of its
object (i.e., the transfer of reclaimed lands of the public domain to a private corporation).
Court Ruling
The Supreme Court ruled that the Amended JVA is null and void ab initio. The Court found
that the agreement violated the constitutional prohibition against the alienation of lands
of the public domain to private corporations. The object of the contract—transfer of
reclaimed lands to Amari—was contrary to law and outside the commerce of men. The
Court also held that contracts with an unlawful object or purpose are inexistent and void
from the beginning under Article 1409 of the Civil Code. As a result, PEA and Amari were
permanently enjoined from implementing the Amended JVA.
Doctrine
 Regalian Doctrine: All lands of the public domain belong to the State. Reclaimed
lands, being of the public domain, cannot be alienated to private corporations
unless they are first declared alienable and disposable, and then only to qualified
individuals.
 Contracts with Illegal Object: Under Article 1409 of the Civil Code, contracts whose
object is contrary to law or outside the commerce of men are void from the
beginning.
 Constitutional Ban: The 1987 Constitution prohibits the transfer of lands of the
public domain to private corporations.

15. Carabeo vs. Sps. Dingco (G.R. No. 190823, 04 April 2011)
Facts
Domingo Carabeo entered into a contract with Spouses Norberto and Susan Dingco for
the sale of his rights over a 648-square-meter parcel of unregistered land in Orani,
Bataan, for ₱38,000. The Dingcos paid ₱10,000 upon signing, with the balance due later.
When the Dingcos attempted to pay the remaining balance, Carabeo refused, citing an
ongoing dispute over the land and later, the need to register the property first. Despite
this, the Dingcos made additional payments totaling ₱9,100. After the land was
registered in Carabeo’s name, the Dingcos again offered to pay the balance, but Carabeo
declined. The Dingcos filed a complaint for specific performance after failed barangay
conciliation.
Carabeo argued that the contract was void for lack of a certain object, as the metes and
bounds were not specified, and that the Dingcos failed to pay the full balance. He also
raised, on appeal, the lack of spousal consent and, after his death during the
proceedings, claimed the action should be dismissed as it was in personam. The trial
court ruled in favor of the Dingcos, ordering Carabeo to execute a deed of sale upon
payment of the balance. The Court of Appeals affirmed. Carabeo’s son appealed to the
Supreme Court.
Issue (on Requisites of Contracts)
Whether the contract of sale was void for lack of an object certain, as required by the
Civil Code, and whether the action survived the death of Carabeo.
Court Ruling
The Supreme Court held that the contract was valid. The object of the sale was
sufficiently determinate, as the property could be identified from the contract and was
capable of being made determinate without a new agreement. The lack of technical
boundaries did not render the contract void. The Court also ruled that the action survived
Carabeo’s death because it involved property rights, not purely personal obligations. The
trial court’s decision was valid and binding on Carabeo’s legal representatives.
Doctrine
A contract of sale is valid as long as the object is determinate or capable of being made
determinate without the need for a new agreement. The death of a party does not
extinguish an action involving property rights; such actions survive and are binding on
the decedent’s legal representatives.

16. Melliza vs. City of Iloilo (G.R. No. L-24732, 30 April 1968)
Facts
Juliana Melliza owned a large parcel of land in Iloilo City, which included several lots. In
1932, she executed a public instrument conveying certain lots to the Municipality of Iloilo
for the construction of avenues, parks, and a city hall site, as per the Arellano Plan. The
instrument specifically mentioned Lots 1214-C and 1214-D, but also included a
paragraph stating that the lots conveyed were those needed by the municipal
government for the stated purposes according to the Arellano Plan. After the execution of
the deed, the municipality took possession of Lot 1214-B, which was contiguous to the
other lots and situated in front of the city hall. Juliana Melliza and her successors did not
object to this possession for over twenty years.
Later, Pio Sian Melliza, who derived title from a subsequent sale by Remedios Sian
Villanueva (another successor of Juliana Melliza), claimed ownership over Lot 1214-B,
arguing that it was not included in the original sale to the municipality. He filed a
complaint to recover the property.
The City of Iloilo and the University of the Philippines (to whom the city had donated the
lot) contended that Lot 1214-B was included in the original conveyance, as it was
necessary for the city hall site and was covered by the Arellano Plan.
The trial court ruled in favor of the City of Iloilo, holding that Lot 1214-B was included in
the original sale. The Court of Appeals affirmed this decision, and the case was elevated
to the Supreme Court.
2. Issue (on Contracts: Requisites of Contracts)
Whether Lot 1214-B was included in the object of the contract of sale executed by Juliana
Melliza in favor of the Municipality of Iloilo, considering the requirement that the object of
a contract must be determinate.
3. Court Ruling
The Supreme Court ruled that Lot 1214-B was indeed included in the original conveyance
to the Municipality of Iloilo. The Court found that the intention of the parties was to
provide the municipality with sufficient land for the city hall site, avenues, and parks, as
specified in the Arellano Plan. The Court held that the object of the contract was
determinate, as it could be ascertained by reference to the Arellano Plan, which was
already in existence at the time of the contract.
The Court also applied the principles of laches and estoppel, noting that Melliza and her
successors did not object to the city's possession of Lot 1214-B for over twenty years.
Thus, the complaint was dismissed, and the decision in favor of the City of Iloilo was
affirmed.
4. Doctrine
A contract of sale may validly include as its object property that is not specifically
described by metes and bounds, provided that the property can be determined with
certainty by reference to a plan or other means agreed upon by the parties. The
intention of the parties, as shown by the contract and surrounding circumstances, is
controlling. Laches and estoppel may bar a party from questioning the inclusion of
property in a contract after a long period of acquiescence.

SECTION 3 Cause of Contracts

17. Uy vs. Court of Appeals (G.R. No. 120465, 09 September 1999)
Facts
Petitioners William Uy and Rodel Roxas acted as agents authorized to sell eight parcels of
land owned by their principals. They offered these lands to the National Housing
Authority (NHA) for a housing project. The NHA approved the acquisition and entered into
contracts of sale for the parcels. However, after a geological survey, the NHA cancelled
the sale of three parcels, citing that the land was unsuitable for housing development
due to geological concerns.
Feeling aggrieved, Uy and Roxas filed a complaint for damages against the NHA, claiming
losses from “unearned income” and advances. They filed the suit in their own names, not
in behalf of their principals (the landowners). The Court of Appeals dismissed their
complaint, holding that they were not the real parties-in-interest since they were not
parties to the contract of sale.
Issue (on Contracts: Cause of Contracts)
Whether the cancellation of the contract by the NHA was justified on the
ground of absence or failure of cause, and whether the agents (Uy and Roxas)
had the right to claim damages as real parties-in-interest.
Court Ruling
The Supreme Court upheld the dismissal of the complaint. It ruled that Uy and Roxas, as
mere agents, were not parties to the contract of sale and thus had no right to claim
damages arising from its cancellation. The Court further held that the cancellation of the
contract by the NHA was justified, as the suitability of the land for housing was an
implied condition and the very cause for the NHA’s entering into the contract. Since the
land was found unsuitable, the cause for the contract failed, justifying its cancellation.

Doctrine
 On Real Party-in-Interest: Only parties to a contract, or those who have been
assigned rights under it, may sue for its breach. Agents, unless expressly assigned
the rights, are not real parties-in-interest.
 On Cause of Contracts: The cause is the essential reason which moves the
parties to enter into a contract. If the cause fails (e.g., the land is unsuitable for the
intended purpose), the contract may be cancelled. In certain contracts, the motive
may be regarded as the cause if it predetermines the purpose of the contract.

18. Liguez vs. Court of Appeals (G.R. No. L-11240, 18 December 1957)
Facts
Salvador P. Lopez executed a deed of donation in favor of Conchita Liguez, transferring a
parcel of land to her. The donation was made while Lopez was married, and the property
in question was conjugal. The Court of Appeals found that the donation was made not
solely out of liberality, but also to secure Liguez’s cohabitation with Lopez, which was an
illicit motive. The donation was thus challenged by Lopez’s widow and heirs on the
grounds of being void for having an illegal cause (illicit causa) and for being a donation
of conjugal property without the wife’s consent. Liguez, the donee, argued that the
donation was valid as it was based on the donor’s liberality.
Issue
Whether the donation made by Salvador P. Lopez to Conchita Liguez is void for having an
illicit cause (cause of contracts) and for being a donation of conjugal property without
the wife’s consent.
Court Ruling
The Supreme Court held that the donation was tainted with an illicit cause because it
was made not solely out of liberality but also to secure Liguez’s cohabitation with Lopez,
which is contrary to law and morals. The Court clarified that liberality is the cause in
contracts of pure beneficence, but when the donation is made in exchange for something
(such as cohabitation), the cause is not liberality but the consideration for the act, which,
if illicit, renders the contract void. The Court also discussed the application of the "pari
delicto" rule, which bars parties equally at fault in an illegal contract from seeking relief
from the courts. However, the Court found that Liguez, being a minor at the time and
possibly unaware of the illicit condition, was not equally at fault as Lopez.
Doctrine
 Illicit Cause in Contracts: If a contract (including a donation) is made for an illicit
cause—such as to secure an immoral act—it is void and produces no legal effect.
The liberality of the donor is only the cause in contracts of pure beneficence; if the
contract is made in exchange for an illicit act, the cause is illegal.
 Pari Delicto Rule: Parties to an illegal contract, if equally at fault, will not be aided
by the law and will be left where the law finds them. However, if one party is less
at fault (e.g., due to minority or lack of knowledge), the rule may not apply strictly.
 Interpretation of Motive and Cause: The motive may be regarded as the cause
when it predetermines the purpose of the contract, especially if the contract’s
efficacy is conditioned upon the attainment of such motive.

19. Domingo vs. Court of Appeals (G.R. No. 127540, 17 October 2001)
Facts
Paulina Rigonan owned three parcels of land in Batac and Espiritu, Ilocos Norte, including
a house and warehouse. The private respondents, Felipe and Concepcion Rigonan,
claimed to have purchased these properties from Paulina through a deed of sale dated
January 28, 1965. After Paulina’s death in 1966, the petitioners—Eugenio Domingo,
Crispin Mangabat, and Samuel Capalungan—who were her closest surviving relatives,
took possession of the properties. The respondents filed a complaint for recovery of
ownership (reivindicacion) against the petitioners, alleging that they were the rightful
owners by virtue of the deed of sale and had been in continuous possession, making
improvements on the land.
The petitioners contested the validity of the deed of sale, arguing that it was spurious,
lacked consideration, and that Paulina was already senile and incapable of giving
consent at the time of its execution. They also pointed out irregularities in the
registration of the deed, such as the absence of the original document and the lack of an
affidavit of explanation for the carbon copy filed with the Register of Deeds. The trial
court ruled in favor of the petitioners, finding the sale void. The Court of Appeals
reversed this decision, but the Supreme Court ultimately reinstated the trial court’s
ruling, finding that the due execution of the deed of sale was not sufficiently established,
the consideration was grossly inadequate, and Paulina was incapacitated at the time of
the alleged sale.

Issue (on Contracts: Cause of Contracts)

Whether the deed of sale executed by Paulina Rigonan in favor of the private
respondents was valid, considering the alleged lack of consideration and the incapacity
of the vendor at the time of execution.

Court Ruling
The Supreme Court ruled in favor of the petitioners. It found that the due execution of
the deed of sale was not established, as only a carbon copy (not the original) was filed
with the Register of Deeds, and this copy contained insertions and erasures without the
required affidavit of explanation. The Court also noted the gross inadequacy of the
consideration (only P850 for three parcels of land, a house, and a warehouse), which
indicated that the sale was fictitious. Furthermore, the Court gave weight to the
unrebutted testimony that Paulina was already senile and physically and mentally
incapacitated at the time of the alleged sale, making her incapable of giving valid
consent. Thus, the sale was declared null and void, and the decision of the Regional Trial
Court was reinstated.

Doctrine
A contract of sale is void if there is no valid cause or consideration, or if the vendor is
incapacitated to give consent at the time of execution. Gross inadequacy of
consideration and evidence of the vendor’s incapacity may be grounds to declare a sale
void.

20. Askay vs. Cosalan (G.R. No. 21943, 15 September 1924)

Facts
Askay, an illiterate Igorot aged between 70 and 80, owned a mining property known
as the Pet Kel Mineral Claim in Tublay, Benguet. On November 23, 1914, he sold this
claim to his nephew by marriage, Fernando A. Cosalan, who was also the municipal
president of Tublay. The consideration for the sale, according to the deed, was "Tl and
other valuable consideration," but oral testimony revealed it was actually P107 in cash, a
bill fold, one sheet, one cow, and two carabaos. Nine years later, in 1923, Askay filed a
case to annul the sale, alleging that it was procured through fraud and deceit, and
sought to recover the property and claim damages. The deed of sale was executed
before witnesses and a notary public, and Askay’s thumb mark was affixed after the
document was interpreted to him. Several witnesses, including the notary and attesting
witnesses, confirmed the due execution of the deed, and fingerprint experts verified the
thumb mark as Askay’s. Additionally, four witnesses testified that Askay had admitted to
selling the property to Cosalan at various times. The trial court dismissed Askay’s
complaint for lack of proof of fraud.
Issue (on Contracts – Cause of Contracts)
Whether the sale of the mining claim by Askay to Cosalan should be annulled on the
ground of fraud, particularly considering the alleged inadequacy of consideration and the
circumstances of the parties, and whether such inadequacy affects the cause of the
contract.
Court Ruling
The Supreme Court ruled that the sale could not be annulled. While the Court
acknowledged Askay’s age and ignorance, and noted the inadequacy of the
consideration, it held that mere inadequacy of price, when both parties are in a position
to form an independent judgment, is not sufficient ground for the cancellation of a
contract. Gross inadequacy may suggest fraud and can be evidence thereof, especially
when combined with other circumstances such as ignorance or one party’s advantage
over the other. However, in this case, the evidence did not establish fraud. The deed was
properly executed, interpreted to Askay, and his thumb mark was verified. Multiple
witnesses confirmed Askay’s acknowledgment of the sale. Thus, the complaint was
dismissed and the sale upheld.
Doctrine
Mere inadequacy of price is not, by itself, sufficient ground for the annulment of a
contract of sale, especially when both parties are capable of independent judgment.
Gross inadequacy may suggest fraud, but fraud must be both alleged and proved. The
cause of a contract, particularly in onerous contracts, is the prestation or promise of a
thing or service by the other party, and inadequacy of consideration does not necessarily
vitiate the cause unless it is shown to be a result of fraud or other vitiating
circumstances.

CHAPTER 3 Form of Contracts

21. Orduña vs. Fuentebella (G.R. No. 176841, 29 June 2010)
Facts
Orduña and Fuentebella entered into a transaction involving the sale of real property. The
agreement was not embodied in a public document, and the parties only executed a
private document evidencing the sale. Later, a dispute arose regarding the enforceability
and validity of the contract, particularly as to whether the lack of a public instrument
affected the contract’s validity or enforceability.
Issue

Whether the absence of a public document (i.e., the contract not being in a public
instrument) affects the validity or enforceability of the contract of sale of real property
between Orduña and Fuentebella.
Ruling

The Supreme Court held that the lack of a public document does not affect the validity of
the contract of sale of real property if all the essential requisites of a contract are
present. The contract is valid and binding between the parties. However, the absence of
a public instrument affects only the contract’s effectivity as to third persons and its
admissibility as evidence in court, not its validity.

Doctrine
 The form required by law for contracts involving real rights over immovable
property (i.e., public instrument) is for convenience and greater efficacy, not for
validity.
 A contract of sale of real property is valid and binding between the parties even if
not embodied in a public instrument, provided all essential requisites are present.
  The requirement of a public document is necessary for registration and to bind
third parties, but not for the contract’s validity.

22. Agasen vs. Court of Appeals (G.R. No. 115508, 15 February 2000)
Facts
Petra Bilog filed a complaint for Recovery of Possession and Ownership of an 8,474
square meter parcel of land registered in her name under Transfer Certificate of Title No.
T-16109 in La Union. She alleged that in 1964 or 1965, Alejandro Agasen and Fortunata
Calonge-Agasen took possession and assumed ownership of the property, appropriating
its fruits. Despite demands to vacate, the Agasens refused and even filed a case for
Annulment of TCT and/or Reconveyance, which was dismissed. Bilog sought to be
declared the true owner and to recover possession, as well as damages and attorney’s
fees.
The Agasens, in their Answer, claimed the land was originally co-owned by the Bilog
siblings, including Petra. They asserted ownership over the subject land by virtue of: (1)
a sale of 1,785 sq.m. by Leonora Calonge (Fortunata’s sister), and (2) a sale of 6,717.5
sq.m. by Petra Bilog herself, evidenced by a notarized Partition with Sale dated June 24,
1968. They had been in possession since these transactions and alleged that Bilog
fraudulently caused the title to be issued in her name. They prayed for annulment of
Bilog’s title and damages.
The Regional Trial Court ruled in favor of the Agasens, annulling Bilog’s title and
declaring the Agasens as lawful owners. The Court of Appeals reversed, declaring Bilog
the true owner. The Supreme Court, on review, reinstated the RTC’s decision, upholding
the Agasens’ ownership and annulling Bilog’s title.
Issue (on Contracts – Forms of Contracts)
Whether the failure to embody the sale of land in a public instrument and to register the
same with the Register of Deeds affects the validity and enforceability of the contract of
sale between the parties.
Court Ruling
The Supreme Court held that the contracts of sale between the parties were valid and
enforceable. The Court emphasized that contracts are obligatory in whatever form they
may have been entered into, provided all essential requisites are present. The
requirement under Article 1358 of the Civil Code for a public instrument is only for
convenience and affects only third parties, not the validity or enforceability of the
contract as between the parties. The Court also ruled that the failure to register the sale
does not affect its validity as between the contracting parties; registration is only
necessary to bind third parties. The notarized documents presented by the Agasens were
found to be valid and genuine, and the presumption of their authenticity was not
overcome by Bilog.
Doctrine
A contract of sale of land is valid and enforceable between the parties even if not
embodied in a public instrument or registered with the Register of Deeds. The
requirement of a public instrument and registration is for the convenience of parties and
to bind third parties, but non-compliance does not affect the validity of the contract as
between the parties.

23. Londres vs. Court of Appeals (G.R. No. 136427, 17 December 2002)
Facts
Paulina Arcenas originally owned two parcels of land, Lots 1320 and 1333, in Roxas City,
Capiz. Upon her death, ownership passed to her daughter, Filomena Vidal. Filomena’s
children (petitioners) later claimed ownership of these lots, asserting that they were
never sold. However, private respondents Consolacion Alivio Alovera and Elena Alovera
Santos claimed ownership based on an Absolute Sale executed by Filomena on April 24,
1959, in favor of Consolacion and her husband, Julian Alovera.
Petitioners filed a complaint in 1989 to nullify the Absolute Sale, alleging that the deed
was tampered with—specifically, that the cadastral lot number of the second lot was
altered from Lot 2034 to Lot 1333. They argued that Lot 2034, also owned by their
grandmother, was not the subject of the sale. The trial court found that the correction in
the deed (from Lot 2034 to Lot 1333) was made by the parties themselves to reflect the
true object of the sale. The private respondents and their predecessors had been in
continuous possession of the lots for nearly 30 years, paying real estate taxes and
holding tax declarations in their names. The trial court and the Court of Appeals both
ruled in favor of the private respondents, declaring them the legal owners and ordering
the government to pay just compensation for portions of the land taken for public use.
The petitioners’ complaint was dismissed for lack of merit, and their appeal was denied.
Issue (on Contracts – Forms of Contracts)
Whether the Absolute Sale executed by Filomena Vidal in favor of the private
respondents is valid and effective, despite the alleged alteration in the lot number, and
whether the form of the contract affects its validity.
Court Ruling
The Supreme Court upheld the validity of the Absolute Sale. It found that the contract
was clear as to the first lot (Lot 1320), and that the correction of the second lot’s number
(from Lot 2034 to Lot 1333) was made by the parties to reflect their true intention. The
Court emphasized that contemporaneous and subsequent acts of the parties, such as
continuous possession and payment of taxes, confirmed that Lots 1320 and 1333 were
the true objects of the sale. The Court ruled that the form of the contract and the
correction made did not affect its validity, as the intention of the parties was clear and
supported by evidence. The petitioners failed to prove by preponderance of evidence
that the alteration was unauthorized or that the contract was void.
Doctrine
In the interpretation of contracts, the intention of the parties prevails over the literal
meaning of the terms. When the terms of a contract are clear and leave no doubt as to
the intention of the parties, the literal meaning of its stipulations shall control. However,
if the words appear contrary to the evident intention of the parties, the latter shall
prevail. Contemporaneous and subsequent acts of the parties may be considered to
determine their true intention.

24. Balatbat vs. Court of Appeals (G.R. No. 109410, 28 August 1996)
(Public Document is required only for the convenience and protection of
parties and to make the contract as against third persons.)
Facts
Aurelio Roque initially owned the property. He sold 6/10 share to the Spouses Jose
Repuyan and Aurora Repuyanin 1980. The Repuyans annotated an adverse claim. Roque
later sold the property to Balatbat in 1982. Balatbat filed a notice of lis pendens later.
Balatbat filed a complaint for delivery of the owner's duplicate copy of T.C.T. The
Regional Trial Court dismissed the complaint. The Court of Appeals affirmed the
dismissal. This case reached the Supreme Court via a petition for review.
Issue
1. Was the sale to the private respondents merely executory and not a consummated
transaction?
2. Was there a double sale as contemplated under Art. 1544 of the Civil Code?
3. Was the petitioner a buyer in good faith and for value?
4. Whether or not the Court of Appeals erred in giving weight and consideration to
the evidence of the private respondents which were not offered?
Court Ruling
Holding: The petition for review is dismissed for lack of merit. The sale to the Repuyans
was valid and enforceable, and they had a superior right to the property.
 The sale to the Repuyans was consummated upon the execution of the Deed of
Absolute Sale and delivery of the owner's certificate of title, even if the full price
was not yet paid.
 This was a case of double sale under Article 1544 of the Civil Code. The Repuyans
had a better right because they first recorded their adverse claim in the Registry of
Property.
 Balatbat was not a buyer in good faith because she should have known about the
prior sale to the Repuyans due to the pending case and the annotation of the
adverse claim.
Doctrine
 This decision reinforces the importance of registering property transactions to
protect one's rights against subsequent buyers.
 It clarifies the application of Article 1544 of the Civil Code regarding double sales of
immovable property, emphasizing the significance of good faith and prior
registration.
 It serves as a reminder to prospective buyers to conduct thorough due diligence
and investigate the title of the property before purchasing it.

CHAPTER 4 Reformation of Instruments

25. Sarming vs. Dy (G.R. No. 133643, 06 June 2002)
Facts
The case involves a dispute over the reformation of a deed of sale. The petitioners are
the successors-in-interest of Silveria Flores, while the respondents are the successors-in-
interest of Alejandra Delfino, the buyer of a portion of land. The controversy arose when
a deed of sale, executed in 1956, mistakenly referred to Lot 5734 (covered by OCT No.
4918-A) instead of the intended Lot 4163 (covered by OCT No. 3129-A) in Dumaguete
City.
After the death of Valentina Unto Flores, her children (Jose, Venancio, and Silveria) took
possession of Lot 5734, each occupying a third. Lot 4163, solely registered under
Silveria’s name, was subdivided between Silveria and Jose. In January 1956, the
grandchildren of Jose Flores, who owned half of Lot 4163, sold their share to Alejandra
Delfino after offering it to Silveria, who declined. Silveria did not object to the sale and
even sold her coconut trees on the lot to Delfino.
During the preparation of the deed, Silveria’s daughter delivered the wrong title (OCT No.
4918-A for Lot 5734) instead of the correct one for Lot 4163. The parties knew the
physical location of the lot but not the correct title number. Delfino took possession of
the intended portion of Lot 4163, as shown to her by the vendors, and had been
occupying it since 1956.
A dispute later arose regarding the correct lot sold, leading to an action for reformation
of the instrument to reflect the true intention of the parties. (IN SHORT: The buyer
was shown the actual land and took possession of it. However, when the deed
of sale was prepared, the wrong title number was used — it mentioned Lot
5734 instead of Lot 4163. Despite the wrong title, everyone involved
understood that the land being sold was a portion of Lot 4163, and Delfino had
been occupying it since then.)

Issue
Whether reformation of the instrument is proper when the deed of sale does not express
the true intention of the parties due to a mistake in the designation of the lot number.
Court Ruling
The Supreme Court ruled that reformation of the instrument is proper. The Court found
that there was a meeting of the minds between the parties to sell a portion of Lot 4163,
but the deed mistakenly referred to Lot 5734 due to an error in the title number. The
Court emphasized that the object of the sale, as understood by the parties, was the
physical portion of Lot 4163, not Lot 5734. The mistake in the document did not vitiate
consent or affect the validity of the contract. Thus, the remedy of reformation was
appropriate to reflect the true intention of the parties.
Doctrine
For reformation of an instrument to prosper, the following requisites must concur:
1. There must have been a meeting of the minds of the parties to the contract;
2. The instrument does not express the true intention of the parties; and
3. The failure of the instrument to express the true intention is due to mistake, fraud,
inequitable conduct, or accident.
If these elements are present, reformation is the proper remedy to express the parties’
true agreement in the instrument. If there was no meeting of the minds, the proper
remedy is annulment, not reformation. This doctrine is anchored on Article 1359 of the
Civil Code and was reiterated by the Supreme Court in this case.

26. Cebu Contractors vs. Court of Appeals (G.R. No. 107199, 22 July 2003)
Facts
Cebu Contractors Consortium Co. (CCCC) entered into a lease agreement with Makati
Leasing & Finance Corporation (MLFC) for various equipment. To secure the lease rentals,
CCCC executed a chattel mortgage in favor of MLFC over other equipment it owned.
CCCC defaulted on the lease payments, prompting MLFC to demand payment and, upon
non-compliance, to file a complaint for collection and replevin.
CCCC contended that the transaction was not a true lease but an equitable mortgage,
arguing that the arrangement was essentially a loan secured by a chattel mortgage,
disguised as a sale and lease-back scheme. CCCC also claimed that it had already
overpaid MLFC, especially since it had assigned its collectibles from the Ministry of Public
Highways to MLFC, which, according to CCCC, should have extinguished its obligation.
Despite these claims, the trial court ruled in favor of MLFC, finding CCCC still liable for
the unpaid rentals and other charges. The Court of Appeals affirmed the trial court’s
decision, with some modifications on attorney’s fees and litigation expenses.
Issue (on Contracts: Reformation of Instruments)
Whether the contract between CCCC and MLFC, which was denominated as a lease
agreement, should be reformed to reflect the true intention of the parties, i.e., that it was
actually a loan secured by a chattel mortgage (equitable mortgage), and whether the
deed of assignment executed by CCCC extinguished its obligation to MLFC.

Court Ruling
The Supreme Court held that the transaction between CCCC and MLFC was a genuine
financial lease, not an equitable mortgage. The Court recognized that financial leasing is
a legitimate contract in commercial practice. The Court further ruled that the execution
of the deed of assignment by CCCC in favor of MLFC did not extinguish CCCC’s obligation
under the lease agreement. The subsequent acts of CCCC, such as making partial
payments and executing a chattel mortgage after the deed of assignment, indicated that
the obligation subsisted. The Court also found that CCCC’s computation of alleged
overpayment was incomplete and unreliable, and thus, CCCC remained indebted to
MLFC.
Doctrine
Reformation of Instruments:

When the true intention of the parties to a contract is not expressed in the instrument
purporting to embody their agreement due to mistake, fraud, inequitable conduct, or
accident, the remedy is to ask for reformation of the instrument so that their true
agreement may be expressed therein. However, if the terms of the contract are clear and
leave no doubt as to the intention of the parties, the literal meaning of the stipulations
shall control. The parties’ contemporaneous and subsequent acts are considered in
determining their true intention. The execution of a deed of assignment does not
necessarily extinguish the underlying obligation if subsequent acts show continued
recognition of the debt. Findings of fact by the appellate court are generally binding
unless shown to be arbitrary or unfounded.
Excerpts:
The transaction was a financial lease, not an equitable mortgage:
"It is clear that the transaction between CCCC and MLFC is what is popularly known as a
'financial leasing' or 'financing lease.' Transactions of this sort are not new to the
commercial world and have been recognized as genuine or legitimate contracts,
accorded with statutory and administrative recognition."

On reformation of instruments:
"When the true intention of the parties to a contract is not expressed in the instrument
purporting to embody their agreement by reason of mistake, fraud, inequitable conduct
or accident, the remedy of the aggrieved party is to ask for reformation of the instrument
under Articles 1359 and 1362 of the Civil Code, to the end that their true agreement may
be expressed therein."

On the effect of the deed of assignment:

"The execution of the deed of assignment in favor of MLFC did not completely free CCCC
from its obligations to MLFC under the lease agreement... Since subsequent payments
were made by CCCC itself, it follows that the execution of the deed of assignment did not
extinguish its obligation."