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KHE HONG CHENG V CA, 355 SCRA 701 (2001) ISSUE: whether or not the action to rescind the

r not the action to rescind the donations has already prescribed.


FACTS: Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Under accion pauliana to rescind or annul the donations made by petitioner Khe
Shipping Lines. It appears that on or about October 4, 1985, the Philippine Hong Cheng allegedly in fraud of creditors. When did the four (4) year prescriptive
Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, period as provided for in Article 1389 of the Civil Code for respondent Philam to file
owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate, its action for rescission of the subject deeds of donation commence to run?
for delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was
covered by a marine insurance policy issued by American Home Insurance HELD: Petition denied. The action to claim rescission must be commenced within
Company (respondent Philam's assured). M/V PRINCE ERIC, however, sank four years. Since this provision of law is silent as to when the prescriptive period
somewhere between Negros Island and Northeastern Mindanao, resulting in the would commence, the general rule, i.e, from the moment the cause of action
total loss of the shipment. Because of the loss, the insurer, American Home, paid accrues. It is thus apparent that an action to rescind or an accion pauliana must be
the amount of P354,000.00 (the value of the copra) to the consignee. of last resort, availed of only after all other legal remedies have been exhausted
and have been proven futile. For an accion pauliana to accrue, the following
Having been subrogated into the rights of the consignee, American Home requisites must concur:
instituted Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati, Branch
147 to recover the money paid to the consignee, based on breach of contract of 1) That the plaintiff asking for rescission has a credit prior to the alienation,
carriage. While the case was still pending, or on December 20, 1989, petitioner although demandable later;
Khe Hong Cheng executed deeds of donations of parcels of land in favor of his 2) That the debtor has made a subsequent contract conveying a
children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with patrimonial benefit to a third person;
an area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. 3) That the creditor has no other legal remedy to satisfy his claim, but
T-3816 was donated to Ray Steven. Petitioner Khe Hong Cheng likewise donated would benefit by rescission of the conveyance to the third person;
in favor of Sandra Joy two (2) parcels of land located in Butuan City, covered by 4) That the act being impugned is fraudulent;
TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816 was cancelled 5) That the third person who received the property conveyed, if by onerous
and in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven and TCT title, has been an accomplice in the fraud.
No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was issued in
the name of Sandra Joy. After the said decision became final and executory, a writ An accion pauliana accrues only when the creditor discovers that he has no other
of execution was forthwith issued on September 14, 1995. Said writ of execution, legal remedy for the satisfaction of his claim against the debtor other than an
however, was not served. An alias writ of execution was, thereafter, applied for accion pauliana. The accion pauliana is an action of a last resort. For as long as
and granted in October 1996. Despite earnest efforts, the sheriff found no property the creditor still has a remedy at law for the enforcement of his claim against the
under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to debtor, the creditor will not have any cause of action against the creditor for
levy or garnish for the satisfaction of the trial court's decision. When the sheriff, rescission of the contracts entered into by and between the debtor and another
accompanied by counsel of respondent Philam, went to Butuan City on January person or persons. Indeed, an accion pauliana presupposes a judgment and the
17, 1997, to enforce the alias writ of execution, they discovered that petitioner Khe issuance by the trial court of a writ of execution for the satisfaction of the judgment
Hong Cheng no longer had any property and that he had conveyed the subject and the failure of the Sheriff to enforce and satisfy the judgment of the court. It
properties to his children. presupposes that the creditor has exhausted the property of the debtor. The date
of the decision of the trial court against the debtor is immaterial. What is important
On February 25, 1997, respondent Philam filed a complaint with the Regional Trial is that the credit of the plaintiff antedates that of the fraudulent alienation by the
Court of Makati City, Branch 147, for the rescission of the deeds of donation debtor of his property. After all, the decision of the trial court against the debtor will
executed by petitioner Khe Hong Cheng in favor of his children and for the retroact to the time when the debtor became indebted to the creditor.
nullification of their titles (Civil Case No. 97-415). Respondent Philam alleged, inter
alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of his Respondent Philam only learned about the unlawful conveyances made by
creditors, including respondent Philam. petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the
sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng. There
RTC: Denied petitioners motion to dismiss as Philam lifes claim has not they found that he no longer had any properties in his name. It was only then that
prescribed respondent Philam's action for rescission of the deeds of donation accrued
CA: Affirms RTC infavor of Philam Life because then it could be said that respondent Philam had exhausted all legal
means to satisfy the trial court's judgment in its favor. Since respondent Philam received the property conveyed, if it is by onerous title, has been an accomplice in
filed its complaint for accion pauliana against petitioners on February 25, 1997, the fraud.
barely a month from its discovery that petitioner Khe Hong Cheng had no other
property to satisfy the judgment award against him, its action for rescission of the In the instant case, the alleged debt of LIM in favor of petitioner was incurred in
subject deeds clearly had not yet prescribed. August 1990, while the deed of donation was purportedly executed on 10 August
1989. We are not convinced with the allegation of the petitioner that the questioned
ACCION PAULIANA that the creditor has no other legal remedy to satisfy his deed was antedated to make it appear that it was made prior to petitioner's credit.
claim against his debtor the fact that the questioned Deed was registered only on 2 July 1991 is not enough
to overcome the presumption as to the truthfulness of the statement of the date in
SIGUAN VS. LIM G.R NO. 134685 the questioned deed, which is 10 August 1989. Petitioner's claim against LIM was
FACTS: Respondent Rosa was charged by petitioner with two counts of violation constituted only in August 1990, or a year after the questioned alienation. Thus,
of Batas Pambansa Blg. 22 for issuing checks, in the total amount of P541,668, the first two requisites for the rescission of contracts are absent. Even assuming
dishonored by the bank for the reason of "account closed." The conviction was arguendo that petitioner became a creditor of LIM prior to the celebration of the
affirmed by the Court of Appeals and is now pending review with the SC. contract of donation, still her action for rescission would not fare well because the
Petitioner, thereafter filed action pauliana against respondent Rosa to rescind, the third requisite was not met. Under Article 1381 of the Civil Code, contracts entered
notarized deed of donation over 4 parcels of land Rosa executed in favor of her into in fraud of creditors may be rescinded only when the creditors cannot in any
three children, the other respondents. Petitioner claimed that there was fraudulent manner collect the claims due them. Also, Article 1383 of the same Code provides
transfer leaving no sufficient properties to pay her obligations with her and that the that the action for rescission is but a subsidiary remedy which cannot be instituted
deed of donation was antedated. During the hearing of the case, petitioner except when the party suffering damage has no other legal means to obtain
presented evidence on Rosa's civil liability to one Victoria Suarez in the amount of reparation for the same. The term "subsidiary remedy" has been defined as "the
P169,000. For her defense, Rosa denied liability and the alleged antedating of the exhaustion of all remedies by the prejudiced creditor to collect claims due him
deed. The trial court rendered judgment in favor of petitioner, ordered the before rescission is resorted to." 19 It is, therefore, essential that the party asking
rescission of the contract and declared the titles in the name of Rosa's children null for rescission prove that he has exhausted all other legal means to obtain
and void. On appeal, the Court of Appeals reversed the trial court and dismissed satisfaction of his claim. 20 Petitioner neither alleged nor proved that she did so.
the action pauliana. It ruled that the deed of donation was not fraudulent transfer On this score, her action for the rescission of the questioned deed is not
as respondent debtor Rosa still owns 4 parcels of land sufficient to cover her debts maintainable even if the fraud charged actually did exist." The fourth requisite for
to petitioner, that the notarized deed of donation, a public document in the absence an accion pauliana to prosper is not present either. As earlier discussed,
of convincing evidence that the notary and the parties antedated the instrument, is petitioner's alleged credit existed only a year after the deed of donation was
evidence of the fact that gave rise to its execution and of the date thereof. executed. She cannot, therefore, be said to have been prejudiced or defrauded by
Petitioner's motion for reconsideration having been denied; hence, the petition. such alienation. Respondent Rosa has 4 other real properties, hence, the
presumption of fraud will not come into play. Lastly, it should be noted that the
ISSUE: Whether or not the deed of donation was entered into fraud of the creditors complainant in that case, Victoria Suarez, albeit a creditor prior to the questioned
of respondent Rosa Lim? alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code
HELD: No. Petition is hereby DISMISSED and the challenged decision of the provides that rescission shall only be to the extent necessary to cover the
Court of Appeals is AFFIRMED in toto damages caused. Under this Article, only the creditor who brought the action for
rescission can benefit from the rescission; those who are strangers to the action
RATIO: Article 1381 of the Civil Code enumerates the contracts which are cannot benefit from its effects. 31 And the revocation is only to the extent of the
rescissible, and among them are "those contracts undertaken in fraud of creditors plaintiff creditor's unsatisfied credit; as to the excess, the alienation is maintained.
when the latter cannot in any other manner collect the claims due them." The 32 Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the
action to rescind contracts in fraud of creditors is known as accion pauliana. For subject deed of donation.
this action to prosper, the following requisites must be present: (1) the plaintiff
asking for rescission has a credit prior to the alienation, although demandable ANCHOR SAVINGS BNK VS. FURIGAY G.R NO. 191178
later; (2) the debtor has made a subsequent contract conveying a patrimonial FACTS: On April 21, 1999, ASB filed a verified complaint for sum of money and
benefit to a third person; (3) the creditor has no other legal remedy to satisfy his damages with application for replevin against Ciudad Transport Services, Inc.
claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third person who (CTS), its president, respondent Henry H. Furigay; his wife, respondent Gelinda C.
Furigay; and a "John Doe." On November 7, 2003, the RTC rendered its Decision Consequently, following the subsidiary nature of the remedy of rescission, a
5 in favor of ASB. While Civil Case No. 99-865 was pending, respondent spouses creditor would have a cause of action to bring an action for rescission, if it is
donated their registered properties in Alaminos, Pangasinan, to their minor alleged that the following successive measures have already been taken: (1)
children, respondents Hegem G. Furigay and Herriette C. Furigay. As a result, exhaust the properties of the debtor through levying by attachment and execution
TCTs were issued in the names of Hegem and Herriette Furigay. Claiming that the upon all the property of the debtor, except such as are exempt by law from
donation of these properties was made in fraud of creditors, ASB filed a Complaint execution; (2) exercise all the rights and actions of the debtor, save those personal
for Rescission of Deed of Donation, Title and Damages 11 against the respondent to him (accion subrogatoria); and (3) seek rescission of the contracts executed by
spouses and their children. Instead of filing an answer, respondents sought the the debtor in fraud of their rights (accion pauliana).
dismissal of the complaint, principally arguing that the RTC failed to acquire
jurisdiction over their persons as well as over the subject matter in view of the With respect to an accion pauliana, it is required that the ultimate facts constituting
failure of the ASB to serve the summons properly and to pay the necessary legal the following requisites must all be alleged in the complaint:
fees. RTC issued an Order denying the motion to dismiss. Respondents sought 1) That the plaintiff asking for rescission, has credit prior to the alienation,
reconsideration of the Order adding that the ASB's action for rescission had although demandable later;
already prescribed. Upon filing of ASB's opposition to the motion for 2) That the debtor has made a subsequent contract conveying a
reconsideration, the RTC reconsidered its earlier pronouncement and dismissed patrimonial benefit to a third person;
the complaint for failure of ASB to pay the correct docket fees and for prescription. 3) That the creditor has no other legal remedy to satisfy his claim, but
On the issue of prescription, the RTC ruled that the action for rescission had would benefit by rescission of the conveyance to the third person;
already prescribed. It stated that an action for rescission grounded on fraud should 4) That act being impugned is fraudulent; and
be filed within four (4) years from the discovery of fraud. ASB filed the action for 5) That the third person who received the property conveyed, if by onerous
rescission only on October 14, 2005 or after four (4) years from the time the Deed title, has been an accomplice in the fraud.
of Donation was registered in the Register of Deeds of Alaminos, Pangasinan, on
April 4, 2001. The four-year prescriptive period should be reckoned from the date A cursory reading of the allegations of ASB's complaint would show that it
of registration of the deed of donation and not from the date of the actual discovery failed to allege the ultimate facts constituting its cause of action and the
of the registration of the deeds of donation because registration is considered prerequisites that must be complied before the same may be instituted. ASB,
notice to the whole world. On the issue of prescription, however, the CA saw things without availing of the first and second remedies, that is, exhausting the
differently. Considering the subsidiary nature of an action for rescission, the CA properties of CTS, Henry H. Furigay and Genilda C. Furigay or their
found that the action of ASB had not yet prescribed, but was premature. The CA transmissible rights and actions, simply undertook the third measure and
noted that ASB failed to allege in its complaint that it had resorted to all legal filed an action for annulment of the donation. This cannot be done.
remedies to obtain satisfaction of its claim.
On the issue of presciption, the four-year prescriptive period commences to
ISSUE: Whether the CA was correct in dismissing ASB's complaint on the ground run neither from the date of the registration of the deed sought to be
that the action against respondents was premature; rescinded nor from the date the trial court rendered its decision but from the
day it has become clear that there are no other legal remedies by which the
HELD: YES, In relation to an action for rescission, it should be noted that the creditor can satisfy his claims.
remedy of rescission is subsidiary in nature; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the III. KINDS OF OBLIGATIONS
same. Article 1177 of the New Civil Code provides: CONDITIONAL OBLIGATIONS

The creditors, after having pursued the property in possession of the GAITE VS. FONACIER G.R NO. 11827
debtor to satisfy their claims, may exercise all the rights and bring all the FACTS: Defendant-appellant Isabelo Fonacier was the owner and/or holder, either
actions of the latter for the same purpose, save those which are inherent in by himself or in a representative capacity, of 11 iron lode mineral claims, known as
his person; they may also impugn the actions which the debtor may have the Dawahan Group. By a "Deed of Assignment" dated September 29, 1952,
done to defraud them. Fonacier constituted and appointed plaintiff-appellee Fernando A. Gaite as his true
and lawful attorney-in-fact to enter into a contract with any individual or juridical
person for the exploration and development of the mining claims. Gaite in turn
executed a general assignment conveying the development and exploitation of derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.;
said mining claims unto the Larap Iron Mines, a single proprietorship owned solely that up to the time of the filing of the complaint, no sale of the iron ore had been
by and belonging to him, on the same royalty basis. Thereafter Gaite embarked made, hence the condition had not yet been fulfilled; and that consequently, the
upon the development and exploitation of the mining claims in question, opening obligation was not yet due and demandable. Defendant Fonacier also contended
and paving roads within and outside their boundaries, making other improvements that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite
and installing facilities therein for use in the development of the mines, and in time was actually delivered, and counterclaimed for more than P200,000 damages.
extracted therefrom what he claimed and estimated to be approximately 24,000
metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to Trial Court: the lower court held that the obligation of defendants to pay plaintiff the
revoke the authority granted by him to Gaite to exploit and develop the mining P65,000 balance of the price of the approximately 24,000 tons of iron ore was one
claims in question, and Gaite assented thereto subject to certain conditions. As a with a term: i.e., that it would be paid upon the sale of sufficient iron ore by
result, a document entitled "Revocation of Power of Attorney and Contract" was defendants, such sale to be effected within one year or before December 8, 1955;
executed on December 8, 1954, wherein Gaite transferred to Fonacier, for the that the giving of security was a condition precedent to Gaite's giving of credit to
consideration of P20,000, plus 10% of the royalties that Fonacier would receive defendants; and that as the latter failed to put up a good and sufficient security in
from the mining claims, all his rights and interests on all the roads, improvements, lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8,
and facilities in or outside said claims, the right to use the business name "Larap 1955, the obligation became due and
Iron Mines" and its goodwill, and all the records and documents relative to the demandable under Article 1198 of the New Civil Code.
mines. In the same document, Gaite transferred to Fonacier all his rights and
interests over the "24,000 tons of iron ore, more or less" that the former had ISSUE: Whether the obligation of appellant Fonacier to pay appellee Gaite the
already extracted from the mineral claims, in consideration of the sum of P75,000, P65,000 (balance of the price of the iron ore in question) is one with a period or
P10,000, of which was paid upon the signing of the agreement, and The balance term and not one with a suspensive condition, and that the term expired on
of SIXTY-FIVE "THOUSAND PESOS (P65,000) will be paid from and out of the December 8, 1955
first letter of credit covering the first shipment of iron ores and or the first
amount derived from the local sale of iron ore made by the Larap Mines & HELD: Yes. We find the court below to be legally correct in holding that the
Smelting Co., Inc., its assigns, administrators, or successors in interests. To shipment or local sale of the iron ore is not a condition precedent (or suspensive)
secure the payment of the said balance of P65,000.00, Fonacier executed in to the payment of the balance of P65,000, but was only a suspensive period or
favor of Gaite a surety bond with the Far Eastern Surety and Insurance Co. term. What characterizes a conditional obligation is the fact that its efficacy or
but it provided that the liability of the surety company would attach only obligatory force (as distinguished from its demandability) is subordinated to the
when there had been an actual sale of iron ore by the Larap Mines & happening of a future and uncertain event; so that if the suspensive condition does
Smelting Co. for an amount of not less than P65,000, and that, furthermore, not take place, the parties would stand as if the conditional obligation had never
the liability of said surety company would automatically expire on December existed. We agree with the court below that the appellants have forfeited the right
8, 1955. Both bonds were attached to the "Revocation of Power of Attorney to compel Gaite to wait for the sale of the ore before receiving payment of the
and Contract", Exhibit "A" and made integral parts thereof. Thereafter, when balance of P65,000, because of their failure to renew the bond of the Far Eastern
the bond expired with respect to the Far Eastern Surety and Insurance Company, Surety Company or else replace it with an equivalent guarantee. The expiration of
no sale of the approximately 24,000 tons of iron ore had been made by the Larap the bonding company's undertaking on December 8, 1955 substantially reduced
Mines & Smelting Co., Inc., nor had the 65,000 balance of the price of said ore the security of the vendor's rights as creditor for the unpaid P65,000, a security
been paid to Gaite by Fonacier and his sureties. Whereupon, Gaite demanded that Gaite considered essential and upon which he had insisted when he executed
from Fonacier and his sureties payment of said amount, on the theory that they the deed of sale of the ore to Fonacier. The case squarely comes under
had lost every right to make use of the period given them when their bond, paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:
automatically expired . And when Fonacier and his sureties failed to pay as
demanded by Gaite, the latter filed the present complaint against them in the Court (1) . . .
of First Instance of Manila for the payment of the P65,000 balance of the price of (2) When he does not furnish to the creditor the guaranties or securities
the ore, consequential damages, and attorney's fees. All the defendants except which he has promised.
Francisco Dante set up the uniform defense that the obligation sued upon by Gaite (3) When by his own acts he has impaired said guaranties or securities
was subject to a condition that the amount of P65,000 would be payable out of the after their establishment, and when through fortuitous event they
first letter of credit covering the first shipment of iron ore and/or the first amount disappear, unless he immediately gives new ones equally satisfactory."
terms and conditions as the original Contract of Lease/Purchase and this condition
Appellants' failure to renew or extend the surety company's bond upon its precedent has not yet been fulfilled by the respondents.
expiration plainly impaired the securities given to the creditor (appellee Gaite),
unless immediately renewed or replaced. There is no merit in appellants' argument CA reversed the decision of RTC and ruled that the transfer of title in the
that Gaite's acceptance of the surety company's bond with full knowledge that on appellee's name cannot be interpreted as a condition precedent to the payment of
its face it would automatically expire within one year was a waiver of its renewal the agreed purchase price because such interpretation not only run counter to the
after the expiration date. No such waiver could have been intended, for Gaite explicit provisions of the contract but also was contrary to the normal course of
stood to lose and had nothing to gain thereby; and if there was any, it could be things anent the sale of real property. Hence, the petition.
rationally explained only if the appellants had agreed to sell the ore and pay Gaite
before the surety company's bond expired on December 8, 1955. But in the latter ISSUE: WON the plaintiff rescind or terminate the Contract of Lease after the one-
case the defendants- appellants' obligation to pay became absolute after one year year period? NO.
from the transfer of the ore to Fonacier by virtue of the deed.
HELD: There can be no rescission (or more properly, resolution) of an obligation
GONZALES V HEIRS OF THOMAS CRUZ, 314 SCRA 585 (1999) as yet non-existent, because the suspensive condition has not happened.
PETITIONER: Felix Gonzales - tenant
RESPONDENT: Heirs of Thomas Cruz lessor RATIO: The Court found the petition meritorious. The Court ruled that the
respondents cannot rescind the contract because they have not caused the
FACTS: On December 1, 1983, Paula Ano Cruz, together with the respondents, transfer of the TCT to their names, which is a condition precedent to petitioner's
entered into a contract of lease/purchase with the petitioner, of a half-portion of a obligations. Particularly, the ninth provision was intended to ensure that
parcel of land containing an area of 12 hectares, more or less, and an accretion of respondents would have a valid title over the specific portion they were selling to
2 hectares more or less, situated in Rodriguez town, Province of Rizal, and petitioner. Only after the title is assured may the obligation to buy the land and to
covered by Transfer Certificate of Title 12111 as stipulated therein. pay the sums stated in the contract be enforced within the period stipulated. Verily,
the petitioner's obligation to purchase has not yet ripened and cannot be enforced
until and unless respondents can prove their title to the property subject of the
contract. Accordingly, the petition was granted and the appealed decision was
Petitioner paid the P2,500.00 per hectare or P15,000.00 annual rental on the half reversed and set aside.
portion of the property covered by said title in accordance with the second
provision of the contract of lease purchase and thereafter took possession of the Condition has been defined as "every future and uncertain event upon which an
property installing Jesus Sambrano as his caretaker. Petitioner did not, however, obligation or provision is made to depend. It is a future and uncertain event upon
exercise his option to purchase the property immediately after the expiration of the which the acquisition or resolution of rights is made to depend by those who
one-year lease on November 30, 1984, but remained in possession of the property execute the juridical act." Without it, the sale of the property under the Contract
without paying the purchase price provided in the contract and without paying any cannot be perfected, and petitioner cannot be obliged to purchase the property.
further rentals thereon. Due to this non- payment, demand letters were sent to "When the consent of a party to a contract is given subject to the fulfillment of a
petitioner demanding him to vacate the premises, but the petitioner refused to suspensive condition, the contract is not perfected unless that condition is first
vacate and continued possession thereof. Paula Ano Cruz died the following day. complied with."
Alleging breach of the provisions of the contract of Lease/Purchase, the
respondents filed a complaint for recovery of possession of the property with The Court has held that "[w]hen the obligation assumed by a party to a contract is
damages. expressly subjected to a condition, the obligation cannot be enforced against him
unless the condition is complied with." Furthermore, "[t]he obligatory force of a
RTC: respondents cannot terminate the contract of lease due to their failure to conditional obligation is subordinated to the happening of a future and uncertain
notify the petitioner in due time of their intention to that effect. Nor can they rescind event, so that if that event does not take place, the parties would stand as if the
the contract of purchase considering that Paragraph 9 of the contract stated that conditional obligation had never existed." In this case, the obligation of the
the lessors-plaintiffs shall obtain a Transfer Certificate of Title in the name of the petitioner to buy the land cannot be enforced unless respondents comply with the
lessee within 4 years before a new contract is to be entered into under the same suspensive condition that they acquire first a separate and distinct TCT in their
names. The suspensive condition not having been fulfilled, then the obligation of The conditions of the conditional sale agreement were not fullled, hence,
the petitioner to purchase the land has not arisen. respondent's claim to the subject property was as heretofore stated ineffectual.
Article 1181 of the Civil Code reads:
DIRECT FUNDERS HOLDING CORP. V. LAVIA, 373 SCRA 645
Petitioner: Direct Funders Holding Corp. "Art. 1181. In conditional obligations, the acquisition of rights, as well as
Respondent: RTC Judge Lavina; Kambiak Chan Jr. the extinguishments or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition."
FACTS: Direct Funders Holding Corporation led an action for annulment of
documents, reconveyance, recovery of possession, damages with application for On the other hand, the Court found petitioner's claim to the subject property well
the issuance of a writ of preliminary mandatory injunction and temporary substantiated for it bears a TCT, deeds of assignment and certificates of sale in its
restraining order against private respondent Kambiak Y. Chan. During the favor, and therefore, has a better right to the possession of the property.
summary hearing of the application for a temporary restraining order, the only
document presented by respondent was a conditional sale agreement. CORONEL vs. CA, G.R NO 103577
Parties:
Respondent Judge: issued the questioned order granting the issuance of a writ of Petitioners Romulo Coronel et.al; seller of parcel of land with its improvements
preliminary injunction and denied petitioner's motion to dismiss and supplemental Catalina Mabanag; second buyer of the subject property
motion to dismiss and a very urgent motion for reconsideration. Private Respondent Conception Alcaraz; first buyer of the subject property

CA affirmed RTCs decision and dismissed the appeal ruling that the trial court had FACTS: On January 19, 1985, petitioners Romulo Coronel, et al. (hereinafter
jurisdiction to issue the injunction that did not interfere with the writ of possession referred to as Coronels) executed a document entitled "Receipt of Down Payment"
of a coordinate court. in favor of respondent Ramona Alcaraz. The Coronels received 50,000 php from
the respondent as downnpayment for their inherited house and lot in Quezon City.
ISSUE: who between petitioner and respondent Kambiak Y. Chan, Jr. has a better The Receipt of Down Payment indicated the following:
right to the possession of the subject property? The petitioner
We bind ourselves to effect the transfer in our names from our deceased father,
RATIO: The conditional sale agreement was the only document that the Constancio P. Coronel, the transfer certificate of title immediately upon receipt of
respondent presented during the summary hearing of the application for a the down payment above-stated.
temporary restraining order before the Regional Trial Court, Branch 71, Pasig City.
On our presentation of the TCT already in our name, We will immediately execute
The Supreme Court reversed and set aside the decision of the Court of Appeals. the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
The Court found the conditional sale agreement officious and ineffectual. First, it immediately pay the balance of the P1,190,000.00.
was not consummated. Second, it was not registered and duly annotated on the
Transfer Certificate of Title (No. 12357) covering the subject property. Third, it was Clearly, the conditions appurtenant to the sale are the following:
executed about eight (8) years after the execution of the real estate mortgage over 1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon
the subject property. execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property
To emphasize, the mortgagee (United Savings Bank) did not give its consent to registered in the name of their deceased father upon receipt of the Fifty Thousand
the change of debtor. It is fundamental axiom in the law on contracts that a person (P50,000.00) Pesos down payment;
not a party to an agreement cannot be affected thereby. Worse, not only was the 3. Upon the transfer in their names of the subject property, the Coronels will
conditional sale agreement executed without the consent of the mortgagee- execute the deed of absolute sale in favor of Ramona and the latter will pay the
creditor, United Savings Bank, the same was also a material breach of the former the whole balance of One Million One Hundred Ninety Thousand
stipulations of the real estate mortgage over the subject property. (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz,


mother of Ramona, paid the down payment of P50,000.00. On February 6, 1985,
the property originally registered in the name of the Coronels' father was instrument, which petitioners unequivocally committed themselves to do as
transferred in their names under TCT No. 327043. On February 18, 1985, the evidenced by the "Receipt of Down Payment." Article 1475, in correlation with
Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,
Catalina B. Mabanag (hereinafter referred to as Catalina) for P1,580,000 pesos Art. 1475 The contract of sale is perfected at the moment there is a
after the latter has paid P300,000 Pesos. For this reason, Coronels canceled and meeting of minds upon the thing which is the object of the contract and upon the
rescinded the contract with Ramona by depositing the down payment paid by price.
Concepcion in the bank in trust for Ramona Patricia Alcaraz. On February 22,
1985, Concepcion, et al., filed a complaint for specific performance against the From that moment, the parties may reciprocally demand performance, subject to
Coronels and caused the annotation of a notice of lis pendens at the back of TCT the provisions of the law governing the form of contracts.
No. 327403. On April 2, 1985, Catalina caused the annotation of a notice of
adverse claim covering the same property with the Registry of Deeds of Quezon Art. 1181. In conditional obligations, the acquisition of rights, as well as the
City. On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the extinguishment or loss of those already acquired, shall depend upon the
subject property in favor of Catalina. On June 5, 1985, a new title over the subject happening of the event which constitutes the condition.
property was issued in the name of Catalina. Judgment for specific performance
was rendered by RTC ordering the Coronels to execute in favor of Concepcion a Since the condition contemplated by the parties which is the issuance of a
deed of absolute sale covering the subject parcel of land. The CA affirmed the certificate of title in petitioners' names was fulfilled on February 6, 1985, the
decision of the trial court. Hence, the petition. respective obligations of the parties under the contract of sale became mutually
ISSUE: Whether the contract between the Coronels and Alcaraz was that of a demandable, that is, petitioners, as sellers, were obliged to present the transfer
conditional sale or a mere contract to sell certificate of title already in their names to private respondent Ramona P. Alcaraz,
HELD: The contract between the parties was a conditional sale. Petition dismissed the buyer, and to immediately execute the deed of absolute sale, while the buyer
and the appealed judgment affirmed. on her part, was obliged to forthwith pay the balance of the purchase price
amounting to P1,190,000.00. It is also significant to note that in the first paragraph
RATIO: When the "Receipt of Down Payment" is considered in its entirety, it in page 9 of their petition, petitioners conclusively admitted that:
becomes more manifest that there was a clear intent on the part of petitioners to The petitioners-sellers Coronel bound themselves "to effect the transfer in
transfer title to the buyer, but since the transfer certificate of title was still in the our names from our deceased father Constancio P. Coronel, the transfer certificate
name of petitioner's father, they could not fully effect such transfer although the of title immediately upon receipt of the downpayment above-stated." The sale was
buyer was then willing and able to immediately pay the purchase price. Therefore, still subject to this suspensive condition.
petitioners-sellers undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title Petitioners themselves recognized that they entered into a contract of sale
in their names from that of their father, after which, they promised to present said subject to a suspensive condition. Only, they contend, continuing in the same
title, now in their names, to the latter and to execute the deed of absolute sale paragraph, that. . .
whereupon, the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein Had petitioners-sellers not complied with this condition of first transferring
made no express reservation of ownership or title to the subject parcel of land. the title to the property under their names, there could be no perfected contract of
sale.
What is clearly established by the plain language of the subject document is that
when the said "Receipt of Down Payment" was prepared and signed by petitioners Not aware that they have set their own trap for themselves, for Article 1186 of the
Romulo A. Coronel, et al., the parties had agreed to a conditional contract of sale, Civil Code expressly provides that:
consummation of which is subject only to the successful transfer of the certificate
of title from the name of petitioners' father, Constancio P. Coronel to their names. Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
The Court significantly notes that this suspensive condition was, in fact, fulfilled prevents its fulfillment.
on February 6, 1985. Thus, on said date, the conditional contract of sale
between petitioners and private respondent Ramona P. Alcaraz became Besides, it should be stressed and emphasized that what is more controlling these
obligatory, the only act required for the consummation thereof being the delivery mere hypothetical arguments is the fact that the condition herein referred to was
of the property by means of the execution of the deed of absolute sale in a public actually and indisputably fulfilled on February 6, 1985, when a new title was issued
in the names of petitioners as evidenced by TCT No. 327403. The inevitable HELD: the appellant contends that a condition precedent having been imposed in
conclusion is that on January 19, 1985, as evidenced by the document the donation and the same not having been complied with, the donation never
denominated as "Receipt of Down Payment", the parties entered into a contract of became effective. We find no merit in this contention. The appellant refers to the
sale subject only to the suspensive condition that the sellers shall effect the condition imposed that one of the parcels donated was to be used absolutely and
issuance of new certificate of title from that of their father's name to their names exclusively for the erection of a central school and the other for a public park, the
and that, on February 6, 1985, this condition was fulfilled. We, therefore, hold that, work to commence in both cases within the period of six months from the date of
in accordance with Article 1187 which pertinently provides Art. 1187. The the ratification by the partes of the document evidencing the donation. It is true that
effects of conditional obligation to give, once the condition has been fulfilled, shall this condition has not been complied with. The allegation, however, that it is a
retroact to the day of the constitution of the obligation . . . In obligations to do or not condition precedent is erroneous. The characteristic of a condition precedent is
to do, the courts shall determine, in each case, the retroactive effect of the that the acquisition of the right is not effected while said condition is not complied
condition that has been complied with. The rights and obligations of the parties with or is not deemed complied with. Meanwhile nothing is acquired and there is
with respect to the perfected contract of sale became mutually due and only an expectancy of right. Consequently, when a condition is imposed, the
demandable as of the time of fulfillment or occurrence of the suspensive condition compliance of which cannot be effected except when the right is deemed acquired,
on February 6, 1985. As of that point in time, reciprocal obligations of both seller such condition cannot be a condition precedent. In the present case the condition
and buyer arose. that a public school be erected and a public park made of the donated land, work
on the same to commence within six months from the date of the ratification of the
RESOLUTORY (CONDITION SUBSEQUENT) If the condition was not complied donation by the parties, could not be complied with except after giving effect to the
with, the effect will restore the state back to its original donation. The donee could not do any work on the donated land if the donation
had not really been effected, because it would be an invasion of another's title, for
PARKS VS. PROVINCE OF TARLAC the land would have continued to belong to the donor so long as the condition
FACTS: On October 18, 1910, Concepcion Cirer and James Hill, the owners of imposed was not complied with.
parcel of land No. 2 referred to in the complaint, donated it perpetually to the
municipality of Tarlac, Province of Tarlac, under certain conditions specified in the The appellant also contends that, in any event, the condition not having been
public document in which they made this donation. The donation was accepted by complied with, even supposing that it was not a condition precedent but
Mr. Santiago de Jesus in the same document on behalf of the municipal council of subsequent, the non-compliance thereof is sufficient cause for the revocation of
Tarlac of which he was the municipal president. The parcel thus donated was later the donation. This is correct. But the period for bringing an action for the revocation
registered in the name of the donee, the municipality of Tarlac. On January 15, of the donation has prescribed. That this action is prescriptible, there is no doubt.
1921, Concepcion Cirer and James Hill sold this parcel to the herein plaintiff There is no legal provision which excludes this class of action from the statute of
George L. Parks. On August 24, 1923, the municipality of Tarlac transferred the limitations. And not only this, the law itself recognizes the prescriptibility of the
parcel to the Province of Tarlac which, by reason of this transfer, applied for and action for the revocation of a donation, providing a special period of five years for
obtained the registration thereof in its name, the corresponding certificate of title the revocation by the subsequent birth of children (art. 646, Civil Code), and one
having been issued to it. year for the revocation by reason of ingratitude. If no special period is provided for
the prescription of the action for revocation for noncompliance of the conditions of
The plaintiff, George L. Parks, alleging that the conditions of the donation had not the donation (art. 647, Civil Code), it is because in this respect the donation is
been complied with and invoking the sale of this parcel of land made by considered onerous and is governed by the law of contracts and the general rules
Concepcion Cirer and James Hill in his favor, brought this action against the of prescription. Under the law in force (sec. 43, Code of Civ. Proc.) the period of
Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and James Hill prescription of this class of action is ten years. The action for the revocation of the
and prayed that he be declared the absolute owner entitled to the possession of donation for this cause arose on April 19, 1911, that is six months after the
this parcel, that the transfer of the same by the municipality of Tarlac to the ratification of the instrument of donation of October 18, 1910. The complaint in this
Province of Tarlac be annulled, and the transfer certificate issued to the Province action was presented July 5, 1924, more than ten years after this cause accrued.
of Tarlac cancelled.
CENTRAL PHILIPPINE UNIVERSITY VS. CA
ISSUE: WON the sale is valid since the condition in the donation was not complied FACTS: In 1939, the late Don Ramon Lopez, Sr., who was then a member of the
with Board of Trustees of the Central Philippine College (now Central Philippine
University [CPU]), executed a deed of donation in favor of the latter of a parcel of
land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a In every case, the courts shall determine such period as may under the
portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was circumstances have been probably contemplated by the parties. Once
issued in the name of the donee CPU with the following annotations copied from fixed by the courts, the period cannot be changed by them. (1128a)
the deed of donation
Art. 1191. The power to rescind obligations is implied in reciprocal ones,
1. The land described shall be utilized by the CPU exclusively for the in case one of the obligors should not comply with what is incumbent upon
establishment and use of a medical college with all its buildings as part of the him.
curriculum;
The injured party may choose between the fulfillment and the rescission of the
2. The said college shall not sell, transfer or convey to any third party nor in any obligation, with the payment of damages in either case. He may also seek
way encumber said land; rescission, even after he has chosen fulfillment, if the latter should become
impossible.
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college
shall be under obligation to erect a cornerstone bearing that name. Any net income The court shall decree the rescission claimed, unless there be just cause
from the land or any of its parks shall be put in a fund to be known as the "RAMON authorizing the fixing of a period.
LOPEZ CAMPUS FUND" to be used for improvements of said campus and
erection of a building thereon. This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Law. (1124)
Sr., filed an action for annulment of donation, reconveyance and damages against
CPU alleging that since 1939 up to the time the action was filed the latter had not ISSUE: Whether or not the donation was onerous.
complied with the conditions of the donation.
HELD: (1) The donation was onerous. A clear perusal of the conditions set forth in
RTC: Held that petitioner failed to comply with the conditions of the donation and the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative
declared it null and void. but to conclude that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the donation itself, e.g., when a
CA: Ruled that the annotations at the back of petitioner's certificate of title were donation imposes a burden equivalent to the value of the donation. The donation
resolutory conditions breach of which should terminate the rights of the donee thus had to be valid before the fulfillment of the condition. If there was no fulfillment or
making the donation revocable. compliance with the condition, such as what obtains in the instant case, the
donation may now be revoked and all rights which the donee may have acquired
APPLICABLE LAWS: under it shall be deemed lost and extinguished.

Art. 1181. In conditional obligations, the acquisition of rights, as well as (2) The action has not prescribed. It has been held that its absolute acceptance
the extinguishment or loss of those already acquired, shall depend upon and the acknowledgment of its obligation provided in the deed of donation were
the happening of the event which constitutes the condition. (1114) sufficient to prevent the statute of limitations from barring the action of private
respondents upon the original contract which was the deed of donation.
Art. 1197. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended, the courts (3) Courts fixing a period is now moot and rescission is proper. Petitioner has slept
may fix the duration thereof. on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all
The courts shall also fix the duration of the period when it depends upon purposes, revoked so that petitioner as donee should now return the donated
the will of the debtor. property to the heirs of the donor, private respondents herein, by means of
reconveyance.
NCC 1182. When the fulfilment of the condition depends upon the sole will of the whether the lease should continue or not. As stated, "if this defense were to be
debtor, the conditional obligation shall be void. If it depends upon the will of the a allowed, so long as defendants elected to continue the lease by continuing the
third person, the obligation shall take effect in conformity with the provisions of this payment of the rentals, the owner would never be able to discontinue it;
Code. conversely, although the owner should desire the lease to continue, the lessees
could effectively thwart his purpose if they should prefer to terminate the contract
Potestative Condition: by the simple expedient of stopping payment of the rentals. This is prohibited by
- one which depends upon the will of one of the contracting parties the Article 1182 of the Civil Code.
it is only when the potestative condition depends exclusively upon the will of the
debtor that the conditional obligation is void The decision of the Court of Appeals is REVERSED AND SET ASIDE. Benito Dy
is ordered to immediately vacate and return the possession of the premises and
INSERT ALEXS pay the monthly rentals due thereon in accordance with the compromise
agreement until he shall have actually vacated the same. This Judgment is
LIM V. CA immediately executory.
FACTS: Francisco Lim, entered into a contract of lease with Benito Dy for a period
of 3 years, from 1976 to 1979. After the stipulated term expired, the respondent NOTE: Potestative Condition: This can be found in Article 1182 of the NCC. A
refused to leave the premises, so Francisco Lim filed an ejectment suit against potestative condition speaks of fulfillment of an obligation rests solely upon the will
Benito Dy. This case was then taken over by a judicially approved compromise of the debtor. An obligation that is subject to a suspensive potestative condition is
agreement, which provides an automatic increase in rent of 20% every 3 years. On non-demandable, hence it is void. If it is the debtor himself who determines the
1985 Dy, informed Lim of his intention to renew the lease up to 1988, Lim did not fulfillment of the condition, such an agreement produces no juridical effect that can
agree to the renewal. be enforced, and thus null and void.

In 1987, Lim filed another ejectment suit after the failure of Dy to vacate the SILOS V. PNB, GR NO. 181045, JULY 2, 2014
premises. It was dismissed by the RTC and later affirmed by the CA for the In loan agreements, it cannot be denied that the rate of interest is a principal
following reasons: (1) the stipulation in the compromise agreement which allows condition, if not the most important component. Thus, any modification thereof
the lessee (Benito Dy) to stay on the premises as long as he needs it and can pay must be mutually agreed upon; otherwise it had no binding effect.
rents is valid, being a resolutory condition, and therefore beyond the ambit of art
1308 of the NCC; and (2) the compromise agreement has the effect of res judicata. FACTS: Spouses Eduardo and Lydia Silos secured a revolving credit line with
Philippine National Bank (PNB) through a real estate mortgage as a security.. After
ISSUE: WON the stipulation in the compromise agreement which allows the two years, their credit line increased. Spouses Silos then signed a Credit
lessee to stay on the premises as long as he needs it and can pay rents is valid Agreement which was also amended two years later, and several Promissory
Notes (PN) as regards their Credit Agreements with PNB. The said loan was
HELD: No. The stipulation for as long as the defendant needed the premises and initially subjected to a 19.5% interest rate per annum. In the Credit Agreements,
can meet and pay said increases is a purely potestative condition because it Spouses Silos bound themselves to the power of PNB to modify the inters rate
leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive depending on whatever policy that PNB may adopt in the future, without the need
will of the lessee. The continuance, effectivity, and fulfillment of a contract of lease of notice upon them. Thus, the said interest rates played from 16% to as high as
cannot be made to depend exclusively upon the free and uncontrolled choice of 32% per annum. Spouses Silos acceded to the policy by pre-signing a total of
the lessee between continuing payment of the rentals or not, completely depriving twenty-six (26) PNs leaving the individual applicable interest rates at hand blank
the owner of any say in the matter. Mutuality does not obtain in such a contract of since it would be subject to modification by PNB.
lease and no equality exists between the lessor and the lessee.
Spouses Silos regularly renewed and made good on their PNs, religiously
The invalidity of a condition in a lease contract similar to the one at bar has been paid the interests without objection or fail. However, during the 1997 Asian
resolved in Encarnacion vs. Baldomar, et al. where the court ruled that in an action Financial Crisis, Spouses Silos faltered when the interest rates soared. Spouses
for ejectment, the defense interposed by the lessees that the contract of lease Silos 26th PN became past due, and despite repeated demands by PNB, they
authorized them to continue occupying the premises as long as they paid the rents failed to make good on the note. Thus, PNB foreclosed and auctioned the involved
is untenable, because it would leave to the lessees the sole power to determine security for the mortgage. Spouses Silos instituted an action to annul the
foreclosure sale on the ground that the succeeding interest rates used in their loan (2) the amounts, if any, to be credited as down payment and/or trade-in;
agreements was left to the sole will of PNB, the same fixed by the latter without (3) the difference between the amounts set forth under clauses (1) and (2);
their prior consent and thus, void. (4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
RTC: ruled that such stipulation authorizing both the increase and decrease of extension of credit;
interest rates as may be applicable is valid. (5) the total amount to be financed;
CA: affirmed RTCs decision (6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
ISSUE: WON the CA and RTC erred in not nullifying the interest rate provision in expressed as a simple annual rate on the outstanding unpaid balance of
the credit agreement and in the amendment to credit agreement which left the sole the obligation.
unilateral determination of the respondent PNB the original fixing of interest rate
and its increase, which agreements is contrary to law YES By requiring the petitioners to sign the credit documents and the
promissory notes in blank, and then unilaterally filling them up later on, respondent
May the bank, on its own, modify the interest rate in a loan agreement without violated the Truth in Lending Act, and was remiss in its disclosure obligations.
violating the mutuality of contracts NO

RULING: Petition is granted. CA decision annulled and set aside.

RATIO: In loan agreements, rates based on one-sided, indeterminate, and


subjective criteria such as profitability, cost of money, bank costs, etc. is arbitrary
for there is no fixed standard or margin above or below these considerations
mutually agreed upon; otherwise, it has no binding effect. Moreover, the Court
cannot consider a stipulation granting a party the option to prepay the loan if said
party is not agreeable to the arbitrary interest rates imposed. Premium may not be
placed upon a stipulation in a contract which grants one party the right to choose
whether to continue with or withdraw from the agreement if it discovers that what
the other party has been doing all along is improper or illegal. It is basic that there
can be no contract in the true sense in the absence of the element of agreement,
or of mutual assent of the parties.
Plainly, with the present credit agreement, the element of consent or
agreement by the borrower is now completely lacking, which makes respondents
unlawful act all the more reprehensible. Accordingly, petitioners are correct in
arguing that estoppel should not apply to them, for Estoppel cannot be predicated
on an illegal act. As between the parties to a contract, validity cannot be given to it
by estoppel if it is prohibited by law or is against public policy. It appears that by
its acts, respondent violated the Truth in Lending Act, or Republic Act No. 3765,
which was enacted to protect x x x citizens from a lack of awareness of the true
cost of credit to the user by using a full disclosure of such cost with a view of
preventing the uninformed use of credit to the detriment of the national economy.
The law gives a detailed enumeration of the specific information required to be
disclosed, among which the interest and other charges are incident to the
extension of credit. Section 4 thereof provides that a disclosure statement must
be furnished prior to the consummation of the transaction, thus:

(1) the cash price or delivered price of the property or service to be acquired;