Definition – (Art. 1305) IP E-Game Ventures v. Tan, G.R. No.

239576, June 30, 2021

Facts:

The case revolves primarily around an incentive agreement made in 2010 between IP E-Game Ventures,
Inc. (the petitioner) and George H. Tan (the respondent). The agreement was centered on the petitioner’s
purchase of capital stock from Digital Paradise, Inc., where the respondent was to negotiate on behalf of
the petitioner with ePLDT for the sale of no less than 75% of outstanding shares.

The agreement stated that, if successful, the petitioner would provide the respondent with a cash
incentive of Five Million Pesos (P5, 000,000.00) and shares from Netopia with equivalent market value.
Upon a successful negotiation wherein ePLDT sold shares to the petitioner, only Three Million Seven
Hundred Thousand Pesos (P3,700,000.00) out of the promised Five Million Pesos (P5,000,000.00) were
given to the respondent.

When the appellant failed to fulfill the remaining monetary incentive and stock shares, the respondent
issued demand letters, followed by a lawsuit for specific performance with damages before the Regional
Trial Court (RTC) of Makati after his demands went unmet.

The petitioner contested this with a Motion to Dismiss, arguing prematurity since no specific date was
fixed in the agreement for its obligation. The RTC denied the motion asserting a cause of acti on was
sufficiently stated. The petitioner then filed an Answer still disputing the obligation’s maturity and
reasserted that they had a separate agreement reducing the incentive to P3, 700,000.00 due to
unforeseen expenses, which was not documented or proven.

On December 1, 2015, the RTC ruled in favor of the respondent, ordering the petitioner to pay P4,
000,000.00 and other fees. The petitioner appealed to the Court of Appeals (CA), which affirmed the RTC’s
decision. A subsequent motion for reconsideration by the petitioner was also denied by the CA, hence the
present petition for review on certiorari before the Supreme Court. Legal research assistants

Issues:

1. Is the transfer of shares of stock already due and demandable as per the incentive agreement?

2. Has the respondent (George H. Tan) sufficiently established his cause of action against the petitioner
(IP E-Game Ventures, Inc.)?

Court’s Decision:

The Supreme Court denied the petition, affirming the decision of the CA and the RTC. It held that:

1. The contractual obligations were due and demandable “no later than the date of execution of the
definitive agreements for the sale of the Netopia Stake” which occurred on April 1, 2011.

2. The respondent had properly established his cause of action, given hi s fulfillment of contractual
obligations by successfully negotiating the sale, and the unrefuted evidence of parties’ agreement.

3. The assertion by the petitioner of a subsequent agreement to reduce the incentive lacked any
supporting evidence or proper documentary form as required by the contract.
Doctrine:

Contracts are the law between the parties and should be complied with in good faith. Obligations arising
from contracts have the force of law and are enforceable as long as they are not contrary to law, morals,
good customs, public order, or public policy.

Mutuality – (Art. 1308) a. Villa Crista v. Banco De Oro, GR No. 208336, November 21, 2018

Facts

In 1994, Villa Crista Monte Realty Corporation was established for real estate development and acquired
21.5 hectares of land in Quezon City. To finance its subdivision project, Villa Crista secured a credit line of
P80 million from Equitable PCI Bank (E-PCIB), now BDO, secured by a real estate mortgage. This credit line
was later increased to P130 million upon acquiring additional land, with the mortgage amended
accordingly. Between March and August 1997, Villa Crista drew various amounts under this credit line,
with each draw covered by a promissory note stipulating interest rates ranging from 13% to 24%.
However, E-PCIB later notified Villa Crista of increased interest rates between 21% to 36% based on a
repricing clause in the promissory notes. Villa Crista failed to repay the loan, leading E-PCIB to initiate
foreclosure proceedings. Villa Crista then filed a complaint in the Regional Trial Court (RTC) of Quezon City
to nullify the promissory notes and mortgage agreements, alleging the unilateral imposition of exorbitant
interest rates. The RTC ruled in favor of E-PCIB, a decision affirmed by the Court of Appeals (CA).

Issues

1. Whether the bank’s unilateral repricing of the interest rates was valid.

2. Whether the promissory notes, being contracts of adhesion, bound Villa Crista.

3. Whether payments made by Villa Crista in excess of the original rate of interest should be credited to
the principal.

Court’s Decision

The Supreme Court upheld the decisions of both the RTC and the CA, finding the promissory notes and
the real estate mortgage, including the subsequent foreclosure proceedings, valid. The Court ruled that
the escalation clause, allowing for the repricing of interest rates, was not inherently wrong, and its
application in this case was valid as the bank had, on several occasions, decreased or adjusted the interest
rates downwards, eliminating any one-sidedness in the contract. The Court emphasized the principle of
mutuality in contracts, noting that any contract leaving the validity or compliance solely to one party was
invalid. Nonetheless, it found that in this case, there was mutuality since the borrower (Villa Crista) had
the option to reject the new rates by prepaying the loan. Therefore, the escalation clause without a
corresponding de-escalation clause in this context was deemed valid and enforceable.

Doctrine

An escalation clause without a de-escalation clause is void for violating the principle of mutuality of
contracts unless the lender at times lowers the interest rates or allows the borrower to reject the repriced
rates. – Contracts of adhesion are not invalid per se; they become void only when they impose upon one
party against the principle of mutual consent in contracts.

Autonomy – (Art. 1306) a. Heirs of Kim v. Quicho, GR No. 249247, March 15, 2021

Facts:

Mary Lane R. Kim (Kim) owned a 250-ton Portable Crusher and a five-hectare parcel of land in
Floridablanca, Pampanga. In 2011, Jasper Jayson M. Quicho (Quicho) approached Kim to purchase the
crusher for P18, 000,000.00, with payment terms including an initial P5, 000,000.00 upon contract
execution, another P5, 000,000.00 within one month, and the remaining P8,000,000.00 within a year of
starting his business. They executed a Deed of Conditional Sale on August 4, 2011, which included a clause
stating that failure to comply with payment terms would result in automatic rescission of the contract,
with any payments made being forfeited as rentals.

On October 2012, Kim delivered the crusher and the land to Quicho, who paid a total of P9, 000,000.00
but failed to make subsequent payments despite several demands. Consequently, Kim sent a Notice of
Rescission on October 31, 2013, and later filed a complaint for rescission in the Regional Trial Court (RTC)
after Quicho continued to default on payments.

Initially, Quicho was declared in default for not filing an answer, but this was lifted, and he subsequently
claimed that he was entitled to the return of his P9,000,000.00 payment plus interest due to the rescission
of the contracts. The RTC ruled in favor of Kim, declaring the contracts rescinded and ordering Quicho to
return the crusher and pay damages.

Quicho's motion for a new trial was denied, and he appealed to the Court of Appeals (CA). The CA affirmed
the RTC's decision but modified it to require Kim's heirs to return the P9, 000,000.00 paid by Quicho, citing
the principle of mutual restitution following rescission.

Dissatisfied with the CA's ruling, Kim's heirs filed a motion for partial reconsideration, arguing that the
forfeiture clause in the contract should apply. The CA denied this motion, leading to the appeal to the
Supreme Court.

Issues:

Whether the Court of Appeals erred in requiring the petitioners to return the P9, 000,000.00 paid by
Quicho despite the forfeiture clause in the contract.

The implications of rescission under Article 1191 of the Civil Code regarding mutual restitution and the
validity of forfeiture clauses.

Court's Decision and Legal Reasoning:

The Supreme Court granted the petition, affirming the CA's decision with modifications. The Court
emphasized that both parties acknowledged Kim's right to rescind the contract due to Quicho's failure to
comply with payment obligations. However, the Court held that the forfeiture clause in the contract
remained valid and enforceable despite the rescission.

The Court clarified that rescission under Article 1191 does not negate the consequences of the contract,
including forfeiture clauses. It recognized that the parties had the autonomy to stipulate terms regarding
damages in case of breach. The Court also noted that the payments made by Quicho could be considered
as earnest money, which is typically forfeited if the sale does not proceed without the seller's fault.

Furthermore, the Court ruled that since Quicho had possession and use of the properties for an extended
period, the partial payments could be treated as rentals, thus preventing unjust enrichment. The Court
concluded that the petitioners were entitled to retain the payments made by Quicho, and the requirement
for mutual restitution was modified accordingly.

Relativity – (Art. 1311) a. International Exchange Bank v. Labos, G.R. No. 206327. July 06, 2022

Facts:

This complex legal matter originated from a lawsuit filed by International Exchange Bank (IEB), seeking to
recover the sum of money under a credit agreement, against Rudy S. Labos & Associates, Inc. (RSLAI), the
spouses Rodolfo S. Labos and Consuelo R. Labos, and Rockwell Land Corporation. RSLAI secured a credit
line from IEB which was guaranteed by a condominium unit and by the personal guarantee of the Laboses
through a Continuing Surety Agreement. Upon default, IEB discovered that RSLAI transferred the
condominium unit to another entity without its consent, violating the deed of assignment and impacting
IEB’s collateral. IEB sought to hold RSLAI, the Laboses, and Rockwell jointly and severally liable for the
outstanding loan amount. The Regional Trial Court (RTC) found in favor of IEB against RSLAI and the
Laboses but absolved Rockwell of any liability. The Court of Appeals (CA) initially reversed the RTC
decision, holding Rockwell liable, but upon reconsideration, affirmed the RTC’s ruling, prompting IEB to
appeal to the Supreme Court (SC).

Issues:

1. Whether Rockwell should be held liable to IEB for the outstanding loan of RSLAI amounting to Php
5,729,726.94.

2. Whether there was novation that could bind Rockwell to the obligations under the deed of assignment
between RSLAI and IEB.

3. Whether Rockwell breached its fiduciary obligation towards RLSAI and IEB by consenting to conflicting
deeds of assignment.

Court’s Decision:

The SC found that Rockwell could not be held liable to IEB for several reasons. Primarily, the principle of
relativity of contracts indicates that contracts bind only the parties who entered into them. Since Rockwell
was not a party to the deed of assignment between RSLAI and IEB, it could not be held liable for obligations
under that deed. Furthermore, Rockwell’s consent to the assignment was interpreted as compliance with
a contractual obligation under the contract to sell with RSLAI, not an assumption of liability for RSLAI’s
debts to IEB. The court also ruled there was no novation that transformed Rockwell’s role to a debtor of
IEB, nor was there evidence of bad faith or prejudicial conduct by Rockwell that would necessitate
damages.

Doctrine:

The invoked doctrine is the Principle of Relativity of Contracts under Art. 1311 of the Civil Code, which
stipulates that contracts only affect the parties who entered into them, excluding third parties.
Furthermore, the doctrine that solidary liability cannot be presumed and must be expressly stated or
required by law was also reiterated.

Consensuality of Contracts a. Ignacio v. Home Bankers, GR No. 177783, 23 January 2013

Facts:

In August 1981, Fausto C. Ignacio mortgaged two parcels of land to Home Savings Bank and Trust Company
(the predecessor of Home Bankers Savings and Trust Company) as security for a loan of P500,000.00. The
properties, located in Cabuyao, Laguna, were covered by Transfer Certificate of Title Nos. T-40380 and T-
45804. After Fausto defaulted on the loan, the bank foreclosed on the mortgage, and on January 26, 1983,
it was the highest bidder at the foreclosure sale for P764,984.67. The Certificate of Sale was registered on
February 8, 1983, and after the redemption period lapsed, the bank consolidated title to the properties
in its name, issuing new titles (TCT Nos. 111058 and 111059).

Despite the consolidation of title, Fausto expressed a desire to repurchase the properties, claiming a
verbal agreement was reached with the bank. The bank, however, did not execute a formal repurchase
contract. The bank subsequently subdivided and sold portions of the properties to third parties, including
the spouses Phillip and Thelma Rodriguez, and the Zuniga siblings, without notifying Fausto.

In July 1989, Fausto offered to pay P600, 000.00 to repurchase the remaining properties, but the bank
rejected this offer. Fausto then filed an adverse claim on the titles and later initiated a lawsuit for specific
performance and damages against the bank, seeking reconveyance of the properties upon payment of
the repurchase price.

The trial court initially ruled in favor of Fausto, declaring the sales to the intervenors null and void and
ordering the bank to reconvey the properties after payment. However, the Court of Appeals reversed this
decision, leading to the present petition.

Legal Issues:

Was there a perfected contract for the repurchase of the foreclosed properties between Fausto and the
bank?

Did Fausto act as a broker in the sale of the subdivided properties?

Were the intervenors innocent purchasers for value?

Court's Decision and Legal Reasoning:

The Court also noted that the receipts presented by Fausto did not prove that he was making payments
towards a repurchase agreement but rather indicated that he acted as a broker in the sales of subdivided
lots. Furthermore, the Court highlighted that the bank's officers were not authorized to accept Fausto's
counter-proposal, and thus, no binding agreement was formed.

Regarding the intervenors, the Court found them to be innocent purchasers for value, as they had no
knowledge of Fausto's claims when they acquired the properties.

Obligatory Force a. IP E-Game Ventures v. Tan, G.R. No. 239576, June 30, 2021

Facts:

The case revolves primarily around an incentive agreement made in 2010 between IP E-Game Ventures,
Inc. (the petitioner) and George H. Tan (the respondent). The agreement was centered on the petitioner’s
purchase of capital stock from Digital Paradise, Inc., where the respondent was to negotiate on behalf of
the petitioner with ePLDT for the sale of no less than 75% of outstanding shares.

The agreement stated that, if successful, the petitioner would provide the respondent with a cash
incentive of Five Million Pesos (P5, 000,000.00) and shares from Netopia with equivalent market value.
Upon a successful negotiation wherein ePLDT sold shares to the petitioner, only Three Million Seven
Hundred Thousand Pesos (P3,700,000.00) out of the promised Five Million Pesos (P5,000,000.00) were
given to the respondent.

When the appellant failed to fulfill the remaining monetary incentive and stock shares, the respondent
issued demand letters, followed by a lawsuit for specific performance with damages before the Regional
Trial Court (RTC) of Makati after his demands went unmet.

The petitioner contested this with a Motion to Dismiss, arguing prematurity since no specific date was
fixed in the agreement for its obligation. The RTC denied the motion asserting a cause of acti on was
sufficiently stated. The petitioner then filed an Answer still disputing the obligation’s maturity and
reasserted that they had a separate agreement reducing the incentive to P3, 700,000.00 due to
unforeseen expenses, which was not documented or proven.

On December 1, 2015, the RTC ruled in favor of the respondent, ordering the petitioner to pay P4,
000,000.00 and other fees. The petitioner appealed to the Court of Appeals (CA), which affirmed the RTC’s
decision. A subsequent motion for reconsideration by the petitioner was also denied by the CA, hence the
present petition for review on certiorari before the Supreme Court. Legal research assistants

Issues:

1. Is the transfer of shares of stock already due and demandable as per the incentive agreement?
2. Has the respondent (George H. Tan) sufficiently established his cause of action against the petitioner
(IP E-Game Ventures, Inc.)?

Court’s Decision:

The Supreme Court denied the petition, affirming the decision of the CA and the RTC. It held that:

1. The contractual obligations were due and demandable “no later than the date of execution of the
definitive agreements for the sale of the Netopia Stake” which occurred on April 1, 2011.

2. The respondent had properly established his cause of action, given hi s fulfillment of contractual
obligations by successfully negotiating the sale, and the unrefuted evidence of parties’ agreement.

3. The assertion by the petitioner of a subsequent agreement to reduce the incentive lacked any
supporting evidence or proper documentary form as required by the contract.

Doctrine:

Contracts are the law between the parties and should be complied with in good faith. Obligations arising
from contracts have the force of law and are enforceable as long as they are not contrary to law, morals,
good customs, public order, or public policy.

Stages of Contracts

1. First Optima Realty Corp. v. Securitron Security, GR No. 199648, 28 January 2015

2. Rockland Construction v. Mid-Pasig Land Development Corporation, G.R. No. 164587, February 4, 2008

First Optima Realty Corp. v. Securitron Security, GR No. 199648, 28 January 2015

Facts:

Petitioner: First Optima Realty Corporation (FORC)

Respondent: Securitron Security Services, Inc. (SSSI)

Timeline & Key Events:

1. December 9, 2004: SSSI sent a letter to FORC offering to purchase a 256-square meter property for PHP
6,000.00 per square meter.

2. Subsequent Period: Eleazar, SSSI’s General Manager, held several telephone calls and personal
negotiations with Maria Remoso, an employee of FORC, and attempted to personally negotiate with
Carolina Young, FORC’s Executive Vice President.
3. Personal Visit: Eleazar personally visited FORC’s office with cash, which was not accepted by Young,
who stated she needed her sister’s advice and board approval.

4. February 4, 2005: SSSI sent another letter with a PHP 100,000.00 check as earnest money. This was
handed to FORC’s receiving clerk who issued a provisional receipt.

5. After February 4, 2005: SSSI demanded the completion of the sale, which was countered by FORC
stating that no such decision had been made and the Board had not agreed to the sale.

6. March 3, 2006: FORC replied to SSSI’s demand letter, stating there was no contractual agreement and
offered to refund the PHP 100,000.00.

Procedural Posture:

– April 18, 2006: SSSI filed a complaint for specific performance with damages before the Regional Trial
Court (RTC) of Pasay City.

– February 16, 2009: RTC ruled in favor of SSSI, mandating FORC to complete the sale transaction.

– Appeal: FORC appealed to the Court of Appeals (CA), which affirmed the RTC’s decision on September
30, 2011, and denied the motion for reconsideration on December 9, 2011.

– Petition for Review on Certiorari: FORC filed before the Supreme Court arguing against these rulings.

Issues:

1. Was the PHP 100,000.00 sent by SSSI to FORC recognized as earnest money indicating a perfected
contract of sale?

2. Does the delayed response and actions of FORC establish acceptance of earnest money?

3. Does the provisional receipt provided by FORC legally signify a completed transaction leading to a sale?

Court’s Decision:

Issue 1:

– Ruling: No, the PHP 100,000.00 was not earnest money indicating a perfected contract.

– Analysis: The Supreme Court concluded that negotiations between the parties did not result in a
definitive agreement; thus, no contract of sale was perfected. The acceptance of the PHP 100,000.00
check and lack of direct communication between Young and SSSI meant no binding consent was provided.

Issue 2:

– Ruling: No, a delay in returning the money does not signify acceptance of earnest money.
– Analysis: The Court emphasized that the lack of response to the February 4, 2005, letter and the delayed
return of the check do not imply contractual acceptance. The payment was manipulated through dubious
means to create an illusion of agreement.

Issue 3:

– Ruling: No, the provisional receipt does not signify a completed transaction.

– Analysis: The Court noted that the provisional nature of the receipt explicitly stated that it did not clear
the transaction. The specific note on the receipt indicated that acceptance was subject to further
approval, which never occurred.

Court’s Final Order:

– The Supreme Court granted the petition by FORC, reversing the decisions of the CA and RTC. Civil Case
No. 06-0492 CFM was dismissed, and FORC was ordered to refund the PHP 100,000.00 to SSSI without
interest.

Doctrine:

– Earnest Money (Art. 1482, Civil Code): Earnest money takes effect only after a perfected contract of
sale. Acceptance of an offer must be explicit and not inferred solely from silence or inaction.

– Negotiation vs. Perfection: A perfected contract of sale requires explicit consent, object (subject matter),
and consideration (price) and must surpass the mere negotiation stage.

– Corporate Authority: Actions of corporate officers must be authorized via proper channels, such as
board resolutions, especially for actions beyond ordinary business transactions.

Rockland Construction v. Mid-Pasig Land Development Corporation, G.R. No. 164587, February 4, 2008

Facts:

1. March 1, 2000: Rockland Construction Company, Inc. (Rockland) offered to lease a 3.1-hectare property
in Pasig City from Mid-Pasig Land Development Corporation (Mid-Pasig). The property was under the
control of the Presidential Commission on Good Government (PCGG).

2. April 15, 2000: Upon Mid-Pasig’s instruction, Rockland addressed its offer to PCGG Chairman Magdangal
Elma, including proposed terms and conditions. This letter was also received by Mid-Pasig on April 18,
2000.

3. June 8, 2000: Rockland sent a check for P1 million with a letter to Mid-Pasig’s Chairman, Ronaldo
Salonga, demonstrating good faith and readiness to enter into a lease agreement. Mid-Pasig received this
on July 28, 2000.
4. December 5, 2000: The P1 million check Rockland issued was credited to Mid-Pasig’s account.

5. February 2, 2001: Rockland, in a follow-up letter, presumed Mid-Pasig had accepted its offer due to the
deposit.

6. February 6, 2001: Mid-Pasig responded that it had no knowledge of the check’s source or purpose upon
initial deposit and categorically rejected Rockland’s lease application.

7. February 13, 2001: Mid-Pasig reiterated its rejection of Rockland’s offer

8. Legal Proceedings Commenced: Rockland filed an action for specific performance, seeking to compel
Mid-Pasig to execute a lease contract.

9. Trial Court Decision (September 2, 2002): RTC declared a valid and enforceable lease agreement,
ordered Mid-Pasig to execute the lease, and dismissed Mid-Pasig’s counterclaim.

10. Appeal: Mid-Pasig appealed, and the Court of Appeals reversed the trial court’s decision, holding that
no perfected contract of lease existed and dismissing Rockland’s complaint.

11. Supreme Court Review: Rockland petitioned for review, arguing that Mid-Pasig’s acceptance and
estoppel in pais had occurred due to the deposit of the check.

Issues:

1. Existence of Perfected Contract: Whether there was a perfected contract of lease between Rockland
and Mid-Pasig.

2. Estoppel in Pais: Whether Mid-Pasig is estopped from denying the acceptance of Rockland’s offer due
to the deposit of the P1 million check.

Court’s Decision:

1. Perfected Contract of Lease:

– Court’s Analysis: A contract requires consent through a meeting of the minds on an offer and
acceptance. Rockland’s offer was not explicitly accepted by Mid-Pasig. Mid-Pasig was unaware of the
check’s provenance upon deposit and rejected the offer once it understood its source.

– Conclusion: No perfected lease contract existed as there was no mutual agreement or consent between
Rockland and Mid-Pasig.

2. Estoppel in Pais:

– Court’s Analysis: Estoppel prevents a party from acting contrary to previous conduct if it would harm a
party that relied on it. Estoppel requires intentional or misleading conduct. Mid-Pasig had consistently
refused Rockland’s offers and did not mislead Rockland into assuming an acceptance of the lease offer.

– Conclusion: Estoppel in pais did not apply since Mid-Pasig’s actions were consistent and did not give
Rockland reasonable grounds to assume a lease agreement.

Final Decision: The Supreme Court affirmed the Court of Appeals’ decision, denying the petition, and sided
with Mid-Pasig.
Doctrine:

1. Essentials of Contract Formation:

– Consent: Agreement on offer and acceptance is mandatory. (Civil Code, Art. 1319)

– Estoppel: It requires intentional or misleading conduct leading another party to a change of position to
their detriment. (Swedish Match, AB v. Court of Appeals)

Cases:

Famanila, v. Court of Appeals, G.R. No. 150429, August 29, 2006

Sps. Genotiva v. Equitable PCI Bank

Famanila, v. Court of Appeals, G.R. No. 150429, August 29, 2006

Facts:

In 1989, Roberto G. Famanila was employed by NFD International Manning Agents, Inc. as a Messman on
the vessel Hansa Riga, owned by Barbership Management Limited.
June 21, 1990: During docking in Eureka, California, Famanila suffered a cerebral hemorrhage from a
ruptured aneurysm, leading to his repatriation to the Philippines after undergoing two brain surgeries.

August 21, 1990: Dr. Patricia Abesamis at the American Hospital in Manila examined Famanila and
declared him permanently and totally disabled and unfit to return to sea duty.

February 28, 1991: Famanila signed a Receipt and Release agreement, acknowledging receipt of
US$13,200 as a settlement for his disability claim, witnessed by his wife and another relative.

June 11, 1997: Famanila filed a complaint with the NLRC, seeking disability benefits, a share in insurance
proceeds, moral damages, and attorney’s fees after accepting the settlement.

September 29, 1997: The Labor Arbiter dismissed the complaint on the ground of prescription (time-
barred).

March 31, 1998: The NLRC upheld the Labor Arbiter’s decision, dismissing Famanila’s appeal.

June 29, 1998: Famanila’s motion for reconsideration was denied by the NLRC.

December 2, 1998: The Supreme Court referred Famanila’s petition to the Court of Appeals following the
protocol established in St. Martin Funeral Home v. NLRC.

March 30, 2001: The Court of Appeals dismissed Famanila’s petition, finding no merit, leading to another
motion for reconsideration being denied.

October 5, 2001: The Court of Appeals denied Famanila’s motion for reconsideration, prompting him to
file a petition for review with the Supreme Court.
Issues:

1. Validity of Receipt and Release Agreement: Whether Famanila’s consent to the Receipt and Release
was vitiated due to his permanent disability and financial constraints, making it void and unenforceable.

2. Prescription Period for Claims: Whether the applicable prescription period for Famanila’s claims should
be the three-year period under the Labor Code or the ten-year period under the Civil Code.

Court’s Decision:

Validity of Receipt and Release Agreement: The Supreme Court ruled that Famanila’s consent was not
vitiated. Disability does not constitute a factor that vitiates consent under the Civil Code (Art. 1330).
Famanila voluntarily signed the agreement, as evidenced by the participation and witnessing of his wife
and another relative. The Court upheld the Receipt and Release due to the lack of proof of coercion or
undue influence. Furthermore, the compensation agreed upon appeared reasonable and acceptable.

Prescription Period for Claims: The Supreme Court affirmed that the three-year prescription under Article
291 of the Labor Code applies to Famanila’s money claims arising from his employment. Since Famanila’s
cause of action accrued on August 21, 1990, the claim filed on June 11, 1997 was time -barred, having
exceeded the three-year limit.

Doctrine:

1. Vitiated Consent: Disabilities are not recognized as factors that vitiate consent to a contract. Valid
consent requires freedom from mistake, violence, intimidation, undue influence, or fraud, but not health
conditions or financial status (Civil Code Art. 1330).

2. Prescription Period under Labor Code: All money claims arising from employer-employee relations must
be filed within three years from accrual, per Article 291 of the Labor Code. Claims filed beyond this period
are barred.

Sps. Genotiva v. Equitable PCI Bank

Facts:

The case involves the spouses Calvin Luther Genotiva and Violet Genotiva (petitioners) against Equitable-
PCI Bank, now Banco De Oro Unibank, Inc. (BDO, respondent). The Genotivas filed a Complaint for
Declaration of Nullity of Contract, Reconveyance and Damages with a prayer for a Writ of Preliminary
Injunction and/or Temporary Restraining Order against BDO on February 13, 2003. They alleged being
forced into securing a real estate mortgage on their property to guarantee an earlier “clean loan” from
BDO for Goldland Equity, Inc. Violet Genotiva, a former employee of BDO, claimed the bank withheld her
retirement benefits to compel the mortgage. The Regional Trial Court (RTC) decided in favor of the
Genotivas, declaring the mortgage null and void and ordering damages. However, BDO appealed to the
Court of Appeals (CA), which reversed the RTC’s decision, leading to this petition for review.

Issues:

1. Validity of Contract: Was the real estate mortgage contract entered into by the Genotivas and BDO
valid despite claims of vitiated consent due to duress by withholding Violet’s retirement benefits?
2. Retention of P500, 000: Did BDO have the right to retain and apply the P500, 000.00 offered by the
Genotivas for redemption of the property to Goldland’s loan interest instead, considering the Deed of
Suretyship?

Court’s Decision:

The Supreme Court held that the real estate mortgage contract was valid. The court found no sufficient
evidence of duress or undue influence that vitiated the Genotivas’ consent. They freely entered into the
contract as a strategic decision to secure Violet’s retirement benefits, despite regretting it later. The court,
however, ruled that BDO wrongfully retained the P500, 000.00 meant for the property’s redemption and
improperly applied it to Goldland’s loan interest. The Supreme Court ordered BDO to return the P500,
000.00 with interest, and also awarded moral damages and attorney’s fees to the Genotivas

Doctrine:

– Duress and Consent in Contracts: Duress or intimidation affecting consent must meet specific criteria,
which were not present in this case. A contract is valid unless proven that consent was vitiated.

– Rights of Creditors against Sureties: Creditors can proceed against any of the solidary debtors or some
or all of them simultaneously without affecting their rights to proceed against the others (Article 1216 of
the Civil Code).

Objects of Contracts – (Art. 1347 – 1349) 1. Sps. Villaluz v. Landbank of the Philippines, G.R. No. 192602,
January 18, 2017

Facts:

1. Initial Request and Consent: – In 1996, Paula Agbisit requested her daughter, May S. Villaluz, for
collateral to secure a loan for Milflores Cooperative, which needed PHP 600,000 to PHP 650,000 for
business expansion. – May convinced her husband, Johnny Villaluz, to use their property in Calinan, Davao
City, covered by TCT No. T-202276, as collateral.

2. Documentation: – On March 25, 1996, Spouses Villaluz executed a Special Power of Attorney (SPA)
authorizing Agbisit to negotiate and sign documents for the sale, mortgage, or other disposition of the
land. – The SPA did not state restrictions or specific amounts for these transactions.

3. Sub-Delegation and Loan Negotiation: – On June 19, 1996, Agbisit executed her own SPA appointing
Milflores Cooperative as attorney-in-fact in obtaining a loan and executing a mortgage with Land Bank of
the Philippines. – Milflores Cooperative executed a Real Estate Mortgage with Land Bank on June 21, 1996
for a PHP 3,000,000 loan.

4. Loan Disbursement and Further Assignment:– Partial loan disbursement of PHP 995,500 was released
by Land Bank on June 25, 1996. Agbisit borrowed PHP 604,750 from this amount. – Remaining loan
amount of PHP 2,000,500 was released on October 4, 1996. – Milflores Cooperative executed a Deed of
Assignment of Produce/Inventory on June 24, 1996, as additional collateral.
5. Default and Foreclosure: – Milflores Cooperative defaulted. Consequently, Land Bank filed for extra-
judicial foreclosure. The auction sale took place on October 2, 2003, where Land Bank won as the sole
bidder.

6. Legal Action: – Spouses Villaluz filed a complaint in the Regional Trial Court (RTC) of Davao City for the
annulment of the foreclosure sale. – RTC dismissed their complaint citing Article 1892 of the Civil Code,
noting no SPA provision preventing Agbisit from appointing a substitute. – The CA affirmed the RTC
decision, leading Spouses Villaluz to petition the Supreme Court (SC).

Issues:

1. Validity of the Real Estate Mortgage executed by a Substitute/ Sub-Agent: – Whether Agbisit’s
appointment of Milflores Cooperative as a sub-agent was valid under the SPA granted by Spouses Villaluz.
– Applicability and interpretation of Article 1892 of the Civil Code.

2. Existence of Consideration for the Mortgage Contract: – Whether the Real Estate Mortgage was void
for lack of consideration since the loan was not disbursed at the time of mortgage execution.

3. Effect of Additional Collateral on the SPA: – Whether execution of the Deed of Assignment by Milflores
Cooperative constituted an extinguishment of the SPA or the principal loan obligation.

Court’s Decision:

1. Appointment of the Substitute/ Sub-Agent:

Issue Resolution:

– Articles 1892 and 1893 of the Civil Code allow an agent to appoint a substitute unless expressly
prohibited by the principal.

– The Court ruled that in the absence of restrictive language in the SPA, Agbisit’s appointment of Milflores
Cooperative was valid.

Analysis:

– The principal (Spouses Villaluz) did not prohibit the appointment of a substitute. – Therefore, Milflores
Cooperative’s actions in obtaining the loan and executing the mortgage were binding on the principal.

Consideration for the Mortgage:

– Issue Resolution:

– The Court determined the mortgage was valid as the loan consideration existed, albeit scheduled for
future disbursement.

– It emphasized harmonizing Articles 1347, 1461, 1462 with Article 1409(3) regarding future things as valid
contract objects. –

Analysis:

– The loan’s consideration was not impossible as Land Bank had the capacity to grant the amount,
confirmed by partial disbursement prior to the mortgage’s execution.
3. Effect of Additional Collateral:

– Issue Resolution:

– The Deed of Assignment did not extinguish the principal loan or constitute full payment. –

Analysis:

– It was an accessory obligation and not intended as full settlement of the loan.

– Absence of proof of payment delivery to Land Bank invalidated the argument that the special power of
attorney was mooted by the assignment.

The Court thus affirmed the CA’s and RTC’s decisions, recognizing Land Bank’s reliance on the SPA terms
granted to the agent and substitute.

Doctrine:

– Agency and Substitution Doctrine: Under Article 1892, an agent may appoint a substitute unless
expressly prohibited; the acts of a valid substitute bind the principal.

– Consideration in Contracts Doctrine: Future things or future transaction objects under Articles 1347,
1461, and 1462 are valid provided they can legally exist.

Bacalso v. Aca-ac, G.R. No. 172919, January 13, 2016

Facts:

The Bacus siblings, Gregoria B. Aca-Ac, Eutiquia B. Aguila, and Julian Bacus, were the registered owners of
a parcel of land in San Roque, Talisay, Cebu, inherited from their mother, Matea Bacalso. On October 15,
1987, they executed a Deed of Absolute Sale, selling a portion of this land (271 square meters) to their
cousin, Timoteo Bacalso, for P8, 000.

However, on March 4, 1988, Timoteo, along with his sisters and cousins, filed a complaint for the
declaration of nullity of documents and reconveyance of real property against the Bacus siblings, claiming
co-ownership of the land based on their assertion that Matea had paid for it on behalf of her children.
The Regional Trial Court (RTC) ruled in favor of the Bacus siblings, affirming their ownership of the
property, a decision that was later upheld by the Court of Appeals (CA).

Despite this, Timoteo and Diosdada Bacalso filed another complaint on October 26, 1995, seeking to
declare the Deed of Absolute Sale void, alleging that the Bacus siblings failed to issue a new title in their
name and had subdivided the property without their knowledge. The Bacus siblings countered that the
sale did not proceed because the petitioners failed to pay the purchase price.

The RTC ruled on April 19, 2000, that the Deed of Absolute Sale was void due to lack of consideration, as
the petitioners did not pay the agreed price. The CA affirmed this decision on December 14, 2005, leading
the petitioners to seek a review from the Supreme Court.
Issues:

The primary legal issues presented for resolution were:

Whether the CA erred in relying on the oral testimonies of the Bacus siblings and Evelyn Sychangco while
disregarding the testimonies of Timoteo Bacalso and his witness.

Whether the CA erred in ruling that the Deed of Absolute Sale was null and void for lack of consideration.

Whether the notarization of the Deed of Absolute Sale should be given weight as a public document that
enjoys the presumption of regularity.

Whether the Bacus siblings were still the owners of the property at the time of the sale.

Court's Decision and Legal Reasoning:

The Supreme Court denied the petition, affirming the CA's decision. The Court emphasized that the central
issue was factual, and since the RTC's findings were affirmed by the CA, they were conclusive and not
subject to review.

The Court reiterated the essential requisites of a valid contract under Article 1318 of the Civil Code, which
includes consent, a definite object, and a lawful cause. The Court found that the Deed of Absolute Sale
lacked consideration, as the petitioners failed to pay the stipulated price. The Court distinguished between
failure to pay and lack of consideration, stating that the latter renders the contract void ab initio.

The Court also noted that the testimonies of the Bacus siblings were credible an d supported by the
evidence, while the petitioners' claims of payment were unsubstantiated. The Court concluded that the
Deed of Absolute Sale was void due to the absence of consideration, and thus, the petitioners did not
acquire ownership of the property.

Lesion – (Art. 1355) a. Sps. Cannu v. Sps. Gil, G.R. NO. 139523: May 26, 2005
Facts:

The legal conflict initiated when spouses Felipe and Leticia Cannu filed a complaint for Specific
Performance and Damages against spouses Gil and Fernandina Galang and the National Home Mortgage
Finance Corporation (NHMFC) in Branch 135 of the RTC of Makati City, labeled as Civil Case No. 93-2069
on June 24, 1993. Spouses Gil and Fernandina Galang had obtained a loan from Fortune Savings & Loan
Association to purchase a property in Las Piñas, securing the loan with a real estate mortgage on the
property. NHMFC later purchased this mortgage loan. The Galangs, represented by Adelina R. Timbang as
attorney-in-fact, agreed to sell the property to the Cannus for P120, 000, alongside the assumption of the
mortgage obligations with NHMFC and a second mortgage with CERF Realty. The Cannus paid a total of
P75, 000, leaving a balance. A Deed of Sale with an Assumption of Mortgage Obligation w as drawn,
stipulating the transfer of rights to the Cannus—who then took possession of the property and made
payments totaling P55, 312.47 to NHMFC. However, the formal assumption of mortgage was not
approved by NHMFC due to non-submission of requirements by the Cannus. Fernandina Galang
eventually paid off the mortgage loan with NHMFC, prompted by the Cannus’ failure to complete their
obligations. This prompted a legal battle that ascended through the judicial hierarchy, leading to the
petition for review by the Supreme Court.

Issues:

1. Whether the breach of obligation by the Cannus was substantial enough to justify rescission.

2. Whether the Cannus substantially complied with their obligation to pay monthly amortizations with
NHMFC.

3. Whether the action for rescission is subsidiary considering the sequence of events and legal steps made
by the parties. 4. Whether the Court of Appeals erred in its interpretation of the payment obligations and
the resulting decision on rescission.

Court’s Decision:

The Supreme Court affirmed the decision of the Court of Appeals with modifications. The Court clarified
the misinterpretation of the trial’s consideration amount, setting it at P120, 000 plus mortgage
obligations, contrary to the P250, 000 referred to in previous Court statements. The Court found the
Cannus’ breach to be substantial because they failed to pay the remaining balance and to update their
mortgage amortizations with the NHMFC. Thus, the Galangs had the rightful ground for rescission.

Doctrine:

The ruling reiterates the doctrine that obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith. Additionally, it highlights the principle
that rescission of a reciprocal obligation is predicated on a substantial breach that warrants such action.