Bacungan vs.

Court of Appeals, 574 SCRA 642, December 18, 2008

Article No. 1470
DOCTRINE:
Gross inadequacy of price by itself will not result in a void contract.
Gross inadequacy of price does not even affect the validity of a contract
of sale, unless it signifies a defect in the consent or that the parties
actually intended a donation or some other contract. Inadequacy of
cause will not invalidate a contract unless there has been fraud, mistake
or undue influence.
The Spouses Velo sought the help of the Bacungans in securing a loan.
The Bacungans agreed to obtain a loan from a bank provided the Velos
transfer titles of certain parcels of land to them as security for the loan.
The Velos executed deeds of sale and new TCTs were issued in the
name of the Bacungans.
!

FACTS:
ALS2014B Page !148 of !175 Atty. Sta Maria

However, the Bacungans never applied for the loan with the bank and
secretly began negotiating for the sale of the properties to third parties.
The Velos filed an action to nullify the deeds of sale on the ground that
the sale was simulated. The RTC held that the Velos voluntarily
consented to the simulation of the contracts; thus, the principle of pari
delicto must prevail and both parties were at fault. The CA reversed
and said that the deeds of sale were simulated as the parties did not
intend to be bound by them at all. The CA pointed out gross
inadequacy of prices and the Velos failure to receive any part of the
purchase price stated in the deeds of sale.
ISSUE:
W/N the deeds of sale are void
HELD:
No. The arrangement between the parties was in the nature of an
equitable mortgage. Although the price of each of the properties was
grossly inadequate, gross inadequacy of price by itself will not result in
a void contract. Gross inadequacy of price does not even affect the
validity of a contract of sale, unless it signifies a defect in the consent
or that the parties actually intended a donation or some other contract.
Inadequacy of cause will not invalidate a contract unless there has been
fraud, mistake or undue influence.
That the Velos did not receive the purchase price is not entirely correct.
The consideration for the transaction was to secure the payment of the
Velos loan to the Bacungans. While the deeds of sale do not reflect the
true intent of the parties, their real agreement must nonetheless be
recognized and enforced. The proper remedy is to institute an action for
the reformation.
Deheza-Inamarga vs. Alano, 574 SCRA 651, December 18, 2008
ART. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases: (1) When the price of the sale
with right to repurchase is unusually inadequate; (2) When the vendor
remains in possession as lessee or otherwise;
ALS201(43B) When upon or after the expiration oPfagthe e!12r8igohft
!1t7o5repurchase another instrument exAttetyn.dSintagMthaeria period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any case where it may be fairly inferred that the real intention of
the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation.
In any of the foregoing case, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as
interest which shall be subject to the usury laws.
ART. 1604. The provisions of Article 1602 shall also apply to a
contract purporting to be an absolute sale. ART. 1410. The action or
defense for the declaration of the inexistence of a contract does not
prescribe. Doctrine/s
An equitable mortgage is one which, although lacking in some
formality, or form, or words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real property
as security for a debt, and contains nothing impossible or contrary to
law.
Facts
Tomas Alano, husband of respondent Celenia Alano, owned two
parcels of land. He mortgaged the properties in favor of Renato Gepty.
Gepty demanded that Tomas pay the loan. Tomas, however, did not
have money at that time to redeem his properties so he sought help
from his niece, petitioner Mary Ann Deheza-Inamarga. Petitioner
agreed to pay the loan while the spouses, in turn, mortgaged said
properties to her. Petitioner kept in her possession the OCTs and asked
the spouses to sign blank pieces of paper which petitioner said will be
converted into receipts evidencing their indebtedness to her.
After Tomas had passed away, respondents Celenia and her children
went to petitioner to redeem the property. Petitioner, however, told
them that she had mortgaged the property to the Rural Bank of Libacao.
Respondents verified the matter with the bank and discovered that the
OCTs have been cancelled and in lieu thereof, new TCTs were issued
in petitioners name. Respondents learned that the TCTs in petitioners
favor were issued by virtue of a Deed of Sale purportedly executed by
the Spouses Alano in her favor.
Respondents filed a complaint for the declaration of nullity of
document, reconveyance and damages against petitioner and the Rural
Bank of Libacao. Respondents contended that the deed of sale is null
and void because the signatures of the Spouses Alano were forged and
even if they were the signatures of the spouses, they were affixed on
blank sheets of paper which were not intended to be a deed of sale.
Petitioner, on the other hand, denied the allegation of forgery and
maintained that the deed of sale was valid. She claimed that the spouses
offered to sell her the property so they can use the purchase price to
redeem the property from Gepty. Petitioner added that the action is
barred by prescription, laches and estoppel.
Issues (1) W/N the Deed of Sale is a forgery; (2) W/N the transaction
between petitioner and the Spouses Alano is one of sale or equitable
mortgage; (3) W/N respondents action is already barred by
prescription, laches or estoppel; and Held
(1) This Court finds sufficient basis for the finding of the Court of
Appeals that the said signatures were
indeed forged. The Court of Appeals cited apparent differences in the
signatures on the face of the
documentary evidence submitted before the RTC. Also, it found that
the signatures on the deed of sale
appeared to be different in characteristics, spacing and strokes from the
signatures of the Spouses Alano

appearing in other documents forming part of the records of this case
which are admittedly genuine.
ALS2014B Page !129 of !175 Atty. Sta Maria
(2) Respondents stress that they continued to be in possession of the
property even after the alleged execution of the Deed of Sale and they
claim that the P7,000 consideration is grossly inadequate for the market
value of the property. Respondents further stated that they paid P500
interest annually for the loan.
In Our considered view, the appellate court did not err in sustaining the
decision of the trial court holding that the transaction between the
parties is an equitable mortgage. In the instant case, the RTC, as
affirmed by the Court of Appeals, correctly found that more than one of
the circumstances enumerated in Article 1602 are present, to wit: the
inadequacy of the selling price of the properties in relation to its true
value; the vendors (Spouses Alano) remained in possession as lessee or
otherwise; respondents paid the real property taxes; and the spouses
secured the payment of the principal debt owed to petitioner with said
properties.16 On this score, we are in agreement that the parties
intended an equitable mortgage and not a contract of sale.
(3) On the third issue, petitioner claims that the complaint was barred
by extinctive prescription as it was filed only on January 24, 1991, or
almost 13 years from March 7, 1978 when the TCTs were issued in
favor of petitioner. Petitioner argues that the prescriptive period for
reconveyance of land based on implied or constructive trust is 10
years.17 Respondents counter that since the deed of sale and the
certificates of title in the name of petitioner are all null and void,
prescription, laches or estoppel has not set in. Again, we find for the
respondents. Where there is no consent given by one party in a
purported contract, such contract was not perfected; therefore, there is
no contract to speak of. The deed of sale relied upon by petitioner is
deemed a void contract. This being so, the action based on said deed of
sale shall not prescribe in accordance with Article 1410 of the Civil
Code.

Nunga, Jr. vs. Nunga III, 574 SCRA 760, December 18, 2008
Doctrine/s:
A void agreement will not be rendered operative by the parties' alleged
performance (partial or full) of their respective prestations. A contract
that violates the law is null and void ab initio and vests no rights and
creates no obligations. It produces no legal effect at all.
While it is true that a law creating new rights may be given retroactive
effect, the same can only be made possible if the new right does not
prejudice or impair any vested right.
Facts:
Rural Bank of Apalit, Inc. (RBA) conducted its annual stockholders
meeting. The parties involved in this case, Victor, Francisco Jr. (an
American citizen), and Francisco III, are stockholders of RBA. During
the meeting, another stockholder, Gonzales, expressed his intentions to
sell his shares.
Francisco Jr. negotiated with Gonzales for the purchase of the latters
shares. They executed a Contract to Sell and thereafter, Francisco Jr.
gave the initial payment of P50,000. However, before Francisco Jr.
could pay the balance of the purchase price, Gonzales entered into
another contract involving the very same shares. Gonzales executed a
Deed of Assignment of the same shares in favor of Francisco III, and
the latter paid the full purchase price of P300,000.
Eventually, Francisco Jr. paid the balance of P150,000 for the purchase
of the shares. He was, however, informed that the shares were already
sold to Francisco III. After some discussion, Gonzales was somehow
convinced to accept the balance of the purchase price and sign his name
at the dorsal portion of the stock certificates to endorse the same to
Francisco Jr. Gonzalez also executed a Deed of Absolute Sale in favor
of Francisco Jr.
Both Francisco Jr. and Francisco III filed cases asserting their rights
over the shares. Issues: Who among the parties has a better right to the
RBA shares Held:
Francisco III has a better right to the RBA shares. Francisco Jr.
contends that the consummated sale of the RBA shares of stock by
Gonzalez to Francisco Jr. gives him a superior right over the same,
since the transaction complied with all the elements of a valid sale. The
SC held that such sale was invalid because Francisco Jr. was not a
Filipino citizen and was, by law, disqualified from owning capital stock
of a rural bank.
Francisco Jr. contends that the passage of Republic Act No. 8179, An
Act to Further Liberalize Foreign Investment, cured whatever legal
infirmity there may have been in his purchase of the RBA shares of
stock from Gonzalez. As Republic Act No. 8179 expressly creates and
declares for the first time a substantive right, then it may be given
retroactive effect.
However, even the subsequent enactment of Republic Act No. 8179
cannot benefit Francisco Jr. It is true that under the Civil Code of the
Philippines, laws shall have no retroactive effect, unless the contrary is
provided. But there are settled exceptions to this general rule, such as
when the statute is CURATIVE or REMEDIAL in nature, or when it
CREATES NEW RIGHTS. Francisco Jr. asserts that, as an exception
to the cardinal rule of prospective application of laws, Republic Act
No. 8179 may be retroactively applied, since it creates for the first time
a substantive right in favor of natural-born citizens of the Philippines.
Francisco Jr., however, overlooked the vital exception to the exception.
While it is true that a law creating new rights may be given retroactive
effect, the same can only be made possible if the new right does not

prejudice or impair any vested right. ALS2014B Page !132 of !175
Atty. Sta Maria
The SC held that Republic Act No. 8179 cannot be applied
retroactively to the present case, as to do so would prejudice the vested
rights of Francisco III to the disputed RBA shares of stock, since the
Deed of Assignment in favor of him was valid.

The fact of partial payment by Francisco Jr. has no effect on the
validity of the contract which was void because of his disqualification.
A void agreement will not be rendered operative by the parties' alleged
performance (partial or full) of their respective prestations. A contract
that violates the law is null and void ab initio and vests no rights and
creates no obligations. It produces no legal effect at all.

Eulogio vs. Apeles, 576 SCRA 561, January 20, 2009
Article 1479 Doctrine:
According to 1479 of the Civil Code, an unaccepted unilateral promise
to buy or sell a determinate thing for a price certain is upon the
promissor if the promise is supported by a consideration from the price.
Facts:
The spouses Apeles leased the property, a house and lot situated in
Quezon City, to Enrico Eulogio after his father's death and he
succeeded as lessor of the said property. Eulogio and the spouses
Apeles later on entered in a Contract of Lease with Option to Purchase
which afforded Eulogio the option to purchase the property for a price
not exceeding 1.5 million, on or before the expiration of the 3 year
lease period. Before the expiration of the lease period, Eulogio tried to
purchase the property by communicating with Luz Apeles but the
spouses ignored him. Eulogio then filed an action which was grounded
on the contract allowing him to acquire ownership of the property after
paying the agreed amount.
Issue: Whether or not Eulogio has the right to acquire ownership of
the property. Held:
No. According to the contract, the option is not of itself a purchase but
merely secures the privilege to buy. According to 1479 of the Civil
Code, an unaccepted unilateral promise to buy or sell a determinate
thing for a price certain is upon the promissor if the promise is
supported by a consideration from the price. In the case of Eulogio, no
consideration was given by him to the spouses for the option to the
contract.