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1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013. (re: Valid Contracts) DOCTRINE: A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent FACTS: In the 1950’s, Nena Recio (Nena), the mother of Reman Recio (petitioner), leased from the respondents Altamiranos a parcel of land with improvements, situated at No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City, Batangas. The said land has an area of more or less eighty-nine square meters and fifty square decimeters (89.50 sq m), and is found at the northern portion of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of Lipa City. The Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo Altamirano and Maria Valduvia Nena used the ground floor of the subject property as a retail store for grains and the upper floor as the family’s residence. The petitioner claimed that in 1988, the Altamiranos offered to sell the subject property to Nena for Five Hundred Thousand Pesos (P500,000.00). The latter accepted such offer, which prompted the Altamiranos to waive the rentals for the subject property. However, the sale did not materialize at that time due to the fault of the Altamiranos. Nonetheless, Nena continued to occupy and use the property with the consent of the Altamiranos In the latter part of 1994, the petitioner renewed Nena’s option to buy the subject property. The petitioner conducted a series of negotiations with respondent Alejandro who introduced himself as representing the other heirs. After the said negotiations, the Altamiranos through Alejandro entered into an oral contract of sale with the petitioner 1 of 900

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1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013. (re: Valid Contracts)

DOCTRINE: A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent

FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman Recio (petitioner), leased from the respondents Altamiranos a parcel of land with improvements, situated at No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City, Batangas. The said land has an area of more or less eighty-nine square meters and fifty square decimeters (89.50 sq m), and is found at the northern portion of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of Lipa City. The Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo Altamirano and Maria ValduviaNena used the ground floor of the subject property as a retail store for grains and the upper floor as the familys residence. The petitioner claimed that in 1988, the Altamiranos offered to sell the subject property to Nena for Five Hundred Thousand Pesos (P500,000.00). The latter accepted such offer, which prompted the Altamiranos to waive the rentals for the subject property. However, the sale did not materialize at that time due to the fault of the Altamiranos. Nonetheless, Nena continued to occupy and use the property with the consent of the Altamiranos

In the latter part of 1994, the petitioner renewed Nenas option to buy the subject property. The petitioner conducted a series of negotiations with respondent Alejandro who introduced himself as representing the other heirs. After the said negotiations, the Altamiranos through Alejandro entered into an oral contract of sale with the petitioner over the subject property. In January 1995, in view of the said oral contract of sale, the petitioner made partial payments to the Altamiranos in the total amount of One Hundred Ten Thousand Pesos (P110,000.00). Alejandro duly received and acknowledged these partial payments as shown in a receipt dated January 24, 1995. On April 14, 1995, the petitioner made another payment in the amount of Fifty Thousand Pesos (P50,000.00), which Alejandro again received and acknowledged through a receipt of the same date. Subsequently, the petitioner offered in many instances to pay the remaining balance of the agreed purchase price of the subject property in the amount of Three Hundred Forty Thousand Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner. Because of this, the petitioner demanded from the Altamiranos, through Alejandro, the execution of a Deed of Absolute Sale in exchange for the full payment of the agreed price

ISSUES: Is the verbal contract of sale between Alejandro and the petitioner valid?

HELD: YesA valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent. In the instant case, all these elements are present. The records disclose that the Altamiranos were the ones who offered to sell the property to Nena but the transaction did not push through due to the fault of the respondents. Thereafter, the petitioner renewed Nenas option to purchase the property to which Alejandro, as the representative of the Altamiranos verbally agreed.

2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014. (Re: Void Contracts)

DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent.

FACTS: After the DPWH had awarded on July 22, 1997 the contract for the improvement of the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to the petitioners company, Gonzalo Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted (The subcontract) to respondent John Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the project under the latter s business known as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate s first and second billing in the project. In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment (this deed of assignment is premised on the validity of the subcontract) whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project. This 10% retention fee (equivalent to P233,526.13) was the rent for Tarnates equipment that had been utilized in the project.During the processing of the documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the disbursement voucher for the 10% retention fee had then been issued in the name of Gonzalo, and the retention fee released to him.Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this suit against Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in Mountain Province to recover the retention fee of P233,526.13In his answer, Gonzalo admitted the deed of assignment and the authority given therein to Tarnate, but averred that the project had not been fully implemented because of its cancellation by the DPWH, and that he had then revoked the deed of assignment. He insisted that the assignment could not stand independently due to its being a mere product of the subcontract that had been based on his contract with the DPWH; and that Tarnate, having been fully aware of the illegality and ineffectuality of the deed of assignment from the time of its execution, could not go to court with unclean hands to invoke any right based on the invalid deed of assignment or on the product of such deed of assignment.

ISSUES: a) Is the subcontract void? b) Is the deed of assignment void? c) What are the effects of a void contract?

HELD:a) Yes; every contractor is prohibited from subcontracting with or assigning to another person any contract or project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or assignment. This is pursuant to Section 6 of Presidential Decree No. 1594

b) Without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement cannot give birth to a valid contract.

c) Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent

3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re: Voidable Contracts)

DOCTRINE: Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

FACTS: Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8 hectare industrial compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by TCT No. 241597.

Pursuant to a P2 million, 10year 14% per annum loan agreement with Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into 11 lots, with Manphil retaining four lots as mortgage security. The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI.

In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its boiler machine, to prevent its repossession by the seller. PCRI, also a familyowned corporation licensed since 1980 to engage in money lending, was represented by Domingo Ang (Domingo) its president, and his son Caleb, vicepresident. The parties knew each other because they belonged to the same family association, the Lioc Kui Tong Fraternity.

On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese community, as well as information given by his own father Domingo, and without further checking on the background of Enrique and his business and requiring him to submit a company profile and a feasibility study of MFI, Caleb recommended the approval of the P3.44 million with an interest ranging from 24% to 26% per annum and a term of between five and ten years (Decision, p. 5). According to the court, it sufficed for Caleb that Enrique was a wellrespected Chinese businessman, that he was the president of their Chinese family association, and that he had other personal businesses aside from MFI, such as the Africa Trading.

However, in September 1984, the first amortization check bounced for insufficient fund due to MFIs continuing business losses. It was then that the appellees allegedly learned that PCRI had filled up the 24 blank checks with dates and amounts that reflected a 35% interest rate per annum, instead of just 24%, and a twoyear repayment period, instead of 10 years.

On September 4, 1986, Enrique received a Notice of Sheriffs Sale dated August 29, 1986, announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of owner of MFI, because their father went into a coma because of intense pressure from the foreclosure) insisted that prior to the auction notice, they never received any statement or demand letter from the defendants to pay P10.5 million, nor did the defendants inform them of the intended foreclosure.

ISSUES: Was the Mortgage Contract VOID?

HELD: NoAs the records show, petitioners really agreed to mortgage their properties as security for their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties subject of the mortgage to respondents. Consequently, petitioners contention of absence of consent had no firm moorings. It remained unproved. To begin with, they neither alleged nor established that they had been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified defense of absence of consent, Vicky Angs testimony tended at best to prove the vitiation of their consent through insidious words, machinations or misrepresentations amounting to fraud, which showed that the contract was voidable. Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because a voidable or annullable contract is existent, valid and binding, although it can be annulled due to want of capacity or because of the vitiated consent of one of the parties.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P. DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable Contracts)

DOCTRINE: The Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.

FACTS: Emily Rose Go filed suit for collection of a sum of money and damages against herein petitioners, the Municipality of HagonoySometime in the middle of the year 2000, respondent, doing business as KD Surplus and as such engaged in buying and selling surplus trucks, heavy equipment, machinery, spare parts and related supplies, was contacted by petitioner Ople. Respondent had entered into an agreement with petitioner municipality through Ople for the delivery of motor vehicles, which supposedly were needed to carry out certain developmental undertakings in the municipality. Respondent claimed that because of Oples earnest representation that funds had already been allocated for the project, she agreed to deliver from her principal place of business in Cebu City twenty-one motor vehicles whose value totaled P5,820,000.00. To prove this, she attached to the complaint copies of the bills of lading showing that the items were consigned, delivered to and received by petitioner municipality on different dates.However, despite having made several deliveries, Ople allegedly did not heed respondents claim for payment.

Instead of addressing private respondents allegations, petitioners filed a Motion to Dismiss on the ground that the claim on which the action had been brought was unenforceable under the statute of frauds, pointing out that there was no written contract or document that would evince the supposed agreement they entered into with respondent. They averred that contracts of this nature, before being undertaken by the municipality, would ordinarily be subject to several preconditions such as a public bidding and prior approval of the municipal council which, in this case, did not obtain. From this, petitioners impress upon us the notion that no contract was ever entered into by the local government with respondent

ISSUES: Is the contract unenforceable?

HELD: No, it is not unenforceableThe Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.The object is to prevent fraud and perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[ The effect of noncompliance with this requirement is simply that no action can be enforced under the given contracts. If an action is nevertheless filed in court, it shall warrant a dismissal under Section 1(i), Rule 16 of the Rules of Court, unless there has been, among others, total or partial performance of the obligation on the part of either party.Thus, since there exists an indication by way of allegation that there has been performance of the obligation on the part of respondent, the case is excluded from the coverage of the rule on dismissals based on unenforceability under the statute of frauds, and either party may then enforce its claims against the other.

5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re: Rescissible Contracts)

DOCTRINE: Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors.22 However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).23 It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile

FACTS: Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing steel and steel products. For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted the former an omnibus credit line in the amount of P60,000,000.00, a loan of P20,000,000.00 and a subsequent credit line with a limit of P100,000,000.00. As security for its loan obligations, SSC executed five separate deeds of chattel mortgage constituted over various equipment found in its steel manufacturing plant. The deeds of mortgage were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises.On the other hand, on July 18, 2004, SSC filed with the same RTC of Misamis Oriental a Complaint for annulment of mortgage and specific performance for the purpose of compelling the IEB to restructure SSC's outstanding obligations. SSC also prayed for the issuance of a Temporary Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from taking any steps to dispossess SSC of any equipment in its steel manufacturing plant as well as to restrain it from foreclosing the mortgage on the said equipment.On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a motion for intervention contending that it has legal interest in the properties subject of the litigation between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between IEB and SSC were entered into to defraud the latter's creditors. Metrobank prayed for the rescission of the chattel mortgages executed by SSC in favor of IEB.

ISSUES: Was the action of Metrobank, filing an Accion Pauliana case, valid despite the existence of other possible remedies?

HELD: NoUnder Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: 1) Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; 2) Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and 3) Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).

It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile. It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury.

This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.

1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013. (re: Valid Contracts)

DOCTRINE: A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent

FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman Recio (petitioner), leased from the respondents Altamiranos a parcel of land with improvements, situated at No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City, Batangas. The said land has an area of more or less eighty-nine square meters and fifty square decimeters (89.50 sq m), and is found at the northern portion of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of Lipa City. The Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo Altamirano and Maria ValduviaNena used the ground floor of the subject property as a retail store for grains and the upper floor as the familys residence. The petitioner claimed that in 1988, the Altamiranos offered to sell the subject property to Nena for Five Hundred Thousand Pesos (P500,000.00). The latter accepted such offer, which prompted the Altamiranos to waive the rentals for the subject property. However, the sale did not materialize at that time due to the fault of the Altamiranos. Nonetheless, Nena continued to occupy and use the property with the consent of the Altamiranos

In the latter part of 1994, the petitioner renewed Nenas option to buy the subject property. The petitioner conducted a series of negotiations with respondent Alejandro who introduced himself as representing the other heirs. After the said negotiations, the Altamiranos through Alejandro entered into an oral contract of sale with the petitioner over the subject property. In January 1995, in view of the said oral contract of sale, the petitioner made partial payments to the Altamiranos in the total amount of One Hundred Ten Thousand Pesos (P110,000.00). Alejandro duly received and acknowledged these partial payments as shown in a receipt dated January 24, 1995. On April 14, 1995, the petitioner made another payment in the amount of Fifty Thousand Pesos (P50,000.00), which Alejandro again received and acknowledged through a receipt of the same date. Subsequently, the petitioner offered in many instances to pay the remaining balance of the agreed purchase price of the subject property in the amount of Three Hundred Forty Thousand Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner. Because of this, the petitioner demanded from the Altamiranos, through Alejandro, the execution of a Deed of Absolute Sale in exchange for the full payment of the agreed price

ISSUES: Is the verbal contract of sale between Alejandro and the petitioner valid?

HELD: YesA valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent. In the instant case, all these elements are present. The records disclose that the Altamiranos were the ones who offered to sell the property to Nena but the transaction did not push through due to the fault of the respondents. Thereafter, the petitioner renewed Nenas option to purchase the property to which Alejandro, as the representative of the Altamiranos verbally agreed.

2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014. (Re: Void Contracts)

DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent.

FACTS: After the DPWH had awarded on July 22, 1997 the contract for the improvement of the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to the petitioners company, Gonzalo Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted (The subcontract) to respondent John Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the project under the latter s business known as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate s first and second billing in the project. In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment (this deed of assignment is premised on the validity of the subcontract) whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project. This 10% retention fee (equivalent to P233,526.13) was the rent for Tarnates equipment that had been utilized in the project.During the processing of the documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the disbursement voucher for the 10% retention fee had then been issued in the name of Gonzalo, and the retention fee released to him.Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this suit against Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in Mountain Province to recover the retention fee of P233,526.13In his answer, Gonzalo admitted the deed of assignment and the authority given therein to Tarnate, but averred that the project had not been fully implemented because of its cancellation by the DPWH, and that he had then revoked the deed of assignment. He insisted that the assignment could not stand independently due to its being a mere product of the subcontract that had been based on his contract with the DPWH; and that Tarnate, having been fully aware of the illegality and ineffectuality of the deed of assignment from the time of its execution, could not go to court with unclean hands to invoke any right based on the invalid deed of assignment or on the product of such deed of assignment.

ISSUES: a) Is the subcontract void? b) Is the deed of assignment void? c) What are the effects of a void contract?

HELD:a) Yes; every contractor is prohibited from subcontracting with or assigning to another person any contract or project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or assignment. This is pursuant to Section 6 of Presidential Decree No. 1594

b) Without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement cannot give birth to a valid contract.

c) Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent

3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re: Voidable Contracts)

DOCTRINE: Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

FACTS: Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8 hectare industrial compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by TCT No. 241597.

Pursuant to a P2 million, 10year 14% per annum loan agreement with Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into 11 lots, with Manphil retaining four lots as mortgage security. The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI.

In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its boiler machine, to prevent its repossession by the seller. PCRI, also a familyowned corporation licensed since 1980 to engage in money lending, was represented by Domingo Ang (Domingo) its president, and his son Caleb, vicepresident. The parties knew each other because they belonged to the same family association, the Lioc Kui Tong Fraternity.

On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese community, as well as information given by his own father Domingo, and without further checking on the background of Enrique and his business and requiring him to submit a company profile and a feasibility study of MFI, Caleb recommended the approval of the P3.44 million with an interest ranging from 24% to 26% per annum and a term of between five and ten years (Decision, p. 5). According to the court, it sufficed for Caleb that Enrique was a wellrespected Chinese businessman, that he was the president of their Chinese family association, and that he had other personal businesses aside from MFI, such as the Africa Trading.

However, in September 1984, the first amortization check bounced for insufficient fund due to MFIs continuing business losses. It was then that the appellees allegedly learned that PCRI had filled up the 24 blank checks with dates and amounts that reflected a 35% interest rate per annum, instead of just 24%, and a twoyear repayment period, instead of 10 years.

On September 4, 1986, Enrique received a Notice of Sheriffs Sale dated August 29, 1986, announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of owner of MFI, because their father went into a coma because of intense pressure from the foreclosure) insisted that prior to the auction notice, they never received any statement or demand letter from the defendants to pay P10.5 million, nor did the defendants inform them of the intended foreclosure.

ISSUES: Was the Mortgage Contract VOID?

HELD: NoAs the records show, petitioners really agreed to mortgage their properties as security for their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties subject of the mortgage to respondents. Consequently, petitioners contention of absence of consent had no firm moorings. It remained unproved. To begin with, they neither alleged nor established that they had been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified defense of absence of consent, Vicky Angs testimony tended at best to prove the vitiation of their consent through insidious words, machinations or misrepresentations amounting to fraud, which showed that the contract was voidable. Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because a voidable or annullable contract is existent, valid and binding, although it can be annulled due to want of capacity or because of the vitiated consent of one of the parties.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P. DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable Contracts)

DOCTRINE: The Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.

FACTS: Emily Rose Go filed suit for collection of a sum of money and damages against herein petitioners, the Municipality of HagonoySometime in the middle of the year 2000, respondent, doing business as KD Surplus and as such engaged in buying and selling surplus trucks, heavy equipment, machinery, spare parts and related supplies, was contacted by petitioner Ople. Respondent had entered into an agreement with petitioner municipality through Ople for the delivery of motor vehicles, which supposedly were needed to carry out certain developmental undertakings in the municipality. Respondent claimed that because of Oples earnest representation that funds had already been allocated for the project, she agreed to deliver from her principal place of business in Cebu City twenty-one motor vehicles whose value totaled P5,820,000.00. To prove this, she attached to the complaint copies of the bills of lading showing that the items were consigned, delivered to and received by petitioner municipality on different dates.However, despite having made several deliveries, Ople allegedly did not heed respondents claim for payment.

Instead of addressing private respondents allegations, petitioners filed a Motion to Dismiss on the ground that the claim on which the action had been brought was unenforceable under the statute of frauds, pointing out that there was no written contract or document that would evince the supposed agreement they entered into with respondent. They averred that contracts of this nature, before being undertaken by the municipality, would ordinarily be subject to several preconditions such as a public bidding and prior approval of the municipal council which, in this case, did not obtain. From this, petitioners impress upon us the notion that no contract was ever entered into by the local government with respondent

ISSUES: Is the contract unenforceable?

HELD: No, it is not unenforceableThe Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.The object is to prevent fraud and perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[ The effect of noncompliance with this requirement is simply that no action can be enforced under the given contracts. If an action is nevertheless filed in court, it shall warrant a dismissal under Section 1(i), Rule 16 of the Rules of Court, unless there has been, among others, total or partial performance of the obligation on the part of either party.Thus, since there exists an indication by way of allegation that there has been performance of the obligation on the part of respondent, the case is excluded from the coverage of the rule on dismissals based on unenforceability under the statute of frauds, and either party may then enforce its claims against the other.

5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re: Rescissible Contracts)

DOCTRINE: Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors.22 However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).23 It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile

FACTS: Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing steel and steel products. For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted the former an omnibus credit line in the amount of P60,000,000.00, a loan of P20,000,000.00 and a subsequent credit line with a limit of P100,000,000.00. As security for its loan obligations, SSC executed five separate deeds of chattel mortgage constituted over various equipment found in its steel manufacturing plant. The deeds of mortgage were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises.On the other hand, on July 18, 2004, SSC filed with the same RTC of Misamis Oriental a Complaint for annulment of mortgage and specific performance for the purpose of compelling the IEB to restructure SSC's outstanding obligations. SSC also prayed for the issuance of a Temporary Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from taking any steps to dispossess SSC of any equipment in its steel manufacturing plant as well as to restrain it from foreclosing the mortgage on the said equipment.On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a motion for intervention contending that it has legal interest in the properties subject of the litigation between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between IEB and SSC were entered into to defraud the latter's creditors. Metrobank prayed for the rescission of the chattel mortgages executed by SSC in favor of IEB.

ISSUES: Was the action of Metrobank, filing an Accion Pauliana case, valid despite the existence of other possible remedies?

HELD: NoUnder Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: 1) Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; 2) Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and 3) Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).

It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile. It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury.

This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.

1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013. (re: Valid Contracts)

DOCTRINE: A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent

FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman Recio (petitioner), leased from the respondents Altamiranos a parcel of land with improvements, situated at No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City, Batangas. The said land has an area of more or less eighty-nine square meters and fifty square decimeters (89.50 sq m), and is found at the northern portion of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of Lipa City. The Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo Altamirano and Maria ValduviaNena used the ground floor of the subject property as a retail store for grains and the upper floor as the familys residence. The petitioner claimed that in 1988, the Altamiranos offered to sell the subject property to Nena for Five Hundred Thousand Pesos (P500,000.00). The latter accepted such offer, which prompted the Altamiranos to waive the rentals for the subject property. However, the sale did not materialize at that time due to the fault of the Altamiranos. Nonetheless, Nena continued to occupy and use the property with the consent of the Altamiranos

In the latter part of 1994, the petitioner renewed Nenas option to buy the subject property. The petitioner conducted a series of negotiations with respondent Alejandro who introduced himself as representing the other heirs. After the said negotiations, the Altamiranos through Alejandro entered into an oral contract of sale with the petitioner over the subject property. In January 1995, in view of the said oral contract of sale, the petitioner made partial payments to the Altamiranos in the total amount of One Hundred Ten Thousand Pesos (P110,000.00). Alejandro duly received and acknowledged these partial payments as shown in a receipt dated January 24, 1995. On April 14, 1995, the petitioner made another payment in the amount of Fifty Thousand Pesos (P50,000.00), which Alejandro again received and acknowledged through a receipt of the same date. Subsequently, the petitioner offered in many instances to pay the remaining balance of the agreed purchase price of the subject property in the amount of Three Hundred Forty Thousand Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner. Because of this, the petitioner demanded from the Altamiranos, through Alejandro, the execution of a Deed of Absolute Sale in exchange for the full payment of the agreed price

ISSUES: Is the verbal contract of sale between Alejandro and the petitioner valid?

HELD: YesA valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent. In the instant case, all these elements are present. The records disclose that the Altamiranos were the ones who offered to sell the property to Nena but the transaction did not push through due to the fault of the respondents. Thereafter, the petitioner renewed Nenas option to purchase the property to which Alejandro, as the representative of the Altamiranos verbally agreed.

2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014. (Re: Void Contracts)

DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent.

FACTS: After the DPWH had awarded on July 22, 1997 the contract for the improvement of the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to the petitioners company, Gonzalo Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted (The subcontract) to respondent John Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the project under the latter s business known as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate s first and second billing in the project. In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment (this deed of assignment is premised on the validity of the subcontract) whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project. This 10% retention fee (equivalent to P233,526.13) was the rent for Tarnates equipment that had been utilized in the project.During the processing of the documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the disbursement voucher for the 10% retention fee had then been issued in the name of Gonzalo, and the retention fee released to him.Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this suit against Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in Mountain Province to recover the retention fee of P233,526.13In his answer, Gonzalo admitted the deed of assignment and the authority given therein to Tarnate, but averred that the project had not been fully implemented because of its cancellation by the DPWH, and that he had then revoked the deed of assignment. He insisted that the assignment could not stand independently due to its being a mere product of the subcontract that had been based on his contract with the DPWH; and that Tarnate, having been fully aware of the illegality and ineffectuality of the deed of assignment from the time of its execution, could not go to court with unclean hands to invoke any right based on the invalid deed of assignment or on the product of such deed of assignment.

ISSUES: a) Is the subcontract void? b) Is the deed of assignment void? c) What are the effects of a void contract?

HELD:a) Yes; every contractor is prohibited from subcontracting with or assigning to another person any contract or project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or assignment. This is pursuant to Section 6 of Presidential Decree No. 1594

b) Without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement cannot give birth to a valid contract.

c) Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent

3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re: Voidable Contracts)

DOCTRINE: Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

FACTS: Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8 hectare industrial compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by TCT No. 241597.

Pursuant to a P2 million, 10year 14% per annum loan agreement with Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into 11 lots, with Manphil retaining four lots as mortgage security. The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI.

In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its boiler machine, to prevent its repossession by the seller. PCRI, also a familyowned corporation licensed since 1980 to engage in money lending, was represented by Domingo Ang (Domingo) its president, and his son Caleb, vicepresident. The parties knew each other because they belonged to the same family association, the Lioc Kui Tong Fraternity.

On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese community, as well as information given by his own father Domingo, and without further checking on the background of Enrique and his business and requiring him to submit a company profile and a feasibility study of MFI, Caleb recommended the approval of the P3.44 million with an interest ranging from 24% to 26% per annum and a term of between five and ten years (Decision, p. 5). According to the court, it sufficed for Caleb that Enrique was a wellrespected Chinese businessman, that he was the president of their Chinese family association, and that he had other personal businesses aside from MFI, such as the Africa Trading.

However, in September 1984, the first amortization check bounced for insufficient fund due to MFIs continuing business losses. It was then that the appellees allegedly learned that PCRI had filled up the 24 blank checks with dates and amounts that reflected a 35% interest rate per annum, instead of just 24%, and a twoyear repayment period, instead of 10 years.

On September 4, 1986, Enrique received a Notice of Sheriffs Sale dated August 29, 1986, announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of owner of MFI, because their father went into a coma because of intense pressure from the foreclosure) insisted that prior to the auction notice, they never received any statement or demand letter from the defendants to pay P10.5 million, nor did the defendants inform them of the intended foreclosure.

ISSUES: Was the Mortgage Contract VOID?

HELD: NoAs the records show, petitioners really agreed to mortgage their properties as security for their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties subject of the mortgage to respondents. Consequently, petitioners contention of absence of consent had no firm moorings. It remained unproved. To begin with, they neither alleged nor established that they had been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified defense of absence of consent, Vicky Angs testimony tended at best to prove the vitiation of their consent through insidious words, machinations or misrepresentations amounting to fraud, which showed that the contract was voidable. Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because a voidable or annullable contract is existent, valid and binding, although it can be annulled due to want of capacity or because of the vitiated consent of one of the parties.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P. DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable Contracts)

DOCTRINE: The Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.

FACTS: Emily Rose Go filed suit for collection of a sum of money and damages against herein petitioners, the Municipality of HagonoySometime in the middle of the year 2000, respondent, doing business as KD Surplus and as such engaged in buying and selling surplus trucks, heavy equipment, machinery, spare parts and related supplies, was contacted by petitioner Ople. Respondent had entered into an agreement with petitioner municipality through Ople for the delivery of motor vehicles, which supposedly were needed to carry out certain developmental undertakings in the municipality. Respondent claimed that because of Oples earnest representation that funds had already been allocated for the project, she agreed to deliver from her principal place of business in Cebu City twenty-one motor vehicles whose value totaled P5,820,000.00. To prove this, she attached to the complaint copies of the bills of lading showing that the items were consigned, delivered to and received by petitioner municipality on different dates.However, despite having made several deliveries, Ople allegedly did not heed respondents claim for payment.

Instead of addressing private respondents allegations, petitioners filed a Motion to Dismiss on the ground that the claim on which the action had been brought was unenforceable under the statute of frauds, pointing out that there was no written contract or document that would evince the supposed agreement they entered into with respondent. They averred that contracts of this nature, before being undertaken by the municipality, would ordinarily be subject to several preconditions such as a public bidding and prior approval of the municipal council which, in this case, did not obtain. From this, petitioners impress upon us the notion that no contract was ever entered into by the local government with respondent

ISSUES: Is the contract unenforceable?

HELD: No, it is not unenforceableThe Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.The object is to prevent fraud and perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[ The effect of noncompliance with this requirement is simply that no action can be enforced under the given contracts. If an action is nevertheless filed in court, it shall warrant a dismissal under Section 1(i), Rule 16 of the Rules of Court, unless there has been, among others, total or partial performance of the obligation on the part of either party.Thus, since there exists an indication by way of allegation that there has been performance of the obligation on the part of respondent, the case is excluded from the coverage of the rule on dismissals based on unenforceability under the statute of frauds, and either party may then enforce its claims against the other.

5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re: Rescissible Contracts)

DOCTRINE: Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors.22 However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).23 It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile

FACTS: Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing steel and steel products. For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted the former an omnibus credit line in the amount of P60,000,000.00, a loan of P20,000,000.00 and a subsequent credit line with a limit of P100,000,000.00. As security for its loan obligations, SSC executed five separate deeds of chattel mortgage constituted over various equipment found in its steel manufacturing plant. The deeds of mortgage were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises.On the other hand, on July 18, 2004, SSC filed with the same RTC of Misamis Oriental a Complaint for annulment of mortgage and specific performance for the purpose of compelling the IEB to restructure SSC's outstanding obligations. SSC also prayed for the issuance of a Temporary Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from taking any steps to dispossess SSC of any equipment in its steel manufacturing plant as well as to restrain it from foreclosing the mortgage on the said equipment.On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a motion for intervention contending that it has legal interest in the properties subject of the litigation between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between IEB and SSC were entered into to defraud the latter's creditors. Metrobank prayed for the rescission of the chattel mortgages executed by SSC in favor of IEB.

ISSUES: Was the action of Metrobank, filing an Accion Pauliana case, valid despite the existence of other possible remedies?

HELD: NoUnder Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: 1) Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; 2) Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and 3) Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).

It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile. It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury.

This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.

1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013. (re: Valid Contracts)

DOCTRINE: A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent

FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman Recio (petitioner), leased from the respondents Altamiranos a parcel of land with improvements, situated at No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City, Batangas. The said land has an area of more or less eighty-nine square meters and fifty square decimeters (89.50 sq m), and is found at the northern portion of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of Lipa City. The Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo Altamirano and Maria ValduviaNena used the ground floor of the subject property as a retail store for grains and the upper floor as the familys residence. The petitioner claimed that in 1988, the Altamiranos offered to sell the subject property to Nena for Five Hundred Thousand Pesos (P500,000.00). The latter accepted such offer, which prompted the Altamiranos to waive the rentals for the subject property. However, the sale did not materialize at that time due to the fault of the Altamiranos. Nonetheless, Nena continued to occupy and use the property with the consent of the Altamiranos

In the latter part of 1994, the petitioner renewed Nenas option to buy the subject property. The petitioner conducted a series of negotiations with respondent Alejandro who introduced himself as representing the other heirs. After the said negotiations, the Altamiranos through Alejandro entered into an oral contract of sale with the petitioner over the subject property. In January 1995, in view of the said oral contract of sale, the petitioner made partial payments to the Altamiranos in the total amount of One Hundred Ten Thousand Pesos (P110,000.00). Alejandro duly received and acknowledged these partial payments as shown in a receipt dated January 24, 1995. On April 14, 1995, the petitioner made another payment in the amount of Fifty Thousand Pesos (P50,000.00), which Alejandro again received and acknowledged through a receipt of the same date. Subsequently, the petitioner offered in many instances to pay the remaining balance of the agreed purchase price of the subject property in the amount of Three Hundred Forty Thousand Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner. Because of this, the petitioner demanded from the Altamiranos, through Alejandro, the execution of a Deed of Absolute Sale in exchange for the full payment of the agreed price

ISSUES: Is the verbal contract of sale between Alejandro and the petitioner valid?

HELD: YesA valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent. In the instant case, all these elements are present. The records disclose that the Altamiranos were the ones who offered to sell the property to Nena but the transaction did not push through due to the fault of the respondents. Thereafter, the petitioner renewed Nenas option to purchase the property to which Alejandro, as the representative of the Altamiranos verbally agreed.

2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014. (Re: Void Contracts)

DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent.

FACTS: After the DPWH had awarded on July 22, 1997 the contract for the improvement of the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to the petitioners company, Gonzalo Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted (The subcontract) to respondent John Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the project under the latter s business known as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate s first and second billing in the project. In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment (this deed of assignment is premised on the validity of the subcontract) whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project. This 10% retention fee (equivalent to P233,526.13) was the rent for Tarnates equipment that had been utilized in the project.During the processing of the documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the disbursement voucher for the 10% retention fee had then been issued in the name of Gonzalo, and the retention fee released to him.Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this suit against Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in Mountain Province to recover the retention fee of P233,526.13In his answer, Gonzalo admitted the deed of assignment and the authority given therein to Tarnate, but averred that the project had not been fully implemented because of its cancellation by the DPWH, and that he had then revoked the deed of assignment. He insisted that the assignment could not stand independently due to its being a mere product of the subcontract that had been based on his contract with the DPWH; and that Tarnate, having been fully aware of the illegality and ineffectuality of the deed of assignment from the time of its execution, could not go to court with unclean hands to invoke any right based on the invalid deed of assignment or on the product of such deed of assignment.

ISSUES: a) Is the subcontract void? b) Is the deed of assignment void? c) What are the effects of a void contract?

HELD:a) Yes; every contractor is prohibited from subcontracting with or assigning to another person any contract or project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or assignment. This is pursuant to Section 6 of Presidential Decree No. 1594

b) Without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement cannot give birth to a valid contract.

c) Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that a contract, which is the direct result of a previous illegal contract, is also void and inexistent

3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re: Voidable Contracts)

DOCTRINE: Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

FACTS: Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8 hectare industrial compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by TCT No. 241597.

Pursuant to a P2 million, 10year 14% per annum loan agreement with Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into 11 lots, with Manphil retaining four lots as mortgage security. The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI.

In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its boiler machine, to prevent its repossession by the seller. PCRI, also a familyowned corporation licensed since 1980 to engage in money lending, was represented by Domingo Ang (Domingo) its president, and his son Caleb, vicepresident. The parties knew each other because they belonged to the same family association, the Lioc Kui Tong Fraternity.

On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese community, as well as information given by his own father Domingo, and without further checking on the background of Enrique and his business and requiring him to submit a company profile and a feasibility study of MFI, Caleb recommended the approval of the P3.44 million with an interest ranging from 24% to 26% per annum and a term of between five and ten years (Decision, p. 5). According to the court, it sufficed for Caleb that Enrique was a wellrespected Chinese businessman, that he was the president of their Chinese family association, and that he had other personal businesses aside from MFI, such as the Africa Trading.

However, in September 1984, the first amortization check bounced for insufficient fund due to MFIs continuing business losses. It was then that the appellees allegedly learned that PCRI had filled up the 24 blank checks with dates and amounts that reflected a 35% interest rate per annum, instead of just 24%, and a twoyear repayment period, instead of 10 years.

On September 4, 1986, Enrique received a Notice of Sheriffs Sale dated August 29, 1986, announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of owner of MFI, because their father went into a coma because of intense pressure from the foreclosure) insisted that prior to the auction notice, they never received any statement or demand letter from the defendants to pay P10.5 million, nor did the defendants inform them of the intended foreclosure.

ISSUES: Was the Mortgage Contract VOID?

HELD: NoAs the records show, petitioners really agreed to mortgage their properties as security for their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties subject of the mortgage to respondents. Consequently, petitioners contention of absence of consent had no firm moorings. It remained unproved. To begin with, they neither alleged nor established that they had been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified defense of absence of consent, Vicky Angs testimony tended at best to prove the vitiation of their consent through insidious words, machinations or misrepresentations amounting to fraud, which showed that the contract was voidable. Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because a voidable or annullable contract is existent, valid and binding, although it can be annulled due to want of capacity or because of the vitiated consent of one of the parties.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud.According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P. DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable Contracts)

DOCTRINE: The Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.

FACTS: Emily Rose Go filed suit for collection of a sum of money and damages against herein petitioners, the Municipality of HagonoySometime in the middle of the year 2000, respondent, doing business as KD Surplus and as such engaged in buying and selling surplus trucks, heavy equipment, machinery, spare parts and related supplies, was contacted by petitioner Ople. Respondent had entered into an agreement with petitioner municipality through Ople for the delivery of motor vehicles, which supposedly were needed to carry out certain developmental undertakings in the municipality. Respondent claimed that because of Oples earnest representation that funds had already been allocated for the project, she agreed to deliver from her principal place of business in Cebu City twenty-one motor vehicles whose value totaled P5,820,000.00. To prove this, she attached to the complaint copies of the bills of lading showing that the items were consigned, delivered to and received by petitioner municipality on different dates.However, despite having made several deliveries, Ople allegedly did not heed respondents claim for payment.

Instead of addressing private respondents allegations, petitioners filed a Motion to Dismiss on the ground that the claim on which the action had been brought was unenforceable under the statute of frauds, pointing out that there was no written contract or document that would evince the supposed agreement they entered into with respondent. They averred that contracts of this nature, before being undertaken by the municipality, would ordinarily be subject to several preconditions such as a public bidding and prior approval of the municipal council which, in this case, did not obtain. From this, petitioners impress upon us the notion that no contract was ever entered into by the local government with respondent

ISSUES: Is the contract unenforceable?

HELD: No, it is not unenforceableThe Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.The object is to prevent fraud and perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[ The effect of noncompliance with this requirement is simply that no action can be enforced under the given contracts. If an action is nevertheless filed in court, it shall warrant a dismissal under Section 1(i), Rule 16 of the Rules of Court, unless there has been, among others, total or partial performance of the obligation on the part of either party.Thus, since there exists an indication by way of allegation that there has been performance of the obligation on the part of respondent, the case is excluded from the coverage of the rule on dismissals based on unenforceability under the statute of frauds, and either party may then enforce its claims against the other.

5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re: Rescissible Contracts)

DOCTRINE: Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors.22 However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).23 It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile

FACTS: Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing steel and steel products. For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted the former an omnibus credit line in the amount of P60,000,000.00, a loan of P20,000,000.00 and a subsequent credit line with a limit of P100,000,000.00. As security for its loan obligations, SSC executed five separate deeds of chattel mortgage constituted over various equipment found in its steel manufacturing plant. The deeds of mortgage were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises.On the other hand, on Ju