UNION BANK v TIU
FACTS:
Union Bank and respondent spouses, the spouses Tiu entered into a Credit Line Agreement (CLA)
whereby Union Bank agreed to make available to the spouses Tiu credit facilities in such amounts as may
be approved. From September 22, 1997 to March 26, 1998, the spouses Tiu took out various loans
pursuant to this CLA in the total amount of three million six hundred thirty-two thousand dollars
(US$3,632,000.00).
Union Bank advised the spouses Tiu through a letter that, in view of the existing currency risks, the loans
shall be redenominated to their equivalent Philippine peso amount. The spouses Tiu wrote to Union Bank
authorizing the latter to redenominate the loans at the rate of US$1=P41.40 with interest of 19% for one
year. Under the same Restructuring Agreement, the parties declared that the loan obligation to be
restructured is P104,668,741.00. As likewise provided in the Restructuring Agreement, the spouses Tiu
executed a Real Estate Mortgage in favor of Union Bank over their residential property inclusive of lot and
improvements.
Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring
Agreement, Union Bank initiated extrajudicial foreclosure proceedings on the residential property of the
spouses Tiu. The property was to be sold at a public auction. The spouses Tiu filed with the (RTC) a
Complaint seeking to have the Extrajudicial Foreclosure declared null and void.
The spouses Tiu claim that from the beginning the loans were in pesos, not in dollars. The spouses Tiu
allege that the foreclosure sale of the mortgaged properties was invalid, as the loans have already been
fully paid. They also allege that they are not the owners of the improvements constructed on the lot
because the real owners thereof are their co-petitioners.
The spouses Tiu further claim that prior to the signing of the Restructuring Agreement, they entered into a
Memorandum of Agreement with Union Bank whereby the former deposited with the latter several
certificates of shares of stock of various companies and four certificates of title of various parcels of land
located in Cebu. The spouses Tiu claim that these properties have not been subjected to any lien in favor
of Union Bank, yet the latter continues to hold on to these properties and has not returned the same to the
former.
On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily and validly
entered into by both parties. Presenting as evidence the Warranties embodied in the Real Estate
Mortgage, Union Bank contends that the foreclosure of the mortgage on the residential property of the
spouses Tiu was valid and that the improvements thereon were absolutely owned by them. Union Bank
denies receiving certificates of shares of stock of various companies or the four certificates of title of
various parcels of land from the spouses Tiu. However, Union Bank also alleges that even if said
certificates were in its possession it is authorized under the Restructuring Agreement to retain any and all
properties of the debtor as security for the loan.
ISSUE: WON the Restructuring Agreement between the parties is valid.
HELD: YES, the Restructuring Agreement is valid and, as such, a valid and binding novation of loans of
the spouses Tiu.
Since the loans of the Tiu spouses from Union Bank were peso loans from the very beginning, there is no
need for conversion thereof. A Restructuring Agreement should merely confirm the loans, not add thereto.
By making it appear in the Restructuring Agreement that the loans were originally dollar loans, Union
Bank overstepped its rights as a creditor and made unwarranted interpretations of the original loan
agreement. This Court is not bound by such interpretations made by Union Bank. When one party makes
an interpretation of a contract, he makes it at his own risk, subject to a subsequent challenge by the other
party and a modification by the courts. In this case, that party making the interpretation is not just any
party, but a well-entrenched and highly respected bank. The matter that was being interpreted was also a
financial matter that is within the profound expertise of the bank. A normal person who does not possess
the same financial proficiency or acumen as that of a bank will most likely defer to the latter’s esteemed
opinion, representations and interpretations. Therefore, when there is a doubtful banking transaction, this
Court will tip the scales in favor of the borrower.
Given the above ruling, the Restructuring Agreement, therefore, between the Tiu spouses and Union
Bank does not operate to supersede all previous loan documents, as claimed by Union Bank. But the said
Restructuring Agreement, as it was crafted by Union Bank, does not merely confirm the original loan of
the Tiu spouses but attempts to create a novation of the said original loan that is not clearly authorized by
the debtors and that is not supported by any cause or consideration. According to Article 1292 of the New
Civil Code, in order that an obligation may by extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other. Such is not the case in this instance. No valid novation of the original
obligation took place. Even granting arguendo that there was a novation, the sudden change in the
original amount of the loan to the new amount declared in the Restructuring Agreement is not supported
by any cause or consideration. Under Article 1352 of the Civil Code, contracts without cause, or with
unlawful cause, produce no effect whatever. A contract whose cause did not exist at the time of the
transaction is void. Accordingly, Article 1297 of the New Civil Code mandates that, if the new obligation is
void, the original one shall subsist, unless the parties intended that the former relation should be
extinguished at any event. Since the Restructuring Agreement is void and since there was no intention to
extinguish the original loan, the original loan shall subsist.
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.
Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion
of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail.
Similarly, the Court of Appeals’ pronouncement that the novation was not supported by any cause or
consideration is likewise incorrect. This conclusion suggests that when the parties signed the
Restructuring Agreement, Union Bank got something out of nothing or that the spouses Tiu received no
benefit from the restructuring of their existing loan and was merely taken advantage of by the bank. It is
important to note at this point that in the determination of the nullity of a contract based on the lack of
consideration, the debtor has the burden to prove the same. Article 1354 of the Civil Code provides that
"[a]though the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary."
MIAA v VELAYO SPORTS CENTER
FACTS:
Petitioner (then still called the Civil Aeronautics Administration or CAA) and Salem Investment
Corporation (Salem) entered into a Contract of Lease whereby petitioner leased in favor of Salem a
parcel of land located in front of the Manila International Airport (MIA) in Pasay City. Subsequently, in a
Transfer of Lease Rights and Existing Improvements, Salem conveyed in favor of Ding Velayo Export
Corporation (Velayo Export), consisting of an unfinished cinema-theater. Accordingly, petitioner and
Velayo Export executed a Contract of Lease .
Velayo Export executed a Transfer of Lease Rights by which it conveyed to respondent, its leasehold
rights over the subject property it was leasing from petitioner. As a result, petitioner and respondent
executed another Contract of Lease covering the subject property.
Respondent began occupying the subject property then constructed a multi-million plaza with a threestorey building on said property. Respondent leased spaces in the building to various business
proprietors.
Petitioner issued Administrative Order (AO) No. 4 and AO No. 1, fixing various rates for the lease rentals
of its properties. The admin orders allegedly effected an increase in the lease rental of respondent for the
subject property, as provided for in paragraph 13 of the Contract of Lease between petitioner and
respondent.
Respondent opposed the implementation of any increase in its lease rental for the subject
property. Petitioner, through its General Manager, Eduardo O. Carrascoso, in a Letter dated February 24,
1992, declined to renew the lease, ordered respondent to vacate the subject property within five days,
and demanded respondent to pay arrears in lease rentals.
Petitioner entirely disregarded the claims of respondent and threatened to take-over the subject property.
Respondent filed against petitioner before the RTC a Complaint for Injunction, Consignation, and
Damages with a Prayer for a Temporary Restraining Order.
In its Answer, petitioner contended that its Contract of Lease with respondent was already terminated
on February 15, 1992, the expiration date explicitly stated under paragraph 4 of the same Contract.
ISSUE: WON the renewal of the Contract of Lease cannot be made to depend on the sole will of
respondent for the same would then be void for being a potestative condition.
HELD:
Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. It
provides that "the contract must bind both the contracting parties; its validity or compliance cannot be left
to the will of one of them." This binding effect of a contract on both parties is based on the principle that
the obligations arising from contracts have the force of law between the contracting parties, and there
must be mutuality between them based essentially on their equality under which it is repugnant to have
one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render
void a contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled
will of one of the contracting parties.
An express agreement which gives the lessee the sole option to renew the lease is frequent and subject
to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease
agreement, is fundamentally part of the consideration in the contract and is no different from any other
provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the
performance by the lessee. It is a purely executory contract and at most confers a right to obtain a
renewal if there is compliance with the conditions on which the right is made to depend. The right of
renewal constitutes a part of the lessee's interest in the land and forms a substantial and integral part of
the agreement.
The fact that such option is binding only on the lessor and can be exercised only by the lessee does not
render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the
lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he
exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new
lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain
possession of the property for the duration of the new lease, and the lessor may hold him liable for the
rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to
abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and
the lessee since they remain with the same faculties in respect to fulfillment.
Paragraph 17 of the Contract of Lease dated May 14, 1976 between petitioner and respondent solely
granted to respondent the option of renewing the lease of the subject property, the only express
requirement was for respondent to notify petitioner of its decision to renew the lease within 60 days prior
to the expiration of the original lease term. It has not been disputed that said Contract of Lease was
willingly and knowingly entered into by petitioner and respondent. Thus, petitioner freely consented to
giving respondent the exclusive right to choose whether or not to renew the lease. As we stated in Allied
Banking, the right of renewal constitutes a part of the interest of respondent, as lessee, in the subject
property, and forms a substantial and integral part of the lease agreement with petitioner. Records show
that respondent had duly complied with the only condition for renewal under Section 17 of the Contract of
Lease by notifying petitioner 60 days prior to the expiration of said Contract that it chooses to renew the
lease. We cannot now allow petitioner to arbitrarily deny respondent of said right after having previously
agreed to the grant of the same.
HEIRS OF URETA v URETA SR.
3.HEIRS OF POLICRONIO M. URETA vs. HEIRS OF LIBERATO M. URETA
Facts:
Alfonso was financially well-off during his lifetime. He has 14 children. He owned several fishpens, a
fishpond, a sari-sari store, a passenger jeep, and was engaged in the buying and selling of copra. In order
to reduce inheritance tax Alfonso made it appear that he sold some of his lands to his children.
Accordingly, Alfonso executed four (4) Deeds of Sale covering several parcels of land in favor of
Policronio, Liberato, Prudencia, and his common-law wife, Valeriana Dela Cruz. The Deed of Sale
executed on October 25, 1969, in favor of Policronio, covered six parcels of land, which are the properties
in dispute in this case.
Since the sales were only made for taxation purposes and no monetary consideration was given, Alfonso
continued to own, possess and enjoy the lands and their produce.
On April 19, 1989, Alfonso's heirs executed a Deed of Extra-Judicial Partition, which included all the lands
that were covered by the four (4) deeds of sale that were previously executed by Alfonso for taxation
purposes. Conrado, Policronio's eldest son, representing the Heirs of Policronio, signed the Deed of
Extra-Judicial Partition in behalf of his co-heirs.
After their father's death, the Heirs of Policronio found tax declarations in his name covering the six
parcels of land. On June 15, 1995, they obtained a copy of the Deed of Sale executed on October 25,
1969 by Alfonso in favor of Policronio.
Believing that the six parcels of land belonged to their late father, and as such, excluded from the Deed of
Extra-Judicial Partition, the Heirs of Policronio sought to amicably settle the matter with the Heirs of
Alfonso. Earnest efforts proving futile, the Heirs of Policronio filed a Complaint for Declaration of
Ownership, Recovery of Possession, Annulment of Documents, Partition, and Damages against the Heirs
of Alfonso before the RTC on November 17, 1995
Issue:
1. Whether or not the Deed of Sale was valid;
2. Whether or not the Deed of Extra-Judicial Partition was valid
Ruling:
The Deed of Sale was void because it is simulated as the parties did not intend to be legally bound by it.
As such, it produced no legal effects and did not alter the juridical situation of the parties. It is only made
to avoid tax purposes. The CA also noted that Alfonso continued to exercise all the rights of an owner
even after the execution of the Deed of Sale, as it was undisputed that he remained in possession of the
subject parcels of land and enjoyed their produce until his death.
Two veritable legal presumptions bear on the validity of the Deed of Sale: (1) that there was sufficient
consideration for the contract; and (2) that it was the result of a fair and regular private transaction. If
shown to hold, these presumptions infer prima facie the transaction's validity, except that it must yield to
the evidence adduced.
2) It has been held in several cases that partition among heirs is not legally deemed a conveyance of real
property resulting in change of ownership. It is not a transfer of property from one to the other, but rather,
it is a confirmation or ratification of title or right of property that an heir is renouncing in favor of another
heir who accepts and receives the inheritance. It is merely a designation and segregation of that part
which belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore, be considered as an
act of strict dominion. Hence, a special power of attorney is not necessary.
In fact, as between the parties, even an oral partition by the heirs is valid if no creditors are affected. The
requirement of a written memorandum under the statute of frauds does not apply to partitions effected by
the heirs where no creditors are involved considering that such transaction is not a conveyance of
property resulting in change of ownership but merely a designation and segregation of that part which
belongs to each heir.