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Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract.

Two different requisites are required to confer the necessary capacity to bring an action for annulment of a contract, to wit:

(1) The plaintiff must have an interest in the contract; and

(2) The victim and not the guilty party or the party responsible for the defect is the person who must assert the same.

In an action for the annulment of contracts, the real parties in interest are those who are parties to the contract, or are bound either principally or subsidiarily, or are prejudiced in their rights with respect to one of the contracting parties and can show the detriment which would positively result to them from the contract even though they did not intervene in it, or who claim aright to take part in a public bidding but have been illegally excluded from it.

The guilty party, including his successors-in-interest, cannot ask for annulment. This rule is sustained by the principle that he who comes to court must do so with clean hands. Thus, a person who employed fraud cannot base his action for annulment of a contract upon such flaw of the contract.

Case Digest: Banico v. Stager G.R. No. 232825

FACTS: In the case of Banico vs. Stager, G.R. No. 232825, the facts revolve around a dispute over a property. The petitioner, Banico, claimed ownership of a parcel of land and filed a case against the respondent, Stager, seeking to recover possession of the said property. Banico alleged that Stager unlawfully entered and occupied the land, leading to the legal confrontation.

ISSUE: The main issue at hand was the determination of the rightful ownership of the disputed property. The court was tasked with analyzing the evidence presented by both parties to ascertain the true owner of the land in question. Additionally, the court needed to decide whether Stager's occupation of the property was lawful or if it constituted trespassing.

RULING Upon careful consideration of the facts and arguments presented, the court ruled in favor of Banico. The court found that Banico had valid and legal ownership of the property, and Stager's occupation was deemed unlawful. As a result, the court ordered Stager to vacate the premises and return possession of the land to Banico. The ruling in Banico vs. Stager, G.R. No. 232825, underscores the importance of respecting property rights and upholding the rule of law. It serves as a reminder that legal disputes regarding ownership must be settled judiciously, with a thorough examination of the evidence and adherence to legal principles. The court's decision in this case reaffirms the sanctity of property rights and the significance of abiding by the law in resolving conflicts over ownership of land.

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Interpretation of Contracts

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

Case Digest: Labasan vs Lacuesta G.R. No. L-25931 (1978)

Facts:

Spouses Lacuesta were the owners of an unregistered, irrigated riceland in Ilocos Norte. They conveyed by means of a written document the land with the right to repurchase after 10 years. They failed to exercise their right within the stipulated period.

They filed a petition seeking the reconveyance of the parcel of land, allegedly as security for a loan. The trial court ruled that the document executed by the Lacuestas was a pacto de retro sale and that they lost their right to redeem the land for not having taken any step within the agreed 10 years.

On appeal, the Court of Appeals set aside the judgement of the trial court and declared the contract an equitable mortgage and ordered the Labasans to reconvey the land, and that the loan by the Lacuestas be deemed paid from the fruits of the property which the Labasans had been receiving for the past 32 years.

Issue: Whether or not the contract is a pacto de retro sale or an equitable mortgage.

Held:

The contract is an equitable mortgage.

It is a basic fundamental rule in the interpretation of a contract that if the terms thereof are clear and leave no doubt upon the intention of the contracting parties the literal meaning of the stipulation shall control, but when the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Article 1370, NCC).

In case of doubt concerning the surrounding circumstances in the execution of a contract, the least transmission of rights and interest shall prevail if the contract is gratuitous, and if onerous, the doubt is to be settled in favor of the greatest reciprocity of interest.

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Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.

If the misrepresentation is not intentional but made in good faith, it is considered a mere mistake or error.

Example:

Girlie was selling her land to Enrico. Girlie truthfully told Enrico that the lands therein will increase price due to a theme park that will be built nearby. Unknowingly to Girlie, the owners of the themepark decided to relocate the location. May Enrico annul the contract due to fraud?

Answer: No, because there was no fraud in the case. While Enrico may annul the contract due to some other ground like mistake or error, there was good faith on the part of girlie.

Case Digest: Luis Aisain vs Benjamin Jalandoni

FACTS

The parties agreed upon the sale of the land  in question, they had in mind chiefly the area and quality of the land, the subject of the contract, as will be seen from the letter of Asiain dated May 6, 1920, purchase of land of Mr. Luis Asiain and his wife Maria Cadenas, by B. Jalandoni, containing 25 hectares more or less of land bounded by property of the purchaser, with its corresponding crop, estimated at 2,000 piculs, the total value of which is P55,000.00. The price is to be paid by paying P30,000.00 at the signing of the document, and P25,000.00 within one year with interest at the rate of 10%.” In accordance with the foregoing memorandum the deed of sale was executed in the City of Iloilo, the parties stipulating among other things, the following:

“(1) That Luis Asiain does hereby promise and bind himself to sell to Benjamin Jalandoni a parcel of land of the hacienda “Maria” of the aforesaid Luis Asiain, situated in the municipality of La Carlota, Province of Occidental Negros, P.I.

“(2) That Benjamin Jalandoni does hereby promise and bind himself to purchase the aforesaid parcel of land in the sum of P55,000 upon certain conditions specified in a memorandum signed by the parties which is in the hands of Attorneys Padilla & Treñas.”

Jalandoni then took possession of the land, milled the cane at La Carlota Central, from which he realized 800 piculs and 23 catesof the centrifugal sugar. And after he had secured from Asiain the certificate of title, he had a surveyor measure the land, which was found to contain only 18 hectares, 54 centares, and 22 centares. Jalandoni had paid P30,000 leaving an unpaid balance of P25,000 of the purchase price of P55,000 stipulated in the contract. Asiain sued to recover the balance from Jalandoni.

The competent court declared the deed of sale void, absolved the defendant from paying P25,000 and ordered the parties to return what they had received under the contract.Upon appeal to the Supreme Court, the judgment was affirmed on the ground that both parties had acted by a mutual mistake.

ISSUE

Whether or not  the seller and buyer  misrepresented each other or committed an error?

HELD

1)The judgment was affirmed on the ground that both parties had acted by a mutual mistake. 2) The vendor undertook to deliver to the vendee a parcel of land some 25 hectares in area and of such a quality as to be able to produce 2,000 piculs of centrifugal sugar. The vendee, in turn, agreed to buy said parcel of land with the understanding that it contained that area and was of the quality guaranteed by the vendor. Inasmuch as the land had neither the area nor the quality the vendor had assured the vendee it had, it is clear the latter was entitled to rescind the contract, upon the strength of the authorities cited in the opinion of the court. We believe that Jalandoni was entitled to rescind that contract, inasmuch as the vendor did not deliver a parcel of land of the area and quality stipulated in the contract. 3) the judgment appealed from is reversed, and it is held that the contract between the parties is valid and binding upon them. Wherefore, the defendants are absolved from the complaint

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Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.

Perfection of real contracts. The article refers to real contracts which require delivery of the object for their validity, in addition to the presence of the other essential elements of a contract: consent subject matter and cause of consideration.

Real contract are perfected from the moment of the delivery of the object of the obligation.

Meaning of deposit:  A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same.  If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Meaning of Pledge:  A pledge is a contract by virtue of which one person delivers to another a movable, or instrument evidencing incorporeal rights, for the purpose of securing a principal obligation, with the understanding that when the obligation is fulfilled the thing or the instrument shall be returned by the creditor to the debtor with its fruits and accessions.

Meaning commodatum:  Commodatum is a species of bailment, by which one of the parties binds himself to return to the other certain personal chattels which the latter delivers to him   to be used by him without reward.  It is actually a loan for use.

Case Digest: Perez vs Pomar 2 Phil. 682

FACTS

Perez filed in the Court of First Instance of Laguna a complaint asking the Court to determine the amount due him for services rendered as an interpreter for Pomar and for judgement to be rendered in his favor.

Pomar, on his part, denied having sought the services of Perez, contending that, Perez being his friend, he only accepted the services for they were rendered in a spontaneous, voluntary and officious manner.

ISSUE

Whether or not consent has been given by the other party.

HELD

Yes. It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into, but whether the plaintiff’s services were solicited or whether they were offered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, there was a tacit and mutual consent as to the rendition of services. This gives rise to the delegation upon the person benefited by the services to make compensation thereof, since the bilateral obligation to render services as interpreter, on the one hand, and on the other to pay for the services rendered is thereby incurred.

As was held in the Supreme Court of Spain in its decision of February 12, 1889, it stated that “not only is there an express and tacit consent which produces real contract but there is also a presumptive consent which is the basis of quasi-contracts this giving rise to the multiple judicial relations which result in obligations for the delivery of a thing or the rendition of a service

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Article 1289

ARTICLE 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. 

Requisites of application of payments.

The requisites are:

(1) There must be one debtor and one creditor;

(2) There must be two or more debts;

(3) The debts must be of the same kind;

(4) The debts to which payment made by the debtor has been applied must be due; and

(5) The payment made must not be sufficient to cover all the debts. Application as to debts not yet due.

Case Digest

Sinamban v. China Banking

Facts:

The spouses Manalastas executed a Real Estate Mortgage (REM) in favor of respondent Chinabank. The spouses Manalastas executed several promissory notes in favor of Chinabank. In two of the PNs, petitioners spouses Sinamban signed as co-makers. Chinabank filed a Complaint for sum of money against the spouses Manalastas and the spouses Sinamban. The spouses Sinamban admitted that they signed some PN forms as co-makers upon the request of the spouses Manalastas who are their relatives; although they insisted that they derived no money or other benefits from the loans.

Issue:

Whether or not a co-maker can be held solidarily liable.

ruling:

Yes. According to Article 2047 of the Civil Code, if a person binds himself solidarily with the principal debtor, the provisions of Articles 1207 to 1222 of the Civil Code (Section 4, Chapter 3,Title I, Book IV) on joint and solidary obligations shall be observed. It is settled that when the obligor or obligors undertake to be "jointly and severally" liable, it means that the obligation is solidary. A co-maker of a PN who binds himself with the maker "jointly and severally" renders himself directly and primarily liable with the maker on the debt, without reference to his solvency.

In this case, the spouses Sinamban expressly bound themselves to be jointly and severally, or solidarily, liable with the principal makers of the PNs, the spouses Manalastas.

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Article 1284

Article 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided.

Case Digest

Associated bank vs. Vicente Henry Tan

FACTS:

          Respondent Tan is a businessman and a regular depositor-creditor of the petitioner, Associated Bank.  Sometime in September 1990, he deposited a postdated check with the petitioner in the amount of P101,000 issued to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record.    Allegedly, upon advice and instruction of petitioner that theP101,000 check was already cleared and backed up by sufficient funds, respondent, on the same date, withdrew the sum of P240,000 from his account leaving a balance of P57,793.45.

A day after, TAN deposited the amount of P50,000 making his existing balance in the amount of P107,793.45, because he has issued several checks to his business partners. However, his suppliers and business partners went back to him alleging that the checks he issued bounced for insufficiency of funds. Thereafter, respondent informed petitioner to take positive steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks. Nonetheless, petitioner did not bother nor offer any apology regarding the incident. Respondent Tan filed a Complaint for Damages on December 19, 1990, with the RTC against petitioner. 

The trial court rendered a decision in favor of respondent and ordered petitioner to pay damages and attorney’s fees.  Appellate court affirmed the lower court’s decision. 

CA ruled that the bank should not have authorized the withdrawal of the value of the deposited check prior to its clearing. Petitioner filed a Petition for Review before the Supreme Court.

ISSUE:

Whether or not the petitioner has the right to debit the amount of the dishonored check from the account of respondent on the ground that the check was withdrawn by respondent prior to its clearing

HELD:

The Petition has no merit.

The real issue here is not so much the right of petitioner to debit respondent’s account but, rather, the manner in which it exercised such right.  Banks are granted by law the right to debit the value of a dishonored check from a depositor’s account but they must do so with the highest degree of care, so as not to prejudice the depositor unduly.  The degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned.  In this case, petitioner did not treat respondent’s account with the highest degree of care.  Respondent withdrew his money upon the advice of petitioner that his money was already cleared.  It is petitioner’s premature authorization of the withdrawal that caused the respondent’s account balance to fall to insufficient levels, and the subsequent dishonor of his own checks for lack of funds.

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Article 1262: Obligation and Contracts

Section 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. 

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk.

EXAMPLES:

(1) Ms. Ulanday promised to deliver the Toyota Car with the plate number of AAV 316 (2008) worth 100,000 to Ms. Simundac. The Toyota Car with the plate number of AAV 316 (2008) which Ms. Ulanday intended to deliver was carnapped without his fault.

• Ms. Ulanday is not liable to Ms. Simundac because she is not at fault, so her obligation is extinguished.

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NATURAL OBLIGATIONS

Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. 

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What is Lateral Obligation?

Lateral obligation, also known as an obligation to the co-owner, is a legal concept that requires co-owners of a property to respect each other's rights and interests in the shared property.

Under the Civil Code, co-owners have the obligation to refrain from acts that may impair the use and enjoyment of the property by the other co-owners.

An example of lateral obligation is when two individuals co-own a piece of land. One co-owner cannot build a structure on the land that would obstruct the access or view of the other co-owner without their consent. This is to ensure that each co-owner's rights and interests in the property are respected and maintained.

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Obligation and Contracts: Article 1235

Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

Manila International Airport Authority v. AVIA

Facts:

Manila International Airport Authority (MIAA) and Avia Filipinas International, Inc. (AFIC) entered into a contract of lease in September 1990.

AFIC was allowed to use specific portions of land and facilities within the Ninoy Aquino International Airport for its aircraft repair station and chartering operations.

The contract was for one year with a monthly rental of P6,580.

After the contract expired, AFIC continued to occupy the premises and pay the original rental fee without protest from MIAA.

Three years later, MIAA informed AFIC that the monthly rental fee was increased to P15,966.50 starting from September 1, 1991.

AFIC paid the increased rental fee but refused to pay the lump sum of P347,300.50 sought to be recovered by MIAA.

AFIC was denied access to the leased premises from July 1, 1997, until March 11, 1998.

AFIC filed a complaint for damages with injunction against MIAA, seeking uninterrupted access to the leased premises, refund of monthly rentals, and attorney's fees.

Issue:

Whether MIAA is entitled to apply the increase in rentals against AFIC.

Whether the principle of unjust enrichment is applicable to the case.

Whether AFIC is entitled to attorney's fees.

Ruling:

The Court ruled in favor of AFIC and affirmed the decision of the Regional Trial Court (RTC). MIAA was ordered to pay AFIC the following:

P2,000,000.00 as actual damages

P200,000.00 as exemplary damages

Refund of monthly rental payments from July 1, 1997, to March 11, 1998, with 12% interest

P100,000.00 as attorney's fees

Costs of suit.

Ratio:

The Court interpreted the provisions of the lease contract and found that MIAA had no legal basis to require AFIC to pay additional rental fees from September 1, 1991, to September 30, 1994.

Any amendment, alteration, or modification of the contract should be made in writing and signed by both parties.

There was no evidence that AFIC gave its consent to the increase in rental fees during the specified period.

MIAA's act of denying AFIC access to the leased premises was unjustified and violated the provisions of the Civil Code on lease contracts.

MIAA's actions constituted unjust enrichment, as it retained a benefit to the loss of AFIC without just or legal grounds.

AFIC was entitled to damages and attorney's fees.

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Article 1208 of ObliCon

Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.

Petron vs. Jovero

Facts:

Petron Corporation entered into a contract of lease with Rubin Uy for the operation of a gasoline station.

Petron also entered into a dealership contract with Rubin Uy for the sale of its products at the gasoline station.

Petron contracted the hauling services of Jose Villaruz for the delivery of its products to the gasoline station.

During the unloading of the petroleum from the tank truck into the fill pipe, a fire started and caused damages to the nearby properties of the respondents.

Issue:

Whether Petron can be considered at fault for continuing to do business with Rubin Uy without renewing or extending their expired dealership agreement.

Whether there is a causal connection between Petron's failure to renew or extend its dealership contract and the fire that caused damages to the surrounding buildings.

Whether Petron is liable for the fire that occurred during the unloading of the fuel by an independent hauler at the gasoline station.

Whether a supplier of fuel can be held liable for the neglect of others in distributing and storing such fuel.

Ruling:

Petron is liable for the damages caused by the fire.

Petron and the dealer Rubin Uy are solidarily liable for the damages.

The hauler Villaruz is also liable for the damages caused by his employee.

Petron, as the owner of the equipment and responsible for the delivery of the petroleum, had the obligation to ensure the safe transportation, storage, and delivery of the fuel.

Petron's negligence in allowing the use of an unaccredited tank truck and failing to renew the dealership contract contributed to the damages caused by the fire.

The court emphasized that both Petron and Villaruz shared the responsibility for the maintenance of the equipment and the safe handling of the fuel.

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Article 1181 of Obligations and Contracts

Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114)

Yamamoto vs. Nishino Leather (Gr. No. 150283)

Facts:

Ryuichi Yamamoto, a Japanese national, organized a Philippine corporation called Wako Enterprises Manila, Incorporated (WAKO) in 1983.

In 1987, Yamamoto entered into a joint venture with Ikuo Nishino, another Japanese national, where Nishino would acquire 70% of the authorized capital stock of WAKO.

Nishino and his brother eventually acquired more than 70% of the stock, reducing Yamamoto's investment to less than 10%.

The corporate name of WAKO was later changed to Nishino Leather Industries, Inc. (NLII).

During negotiations for a planned takeover of NLII by Nishino, Yamamoto attempted to retrieve the machineries and equipment he claimed were part of his investment.

NLII and Nishino refused to allow him to do so.

Yamamoto filed a complaint for replevin in the Regional Trial Court (RTC) of Makati.

Issue:

Whether Yamamoto has the right to retrieve the machineries and equipment he claims are part of his investment in NLII.

Ruling:

The Court of Appeals held in favor of NLII and Nishino, reversing the RTC decision.

The court ruled that the machineries and equipment claimed by Yamamoto are corporate property and cannot be retrieved without the authority of the NLII Board of Directors.

The court based its ruling on the principle that corporate powers are exercised by the Board of Directors.

Without a board resolution authorizing Nishino to act on behalf of the corporation, he cannot bind the corporation.

Mere ownership by a single stockholder of all or nearly all of the capital stocks of a corporation is not sufficient grounds to disregard the separate corporate personality.

The court emphasized that the property of a corporation is not the property of its stockholders or members.

The distribution of corporate assets cannot be made to depend on the whims and caprices of the stockholders, officers, or directors of the corporation.

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Domingo vs. Spouses Molina

FACTS: The spouses Anastacio and Flora Domingo bought a parcel of land. During his lifetime, Anastacio borrowed money from the respondent spouses Genaro and Elena Molina. 10 years after Flora’s death, Anastacio sold his interest over the land to the spouses Molina to answer for his debts. Melecio, one of the children of Anastacio and Flora, learned of the transfer and filed a Complaint for Annulment of Title and Recovery of Ownership against the spouses Molina. Melecio claims that Anastacio gave the subject property to the spouses Molina to serve as collateral for the money that Anastacio borrowed. Anastacio could not have validly sold the interest over the subject property without Flora’s consent, as Flora was already dead at the time of the sale. The RTC dismissed the case because Melecio failed to establish his claim. The RTC also held that Anastacio could dispose of conjugal property without Flora’s consent since the sale was necessary to answer for conjugal liabilities. The CA affirmed the RTC ruling in toto. The CA also held that Flora’s death is immaterial because Anastacio only sold his rights, excluding Flora’s interest, over the lot to the spouses Molina.

ISSUE: Whether the sale of a conjugal property to the spouses Molina without Flora’s consent is valid and legal?

RULING: YES. Article 130. Upon the termination of the marriage by death, the conjugal partnership property shall be liquidated in the same proceeding for the settlement of the estate of the deceased. In the case of Taningco v. Register of Deeds of Laguna, we held that the properties of a dissolved conjugal partnership fall under the regime of co-ownership among the surviving spouse and the heirs of the deceased spouse until final liquidation and partition. The surviving spouse, however, has an actual and vested one-half undivided share of the properties, which does not consist of determinate and segregated properties until liquidation and partition of the conjugal partnership. An implied ordinary co-ownership ensued among Flora’s surviving heirs, including Anastacio, with respect to Flora’s share of the conjugal partnership until final liquidation and partition; Anastacio, on the other hand, owns one-half of the original conjugal partnership properties as his share, but this is an undivided interest. Thus, Anastacio, as co-owner, cannot claim title to any specific portion of the conjugal properties without an actual partition being first done either by agreement or by judicial decree. Nonetheless, Anastacio had the right to freely sell and dispose of his undivided interest in the subject property. The OCT annotation of the sale to the spouses Molina reads that "only the rights, interests and participation of Anastacio Domingo, married to Flora Dela Cruz, is hereby sold, transferred, and conveyed unto the said vendees x x x x ”. At the time of the sale, Anastacio’s undivided interest in the conjugal properties consisted of: (1) one-half of the entire conjugal properties; and (2) his share as Flora’s heir on the conjugal properties. Anastacio, as a co-owner, had the right to freely sell and dispose of his undivided interest, but not the interest of his co-owners. Consequently, Anastactio’s sale to the spouses Molina without the consent of the other co-owners was not totally void, for Anastacio’s rights or a portion thereof were thereby effectively transferred, making the spouses Molina a co-owner of the subject property to the extent of Anastacio’s interest. This result conforms with the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so (quando res non valet ut ago, valeat quantum valere potest). The spouses Molina would be a trustee for the benefit of the co-heirs of Anastacio in respect of any portion that might belong to the co-heirs after liquidation and partition. Melecio’s recourse as a co-owner of the conjugal properties, including the subject property, is an action for partition under Rule 69 of the Revised Rules of Court. As held in the case of Heirs of Protacio Go, Sr., "it is now settled that the appropriate recourse of co-owners in cases where their consent were not secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the coowners is an action for PARTITION under Rule 69 of the Revised Rules of Court.

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Article 129 of the Family Code

Upon the dissolution of the conjugal partnership regime, the following procedure shall apply:

(1) An inventory shall be prepared, listing separately all the properties of the conjugal partnership and the exclusive properties of each spouse.

(2) Amounts advanced by the conjugal partnership in payment of personal debts and obligations of either spouse shall be credited to the conjugal partnership as an asset thereof.

(3) Each spouse shall be reimbursed for the use of his or her exclusive funds in the acquisition of property or for the value of his or her exclusive property, the ownership of which has been vested by law in the conjugal partnership.

(4) The debts and obligations of the conjugal partnership shall be paid out of the conjugal assets. In case of insufficiency of said assets, the spouses shall be solidarily liable for the unpaid balance with their separate properties, in accordance with the provisions of paragraph (2) of Article 121.

(5) Whatever remains of the exclusive properties of the spouses shall thereafter be delivered to each of them.

(6) Unless the owner had been indemnified from whatever source, the loss or deterioration of movables used for the benefit of the family, belonging to either spouse, even due to fortuitous event, shall be paid to said spouse from the conjugal funds, if any.

(7) The net remainder of the conjugal partnership properties shall constitute the profits, which shall be divided equally between husband and wife, unless a different proportion or division was agreed upon in the marriage settlements or unless there has been a voluntary waiver or forfeiture of such share as provided in this Code.

(8) The presumptive legitimes of the common children shall be delivered upon the partition in accordance with Article 51.

(9) In the partition of the properties, the conjugal dwelling and the lot on which it is situated shall, unless otherwise agreed upon by the parties, be adjudicated to the spouse with whom the majority of the common children choose to remain. Children below the age of seven years are deemed to have chosen the mother, unless the court has decided otherwise. In case there is no such majority, the court shall decide, taking into consideration the best interests of said children.

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Presumptive Legitimes

Presumptive legitime refers to an advance given to children upon termination of their parents' marriage through annulment. It consists of one-half the value of the conjugal property at the time of judgment.

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Intrinsic and Extrinsic Validity

Extrinsic validity of a contract refers to formalities and solemnities which must be followed under the law, while intrinsic validity refers to the legality of the contract. While the intrinsic validity of the will "or the manner in which the properties were apportioned," refers to whether the order and allocation of successional rights are in accordance with law. It can also refer to whether an heir has not been disqualified from inheriting from the decedent.

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Article 96 pf the Family Code

The administration and enjoyment of the community property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the common properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance without authority of the court or the written consent of the spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.

In the case of Roxas v. CA

Facts:

Petitioner Melanie Roxas, married to Antonio Roxas but they are living separately.

The petitioner discovered that her husband entered into a contract lease with the respondent Antonio M. Cayetano, involving a portion of their conjugal property without her knowledge and consent.

The petitioner filed a case before the RTC praying for the annulment of the contract of lease between the respondent and her husband.

The respondent moved to dismiss the complaint on the sole ground that the complaint states no cause of action.

The RTC Judge resolved said Motion by dismissing petitioner complaint.

Issue: Whether or not, a husband, as the administrator of the conjugal partnership, may legally enter into a contract of lease involving conjugal real property without the knowledge and consent of the wife.

Held: No, although the husband is the administrator of the conjugal partnership, however, administration does not include acts of ownership. The husband can administer the conjugal assets unhampered; he cannot alienate or encumber the conjugal realty. Thus, under Art. 166 of NCC “unless the wife has been declared a non-compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership the wife’s consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same.” This rule prevents abuse on the part of the husband, and guarantees the rights of the wife, who is partly responsible for the acquisition of the property, particularly the real property. Contracts entered into by the husband in violation of this prohibition are voidable and subject to annulment at the instance of the aggrieved wife. (Art. 173 of the Civil Code) .