February 22, 2013 (Example: A donation inter vivos of real property requires for its

Transcribed by: Jade Canada validity a public instrument.)

CONTRACTS According to cause or equivalence of the value of prestations:

1) ONEROUS — where there is an interchange of equivalent valuable

Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service. (1254a)
I BELIEVE we discuss this definition before when we discuss the
different elements of obligations.
consideration
2) GRATUITOUS OR LUCRATIVE — this is FREE, thus one party
receives no equivalent prestation except a feeling that one has been
generous or liberal
3) REMUNERATIVE — (one where one prestation is given for a
benefit or service that had been rendered PREVIOUSLY)

So contracts, now the law says it is the meeting of minds between two
persons meaning nag-kasinabot sila. They have agreed to something
that is something. Once there is a meeting of the midns , there is
already an agreement and that agreement is a subject matter which
either to give or to do . to give something or to render some service.
Now the law says, between “two persons” . Ca n there be a
contract with only 1 person? We have this concept of an “auto-
contract”. An auto contract is a contract wherein there is only 1 person
who represents both parties in the contract. So actually when you say
contract, to be more accurate, it should be between 2 parties and not
2 persons because there might be instances where the contract is
signed by one person, although that one person represents different
parties. There can no be one party. You cannot agree with yourself so
there has to be at least 2 parties.
SOURCE: Paras
Contract’ Defined
(a) A contract,from the Latin“contractus” and from the French
“contract,” is “a juridical convention manifested in legal form, by virtue
of which, one or more persons (or parties) bind themselves in favor of
another or others, or reciprocally, to the fulfillment of a prestation to
give, to do or not to do.” (4 Sanchez Roman 148-149). “A contract is a
meeting of minds between two persons whereby one binds himself
with respect to the other, to give something or to render some
service.’’ (Edilberto Alcantara v. Cornelio B. Rita, Jr., GR 136996, Dec.
14, 2001).
(b) It is the agreement of two or more persons (or parties) for the
purpose of creating, modifying, or extinguishing a juridical relation
between them. (Art. 1321, Italian Civil Code and 2 Castan 184).
ELEMENTS OF A CONTRACT
(a) ESSENTIAL ELEMENTS — (without them a contract cannot exist)
(Examples: consent, subject matter, cause or consideration)
(NOTE: In some contracts, form is also essential; still in others,
delivery is likewise essential.)
(b) NATURAL ELEMENTS — (those found in certain contracts, and
presumed to exist, unless the contrary has been stipulated)
(Example: warranty against eviction and against hidden defects in the
contract of sale)
(c) ACCIDENTAL ELEMENTS — (These are the various particular
stipulations that may be agreed upon by the contracting parties in a
contract. They are called accidental, because they may be present or
absent, depending upon whether or not the parties have agreed upon
them.)
(Examples: the stipulation to pay credit; the stipulation to pay interest;
the designation of the particular place for delivery or payment.)
CLASSIFICATION OF CONTRACTS
According to perfection or formation:
1.) CONSENSUAL (perfected by mere consent; example — sale)
STAGES OF A CONTRACT
(a) PREPARATION (or Conception or “Generacion”) — Here the
parties are progressing with their negotiations; they have not yet
arrived at any definite agreement, although there may have been a
preliminary offer and bargaining.
(b) PERFECTION (or birth) — Here the parties have at long last came
to a definite agreement, the elements of definite sub- ject matter and
valid cause have been accepted by mutual consent.
(c) CONSUMMATION (or death or termination) — Here the terms of
the contract are performed, and the contract may be said to have
been fully executed.
Art. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or
public policy. (1255a)
So freedom to stipulate. This is the provision. So in a contract the
parties may agree in certain forms and conditions that they want to be
incorporated in the contract but there are limitations, and that is
freedom to stipulate and what are the limitations to that freedom? So
as long as not contrary to law, morals, good customs, public order, or
public policy.
This Article stresses the principle of freedom. The free entrance into
contracts generally without restraint is one of the liberties guaranteed
to the people. (People v. Pomar, 46 Phil. 440). However, the
constitutional prohibition against the impairment of contractual
obligations refers only to contracts which are legal, not to void or
inexistent ones.
Art. 1307. Innominate contracts shall be regulated by the stipulations
of the parties, by the provisions of Titles I and II of this Book, by the
rules governing the most analogous nominate contracts, and by the
customs of the place. (n)
What do you mean by innominate contracts? Not given any names.
So when you say nominate what are those? Commodatum, sales,
deposit .. those which are given specific names in the Civil Code.
They are not given names by the civil code but any contract under
these can be entered into. For example, what case did I assigned?
DIZON vs. GABORO (YAP) absent? Lol (kakarating lang)
The 4 Kinds of Innominate Contracts
(a) do ut des (I give that you may give)
(b) do ut facias (I give that you may do)
(c) facio ut des (I do that you may give)
(d) facio ut facias (I do that you may do)

2.) REAL (perfected by delivery; examples — depositum, pledge,

commodatum).

3.) FORMAL or solemn (those where special formalities are essential

before the contract may be perfected)

3RD Exam Coverage | 1

 DIZON vs. GABORO
83 SCRA 688
So they entered into an innominate contract. Actually there is also a
mortgaged contract. You can add some provisions, you can have
variety of contracts incorporating this contact: mortgage, lease, etc ,
when you measure them strictly against the provisions of the CC dili
sakto ang sa civil code because there are other provisions which are
incorporated that are not covered by innominate contacts. So what do
you do? How will you resolve conflict regarding these contracts? These
are innominate contracts and they are to be resolved with the most
analogous contracts, in that case the most analogous contract is that
contract of antichresis. What is a contract of antichresis?
It is like a loan contract where you give collateral real property, and
then the creditor will harvest or take the fruits of that property and
apply that in payment of the obligations. So innominate contracts, the
contract shall be governed by the most analogous- meaning pinaka-
duol murag parehas sa iyaha nga contract. So that is the rule. This I
assign to you the case of Perez vs. Tumar? NO.
JOSE P. DIZON vs. ALFREDO G. GABORRO
G.R. No. L-3682; June 22, 1978
On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo
Abola, wrote a letter to Gaborro informing him that he is formally
offering reimburse Gaborro Of what he paid to the banks but without,
however, tendering any cash, and demanding an accounting of the
income and of the pro contending that the transaction they entered
into was one of antichresis.
Gaborro did not accede to the demands of the petitioner, whereupon,
on JULY 30, 1962, Jose P. Dizon instituted a complaint in the Court of
First Instance of Pampanga, Gaborro, alleging that the documents
Deed of Sale With Assumption of Mortgage and the Option to Purchase
Real Estate did not express the true intention and agreement bet.
between the parties. Petitioner Dizon, as Plaintiff below, contended
that the two deeds constitute in fact a single transaction that their real
agreement was not an absolute e of the d of land but merely an
equitable mortgage or conveyance by way of security for the
reimbursement or refund by Dizon to Gaborro of any and all sums
which the latter may have paid on account of the mortgage debts in
favor of the DBP and the PNB.
Plaintiff prayed that defendant Gaborro be ordered to accept plaintiff's
offer to reimburse him of what he paid to the banks; to surrender the
possession of the lands to plaintiff; to make an accounting of all the
fruits, produce, harvest and other income which he had received from
the three (3) parcels of land; and to pay the plaintiff for the loss of two
barns and for damages.
In view of all these considerations, the law and Jurisprudence, and the
facts established. We find that the agreement between petitioner
Dizon and respondent Gaborro is one of those inanimate contracts
under Art. 1307 of the New Civil Code whereby petitioner and
respondent agreed "to give and to do" certain rights and obligations
respecting the lands and the mortgage debts of petitioner which would
be acceptable to the bank. but partaking of the nature of the
antichresis insofar as the principal parties, petitioner Dizon and
respondent Gaborro, are concerned.
In that case, the services of the interpreter here were secured during
the Japanese occupation and he was hired to interpret. So they did not
specifically agreed on the compensation, so nagubauban na xa , tapos
nagainterpret xa and after how many months, naningil xa sa payment
so katong nag hire sa iyaha niingon na “did I agree, did we agree on a
specific compensation? I think we did not agree” so is he entitled to
compensation in that case? Yes it was an innominate contract. I do
(interpret) that you may give. So in that case, that shall be
governmeed by the most analogous contract i.e empoyer-employee
relationship. How much? That will be according to the custom of the
place.
Art. 1308. The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them. (1256a)
This is the concept of MUTUALITY OF CONTRACTS. When you
enter into a contract, parties are bound by the contract. One party
cannot say na “Ay, I no longer want the contract, it is not favorable to
me anymore so I end this contract” NO! Unless the other party agree.
If there’s 5-year period stipulated in the contract, both parties must go
thru the contract until the 5th year. If any pre-termination shall be
made, that has shall be agreed by both of them unless it was
stipulated in the contract. So dapat nay change in the contract,
amendment, pretermination, that should be agreed upon by both of
the parties. One party cannot decide na that contract is valid, the
contract must bind both contracting parties.
When we will go to defective contracts, there is defect in the contract
well that can be a ground for annulment or declaration of nullity. But
insofar as a perfectly valid contract is concerned , both parties are
bound.
LLL & Company Devpt vs. Juang 122378
ABC vs. CA 124290, Jan 16 1998
GF Equity Inc vs. Balenzona
Equitable PCI Bank vs. Ng Sheung Ngor 171545 December 19, 2007
LL AND COMPANY DEVELOPMENT vs. HUANG CHAO CHUN
AND YANG TUNG FA
G.R. No. 142378; March 7, 2002
Now in the case of LLL, the conflict here was a provision in the
contract that the 5 year term is subject to an option to renew. So that
was the stipulation in the contract.
The question is “whose option to renew” is it the lessor? Or of
the lessee?” so that was the contention.
The SC said it is understood to be both : by the lessor and by the
lessee otherwise it will violate the principle of mutuality of contracts. A
stipulation in a lease contract stating that its five-year term is subject
to "an option to renew" shall be interpreted to be reciprocal in
character. Unless the language shows an intent to allow the lessee to
exercise it unilaterally, such option shall be deemed to benefit both the
lessor and the lessee who must both consent to the extension or
renewal, as well as to its specific terms and conditions.
So silent man xa “whose option?” both parties.
LL AND COMPANY DEVELOPMENT vs. HUANG CHAO CHUN
AND YANG TUNG FA
G.R. No. 142378; March 7, 2002
A stipulation in a lease contract stating that its five-year term is
subject to “an option to renew” shall be interpreted to be reciprocal in
character. Unless the language shows an intent to allow the lessee to
exercise it unilaterally, such option shall be deemed to benefit both the
lessor and the lessee who must both consent to the extension or
renewal, as well as to its specific terms and conditions.
HELD:
Citing Koh v. Ongsiaco[21] and Cruz v. Alberto,[22] the MeTC --
upheld by the RTC and the CA -- ruled that the stipulation in the
Contract of Lease providing an option to renew should be construed in
favor of and for the benefit of the lessee.[23] This ruling has however,
been expressly reversed in Fernandez v. CA, from which we quote:[24]
“It is also important to bear in mind that in a reciprocal contract like a
lease, the period of the lease must be deemed to have been agreed
upon for the benefit of both parties, absent language showing that the
term was deliberately set for the benefit of the lessee or lessor
alone. We are not aware of any presumption in law that the term of a
lease is designed for the benefit of the lessee alone. Koh and Cruz in
effect rested upon such a presumption. But that presumption cannot
reasonably be indulged in casually in an era of rapid economic change,
marked by, among other things, volatile costs of living and fluctuations
in the value of the domestic currency. The longer the period the more
clearly unreasonable such a presumption would be. In an age like that
we live in, very specific language is necessary to show an intent to
3RD Exam Coverage | 2
grant a unilateral faculty to extend or renew a contract of lease to the
lessee alone, or to the lessor alone for that matter. We hold that the
above-quoted rulings in Koh v. Ongsiaco and Cruz v. Alberto should be
and are overruled.”[25]
The foregoing doctrine was recently reiterated in Heirs of
Amando Dalisay v. Court of Appeals.[26] Thus, pursuant to Fernandez,
Dalisay and Article 1196[27] of the Civil Code, the period of the lease
contract is deemed to have been set for the benefit of both
parties. Its renewal may be authorized only upon their mutual
agreement or at their joint will.[28] Its continuance, effectivity or
fulfillment cannot be made to depend exclusively upon the free and
uncontrolled choice of just one party. While the lessee has the option
to continue or to stop paying the rentals, the lessor cannot be
completely deprived of any say on the matter.[29] Absent any
contrary stipulation in a reciprocal contract, the period of
lease is deemed to be for the benefit of both parties.
So that is the case of LL. Lets have a break for 5 minutes.
After 5 minutes >>>>
Allied Banking Corporation vs. CA
G.R. No. 124290. January 16, 1998
The stipulation was like this: the contract will be renewed for a like
term at the option of the lessee .
Is this contract violative of the principle of Mutuality of
Contracts? May be renewed for a like term?
SC said NO. Because in the first place the lessee had a choice when
the contract was negotiated WON to agree with this stipulation and so
as the lessor. If the lessee does not like that provision, he may reject it
but he agreed so there was equality when the lessor and the lessee
negotiated the contract and they agreed. So this is just enforcing the
provisions of the contract. The contract provides the option to renew
on the part of the lessee, so that can be enforced. And there is also
limitation here because it says “for a like term at the option of the
lessee” meaning under the terms and conditions of the old contract.
So read the case of ALLIED BANKING.
Allied Banking Corporation vs. CA
G.R. No. 124290. January 16, 1998
ISSUE:
a) whether a stipulation in a contract of lease to the effect that the
contract "may be renewed for a like term at the option of the lessee"
is void for being potestative or violative of the principle of mutuality of
contracts under Art. 1308 of the Civil Code and, corollarily, what is the
meaning of the clause "may be renewed for a like term at the option
of the lessee;"
HELD:
We agree with petitioner. 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.[7]
GF Equity , read the case. It is very interesting.
GF EQUITY, INC vs. ARTURO VALENZONA
G.R. No. 156841. June 30, 2005
FACTS:
GF Equity, represented by its Chief Financial Officer W. Steven
Uytengsu (Uytengsu), hired Valenzona as Head Coach of the Alaska
basketball team in the Philippine Basketball Association (PBA) under a
Contract of Employment. Even before the conclusion of the contract,
Valenzona had already served GF Equity under a verbal contract by
coaching its team, Hills Brothers, in the 3rd PBA Conference of 1987
where the team was runner-up.
Under the contract, GF Equity would pay Valenzona the sum of Thirty
Five Thousand Pesos (P35,000.00) monthly, net of taxes, and provide
him with a service vehicle and gasoline allowance. Close to six years
after the termination of his services, Valenzona’s counsel, by letter of
July 30, 1994,[5] demanded from GF Equity payment of compensation
arising from the arbitrary and unilateral termination of his
employment. GF Equity, however, refused the claim.
HELD:
Central to the resolution of the instant controversy is the determination
of whether the questioned last sentence of paragraph 3 is violative of
the principle of mutuality of contracts.
Mutuality is one of the characteristics of a contract, its validity or
performance or compliance of which cannot be left to the will of only
one of the parties.[10] This is enshrined in Article 1308 of the New
Civil Code, whose underlying principle is explained in Garcia v. Rita
Legarda, Inc.,[11] viz:
Article 1308 of the New Civil Code reads as follows:
“The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.”
The above legal provision is a virtual reproduction of Article 1256 of
the old Civil Code but it was so phrased as to emphasize the principle
that the contract must bind both parties. This, of course is based
firstly, on the principle that obligations arising from contracts have the
force of law between the contracting parties and secondly, that there
must be mutuality between the parties based on their essential
equality to which is repugnant to have one party bound by the
contract leaving the other free therefrom (8 Manresa 556). Its ultimate
purpose is to render void a contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will
of one of the contracting parties.
x x x (Emphasis, italics and underscoring supplied)
The ultimate purpose of the mutuality principle is thus to nullify a
contract containing a condition which makes its fulfillment or pre-
3RD Exam Coverage | 3
termination dependent exclusively upon the uncontrolled will of one of
the contracting parties.
Not all contracts though which vest to one party their determination of
validity or compliance or the right to terminate the same are void for
being violative of the mutuality principle. Jurisprudence is replete with
instances of cases[12] where this Court upheld the legality of contracts
which left their fulfillment or implementation to the will of either of the
parties. In these cases, however, there was a finding of the presence
of essential equality of the parties to the contracts, thus preventing the
perpetration of injustice on the weaker party.
In the case at bar, the contract incorporates in paragraph 3 the right
of GF Equity to pre-terminate the contract — that “if the coach, in the
sole opinion of the corporation, fails to exhibit sufficient skill or
competitive ability to coach the team, the corporation may terminate
the contract.” The assailed condition clearly transgresses the principle
of mutuality of contracts. It leaves the determination of whether
Valenzona failed to exhibit sufficient skill or competitive ability to coach
Alaska team solely to the opinion of GF Equity. Whether Valenzona
indeed failed to exhibit the required skill or competitive ability
depended exclusively on the judgment of GF Equity. In other words,
GF Equity was given an unbridled prerogative to pre-terminate the
contract irrespective of the soundness, fairness or reasonableness, or
even lack of basis of its opinion.
Also the case of Equitable PCI Bank. Did I discussed this? Not yet.
So what was the provision in this case? In the promissory note it was
stated “ the interest (increase the interest rate) shall be determined by
the bank” is this valid? We increase the interest rate as such rate shall
be determined by the bank?
The SC said: this is an escalation clause . Escalation is valid if it is a
de-escalation clause . what is the escalation clause?
- the stipulated rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the Monetary Board
(de-escalation clause)
So you have to add an de-escalation clause to an escalation clause for
escalation clause to be valid otherwise it would be violative of the
principle on mutuality of contracts
EQUITABLE PCI BANK vs NG SHEUNG NGOR
G.R.NO. 171545, December 19, 2007
FACTS: On October 7, 2001, respondents Ngor and Go filed an action
for amendment and/or reformation of documents and contracts
against Equitable and its employees. They claimed that they were
induced by the bank to avail of its peso and dollar credit facilities by
offering low interests so they accepted and signed Equitable’s
proposal. They alleged that they were unaware that the documents
contained escalation clauses granting Equitable authority to increase
interest without their consent. These were rebutted by the bank. RTC
ordered the use of the 1996 dollar exchange rate in computing
respondent’s dollar-denominated loans. CA granted the Bank’s
application for injunction but the properties were sold to public
auction.
Escalation Clause Violated The Principle Of Mutuality Of
Contracts
Escalation clauses are not void per se. However, one "which grants the
creditor an unbridled right to adjust the interest independently and
upwardly, completely depriving the debtor of the right to assent to an
important modification in the agreement" is void. Clauses of that
nature violate the principle of mutuality of contracts.66Article 130867 of
the Civil Code holds that a contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them.68
For this reason, we have consistently held that a valid escalation
clause provides:
1. that the rate of interest will only be increased if the applicable
maximum rate of interest is increased by law or by the Monetary
Board; and
2. that the stipulated rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the Monetary Board
(de-escalation clause).69
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent
extensions shall be at such rate as shall be determined by the bank.70
Equitable dictated the interest rates if the term (or period for
repayment) of the loan was extended. Respondents had no choice but
to accept them. This was a violation of Article 1308 of the Civil Code.
Furthermore, the assailed escalation clause did not contain the
necessary provisions for validity, that is, it neither provided that the
rate of interest would be increased only if allowed by law or the
Monetary Board, nor allowed de-escalation. For these reasons, the
escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders
v. Philippine National Bank71 we held that, because the escalation
clause was annulled, the principal amount of the loan was subject to
the original or stipulated rate of interest. Upon maturity, the amount
due was subject to legal interest at the rate of 12% per annum.72
Consequently, respondents should pay Equitable the interest rates of
12.66% p.a. for their dollar-denominated loans and 20% p.a. for their
peso-denominated loans from January 10, 2001 to July 9, 2001.
Thereafter, Equitable was entitled to legal interest of 12% p.a. on all
amounts due.
Art. 1309. The determination of the performance may be left to a
third person, whose decision shall not be binding until it has been
made known to both contracting parties. (n)
Article 1309 is actually an exception to Article 1308. So A third person
may determine the performance.
For example karon, the practice of referring the dispute to an arbiter
so the arbiter here is a third party who determines the performance of
the contract so that is valid and the parties are bound by the decision
of the arbiter. So that is an exception on the rule that the validity of
the contract cannot be delegated to one fothe parties. In cannot be to
one of the parties but to a third person.
Art. 1310. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable
under the circumstances. (n)
So if the determination made by the third person is evidently
inequitable, so that not be binding you can still go to court. So if the
artibitration court says its final , resorts to court can actually be
availed of if it is inequitable. Usually sa contracts karon naa na xay
dereference sa arbitration and arbitration is actually concurred.
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person,
he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third
person. (1257a)
This is the principle of relativity of contracts.
Can you explain to us the case of LA VISTA.
3RD Exam Coverage | 4
Dispute over the right of way road between Ateneo and La Vista Subd.
Is La Vista bound by the contract between Tuason and PDC? Yes Mam.
Why? The SC
So the obli of Tuason to respect the right of way given to PDC is
inherited by La Vista and is also enjoyed by the successors of PDC. So
what is the legal provision that is applied here? Article 1311
Usually the contract would only take effect between the parties.
Katong walay labot sa contract , you cannot invoke any benefit from
the contract. But it is transmitted to their heirs and assigned. GR:
rights and obligations arising from a contract are transmissible.
Except: when the contract expressly states that these rights and
obligations are not transmissible or purely personal so by their nature
thay cannot be transmitted.
Here, although the contract was originally between Tuazon and PBC<
but their assigns, successors are bound by this contract and that right
or obligation is actually transmissible so it was not extinguished by the
series of sales that happened or transfers that happened.
DBC vs. CA
So in a contract of lease with an option to buy, are the rights
transmissible? YES because usually they invoked property rights.
GR: Property rights are TRANSMISSIBLE unless by stipulation they are
not transmissible or when the obli is purely personal.
The law says that the heir is liable to the obligation of the predecessor.
The heir is not liable beyond the value of the property he received
from the precedent . meaning he liable but not beyond the value. If
your predecessor has properties worth 10 Milliom which you inherited
but has debts worth 12 Million, you’re still bound to pay the debt but
only up to 10M so in effect murag wala gehapon kay nadawat kay
gebayad sa utang (haha) but you cannot be held personally liable for
the debts of the precedent. So this is the concept of relativity of
contracts.
I think you know of another theory of relativity that is Einsteins’
theory (haha) lahi ning ato-a dri ha lol. Sa contracts nix a kay basig if
butang nako sa exam “Explain the theory of Relativity” , E=mc2. Zero
na xa. Hahaha.
Let’s continue with the exceptions next meeting 
February 28, 2013
Transcribed by: Kirsten, Marlie & Jade
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligation s
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third
person.
The article speaks of THE PRINCIPLE OF RELATIVITY OF
CONTRACTS or principle of limited effectivity. So general rule, only
the parties to the contract are bound by it. Only they can claim
benefits under the contract as well as assail it, including their heirs and
assigns.
The case of Mandarin discusses the exception to the principle of
relativity. The contract in the case has a "stipulation pour autrui" - it is
a stipulation in favor of a third person who accepted the benefit before
the contract had been revoked.
The case involves a credit card company and an establishment
Facts: In the evening of 19 Oct 1989, private respondent de Jesus
hosted a dinner for his friends at the petitioner’s restaurant, the
Mandarin Villa Seafoods Village in Mandaluyong City. After dinner, the
waiter handed to de Jesus the bill amounting to P2,658.50. De Jesus
offered his BANKARD credit card to the waiter for payment. Minutes
later, the waiter returned and audibly informed that said credit card
had expired. De Jesus demonstrated that the card had yet to expire on
Sept 1990, as embossed on its face. De Jesus approached the cashier
who again dishonored such card. De Jesus offered his BPI express
credit card instead and this was accepted, honored and verified. The
trial court and CA held petitioner to be negligent.
Ma'am: Is the credit card a legal tender? Why can he enforce payment
from it?
Jamel: No ma'am but the credit card and the establishment has an
agreement to accept the card as payment. There is a stipulation pour
autrui.
Ma'am: There is a stipulation pour autrui in that case in favor of the
credit card holder. So his presentation of the credit card to the
establishment is a signification of his acceptance of that benefit.
Now we go to the case of Integrated Packing Corporation.
INTEGRATED PACKING CORPORATION
FACTS:
May 5, 1978: Integrated Packaging Corp agreed to deliver to Fil-
anchor paper co., inc. 3,450 reams of printing paper. Materials were to
be paid within 30-90 days
June 7, 1978: Integrated entered into a contract with Philippine
Appliance Corporation (Philacor) to print three volumes of "Philacor
Cultural Books"
July 30, 1979: only 1,097 out of the 3,450 had been delivered so it
wrote to Fil-anchor that delay will prejudice them
July 23, 1981: Fil-anchor delivered amounting to P766,101.70 of
printing paper
August 27, 1981: Integrated paid P97,200.00 which was applied to its
back accounts covered by delivery invoices dated September 29-30,
1980 and October 1-2, 1980
Integrated entered into an additional printing contract with Philacor
but it failed to comply so Philacor demanded compensation for the
delay and damage it suffered on account of Integrated's failure
Fil-anchor filed a collection suit of P766,101.70 against Integrated
representing unpaid purchase price of printing paper bought on credit
By way of counterclaim, Fil-anchor alleged the delivery was short of
2,875 reams so it suffered actual damages and failed to realize
expected profits and that complaint was prematurely filed
RTC: Integrated ordered to pay Fil-anchor P27,222.60 as
compensatory and actual damages after deducting P763,101.70 for the
value of materials received, P100K as moral damages, P30K for
attorney's fees and cost of suit. However, the counterclaim is also
meritorious - Integrated could have sold books to Philacor and realized
profit of P790,324.30 for which the award of moral damages was
justified
CA: reversed and set aside the judgment of the trial court ordered to
pay Fil-anchor P763,101.70 for unpaid printing paper and deleted the
award of P790,324.30 as compensatory damages as well as the award
of moral damages and attorney's fees, for lack of factual and legal
basis.
On the second assigned error, petitioner contends that private
respondent should be held liable for petitioner’s breach of contract
with Philacor. This claim is manifestly devoid of merit.
As correctly held by the appellate court, private respondent cannot be
held liable under the contracts entered into by petitioner with Philacor.
Private respondent is not a party to said agreements. It is also not a
3RD Exam Coverage | 5
contract pour autrui. Aforesaid contracts could not affect third persons
like private respondent because of the basic civil law principle of
relativity of contracts which provides that contracts can only bind the
parties who entered into it, and it cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with
knowledge thereof.
Indeed, the order agreement entered into by petitioner and private
respondent has not been shown as having a direct bearing on the
contracts of petitioner with Philacor. As pointed out by private
respondent and not refuted by petitioner, the paper specified in the
order agreement between petitioner and private respondent are
markedly different from the paper involved in the contracts of
petitioner with Philacor. Furthermore, the demand made by Philacor
upon petitioner for the latter to comply with its printing contract is
dated February 15, 1984, which is clearly made long after private
respondent had filed its complaint on August 14, 1981. This demand
relates to contracts with Philacor dated April 12, 1983 and May 13,
1983, which were entered into by petitioner after private respondent
filed the instant case.
To recapitulate, private respondent did not violate the order
agreement it had with petitioner. Likewise, private respondent could
not be held liable for petitioner’s breach of contract with Philacor. It
follows that there is no basis to hold private respondent liable for
damages. Accordingly, the appellate court did not err in deleting the
damages awarded by the trial court to petitioner.
KAUFFMAN vs. PNB
(42 Phil 182)
So, we believe the fairest test, in this jurisdiction at least, whereby to
determine whether the interest of a third person in a contract is a
stipulation pour autrui, or merely an incidental interest, is to rely upon
the intention of the parties as disclosed by their contract.
If a third person claims an enforceable interest in the contract, the
question must be settled by determining whether the contracting
parties desired to tender him such an interest. Did they deliberately
insert terms in their agreement with the avowed purpose of conferring
a favor upon such third person? In resolving this question, of course,
the ordinary rules of construction and interpretation of writings must
be observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
Further on in the same opinion he adds: "In applying this test to a
stipulation pour autrui, it matters not whether the stipulation is in the
nature of a gift or whether there is an obligation owing from the
promise to the third person. That no such obligation exists may in
some degree assist in determining whether the parties intended to
benefit a third person, whether they stipulated for him." (Uy Tam and
Uy Yet vs. Leonard, supra.)
Ma'am: What is the fairest test to determine whether a contract
includes a stipulation pour autrui?
Jay: It used the fairest test which examines the intentions of the
parties as disclosed in the contract. First is, is it beneficial? Is the
benefit incidental or direct?
Ma'am: When you say pour autrui, what do you mean by that?
Incidental or direct?
Jay: It is direct ma’am.
Maam: The contract should confer a direct interest to the party for
that to be consider as stipulation pour autrui, not merely an incidental
interest.
Ex. A and B agree that A will construct a road to the house of B,
incidentally X also passes through that road if a, decides to close the
door or road, X cannot complain because he is not part of the contract,
although he benefits from the contract but his benefit is merely
incidental not directly conferred upon him by the original parties of the
contract.
We now go to art. 1312. Another exemption to the general rule of the
relativity of the contract.
Art. 1312. In contracts creating real rights, third persons who come
into possession of the object of the contract are bound thereby,
subject to the provisions of the Mortgage Law and the Land
Registration Laws.
Maam : Ms Arafol, can you give us an example, why does this become
an exception? Ok, for example A and B entered into a contract of sale
over a parcel of land owned by A. What kind of contract is that
contract?
Arafol: Contract of Sale.
Maam: It creates a real right. If A subsequently sold the same land to
X, can X alleged that he has a better right because he is not concerned
of the first contract of A and B, therefore, he is not bound to respect
that contract? Or do you have another example?
Arafol: Another example: A mortgaged his land to B and subsequently
sold his land to C. C is bound to that mortgage because that mortgage
creates a real right, subject to the provision of the mortgage law and
the land registration law.
Maam: If the mortgage is not registered then he is not bound to the
contract.
Article 1313. Creditors are protected in cases of contracts intended
to defraud them. (n)
So this is accion pauliana, which is contemplated under Article 1381
and 1383. For example. Makasabot man siguro mo noh na walay
drawing … A borrowed 1 million from B at that time A has several
properties, then after the debt A sold his properties to his son X, So
when B goes to A for collection but A says “I don’t have money
anymore, because I don’t have properties even”. B asked “So where
are all your properties?” A says, “I sold them to my sons.” That sale
can be classified as a sale intended to defraud the creditor. Even if B is
not a party to the contract of sale between A and his son, he can
impugn that, he can contest that from being in fraud of his right as a
creditor. So this is accion pauliana which is again the exception to the
principle of relativity. He is not a party, but he can question on that
sale.
Salcedo…
Article 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting party.
This is the concept of tortuous interference. There is a contract
between A and B, so only A and B are bound by that contract. X a
third person induces B to violate his contract with A, and that is X can
be liable for damages by reason of interfering unlawfully with the
contract between A and B. We have several cases on that. The case of
Gilchrist vs Cuddy…
Gilchrist vs Cuddy
GILCHRIST VS CUDDY
Facts:
It appears in this case that Cuddy was the owner of the film Zigomar
and that on the 24th of April he rented it to C. S. Gilchrist for a week
for P125, and it was to be delivered on the 26th of May, the week
beginning that day. A few days prior to this Cuddy sent the money
back to Gilchrist, which he had forwarded to him in Manila, saying that
he had made other arrangements with his film. The other
arrangements was the rental to these defendants Espejo and his
partner for P350 for the week and the injunction was asked by Gilchrist
against these parties from showing it for the week beginning the 26th
of May.
It appears from the testimony in this case, conclusively, that Cuddy
willfully violated his contract, he being the owner of the picture, with
Gilchrist because the defendants had offered him more for the same
period. Mr. Espejo at the trial on the permanent injunction on the 26th
of May admitted that he knew that Cuddy was the owner of the film.
He was trying to get it through his agents Pathe Brothers in Manila. He
is the agent of the same concern in Iloilo. There is in evidence in this
case on the trial today as well as on the 26th of May, letters showing
that the Pathe Brothers in Manila advised this man on two different
occasions not to contend for this film Zigomar because the rental price
was prohibitive and assured him also that he could not get the film for
about six weeks. The last of these letters was written on the 26th of
April, which showed conclusively that he knew they had to get this film
from Cuddy and from this letter that the agent in Manila could not get
it, but he made Cuddy an offer himself and Cuddy accepted it because
he was paying about three times as much as he had contracted with
Gilchrist for. Therefore, in the opinion of this court, the defendants
failed signally to show the injunction against the defendant was
wrongfully procured.
From the above-quoted findings of fact it is clear that Cuddy, a
resident of Manila, was the owner of the "Zigomar;" that Gilchrist was
the owner of a cinematograph theater in Iloilo; that in accordance with
the terms of the contract entered into between Cuddy and Gilchrist the
former leased to the latter the "Zigomar" for exhibition in his
(Gilchrist's) theater for the week beginning May 26, 1913; and that
Cuddy willfully violate his contract in order that he might accept the
appellant's offer of P350 for the film for the same period. Did the
appellants know that they were inducing Cuddy to violate his contract
with a third party when they induced him to accept the P350? Espejo
admitted that he knew that Cuddy was the owner of the film. He
received a letter from his agents in Manila dated April 26, assuring him
that he could not get the film for about six weeks.
3RD Exam Coverage | 6

The arrangement between Cuddy and the appellants for the exhibition
of the film by the latter on the 26th of May were perfected after April
26, so that the six weeks would include and extend beyond May 26.
The appellants must necessarily have known at the time they made
their offer to Cuddy that the latter had booked or contracted the film
for six weeks from April 26. Therefore, the inevitable conclusion is that
the appellants knowingly induced Cuddy to violate his contract with
another person. But there is no specific finding that the appellants
knew the identity of the other party. So we must assume that they did
not know that Gilchrist was the person who had contracted for the
film.
The right on the part of Gilchrist to enter into a contract with Cuddy
for the lease of the film must be fully recognized and admitted by all.
That Cuddy was liable in an action for damages for the breach of that
contract, there can be no doubt. Were the appellants likewise liable for
interfering with the contract between Gilchrist and Cuddy, they not
knowing at the time the identity of one of the contracting parties? The
appellants claim that they had a right to do what they did. The ground
upon which the appellants base this contention is, that there was no
valid and binding contract between Cuddy and Gilchrist and that,
therefore, they had a right to compete with Gilchrist for the lease of
the film, the right to compete being a justification for their acts. If
there had been no contract between Cuddy and Gilchrist this defense
would be tenable, but the mere right to compete could not justify the
appellants in intentionally inducing Cuddy to take away the appellee's
contractual rights.
Issue:
W/N the appellants(JOSE FERNANDEZ ESPEJO and MARIANO
ZALDARRIAGA) have the right to induce cuddy to violate the contract
and that they are not liable for the breach of said contract of Cuddy
with Gilchrist?
Held: No.
Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said:
"Everyone has a right to enjoy the fruits and advantages of his own
enterprise, industry, skill and credit. He has no right to be free from
malicious and wanton interference, disturbance or annoyance. If
disturbance or loss come as a result of competition, or the exercise of
like rights by others, it is damnum absque injuria, unless some
superior right by contract or otherwise is interfered with."
In the case at bar the only motive for the interference with the
Gilchrist — Cuddy contract on the part of the appellants was a desire
to make a profit by exhibiting the film in their theater. There was no
malice beyond this desire; but this fact does not relieve them of the
legal liability for interfering with that contract and causing its breach. It
is, therefore, clear, under the above authorities, that they were liable
to Gilchrist for the damages caused by their acts, unless they are
relieved from such liability by reason of the fact that they did not know
at the time the identity of the original lessee (Gilchrist) of the film.
The liability of the appellants arises from unlawful acts and not from
contractual obligations, as they were under no such obligations to
induce Cuddy to violate his contract with Gilchrist. So that if the action
of Gilchrist had been one for damages, it would be governed by
chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that code
provides that a person who, by act or omission, causes damages to
another when there is fault or negligence, shall be obliged to repair
the damage do done. There is nothing in this article which requires as
a condition precedent to the liability of a tort-feasor that he must know
the identity of a person to whom he causes damages. In fact, the
chapter wherein this article is found clearly shows that no such
knowledge is required in order that the injured party may recover for
the damage suffered.
Hence, Gilchrist was facing the immediate prospect of diminished
profits by reason of the fact that the appellants had induced Cuddy to
rent to them the film Gilchrist had counted upon as his feature film. It
is quite apparent that to estimate with any decree of accuracy the
damages which Gilchrist would likely suffer from such an event would
be quite difficult if not impossible. If he allowed the appellants to
exhibit the film in Iloilo, it would be useless for him to exhibit it again,
as the desire of the public to witness the production would have been
already satisfied
In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the
court, among other things, said: "One who wrongfully interferes in a
contract between others, and, for the purpose of gain to himself
induces one of the parties to break it, is liable to the party injured
thereby; and his continued interference may be ground for an
injunction where the injuries resulting will be irreparable."
In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the
proper remedy to prevent a wrongful interference with contract by
strangers to such contracts where the legal remedy is insufficient and
the resulting injury is irreparable. And where there is a malicious
interference with lawful and valid contracts a permanent injunction will
ordinarily issue without proof of express malice. So, an injunction may
be issued where the complainant to break their contracts with him by
agreeing to indemnify who breaks his contracts of employment may be
adjoined from including other employees to break their contracts and
enter into new contracts with a new employer of the servant who first
broke his contract. But the remedy by injunction cannot be used to
restrain a legitimate competition, though such competition would
involve the violation of a contract. Nor will equity ordinarily enjoin
employees who have quit the service of their employer from
attempting by proper argument to persuade others from taking their
places so long as they do not resort to force or intimidations on
obstruct the public thoroughfares."
Ma’am: So is it necessary for the one who interferes to know the
indemnity of the parties of the original contact?
Ate Milott: No.
Ma’am: Is there a justification that can be advanced by this third party,
interfering with the contract? Can there be a valid justification?
Ate Milott: Yes.
Ma’am: What would that be?
Ate Milott: The price….
Ma’am: If you where the third party who interfere with the contract
and you stood for tortuous interference, what can be your defense?
Ate Milott: Common defense is that, I don’t know the person.
Ma’am: That is not a valid defense. It could be a valid defense that
you acted in good faith, that you did not act with malice. So that is the
proper defense.
Did I assign to you the case of Lagon vs CA? Ms. Corpus
LAGON VS CA
FACTS:
On June 23, 1982, petitioner Jose Lagon purchased two parcels of land
located at Tacurong, Sultan Kudarat from theestate of Bai Tonina Sepi.
A few months after the sale, private respondent Menandro Lapuz filed
a complaint for torts and damages against petitioner before
the Regional Trial Court (RTC) of Sultan Kudarat. Private respondent
claimed that he entered into a contract of lease with the late Bai
Tonina Sepi over three parcels of land in Sultan Kudarat, Maguindanao
beginning 1964. It was agreed upon that private respondent will put
up commercial buildings which would, in turn, be leased to new
tenants. The rentals to be paid by those tenants would answer for the
rent private respondent was obligated to pay Bai Tonina Sepi for the
lease of the land. In 1974, the lease contract ended but was allegedly
renewed. When Bai Tonina Sepi died, private respondent started
remitting his rent to the court-appointed administrator of her estate.
But when the administrator advised him to stop collecting rentals from
the tenants of the buildings he constructed, he discovered that
petitioner, representing himself as the new owner of the property, had
been collecting rentals from the tenants. He thus filed a complaint
against the latter, accusing petitioner of inducing the heirs of Bai
Tonina Sepi to sell the property to him, thereby violating his leasehold
rights over it. Petitioner denied the allegation, thus contending that the
heirs were in dire need of money to pay off the obligations of the
deceased. He also denied interfering with private respondent's
leasehold rights as there was no lease contract covering the property
when he purchased it; that his personal investigation and inquiry
revealed no claims or encumbrances on the subject lots. On July 29,
1986, the RTC decided in favor of the private respondent. Petitioner
appealed the judgment to the Court of Appeals. The appellate court
affirmed the ruling of the trial court with modification.
ISSUE:
Whether or not the purchase by petitioner of the subject property,
during the supposed existence of private respondent's lease contract
with the late Bai Tonina Sepi, constituted tortuous interference for
3RD Exam Coverage | 7
which petitioner should be held liable for damages.
HELD:
The Supreme Court affirmed the petition and sets aside the decision of
the appellate court. Before the appellate court, petitioner disclaimed
knowledge of any lease contract between the late Bai Tonina Sepi and
private respondent. On the other hand, private respondent insisted
that it was impossible for petitioner not to know about the contract
since the latter was aware that he was collecting rentals from the
tenants of the building. While the appellate court disbelieved the
contentions of both parties, it nevertheless held that, for petitioner
to become liable for damages, he must have known of the lease
contract and must have also acted with malice or bad faith when he
bought the subject parcels of land.
(In sum, we rule that, inasmuch as not all three elements to
hold petitioner liable for tortuous interference are present, petitioner
cannot be made to answer for private respondent’s losses. This case is
one of damnun absque injuria or damage without injury. “Injury” is the
legal invasion of a legal right while “damage” is the hurt, loss or harm
which results from the injury. In BPI Express Card Corporation v. Court
of Appeals, the Court turned down the claim for damages of a
cardholder whose credit card had been cancelled by petitioner
corporation after several defaults in payment. We held there that there
can be damage without injury where the loss or harm is not the result
of a violation of a legal duty. In that instance, the consequences must
be borne by the injured person alone since the law affords no remedy
for damages resulting from an act which does not amount to legal
injury or wrong. Indeed, lack of malice in the conduct complained of
precludes recovery of damages.)
Ms. Corpus: for him to be liable the following three elements must be
valid… existence of a valid contract…
Ma’am: Element of what?
Ms. Corpus: Elements of tortuous interference with contractual
relations: (a) existence of a valid contract; (b) knowledge on the part
of the third person of the existence of the contract and (c) interference
of the third person without legal justification or excuse.
As to the first, existence of a valid contract, the notarized copy of the
lease contract presented in court appeared to be incontestable proof
that private respondent and the late Bai Tonina Sepi actually renewed
their lease contract.
As to the second, according to the petitioners, had no knowledge of
the lease contract. His sellers (the heirs of Bai Tonina Sepi) likewise
allegedly did not inform him of any existing lease contract.
Ma’am: Is it a requirement that there should be actual knowledge of
the contract?
Ms. Corpus: Yes. Ay No ma’am.
Ma’am: What is that requirement here? What is you have no actual
knowledge, can you still execute the transfer? Under the circumstance,
he should be on guard.
Ms. Corpus: It is not necessary to prove actual knowledge, he must
nonetheless be aware of the facts which, if followed by a reasonable
inquiry, will lead to a complete disclosure of the contractual relations
and rights of the parties in the contract.
Ma’am: So actual knowledge is not necessary, as long as there are
facts which would lead to knowledge and if did not made reasonable
inquiry that would be his fault… and third…
Ms. Corpus: The third… the interference of the third person without
legal justification or excuse. The petitioner’s purchase of the subject
property was merely an advancement of his financial or economic
interests, absent any proof that he was enthused by improper motives.
In the very early case of Gilchrist v. Cuddy, the Court declared that a
person is not a malicious interferer if his conduct is impelled by a
proper business interest. In other words, a financial or profit
motivation will not necessarily make a person an officious interferer
liable for damages as long as there is no malice or bad faith involved.
Ma’am: So this is actually usual defense, there is no malice. You just
prompted that proper business interest. So in this case, are they liable
for tortuous interference, are they liable for damages?
Ms. Corpus: No, ma’am they cannot be held liable for tortuous
interference as well as for damages.
Ma’am: So what are the damages, that he admitted that there were
damages suffered?
Ms. Corpus: The consequence must be borne by the injured person
alone, since the law accords no remedy for the damages resulting from
an act which does not amount to an injury or wrong, lack of malice or
bad faith on the part of the person.
Ma’am: So what do you call that damage which is not compensable
here? The Latin and English terms.
Ms. Corpus: ???
Ma’am: Damnun absque injuria or damage without injury. Even if there
was damage but the elements of tortuous interference were not all
present. It will not hold the third person liable for damages.
Now, can the third person be liable, for example all the elements are
present can he be held liable for breach of contract the third person
who interferes?
Ms. Corpus: Yes Ma’am. No Ma’am.
Ma’am: BREACH OF CONTRACT? Why not?
Ms. Corpus: He is not a party to the contract.
Ma’am: He is not a party to the contract, he is liable for tort or quasi-
delict. That is why it is called tortuous interference.
I think I assigned to you the case of So Ping Bun, but I will not discuss
this anymore because the ruling is more than the same in the case of
Lagon.
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
This is the general rule, contracts are perfected by mere consent, but
we are talking here only of a CONSENSUAL CONTRACT. There are
actually other kinds of contracts, other than a consensual contract. But
the consensual contract as long as there is agreement there is a
contract. Halimbawa, nanligaw ka, musugot ba ka na for a change.
(classmates laughing )Yes or unsa ba… Musugot siya, then I accept.
That’s an agreement by MERE CONSENT. No other formalities required
in a consensual contract. But there are other contracts like Article
1316.
Art. 1316. Real contracts, such as deposit, pledge and Commodatum,
are not perfected until the delivery of the object of the obligation.
REAL CONTRACTS they are perfected by delivery, even if you agreed
na magdeposit, nisugot na, as long as there is no delivery yet, there is
no contract of deposit. What you have is a contract to constitute a
future contract of deposit but not yet a contract of deposit. The other
kind of contract is FORMAL OR SOLID CONTRACT. That is perfected by
the observance of the forms and solemnities prescribed by law.
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent
him.
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked
by the other contracting party.
3RD Exam Coverage | 8
Ma’am: Can you explain to us what is the meaning of this article?
When you enter into a contract whose name are you going to use?
Ms. Balanay: My name.
Ma’am: For example your father owns the land, and you are the child,
can you sell your father’s land?
Ms. Balanay: No Ma’am.
Ma’am: Why not?
Ms. Balanay: Because my right to the land is conspicuous.
Ma’am: You are not even the owner of the land. What happen if you
sell that land of your father?
Ms. Balanay: The sale is void.
Ma’am: Void? What thus the law says of that contract?
Ms. Balanay: It is unenforceable.
Ma’am: It is unenforceable. We will discuss that later on, on the
defective contract. UNENFORCEABLE CONTRACTS are actually valid
contracts although it cannot be enforced. So if you sold your father’s
land, the buyer cannot compel you to deliver, he cannot file an action
for specific performance. You cannot also file an action against him for
collection of the money because that contract is unenforceable. It
cannot be enforced. Can it be valid? Can it be enforced by law? Can it
be given effect base on the article?
Ms. Balanay: If it can be ratified expressly.
Ma’am: How can it be ratified expressly in that example? What can
your father do to ratify that contract?
Ms. Balanay: He will execute a Deed of Donation.
Ma’am: He will execute a Deed of Donation to you? Well that is under
the LAW OF ESTOPPEL. He can say that “I agree.” He can say it
verbally or in writing. Impliedly, he gets from you the money or
proceeds of the sale, so that is already an implied ratification. An
unenforceable contract is a valid contract but it cannot be enforced
although it is subject to ratification. We will discuss that also when we
go to the unenforceable contract.
Did I assign to you the case of Balbaroza vs CA under article 1319?
Additional case…
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Ma’am: what kind of contract mentioned in Article 18?
Cathedral: ammm…
Ma’am: As I discussed before, we have a consensual contract, a real
contract, and a formal or solid contract. So what contract are being
referred to under article 1318?
Cathedral: Consensual contract.
Ma’am: Consensual contract. When we speak of a consensual contract
these are the only essential requisites, no other. Now, in formal
contracts, are these the only requisites? What is the other requisite?
Cathedral: Form.
Ma’am: In real contract, what is the additional requisite?
Cathedral: Delivery.
Ma’am: so here, we are only talking of a consensual contract. If you
are asked, what are the essential requisites of contracts? A more
complete answer would be in CONSENSUAL CONTRACT the following
are the requisites, so kanang tulo. In FORMAL CONTRACTS in addition
there is a need for the observance of a proper forms and solemnities.
In REAL CONTRACTS, delivery is an additional essential requisite.
SECTION 1. - CONSENT
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the
offer was made. (1262a)
1319 gives us when is consent manifested? is there Meeting of the
offer and the acceptance upon the thing and the cause which
constitutes the contract. “I am selling this land to you at 1M cash. If
you say “Ok ill accept, there is now acceptance there is meeting of the
minds. “ if you say “ok I will buy but can it be 2-gives?” is there a
perfected contract? You agree with the price but its two-gives? That is
not a perfected contracted. That is not conditional acceptance, which
constitutes a counter-offer. If he says “musugot kog two-gives pero
nay interest” is there now a perfected contract? I will sell now the land
for 1M cash , I will buy the land but two gives ana tong prospective
buyer. Then the seller said okay musugot kog two-gives pero mag
bayad kag interest 5% until fully paid. Is there a perfected contract?
NO. Again, there is a qualified acceptance. Halimbawa ana xa okya
magbayad kog interest pero dili 5%, 2% lang ? wala gehapon , kung
muingon xa 1%? So nagkasinabot na cla = 1M, 2gives, 1year for
example with interest at 1% per month. In that case, wala nay nalahi
na counter-offer, there is now a perfected contract, there is now a
consent.
Now acceptance by debtor or telegram, uso pud na sa una diba kay
wala may text or email so usually kung mag offer ka telegeram ang
pinakpaspas. Wala pamu kaabot anang telegram, kinsay
pinakatigulang dri? (lol) . pila ka adlaw muabot ang telegram? So nag
offer ka January 1 and nadawat sa pikas January 3, ingon xa “oh
musugot ko” so nitubag xa January 4, iyang ge telegram gehapon na
receive sa pikas January 6, kanus-a ang contract perfected? Jan6. At
the time the telegram reaches the offerer and the acceptance comes
to his knowledge.
Read the case of Malbarosa
SALVADOR P. MALBAROSA vs. CA
G.R. No. 125761; April 30, 2003
Under Article 1319 of the New Civil Code, the consent by a party is
manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. An offer may
be reached at any time until it is accepted. An offer that is not
accepted does not give rise to a consent. The contract does not come
into existence. To produce a contract, there must be acceptance of the
offer which may be express or implied25 but must not qualify the
terms of the offer. The acceptance must be absolute, unconditional
and without variance of any sort from the offer.
The acceptance of an offer must be made known to the offeror.27
Unless the offeror knows of the acceptance, there is no meeting of the
minds of the parties, no real concurrence of offer and acceptance. The
offeror may withdraw its offer and revoke the same before acceptance
thereof by the offeree. The contract is perfected only from the time an
acceptance of an offer is made known to the offeror. If an offeror
prescribes the exclusive manner in which acceptance of his offer shall
be indicated by the offeree, an acceptance of the offer in the manner
prescribed will bind the offeror. On the other hand, an attempt on the
part of the offeree to accept the offer in a different manner does not
bind the offeror as the absence of the meeting of the minds on the
3RD Exam Coverage | 9
altered type of acceptance.29 An offer made inter praesentes must be
accepted immediately. If the parties intended that there should be an
express acceptance, the contract will be perfected only upon
knowledge by the offeror of the express acceptance by the offeree of
the offer. An acceptance which is not made in the manner prescribed
by the offeror is not effective but constitutes a counter-offer which the
offeror may accept or reject.30 The contract is not perfected if the
offeror revokes or withdraws its offer and the revocation or withdrawal
of the offeror is the first to reach the offeree.31 The acceptance by the
offeree of the offer after knowledge of the revocation or withdrawal of
the offer is inefficacious. The termination of the contract when the
negotiations of the parties terminate and the offer and acceptance
concur, is largely a question of fact to be determined by the trial court.
In this case, the respondent made its offer through its Vice-Chairman
of the Board of Directors, Senen Valero. On March 16, 1990, Da Costa
handed over the original of the March 14, 1990 Letter-offer of the
respondent to the petitioner. The respondent required the petitioner to
accept the offer by affixing his signature on the space provided in said
letter-offer and writing the date of said acceptance, thus foreclosing an
implied acceptance or any other mode of acceptance by the petitioner.
However, when the letter-offer of the respondent was delivered to the
petitioner on March 16, 1990, he did not accept or reject the same for
the reason that he needed time to decide whether to reject or accept
the same.33 There was no contract perfected between the petitioner
and the respondent corporation. Although the petitioner claims that he
had affixed his conformity to the letter-offer on March 28, 1990, the
petitioner failed to transmit the said copy to the respondent. It was
only on April 7, 1990 when the petitioner appended to his letter to the
respondent a copy of the said March 14, 1990 Letter-offer bearing his
conformity that he notified the respondent of his acceptance to said
offer. But then, the respondent, through Philtectic Corporation, had
already withdrawn its offer and had already notified the petitioner of
said withdrawal via respondent's letter dated April 4, 1990 which was
delivered to the petitioner on the same day. Indubitably, there was no
contract perfected by the parties on the March 14, 1990 Letter-offer of
the respondent.
The petitioner's plaint that he was not accorded by the respondent
reasonable time to accept or reject its offer does not persuade. It must
be underscored that there was no time frame fixed by the respondent
for the petitioner to accept or reject its offer. When the offeror has not
fixed a period for the offeree to accept the offer, and the offer is made
to a person present, the acceptance must be made immediately. In
this case, the respondent made its offer to the petitioner when Da
Costa handed over on March 16, 1990 to the petitioner its March 14,
1990 Letter-offer but that the petitioner did not accept the offer. The
respondent, thus, had the option to withdraw or revoke the offer,
which the respondent did on April 4, 1990.
Now in my example, January 1 , nadawat Jan 3, nagaccept xa Jan 4,
nadawat sa pikas Jan 6. Pero Jan 5 palang c offeror nagbago ang mind
, geoffer nia sa laing tao and then ge-accept. What happens now to
the acceptance made by the offerree (katong geofferan) si offerer
katong nagoffer. Is there a perfected contract? No because the offer
was withdrawn before the acceptance came to the knowledge of the
offeror. So that is the principle in acceptance. There are actually
theories in acceptance.
1.) MANIFESTATION THEORY- there is perfection in the
contract from the time the acceptance is manifested. in so
far as telegram and letters are concerned, from the time na
gesulat nia sa papel, there is perfection.
2.) EXPEDITION- from the na iyang ge-mail ang acceptance
sa mailbox
3.) RECEPTION – from the time na gedawat ang acceptance
even if wala gebasa pa sa offeror
4.) COGNITION- at the time the acceptance came to the
knowledge of the offeror which is one being used in our
jurisdiction.
Art. 1320. An acceptance may be express or implied. (n)
Express Yes. Halimbawa nlng pud kanang nanligaw ka, gesugot
nako nimu? And she said “YES” that is express. Halimbawa kung wala
xa nitingog human ni-kiss lang xa sa imuha ug kalit? Unsa mana xa?
Haha acceptance? For me it is unless kung balewala lang sa imuha na
magkiss haha that can be implied.
Art. 1321. The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied with. (n)
So kung unsa tong ge-ingon sa offeror like in the case of Malabrosa,
gehatagan xag offer, and the offer was made in the letter, and it was
stated that “ pls signify your acceptance by signing on the blank
provided for” but in that case, it was not done earlier , it was already
done when the offer was offered the same thing to another person. So
there was no perfected contract here because the offerree did not
indicate his acceptance in the manner required by the offeror. Kung
niingon si offeror na “mupirma ka dha sa blank space” mao na xa ang
manner sa acceptance. You cannot just text the offeror na “ok nag
accept nako” that is not within the tenor required by the offeror
Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him. (n)
Him here refers to the agent. As long as it was communicated to the
agent, that is already equivalent to acceptance.
Art. 1323. An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is
conveyed. (n)
This is self-explanatory noh, namatay xa, nabuang xa, before niya
geconvey ang acceptance, then the offer becomes ineffective. Did I
assign a case here?
Read the case of : Matias vs. CA Janurary 1986
Under 1323 we have Villanueva vs. CA GR 114870 May 26, 1995
VILLANUEVA vs. CA
GR. No. 114870 May 26, 1995
Under Article 1323 of the Civil Code, an offer becomes ineffective upon
the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed. The reason for this is that:
[T]he contract is not perfected except by the concurrence of two wills
which exist and continue until the moment that they occur. The
contract is not yet perfected at any time before acceptance is
conveyed; hence, the disappearance of either party or his loss of
capacity before perfection prevents the contractual tie from being
formed.
It has been said that where upon the insolvency of a bank a receiver
therefor is appointed, the assets of the bank pass beyond its control
into the possession and control of the receiver whose duty it is to
administer the assets for the benefit of the creditors of the bank. 31
Thus, the appointment of a receiver operates to suspend the authority
of the bank and of its directors and officers over its property and
effects, such authority being reposed in the receiver, and in this
respect, the receivership is equivalent to an injunction to restrain the
bank officers from intermeddling with the property of the bank in any
way.
In a nutshell, the insolvency of a bank and the consequent
appointment of a receiver restrict the bank's capacity to act, especially
in relation to its property, Applying Article 1323 of the Civil Code,
Ong's offer to purchase the subject lots became ineffective because
the PVB became insolvent before the bank's acceptance of the offer
came to his knowledge. Hence, the purported contract of sale between
them did not reach the stage of perfection. Corollarily, he cannot
3RD Exam Coverage | 10
invoke the resolution of the bank approving his bid as basis for his
alleged right to buy the disputed properties.
Nor may the acceptance by an employee of the PVB of Ong's payment
of P100,000.00 benefit him since the receipt of the payment was made
subject to the approval by the Central Bank liquidator of the PVB thus:
Payment for the purchase price of the former property of Andres
Sebastian per approved BR No. 10902-84 dated 11/13/84, subject to
the approval of CB liquidator.
This payment was disapproved on the ground that the subject
property was already in custodia legis, and hence, disposable only by
public auction and subject to the approval of the liquidation court.
The Court of Appeals therefore erred when it held that Ong had a
better right than the petitioners to the purchase of the disputed lots.
Art. 1324. When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before acceptance
by communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised. (n)
This is a very important provision. As I already mentioned to you, as
long as the offer has not yet been accepted, the offeror can still
withdraw the offer. If the offer is made thru telegram or letter, as long
as the acceptance has not yet reach the knowledge of the offeror, he
can still withdraw the offer except when an option contract is involve.
What is an option?
What happened in the case of ADELFA PROPERTIES?
ADELFA PROPERTIES
ISSUE: Whether or not the contract is a Contract of Sale , Option
Contract or Contract to Sell.
SC: The Supreme Court affirmed the assailed judgment of the Court of
Appeals in CA-GR CV 34767, with modificatory premises.
Agreement between parties a contract to sell and not an
option contract or a contract of sale
The alleged option contract is a contract to sell, rather than a contract
of sale. The distinction between the two is important for in contract of
sale, the title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved
in the vendor and is not to pass until the full payment of the price. In a
contract of sale, the vendor has lost and cannot recover ownership
until and unless the contract is resolved or rescinded; whereas in a
contract to sell, title is retained by the vendor until the full payment of
the price Thus, a deed of sale is considered absolute in nature where
there is neither a stipulation in the deed that title to the property sold
is reserved in the seller until the full payment of the price, nor one
giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period.
That the parties really intended to execute a contract to sell is
bolstered by the fact that the deed of absolute sale would have been
issued only upon the payment of the balance of the purchase price, as
may be gleaned from Adelfa Properties’ letter dated 16 April 1990
wherein it informed the vendors that it “is now ready and willing to
pay you simultaneously with the execution of the corresponding deed
of absolute sale.”
Contract interpreted to ascertain intent of parties; Title not controlling
if text shows otherwise
The important task in contract interpretation is always the
ascertainment of the intention of the contracting parties and that task
is to be discharged by looking to the words they used to project that
intention in their contract, all the words not just a particular word or
two, and words in context not words standing alone. Moreover,
judging from the subsequent acts of the parties which will hereinafter
be discussed, it is undeniable that the intention of the parties was to
enter into a contract to sell. In addition, the title of a contract does not
necessarily determine its true nature. Hence, the fact that the
document under discussion is entitled “Exclusive Option to Purchase” is
not controlling where the text thereof shows that it is a contract to
sell.
Test to determine contract as a “contract of sale or purchase”
or mere “option”
The test in determining whether a contract is a “contract of sale or
purchase” or a mere “option” is whether or not the agreement could
be specifically enforced. There is no doubt that Adelfa’s obligation to
pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had the Jimenezes chosen to
enforce the contract, they could have specifically compelled Adelfa to
pay the balance of P2,806,150.00. This is distinctly made manifest in
the contract itself as an integral stipulation, compliance with which
could legally and definitely be demanded from petitioner as a
consequence.
Adelfa Properties justified in suspending payment of balance by reason
of vindicatory action filed against it
In Civil Case 89-5541, it is easily discernible that, although the
complaint prayed for the annulment only of the contract of sale
executed between Adelfa Properties and the Jimenez brothers, the
same likewise prayed for the recovery of therein Jimenez’ share in that
parcel of land specifically covered by TCT 309773. In other words, the
Jimenezes were claiming to be co-owners of the entire parcel of land
described in TCT 309773, and not only of a portion thereof nor did
their claim pertain exclusively to the eastern half adjudicated to the
Jimenez brothers. Therefore, Adelfa Properties was justified in
suspending payment of the balance of the purchase price by reason of
the aforesaid vindicatory action filed against it. The assurance made by
the Jimenezes that Adelfa Properties did not have to worry about the
case because it was pure and simple harassment is not the kind of
guaranty contemplated under the exceptive clause in Article 1590
wherein the vendor is bound to make payment even with the existence
of a vindicatory action if the vendee should give a security for the
return of the price.
Actually we discussed before the difference bet and option money and
earnest money. An option money, when you give an option it is not an
evidence of a perfected contract what you have merely is a perfected
contract of option. Meaning I want to buy your land but still thinking if
I can afford it . I want you to give me 1 month within which to buy
the land and the offeror said ok ill give you one month. If before 1
month, the mind of the offeror changed, he offered the same land to
another person (X), is the offeror in breach of the contract with you?
In the first place is there an option contract ? in that case is merely an
unaccepted offer and he can withdraw it at anytime prior to
acceptance. He is not bound to give you 1 month. When can be bound
to give you one month? If there is an option contract- if the option is
founded upon a consideration like ‘muhatag kog 10K sa imuha para na
sa akong option to buy within 1 month, so within 1 month you cannot
sell the same land to another person because you are bound by that
contract. For example you sell that to another person within 1 month
in breach of the contract, he can be liable for damages but not breach
of contract of sale because theres no sale but breach of contract of
option contract. So he can be held liable for that. Pero kung walay
CONSIDERATION at all nag promise lang xa na hatagan ka ug 1 month
,and nagbag-o iyang mind, gebaligya nia sa lain, he cannot be held
liable for that.
Now the law says upon a consideration of something paid or promise.
The consideration here is not necessarily money, pwede money but it
can be some other things. Like I will lease to you my house for 10k,
that amount is relatively higher , that is high because I’m giving to you
the option to buy. Now, then you agreed and then the lessor sold the
party to another person is he liable for breach? Is he bound by the
3RD Exam Coverage | 11
option? Yes because the consideration for that option is the same
consideration for the contract of lease. You would not have rent to the
house for 10k if not for the option to buy. In the case that is a
valuable consideration the same consideration that supports the
contract of lease is the same consideration that supports the contract
of option.
In so far as the option is concerned, the offeree (katong ge- offeran)
does not have the obli to buy but he has the privilege . he can exercise
that privilege or he may just abandon it by the mere non-exercise of
such option. So that is the nature of an option contract.
Art. 1325. Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to make an
offer. (n)
So makita ninyu sa mga billboards (for sale) those are not offers but
mere invitation to offer . So you cannot expect na naa kay nakita na
for sale sa billboard, adtuon naku, paliton naku! Is there perfected
contract? Not yet but when you said “paliton naku” that is an offer. If
they accept then there is a perfected contract.
Art. 1326. Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears. (n)
So that is actually the same as business advertisements no they are
just invitations to make offers. Even if you tell the lowest/highest bid,
you cannot insist that you be awarded the contract. That is only a
proposal.
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know
how to write. (1263a)
Unemancipated minors- actually kanang below 18 because as long as
you are below 18 you cannot legally enter into a contract. If you’re
below 18 and you enter into a contract, it is still valid but voidable. It
can be annulled on the ground of vitiated consent because of minority
or insanity.
Art. 1328. Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during a hypnotic
spell are voidable. (n)
Lucid interval kanag insane person pero at times normal sila/sane sila.
Normally, when they enter into a contract during lucid interval, that is
valid, drunkenness, hubog kaayu ka nipirma kag contrata gebaligya
nimu imung balay, gehypnotize ka, so voidable
Art. 1329. The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be without
prejudice to special disqualifications established in the laws. (1264)
So there are actually special laws which declare that certain contracts
are void. Certain persons are disqualified i.e husband and wife,
donations. Those are conditions, which we’ll discuss later
Art. 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable. (1265a)
So these are vices of consent, mistake, violence, undue influence.
ADDITIONAL CASES:
1331.
1.) THEIS vs. CA GR 126013 Feb 12 , 1997
2.) Dandan vs. Arcel Realty & Management Corp GR 173114
September 8, 2008
1332.
1.) Bunyi vs. Reyes GR L-28845 June 10, 1971
2.) Sps Micena vs. ROngavilla GR 130138 Feb 25, 1999
3.) Jimenez vs. CA GR 107132 Oct 8, 1999
4.) Feliciano vs. Sps Zaldivar GR 162598 Sept 26, 2006
1335.
1.) Callanta vs. NLRC GR 105083 August 20, 1993
2.) De leon vs. CA GR 809065 June 6, 1990
March 1 2013
Transcribed by: GlowingGloria
VICES OF CONSENT
Article 1331. In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of the contract,
or to those conditions which have principally moved one or both
parties to enter into the contract.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or qualifications
have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
WHEN WILL MISTAKE VITIATE THE CONSENT THAT WILL
INVALIDATE THE CONTRACT? Mistake will only invalidate the
consent if it refers to the substance of the thing. Example if you
bought the land, you taught that the land is suitable but it truns out t
is not. It is substance of the thing. You only know that such condition
of the land, you will not have consented to the sale of the land
As of the identity. Example you thought the owner is the your crush,
pareha lng na diay sila ug pangalan. That is not the main reason. It is
merely incidental that is just additional reason. But really you wanted
to buy the lot because you wanted to plant camote. So in this case, a
mistake which is only incidental will not vitiate consent.
Identity or qualification if that is the principal cause of the contract.
Like example you hired Sandara park on a concert you produced. You
thought that is Sandara Park the actress but it turn out to be not. So
here the identity here is the principal reason on the contract. In this
case there is a vitiation of consent.
Mistake of the substance. Remember this will give rise only to
correction. Like when you agreed for 500 hectares then nagkamali ug
50 hectares. Here it will only give rise to correction.
Penida:
- Ignorance and error are 2 different states of mind.
Ignorance means the complete absence of any notion
about a particular matter, while error or mistake means a
wrong or false notion about such matter.\
- Annulment of contract on the ground of error is limited to
cases in which it may reasonably be said that without such
error the consent would not have been given.
- An error as to the person will invalidate consent when the
consideration of the person has been the principal cause of
the same. \
- Mistake as to qualifications, even when there is no error as
to person, is a cause vitiating consent, if such qualifications
have been the principal cause of the contract.
- A mistake as to the motive of a party does not affect the
contract; to give it such effect would destroy the stability of
contractual relations. When the motive has, however, been
expressed and was a condition of the consent given,
annulment is proper—because an accidental element is, by
the will of the parties, converted into a substantial element.
3RD Exam Coverage | 12
 SPOUSES TY VS. CA
The SC ruled it is clear that the private respondent committed an
honest mistake in selling the said land. As correctly noted by the CA it
is quietly impossible for the respondent to sell such parcel of land as
the same is not owned by them. Under 1331, what happen is
ignorance which is the absence of knowledge with respect to the thing.
In this case the Supreme Court cited the explanation of tolentino of
what mistake is. It provides that, the concept of error under this
article includes both ignorance, which is the absence of knowledge
with respect to a thing, and mistake properly speaking, which is a
wrong conception about said thing. In both cases there is lack of full
and correct knowledge about the thing. But error should not be
considered as established, when alleged error is incomprehensible,
absurd and in explainable in a person with capacity to contract \
In this case, the mistake committed by the private respondent in
selling the parcels of land no. 4 to the petitioners falls within the
second type. Such mistake invalidates its consent and such make\ the
contract voidable. The petitioners cannot be justified in their insistence
that parcel no. 3 may be given to them. It is because the cause of the
construction of the house in the year 1995 exceeds the amount that
they paid to the private respondent. To allow the petitioners to take
parcel no. 3 would be unjust enrichment.
Ok, so here there is a mistake in survey. They sold a land which is not
supposed to be the subject of the sale. They cannot also insist to the
delivery of another parcel of land which is more difficult. The mistake
here went to the very substance of the thing which vitiated the
consent.
You have to remember the definition of tolentino regarding mistake
here. It may be that you do not know at all, or you knew but your
knowledge is incorrect. Both cases can invalidate the consent.
DANDAN vs. CA
September 8, 2008
WHAT IS THE ISSUE IN THIS CASE? The issue in this case, is won
dander is bound by the agreement validly of each \..
WHAT IS THE AGREEMENT ALL ABOUT? The agreement, dandan
assume the remaining balance which sauro claimed they have paid for
the entire purchase price. In that agreement dandan free arfil from
any liability that may arise if sauro file a case against arfil.
WHAT WAS THE DEFENSE OF DANDAN IN THIS CASE? According to
dandan act of vitiation of consent and lack of consideration did not
exconvate himself the consequence of the agreement in case that he
must merely perform to sign the agreement as an act of
accommodation never telling that he will assume the liability of the
deed of absolute sale.
WHAT WAS THE RULING OF THE SUPREME COURT? The ruling of the
supreme court in this case, according to the memorandum of
agreement it is stated there that it is understood that the consideration
represent only the balanced due to arfiel will pay from the sale of the
house by missis sauro and that Jason and Dandan are fully aware of
the previous transaction entered into by Arfiel and missis sauro.. Such,
all the claims of the third parties, (interrupt s imam)
HOW ABOUT THE CLAIM OF DANDAN THAT HE DID NOT
UNDERSTOOD THE LEGAL CONSEQUENCES OF THE AGREEMENT? The
claim of dandan is untenable. It is because mistake of law, will not
vitiate consent ( I submit maybe because of Article III of the civil
code) .
Was the agreement on a private document? The agreement was not
made into a private document. As a consequence of that, when a
document was acknowledge by a notary public, it enjoins the
presumption of regularity.
What did the SC said with respect about the presumption in the rules
of court? Under the rules of court, it is presumed that the person of
the things is in ordinary of his concern. Hence the natural
presumption, one will not sign the document without reading it. There
was no evidence here that dandan is illiterate so he is presumed to
have taken diligence in his ordinary affairs.
GlowingGloria : when a document is notarized by a notary public, the
notary public here takes a step to make sure that the document was
voluntary made by the parties. That is the essence of the notary
public.
Article 1332. When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.
Here one of the parties is not able to read. In this case, it is incumbent
to the other contracting party to show that the term of the contract
was fully explained to the party who cannot read. That is if mistake or
fraud is alleged.
BUNYI VS REYES
G.R. No. L-28845 June 10, 1971
DOES IT FOLLOW THAT BEING A VICE MAYOR UNDER THE
LAW YOUR CONSIDERED INTELLIGENT? No maam. It is not
necessary. Take note that before 1332 should apply, it should be
established that the person alleging that he could not read the contract
should really have to prove. It is not given na he could not read. It
should have to be proved that he did not understand the language
used in the contract. Before the other party has the burden of proving
that the terms has been fully explained the one complaining and in this
case, the circumstances would show that the party alleging that he
was not able to read or did not understand at all the terms of the
contract was really actually in a position to know. He was the vice
mayor and he was the one in fact who facilitated the contract. It was
even translated to tagalong. Hindi pwede na ay illiterate kop, you have
to prove that first
FACTS:
Gil Joaquin executed a deed of "Venita con Pacto de Retro", whereby
for and in consideration of the sum of P100.00 paid to him. by
petitioner, he ceded and transferred to petitioner the land then titled in
his name, expressly excluding the house or houses built thereon, with
the right of repurchasing the same within two years thereafter, and
assuming the payment of the land taxes and agreeing to pay an
annual rental of P12.00 as lessee thereof during the stipulated period
of redemption.
On July 5, 1941, after Gil Joaquin had failed to repurchase the land,
petitioner executed an affidavit of consolidation of ownership and
Joaquin's title was accordingly cancelled and a new certificate of title
issued on July 7, 1941 in petitioner's name.
The trial court rendered judgment holding that the questioned deed
spoke "in unequivocal terms of a sale and the conveyance of the land
with the right to repurchase. In the face of its plain terms, there is
nothing to justify our construing that contract as a mere mortgage.
HELD:
Article 1332, which was designed for the protection of illiterates and of
a party to a contract who "is a disadvantage on account of his
ignorance, mental weakness or other handicap," provides that:
Art. 1332. When one of the parties is unable to read, or if the contract
is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former. (n)
For the proper application of said article to the case at bar, it has first
to be established convincingly by respondents that Gil Joaquin could
not read or that the contract was written in a language not understood
by him. This factual basis was far from shown. On the contrary, the
trial court duly found — and the appellate court made in contrary
finding — that "Gil Joaquin, ... had been vice mayor of Muntinglupa;
he spoke and understood Spanish; it is hard to believe that he signed
the document Exhibit A-1 without understanding its contents." The
appellate court still made mention of another relevant factor testified
to by petitioner — not mentioned by the trial court — that "it was Gil
Joaquin who 'asked the preparation of that document', Exhibit A, "by
the notary public, who translated the contents into tagalog before the
Joaquin spouses signed the same — which completely relieved
petitioner of any burden of proof, since the further presumption arose
3RD Exam Coverage | 13
that the deed was prepared in accordance with Gil's understanding and
instructions, since he caused its preparation.
Article 1333. There is no mistake if the party alleging it knew
the doubt, contingency or risk affecting the object of the
contract.
Penida: To invalidate consent, the error must be excusable. It must be
a real error and not one that could have been avoided by the party
alleging it. The error must arise from facts unknown to him. A mistake
that is caused by manifest negligence cannot invalidate a juridical act.
If you knew that there was a risk like you bought a parcel of land but
you already know that the said land is under litigation so naturally the
litigants are contesting the ownership of the seller subsequently the
court decide that the seller has no right to the land so in this case, you
as a buyer with such knowledge assumed the risk. You cannot
eventually say it was a mistake because at the first place you knew the
risk and contingency.
Article 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is frustrated,
may vitiate consent.
Penida: Three requisites under this article: 1) the error must be as to
the legal effect of an agreement; 2) it must be mutual; and 3) the real
purpose of the parties is frustrated.
* The legal effects include the rights and obligations of the parties, not
as stipulated in the contract, but as provided by the law. The mistake
as to these effects, therefore, means an error as to what the law
provides should spring as consequences from the contract in question.
* An error as to the nature or character is always essential, and makes
the act juridically inexistent.
Example: A and b entered in a contract, but to A his understanding
that it has an effect of a lease while to B is a sale. There was no
meeting of minds in this case because there was a mistake as to the
legal effect of the agreement. In this case it can be annulled! There
was no meeting of minds. Remember this provision because it has
relation to reformation. What happen here is that consent is vitiated
that is why it is annullable.
Article 1335. There is violence when in order to wrest consent,
serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled
by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of
the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the
claim is just or legal, does not vitiate consent.
PINEDA: Duress is that degree of constraint or danger either actually
inflicted (violent) or threatened and impending (intimidation), sufficient
to overcome the mind and will of a person of ordinary firmness.
* Violence refers to physical force or compulsion, while intimidation
refers to moral force or compulsion.
Requisites of violence:
- That the physical force employed must be irresistible or of
such degree that the victim has no other course, under the
circumstances, but to submit; and
- that such force is the determining cause in giving the
consent to the contract.
Requisites of intimidation:
- that the intimidation must be the determining cause of the
contract, or must have caused the consent to be given;
- that the threatened act be unjust or unlawful;
- that the threat be real and serious, there being an evident
disproportion between the evil and the resistance which all
men can offer; and
- that it produces a reasonable and well-grounded fear from
the fact that the person from whom it comes has the
necessary means or ability to inflict the threatened injury.
This article defines what is violence or intimidation.
Violence- involves physical force example: naa koy almarite, gidukol
naku sya ug almarite so it is violence kasi may physical force.
Intimidation- involves mortal compulsion. Example, gitutukan ka
naku ug baril to sign the contrac , it is moral compulsion so
intimidation sya. This is not only limited to the party itself but it also
covers the spouse, accssendant, descendant property etc.
Take into account the age, sex and condition of the person. Example
subagon taka tapos ang biktima si the rock and nagsumbag kay si
dagul. So here the court should determine the sex and condition of the
person ok.
CALLANTA vs. CA
GR 105083, August 1993
It pertains to a labor dispute about resignation. Her it was alleged that
the president force the other party to sign the resignation or else he
will file a estafa case.
SC decided in favor of the company. Petitioner fails to establish that ..
1335 will not apply in this case for what was alleged is only the filing
of estafa. To qualify intimidation, the threat should be an unjust or
unlawful act and filing a estafa case is not an unjust act. The threat
here is legal and it cannot vitiate the consent. even assuming that his
consent was not voluntary, it was not the consent the supreme court
seeks to protect as vitiated consent.
Article 1336. Violence or intimidation shall annul the obligation,
although it may have been employed by a third person who did not
take part in the contract
Here violence or intimidation even if it was employed by the
contracting party it can still vitiates consent.
Article 1337. There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of
a reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress.
PINEDA * In intimidation, there must be an unlawful or unjust act
which is threatened and which causes consent to be given, while in
undue influence there need not be an unjust or unlawful act. In both
cases, there is moral coercion.
Moral coercion may be effected through threats, expressed or implied,
or through harassing tactics.
Undue influence is any means employed upon a party which, under the
circumstances, he could not well resist, and which controlled his
volition and induced him to give his consent to the contract—which
otherwise he would not have entered into.
Undue Influence- another form of vice of consent. Because of moral
ascendency of the party of the other party and because of the
condition of the latter who was unduly influence by the former.
Example: priest talking to a person dying: imung yuta sa
kalinan kung mahatag nimu ug 100000 sure gyud na
malangit ka.
3RD Exam Coverage | 14
Actually in succession, it is a conclusive presumption that there is an
undue influence if a dying person makes the priest a legacy.
Conclusive sya because of the condition of the other contracting party.
SPOUSE’S CARPO VS CHUA.
1570770 AND 153999 SEPTEMBER 30 2005
FROM THE CASE
We are hard put to conclude in this case that there was any undue
influence in the first place.
There is ultimately no showing that petitioners’ consent to the
loan and mortgage agreements was vitiated by undue influence. The
financial condition of petitioners may have motivated them to contract with
respondents, but undue influence cannot be attributed to respondents
simply because they had lent money. Article 1391, in relation to Article 1390
of the Civil Code, grants the aggrieved party the right to obtain the
annulment of contract on account of factors which vitiate consent. Article
1337 defines the concept of undue influence, as follows:
There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between
the parties or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in
financial distress.
While petitioners were allegedly financially distressed, it must
be proven that there is deprivation of their free agency. In other words, for
undue influence to be present, the influence exerted must have so
overpowered or subjugated the mind of a contracting party as to destroy his
free agency, making him express the will of another rather than his own.[21]
The alleged lingering financial woes of petitioners per se cannot be equated
with the presence of undue influence.
The RTC had likewise concluded that petitioners were barred by
laches from assailing the validity of the real estate mortgage. We
wholeheartedly agree. If indeed petitioners unwillingly gave their consent to
the agreement, they should have raised this issue as early as in the
foreclosure proceedings. It was only when the writ of possession was issued
did petitioners challenge the stipulations in the loan contract in their action
for annulment of mortgage. Evidently, petitioners slept on their rights. The
Court of Appeals succinctly made the following observations:
In all these proceedings starting from the foreclosure, followed by
the issuance of a provisional certificate of sale; then the definite certificate of
sale; then the issuance of TCT No. 29338 in favor of the defendants and
finally the petition for the issuance of the writ of possession in favor of the
defendants, there is no showing that plaintiffs questioned the validity of
these proceedings. It was only after the issuance of the writ of possession in
favor of the defendants, that plaintiffs allegedly tendered to the defendants
the amount of P260,000.00 which the defendants refused. In all these
proceedings, why did plaintiffs sleep on their rights?[22]
Clearly then, with the absence of undue influence, petitioners
have no cause of action. Even assuming undue influence vitiated their
consent to the loan contract, their action would already be barred by
prescription when they filed it. Moreover, petitioners had clearly slept on
their rights as they failed to timely assail the validity of the mortgage
agreement. The denial of the petition in G.R. No. 150773 is warranted.
Article 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed
to.
PINEDA : *Fraud is every kind of deception, whether in the form of
insidious machinations, manipulations, concealments, or
misrepresentations, for the purpose of leading another party into error
and thus executing a particular act.
Fraud produces qualified error; it induces in the other party an inexact
notion of facts. The will of another is maliciously misled by means of
false appearance of reality.
Insidious words or machinations” include false promises;
exaggeration of hopes or benefits; abuse of confidence; and
fictitious names, qualifications, or authority.
KINDS OF FRAUD:
- dolo causante (Art. 1338) — which determines or is the
essential cause of the consent; fraud in the perfection of
contract
- dolo incidente— (Arts. 1344 & 1170) which does not have
such a decisive influence and by itself cannot cause the
giving of consent, but refers only to some particular or
accident of the obligation.
Dolo causante can be a ground for annulment; dolo incident cannot be
a ground for annulment.
The result of fraud is error on the part of the victim.
REQUISITES OF FRAUD:
- it must have been employed by one contracting party upon
the other;
- it must have induced the other party to enter into the
contract;
- it must have been serious;
- and it must have resulted in damage or injury to the party
seeking annulment.
Remember in article 1170, fraud there is fraud in the performance of
an obligation while in articleb1338 fraud here refers to fraud that will
vitiate the consent and thus makes the contract voidable or fraud in
execution. Here there is fraud where the one of the parties agree to
give its consent in a contract.
Note: In fraud in performance the remedy is damages because there
was a valid contract to speak of. While in fraud in execution the
remedy is action of annulment because the consent is vitiated.
CARAM VS LAURETA
GR L-28740
FROM THE CASE:
The petitioner's conclusion that the second deed of sale, "Exhibit F", is a
voidable contract is not correct. I n order that fraud can be a ground for the
annulment of a contract, it must be employed prior to or simultaneous to
the, consent or creation of the contract. The fraud or dolo causante must be
that which determines or is the essential cause of the contract. Dolo
causante as a ground for the annulment of contract is specifically described
in Article 1338 of the New Civil Code of the Philippines as "insidious words or
machinations of one of the contracting parties" which induced the other to
enter into a contract, and "without them, he would not have agreed to".
The second deed of sale in favor of Caram is not a voidable contract. No
evidence whatsoever was shown that through insidious words or
machinations, the representatives of Caram, Irespe and Aportadera had
induced Mata to enter into the contract.
Since the second deed of sale is not a voidable contract, Article 1391, Civil
Code of the Philippines which provides that the action for annulment shall be
brought within four (4) years from the time of the discovery of fraud does
not apply. Moreover, Laureta has been in continuous possession of the land
since he bought it in June 1945.
ALCASID vs. CA
FROM THE CASE:
On the matter of fraud, Article 1338 of the Civil Code of the Philippines
provides:
There is fraud when, through insidious words or machinations of one of the
contracting parties the other is induced to enter into a contract which,
without them, he would not have agreed to (Art. 1338, Civil Code).
3RD Exam Coverage | 15
In order that fraud may vitiate consent and be a cause for annulment of
contract, the following must concur:
1.) It must have been employed by one contracting party upon the other (Art.
1342 and 1344);
2.) It must have induced the other party to enter into the contract (Art.
1338);
3.) It must have been serious (Art. 1344);
4.) It must have resulted in damage and injury to the party seeking
annulment (Tolentino, IV Commentaries on the Civil Code of the Philippines,
507 [1991 ed]).
As to the alleged mistake, Article 1331 of the Civil Code of the Philippines
provides:
In order that mistake may invalidate consent, it should refer to the substance
of the thing which is the object of the contract, or to those conditions which
have principally moved one or both parties to enter into the contract.
To invalidate consent, the error must be real and not one that could have
been avoided by the party alleging it. The error must arise from facts
unknown to him. He cannot allege an error which refers to a fact known to
him or which he should have known by ordinary diligent examination of the
facts. An error so patent and obvious that nobody could have made it, or one
which could have been avoided by ordinary prudence, cannot be invoked by
the one who made it in order to annul his contract (Tolentino, supra at pp.
486-487).
Petitioner could have avoided the alleged mistake had she exerted efforts to
verify from her co-owners if they really consented to sell their respective
shares.
As to undue influence, Article 1337 of the Civil Code of the Philippines
provides:
There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom
of choice. The following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the fact that the
person alleged to have been unduly influenced was suffering from mental
weakness or was ignorant or in financial distress.
Undue influence, therefore, is any means employed upon a party which,
under the circumstances, he could not well resist and which controlled his
volition and induced him to give his consent to the contract, which otherwise
he would not have entered into. It must in some measure destroy the free
agency of a party and interfere with the exercise of that independent
discretion which is necessary for determining the advantages or
disadvantages of a proposed contract (Tolentino, supra at p. 501). If a
competent person has once assented to a contract freely and fairly, he is
bound thereby.
The finding of the Court of Appeals that petitioner executed the contract of
her own free will and choice and not from duress is fully supported by the
evidence. Such finding should not be disturbed (Martinez v. Hongkong &
Shanghai Bank, 15 Phil. 252 [1910]).
Private respondent did not commit any wrongful act or omission which
violated the primary right of petitioner. Hence, petitioner did not have a
cause of action
SAN MIGUEL VS etcuban 1999
From the case, In the present case, while respondents insist that their action
is for the declaration of nullity of their "contract of termination," what is
inescapable is the fact that it is, in reality, an action for damages emanating
from employer-employee relations. First, their claim for damages is
grounded on their having been deceived into severing their employment due
to SMC's concocted financial distress and fraudulent retrenchment program
— a clear case of illegal dismissal. Second, a comparison of respondents'
complaint for the declaration of nullity of the retrenchment program before
the labor arbiter and the complaint for the declaration of nullity of their
"contract of termination" before the RTC reveals that the allegations and
prayer of the former are almost identical with those of the latter except that
the prayer for reinstatement was no longer included and the claim for back
wages and other benefits was replaced with a claim for actual damages.
These are telltale signs that respondents' claim for damages is intertwined
with their having been separated from their employment without just cause
and, consequently, has a reasonable causal connection with their employer-
employee relations with SMC. Accordingly, it cannot be denied that
respondents' claim falls under the jurisdiction of the labor arbiter as provided
in paragraph 4 of Article 217.
Respondents' assertion that their action is for the declaration of nullity of
their "contract of termination" is merely an ingenious way of presenting their
actual action, which is a claim for damages grounded on their having been
illegal terminated. However, it would seem that respondents committed a
Freudian slip when they captioned their claim against SMC as an action for
damages. 13 Even the term used for designating the contract, i.e. "contract
of termination," was formulated in a shrewd manner so as to avoid a
semblance of employer-employee relations. This observation is bolstered by
the fact that if respondents' designation for the contract were to be made
complete and reflective of its nature, its proper designation would be a
"contract of termination of employment."
The Court is aware that the Civil Code provisions on contracts and damages
may be used as bases for addressing the claim of respondents. However, the
fact remains that the present action primarily involves an employer-
employee relationship. The damages incurred by respondents as a result of
the alleged fraudulent retrenchment program and the allegedly defective
"contract of termination" are merely the civil aspect of the injury brought
about by their illegal dismissal. 14 The civil ramifications of their actual claim
cannot alter the reality that it is primordially a labor matter and, as such, is
cognizable by labor courts. In Associated Citizens Bank vs. Japson,15 we held:
For the unlawful termination of employment, this Court in Primero v.
Intermediate Appellate Court, supra, ruled that the Labor Arbiter had the
exclusive and original jurisdiction over claims for moral and other forms of
damages, so that the employee in the proceedings before the Labor Arbiter
should prosecute his claims not only for reliefs specified under the Labor
Code but also for damages under the Civil Code. This is because an illegally
dismissed employee has only a single cause of action although the act of
dismissal may be a violation not only the Labor Code but also of the Civil
Code. For a single cause of action, the dismissed employee cannot institute a
separate action before the Labor Arbiter for backwages and reinstatement
and another action before the regular court for the recovery of moral and
other forms of damages because splitting a single cause of action is
procedurally unsound and obnoxious to the orderly administration of justice.
(Primero v. Intermediate Appellate Court, supra, citing Gonzales v. Province
of Iloilo, 38 SCRA 209; Cyphil Employees Association-Natu v. Pharmaceutical
Industries, 77 SCRA 135; Calderon v. Court of Appeals, 100 SCRA 459, etc.) 16
Even assuming arguendo that the RTC has jurisdiction, it is obvious from
respondents' own pleadings that their action for the declaration of nullity of
the "contract of termination" will not prosper. Respondents allege that they
were deceived by SMC into believing that it was under financial distress
which, thus, led them into concluding the "contract of termination" with the
latter. 17 Respondents then posit that since the cause of the contract, SMC's
alleged financial distress, was inexistent, the contract is null and void. The
argument is flawed.
The fact that SMC was never in financial distress does not, in any way, affect
the cause of their "contract of termination." Rather, the fraudulent
representations of SMC only affected the consent of respondents in entering
into the said contract. 18 If the consent of a contracting party is vitiated by
fraud, the contract is not void but, merely, voidable. 19 In Abando vs. Lozada,
20 we ruled:
As correctly pointed out by the appellate court, the strategem (sic), the
deceit, the misrepresentations employed by Cuevas and Pucan are facts
constitutive of fraud which is defined in Article 1338 of the Civil Code as that
(sic) insidious words or machinations of one of the contracting parties, by
which the other is induced to enter into a contract which, without them, he
would not have agreed to. When fraud is employed to obtain the consent of
the other party to enter into a contract, the resulting contract is merely a
voidable contract, that is, a valid and subsisting contract until annulled or set
aside by a competent court. . . . 21
An action to annul a voidable contract based on fraud should be brought
within four (4) years from the discovery of the same. 22 In the present case,
respondents discovered SMC's fraud in May 1986. However, the action to
question the validity of the contract was only brought on 14 December 1993,
or more than seven (7) years after the discovery of the fraud. Clearly,
respondents' action has already prescribed.
3RD Exam Coverage | 16
Article 1339. Failure to disclose facts, when there is a duty to reveal
them, as when the parties are bound by confidential relations,
constitutes fraud.
PINEDA: *Silence or concealment, by itself, does not constitute fraud,
unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce, the
communication should be made.
*Thus, the innocent non-disclosure of a fact does not affect the
formation of the contract or operate to discharge the parties from their
agreement.
Failure to disclose facts ordinary does not constitute fraud. But when
the parties are bound \in a confidential relation then it constitutes
fraud.
Example: A knows that X selling the land for 1 million. A also knows
that b is looking for a land. A told B that he is willing to sell his land for
1.5 million so B bought the land from A and the same amount was
used by A to pay X. A here did not disclose to B about the price 1M by
X. is here a fraud?
No there is no fraud. It is because A has no obligation to disclose
such thing to B. diskarte na ni A.
But if they are bound by confidential relation, then there is fraud here
in execution. As decided by the supreme court in one of the case
where there is a partnership.
Example: A knows that X is looking for a land. A convince B his
partner to sell his property which is part of the partnership. X pays the
property 1.5 M to A while B thought that the purchase price was only
for 1M only. Here there is fraud because as partners they are bound by
confidential relations. A should have inform B about the offer of a
higher price by other person but instead he bought the land in a lower
price and sold it in a higher value. SO B can annulled the sale by him
to A and subsequently annulled the Sale of A to X.
Because in a partnership there is trust and confidence.
Article 1340. The usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in themselves
fraudulent.
PINEDA: *Tolerated fraud includes minimizing the defects of the
thing, exaggeration of its good qualities, and giving it qualities that it
does not have. This is lawful misrepresentation known as dolus bonus.
This is also called lawful astuteness.
These misrepresentations are usually encountered in fairs, markets,
and almost all commercial transactions. They do not give rise to an
action for damages, either because of their insignificance or because
the stupidity of the victim is the real cause of his loss.
The thinking is that where the means of knowledge are at hand and
equally available to both parties, one will not be heard to say that he
has been deceived.
AZZARAGA case
Lectures: this article refers to caveat emptor which means” buyer
beware”. These what we called tolerated frauds.
Caveat emptor( penida definition)- the buyer has the duty to check the
title of the seller over the property \plus other circumstances necessary
for his own protection. “ let the buyer beware”
AZZARAGA VS GAY
FACTS: The defendant admits that she purchased the two parcels of
land referred to by plaintiff, by virtue of the deed of sale Exhibit A, but
alleges in defense: (a) That the plaintiff knowing that the second
parcels of land he sold had an area of 60 hectares, by
misrepresentation lead the defendant to believe that said second
parcel contained 98 hectares, and thus made it appear in the deed of
sale and induced the vendee to bind herself to pay the price of
P47,000 for the two parcels of land, which he represented contained
an area of no less than 200 hectares, to which price the defendant
would not have bound herself had she known that the real area of the
second parcel was 60 hectares, and, consequently, she is entitled to a
reduction in the price of the two parcels in proportion to the area
lacking, that is, that the price be reduced to P38,000; (b) that the
defendant, in addition to the amounts acknowledged by the plaintiff,
had paid other sums amounting to P4,000; and (c) that the defendants
never refused to pay the justly reduced price, but the plaintiff refused
to receive the just amount of the debt.
ISSUE: WON the purchaser was defrauded.
SC HELD: When the purchaser proceeds to make investigations by
himself, and the vendor does nothing to prevent such investigation
from being as complete as the former might wish, the purchaser
cannot later allege that the vendor made false representations to him.
One who contracts for the purchase of real estate in reliance on the
representations and statements of the vendor as to its character and
value, but after he has visited and examined it for himself, and has
had the means and opportunity of verifying such statement\s, cannot
avoid the contract on the ground that they were false or exaggerated.
Article 1341. A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on the
former's special knowledge.
Penida: An opinion of an expert is like a statement of fact, and if false,
may be considered a fraud giving rise to annulment.
An expression of opinion if made by an expert will vitiate consent.
Article 1342. Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
mistake and the same is mutual.
PENIDA *The general rule is that the fraud employed by a third person
upon one of the parties does not vitiate consent and cause the nullity
of a contract.
*Exception: If one of the parties is in collusion with the third person,
or knows of the fraud by the third person, and he is benefited thereby,
he may be considered as an accomplice to the fraud, and the contract
becomes voidable.
LECTURES:
General Rule: fraud by a 3rd person does not vitiate consent.
Exception: unless it create a substantial mistake and is mutual
NOTE: Actually what vitiate consent here is the substantial mistake or
mutual mistake not merely the misrepresentation.
- Violence and intimidation committed by third person still
will vitiate consent
- If misrepresentation by a 3rd person will consent only when
it result to substantial or mutually mistake.
Article 1343. Misrepresentation made in good faith is not fraudulent
but may constitute error.
This actually your defense. even if there is a misrepresentation, it was
not your intention as your are in good faith. This will only constitute an
error.
Article 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
3RD Exam Coverage | 17
Penida: *Fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error; that which cannot deceive a
prudent person cannot be a ground for nullity.
*Besides being serious, the fraud must be the determining cause of
the contract. It must be dolo causante.
*When both parties use fraud reciprocally, neither one has an action
against the other; the fraud of one compensates that of the other.
Neither party can ask for the annulment of the contract.
Lectures: the principle of “he who comes to court must come in clean
hands. “ Pari delicto.
Incidental fraud will only obliged the person to pay damages because
it will not owe to the perfection of the contract. It merely goes to the
performance so this cannot vitiate the contract.
Article 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal
their true agreement.
Penida: * Simulation is the declaration of a fictitious will, deliberately
made by agreement of the parties, in order to produce, for the
purposes of deception, the appearance of a juridical act which does
not exist or is different from that which was really executed.
Blanco vs. Quasha
G.R. No. 133148, 17 November 1999
FACTS:
Mary Ruth C. Elizalde was an American national who owned a house and lot
situated on a 2,500 square-meter parcel of land in Forbes Park, Makati. On
May 22, 1975, she entered into a Deed of Sale over the property in favor of
Parex Realty Corporation, for and in consideration of the amount of
P625,000.00 payable in 25 equal annual installments of P25,000.00
commencing on May 22, 1975 and ending on May 22, 1999. Also on May 22,
1975, Parex executed a Contract of Lease with Elizalde, whereby the same
parcel of land was leased to the latter for a term of 25 years for a monthly
rental of P2,083.34 or P25,000.08 a year. The rental payments shall be
credited to and applied in reduction of the agreed yearly installments of the
purchase price of the property. A transfer of title was made in 1975. But
despite of the transfer of title, she continued to pay the Forbes Park
Association dues and garbage fees until her demise in 1990. Likewise, she
undertook to pay the realty taxes on the property during the term of the
lease.
Petitioner, the special administrator of Elizalde’s estate, by letter
dated June 13, 1990, demanded from respondents, the individual
stockholders and directors of Parex, the reconveyance of the title to the
property to the estate of Elizalde or, in the alternative, to assign all shares of
Parex to said estate. Respondents ignored the demand. Petitioner brought
the action to the court and alleged that the sale of the property was
absolutely simulated and fictitious and, therefore, null and void.
ISSUES:
1. Whether or not the sale-lease-back agreement of the
parties has a simulated and fictitious nature.
2. Whether or not the contract is void
HELD
Simulation of a contract may be absolute or relative. The former
takes place when the parties do not intend to be bound at all; the latter,
when the parties conceal their true agreement. 18 An absolutely simulated
or fictitious contract is void. A relative simulation, when it does not prejudice
a third person and is not intended for any purpose contrary to law, morals,
good customs, public order or public policy binds the parties to their real
agreement. 19
The characteristic of simulation is the fact that the apparent
contract is not really desired nor intended to produce legal effects nor in any
way alter the juridical situation of the parties. Thus, where a person, in order
to place his property beyond the reach of his creditors, simulates a transfer
of it to another, he does not really intend to divest himself of his title and
control of the property; hence, the deed of transfer is but a sham. This
characteristic of simulation was defined by this Court in the case of
Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908. 20
In order to determine whether or not the sale-lease-back
agreement is simulated, there is a need to look into the true intent or
agreement of the parties. To do so, however, is to pass upon a factual issue,
a function that is not within the province of this Court.
To begin with, this Court is not a trier of facts. It is not its function
to examine and determine the weight of the evidence supporting the
assailed decision. In Philippine Airlines, Inc. vs. Court of Appeals (275 SCRA
621 [1997]), the Court held that factual findings of the Court of Appeals
which are supported by substantial evidence are binding, final and conclusive
upon the Supreme Court. So also, well-established is the rule that "factual
findings of the Court of Appeals are conclusive on the parties and carry even
more weight when the said court affirms the factual findings of the trial
court." Moreover, well entrenched is the prevailing jurisprudence that only
errors of law and not of facts are reviewable by this Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of Court, which
applies with greater force to the Petition under consideration because the
factual findings by the Court of Appeals are in full agreement with what the
trial court found. 21
To sum, The simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound at all; the
latter, when the parties conceal their true agreement. The former is null and
void, while the latter is binding to the parties if it does not prejudice a third
person and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy.
Petitioner cannot correctly claim that there was no consideration
for the contracts of sale and lease, only because the amount of the annual
installments of the purchase price dovetails with the rate of rentals
stipulated in the lease contract. Elizalde’s continued occupancy of the
premises even after she sold it to Parex constitutes valuable consideration
which she received as compensation for the sale.
The contract is valid and binding upon the parties.
WAS THERE A DELIVERY OF CONSIDERATION? Here, Elizalde
sold a house and lot and at the same time the said property was
leased to her for the same amount of sale. There was actually no
delivery of money here. Naa money pero sa papel lang physically wale.
WHY DO THE ISSUE OF SIMULATION AROUSE? The heirs of
Elizalde here alleged that it is fictitious.
WHAT IS THE RULING OF THE SUPREME COURT? There was a valid
and actual contract. There was a sale and subsequently it was leased
to the former owner. As long as the party is intended to be bound by
the contract and it was intended to defraud then it is a valid contract.
And simulation kanang magbuhabuhat ka an\d you do not intend to be
bound by it.
Article 1346. An absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement.
PINEDA: *In absolute simulation, there is color of a contract, without
any substance thereof, the parties not having any intention to be
bound.
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 *In relative simulation, the parties have an agreement which they
conceal under the guise of another contract. Example: a deed of sale
executed to conceal donation.
2 KINDS OF SIMULATIONS
1. ABSOLUTE- parties did not intend to be bound at all. It is void
because there is no contract to speak of. Example. A person in
order to avoid its creditors sold his property to his son ( GGN:
badges of fraud yata yan)
2. RELATIVE- when there is a real agreement but the agreement
that is written is not the one agreed upon. Ex. A wanted to
mortgage his property to B but in the written contract what
transpire is a deed of sale with right of repurchase. This is valid,
they are bound to the mortgage contract and the proper remedy
here is reformation.
MARCH 2 , 2013
Transcribed by: Kirsten & Marlie
(make-up class)
OBJECT OF CONTRACTS
Art. 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights
which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in
cases expressly authorized by law.
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a contract.
So what will be the objects of the contract?
A THING or a SERVICE. So under Article 1347, all things which are not
outside the commerce of man.
What are OUTSIDE THE COMMERCE OF MAN?
For example, those which are RES NULLIUS, those which are not
owned by anyone, example, stars, the moon, the fishes that rest in the
ocean; RES COMUNNIS, those owned by everyone, like public
property, public road, bridges, etc.; or those which are CONTRARY to
law, morals, good customs, public order or public policy. So prohibited
drugs, they are things but they are contrary to law, they are not
allowed, so these are outside the commerce of man. RIGHTS which
are INTRANSMISSIBLE, LIKE PURELY PERSONAL RIGHT, the
right to cohabitation, the right to support, these are not object of a
contract.
When we say the right to receive support, or those rights which are
inherent to the person, like your political rights, these are
INTRANSMISSIBLE. The law says, “NO CONTRACT WILL BE
ENTERED INTO UPON FUTURE INHERITANCE.”
For example your parents are billionaires and there are several
properties. Can you sell your parents properties, like houses, there
lands and the like? No, because your rights to those properties are
merely INCHOATE. When we say INCHOATE that is a MERE
EXPECTANCY. So for all we know you may predeceased your parents,
meaning mauna pa mo ug kamatay.
So you have nothing to inherent in the first place, so that is not
allowed. Except, in case of PARTITION, there can be partition even
during the lifetime of the decedent. So the person can actually during
his lifetime already made a partition of his properties although that
partition will not yet transfer ownership over that properties, what will
transfer ownership will be succession upon his death, but there can be
a partition, and that partition itself is a contract which is allowed, but
it’s not forbearing of the property, that is why it is an exception to the
rule that, “NO CONTRACT WILL BE ENTERED INTO UPON FUTURE
INHERITANCE.” Article 1348 another discussion on what will be the
object of contracts.
Art. 1348. Impossible things or services cannot be the object of
contracts. (1272)
Impossible things or services, what kind of impossibility are we
referring to here?
It may be LEGAL IMPOSSIBILITY or PHYSICAL
IMPOSSIBILITY. So these things cannot be the object of a contract.
The impossibility means ABSOLUTE, meaning in all cases they cannot
be the object of a contract, or clearly relative or subjective, like
possibility applies only to certain persons, like husband and wife they
cannot enter into a contract of sale for any property, like land, etc.. So
as to them that is relative, the object is in bound relatively impossible.
With respect to other persons these objects can be the subject or
object of the contract.
Art. 1349. The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the
parties.
So at least the object must be DETERMINATE AS TO ITS KIND, like to
deliver a car. A and B entered into a contract to deliver a car, so at
least naay kind or class specified. If the contract says only A to deliver
something to B, is it valid to deliver something? No because the object
itself is not even determinate. Determinable even as to its kind, you
don’t have to specify na this car, plate number, engine number, that is
also a valid object but at least the minimum requirement is
determinate as to its kind.
Now, the quantity is it important? The law says it may be possible
to enter into a contract, even if the quantity is not stated, as long as it
can be determined without need a new agreement between the
parties. S
o, in one case decided by the SC, the contract speaks of an obligation
to deliver the rice harvested from the farm of A, for example not below
3,000 ka rice so minimum. Now it was contended that the contract is
not valid because quantity is not named, not determinate, is it correct?
No, because you can determine the quantity if all the crops, the rice is
harvested from the farm as long as it is not below the minimum, then
that is the obligation of A to deliver. So the quantity can be determined
in that case, even if at the time of the contract it is not yet mentioned,
but it can be determined at the future time without need of new
agreement between the parties. So that is an example of the second
sentence of Article 1349.
CAUSE OF CONTRACTS
Art. 1350. In onerous contracts the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality
of the benefactor.
So CAUSE OF CONTRACTS. We have different contracts mentioned
under Article 1350. What do you mean by the CAUSE OF CONTRACT?
As defines the CAUSE is essential and impelling reason why a party
assumes an obligation. So that is the reason why you enter that
contract. You want to buy a land, so the CAUSE for you is the LAND,
so that’s a reason, you want to acquire the land that’s why you enter
into a contract of sale. Now, under Article 1350 there are different
kinds of contract mentioned.
So ONEROUS CONTRACTS, we have a valuable cause of
consideration, so as defined or as mentioned under Article 1350, it is
the prestation or promise of a thing or service that are again when you
enter into a contract of sale the cause for you, if you are the BUYER
the cause for you the LAND, you want to get the land promise of
another to give you the land. If you are the SELLER the cause for you
is the MONEY which the buyer promises to give, so that is the
impelling reason.
- In REMUNERATORY CONTRACT what is the cause? The service or
a benefit which is being remunerated that is why you entered into that
contract.
- In CONTRACTS OF PURE BENEFICENCE, like donation the cause
if the LIBERALITY OF THE BENEFACTOR. So it’s not correct to say that
in contract of pure beneficence there is no cause, there is a cause that
is the generosity or liberality of the donor.
- Now, if you notice that the CONTRACT OF SALE, if you are
the buyer the cause for you is the acquisition of the land, if
you are the seller the cause for you is the price to be paid.
So if you examine it THE CAUSE FOR ONE IS ACTUALLY THE
OBJECT THE OTHER. In the contract of sale the viewpoint of
the BUYER, the object is the money to be paid, the CAUSE
IF THE LAND TO BE ACQUIRED. From the viewpoint of the
SELLER, the object is the land whish he is bound to deliver
(object is the thing or service), the CAUSE IS THE
ACQUISITION OF THE PURCHASED PRICE.
3RD Exam Coverage | 19
 - So remember in reciprocal contracts THE CAUSE FOR ONE
IS THE OBJECT FOR THE OTHER.
In ACCESSORY CONTRACTS for example, mortgage, pledge, what is
the cause? You borrow 1 million so that is a contract of loan, to secure
the obligation you mortgages your house that is another contract, the
contract of mortgage. In every contract there has to be a cause,
because a CAUSE is an essential requisite of a contract.
All contracts, CONSENSUAL, FORMAL or REAL CONTRACTS, there has
to be a CAUSE. So without a CAUSE there is no valid contract. In
accessory contracts what would be the cause, like in a mortgage?
Remember in accessory contracts the cause is the same as that of the
principal obligation. You cannot say there is no cause, the CAUSE IS
THE SAME AS THE PRINCIPAL OBLIGATION.
Art. 1351. The particular motives of the parties in entering into a
contract are different from the cause thereof.
Now, MOTIVE in entering into a contract. As you we mention before
the CAUSE is the impelling reason why the parties enter into the
contract. Now, what is the MOTIVE? MOTIVE it may be something that
exist in the mind of the party, like I want to buy a gun, the CAUSE for
me is the ACQUISITION OF THE GUN, what would be my MOTIVE in
acquiring the gun? Maybe because I want to kill somebody or I just
want to feel protected, so that is my motive.
A MOTIVE is different from the CAUSE, usually even if the MOTIVE IS
ILLEGAL as long as the CAUSE IS LEGAL, the CONTRACT IS VALID.
Like in the acquisition of the gun, as long as it has the proper
documents, even if you motive is illegal but that does not affect the
validity of the contract as a GENERAL RULE. In the case of Liguez vs
CA. Ms. Benjamin volunteered.
LIGUEZ vs CA
FACTS: The Court of Appeals found that the deed of donation was prepared
by the Justice of the Peace of Mati, Davao, before whom it was signed and
ratified on the date aforesaid. At the time, the appellant Liguez was a minor,
only 16 years of age. While the deed recites—
That the DONOR, Salvador P. Lopez, for and in the consideration
of his love and affection for the said DONEE, Conchita Liguez, and
also for the good and valuable services rendered to the DONOR by
the DONEE, does by these presents, voluntarily give grant and
donate to the said donee, etc. (Paragraph 2, Exhibit "A")
the Court of Appeals found that when the donation was made, Lopez had
been living with the parents of appellant for barely a month; that the
donation was made in view of the desire of Salvador P. Lopez, a man of
mature years, to have sexual relations with appellant Conchita Liguez; that
Lopez had confessed to his love for appellant to the instrumental witnesses,
with the remark that her parents would not allow Lopez to live with her
unless he first donated the land in question; that after the donation,
Conchita Liguez and Salvador P. Lopez lived together in the house that was
built upon the latter's orders, until Lopez was killed on July 1st, 1943, by
some guerrillas who believed him to be pro-Japanese.
It was also ascertained by the Court of Appeals that the donated land
originally belonged to the conjugal partnership of Salvador P. Lopez and his
wife, Maria Ngo; that the latter had met and berated Conchita for living
maritally with her husband, sometime during June of 1943; that the widow
and children of Lopez were in possession of the land and made
improvements thereon; that the land was assessed in the tax rolls first in the
name of Lopez and later in that of his widow.; and that the deed of donation
was never recorded.
Upon these facts, the Court of Appeals held that the deed of donation was
inoperative, and null and void (1) because the husband, Lopez, had no right
to donate conjugal property to the plaintiff appellant; and (2) because the
donation was tainted with illegal cause or consideration, of which donor and
donee were participants.
Appellant vigorously contends that the Court of First Instance as well as the
Court of Appeals erred in holding the donation void for having an illicit cause
or consideration. It is argued that under Article 1274 of the Civil Code of 1889
(which was the governing law in 1948, when the donation was executed), "in
contracts of pure beneficence the consideration is the liberality of the
donor", and that liberality per se can never be illegal, since it is neither
against law or morals or public policy.
The flaw in this argument lies in ignoring that under Article 1274, liberality of
the do or is deemed causa in those contracts that are of "pure" beneficence;
that is to say, contracts designed solely and exclusively to procure the
welfare of the beneficiary, without any intent of producing any satisfaction
for the donor; contracts, in other words, in which the idea of self-interest is
totally absent on the part of the transferor. For this very reason, the same
Article 1274 provides that in remuneratory contracts, the consideration is the
service or benefit for which the remuneration is given; causa is not liberality
in these cases because the contract or conveyance is not made out of pure
beneficence, but "solvendi animo." In consonance with this view, this
Supreme Court in Philippine Long Distance Co. vs. Jeturian * G.R. L-7756, July
30, 1955, like the Supreme Court of Spain in its decision of 16 Feb. 1899, has
ruled that bonuses granted to employees to excite their zeal and efficiency,
with consequent benefit for the employer, do not constitute donation having
liberality for a consideration. Plaintiff averred to be a legal owner, pursuant
to a deed of donation of a land, executed in her favor by the late owner,
Salvador P. Lopez, on 18 May 1943. The defense interposed was that the
donation was null and void for having an illicit causa or consideration, which
was the plaintiff's entering into marital relations with Salvador P. Lopez, a
married man; and that the property had been adjudicated to the appellees as
heirs of Lopez by the court of First Instance, since 1949.
The Court of Appeals rejected the appellant's claim on the basis of the well-
known rule "in pari delicto non oritur actio" as embodied in Article 1306 of
1889 (reproduced in Article 1412 of the new Civil Code):
ART. 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover,
what he has given by reason of the contract, or ask for fulfillment of what has
been promised him. The other, who is not at fault, may demand the return of
what he has given without any obligation to comply with his promise.
Held: CA erred in applying to the present case the pari delicto rule. First,
because it cannot be said that both parties here had equal guilt when we
consider that as against the deceased Salvador P. Lopez, who was a man
advanced in years and mature experience, the appellant was a mere minor,
16 yrs of age, when the donation was made; that there is no finding made by
CA that she was fully aware of the terms of the bargain entered into by and
Lopez and her parents; that, her acceptance in the deed of donation (Art.
741) did not necessarily imply knowledge of conditions and terms not set
forth therein; and that the substance of the testimony of the instrumental
witnesses is that it was the appellant's parents who insisted on the donation
before allowing her to live with Lopez. These facts are more suggestive of
seduction than of immoral bargaining on the part of appellant. It must not be
forgotten that illegality is not presumed, but must be duly and adequately
proved. Second, the rule that parties to an illegal contract, if equally guilty,
will not be aided by the law but will both be left where it finds them, has
been interpreted by this Court as barring the party from pleading the
illegality of the bargain either as a cause of action or as a defense.
CA correctly held that Lopez could not donate the entirety of the property in
litigation, to the prejudice of his wife Maria Ngo, because said property was
conjugal in character and the right of the husband to donate community
property is strictly limited by law
ART. 1409. The conjugal partnership shall also be chargeable with anything
which may have been given or promised by the husband alone to the
children born of the marriage in order to obtain employment for them or
give then, a profession or by both spouses by common consent, should they
not have stipulated that such expenditures should be borne in whole or in
part by the separate property of one of them.".
ART. 1415. The husband may dispose of the property of the conjugal
partnership for the purposes mentioned in Article 1409.)
ART. 1413. In addition to his powers as manager the husband may for a
valuable consideration alienate and encumber the property of the conjugal
partnership without the consent of the wife.
The text of the articles makes it plain that the donation made by the husband
in contravention of law is not void in its entirety, but only in so far as it
prejudices the interest of the wife. In this regard, as Manresa points out the
law asks no distinction between gratuitous transfers and conveyances for a
consideration. To determine the prejudice to the widow, it must be shown
that the value of her share in the property donated cannot be paid out of the
husband's share of the community profits. The requisite data, however, are
not available to us and necessitate a remand of the records to the court of
origin that settled the estate of the late Salvador P. Lopez.
The decisions appealed from are reversed and set aside, and the appellant
Conchita Liguez declared entitled to so much of the donated property as
may be found, upon proper liquidation, not to prejudice the share of the
widow Maria Ngo in the conjugal partnership with Salvador P. Lopez or the
legitimes of the forced heirs of the latter.
Ma’am: How old was He?
Ms. Benjamin: He is an old man.
3RD Exam Coverage | 20
Ma’am: An old man, a dirty old man, basta old, 60’s, 80’s … Ah 56…
old na diay na kung 56…
Ms. Benjamin: Continue narrating facts… the motive to determine the
purpose of the contract, the cause is the liberality, however the real
motive is to have the sexual intercourse, which Conchita said that the
cause of the…
Ma’am: So, are they happy to get the lands? But the heirs of Lopez
refused on the ground that the contract is?
Ms. Benjamin: Is null and void ma’am because the motive of Lopez is
just to cohabit with Conchita.
Ma’am: So, as we discussed before MOTIVE is different from the
CAUSE. So, even if your motive is illegal it will not affect the validity of
the contract. So, how was this resolved in the SC?
Ms. Benjamin: If the motive illegal it does not affect the validity of the
contract… if the Motive predetermines the purpose then it is regarded
as the cause…
Ma’am: So here did the motive predetermined the cause?
Ms. Benjamin: Yes.
Ma’am: How?
Ms. Benjamin: Because the only intention of Lopez ma’am is only to
cohabit with Conchita, because marriage to Conchita ma’am would
lead to acquire the land.
Ma’am: Because here the real purpose or motive of Lopez in donating
was the desire to cohabit with Conchita. If not for that he would not
have donated the land. So it predetermined the purpose of the
contract, the CAUSE of the contract. Mao jud to siya and real reason.
Without that he would have give the land, it was not really because of
his generosity but because of his desire. So in that case the SC said
the donation is null and void. But can the heirs of Lopez get the land?
Ms. Benjamin: No.
Ma’am: Why not?
Ms. Benjamin: Because it is void. While it is true that motive will not
affect on the contract upon the agreement but if the motive
predetermines the purpose it is regarded as the cause. But in here
ma’am the MOTIVE is the CAUSE it should be given a weight.
Ma’am: So in here the donation is void. There if the Donation is void,
the proper consequence should have been for Conchita to return to
the estate of Lopez the land. But the SC said No, the heirs of Lopez
cannot get the land, for what reason?
Ms. Benjamin: Because at that time ma’am Conchita was still a minor,
when the agreement between the parents of Conchita and Lopez...
Ma’am: So she was a more innocent party, between Conchita and
Lopez, Conchita was the minor so she was more innocent compared to
the old man. The old man himself, if he was still alive he would not get
his land, because he does not possess the innocence now based on
the consequences of his acts. So as his heirs will merely step into his
shoes, so his heirs stand in the same situation as Lopez. Lopez will not
get his land because he was not innocent, then his heirs who merely
step into his shoes must not be allowed to get the land. So in that
case, even if the Deed of Donation was void, but the law tells that they
are that party as they are, so pasagdaan lang sila, didto lang gihapon
kay Conchita ang land. So the heirs of Lopez would not recover the
land.
Now, as to the DISTINCTION BETWEEN MOTIVE AND CAUSE. As we
already explained before, MOTIVE may vary in every contract, kung
unsay naa sa isip sa usa ka party in entering into that contract it
maybe the same but the CAUSE is always the same. Now, MOTIVE
may be unknown, it only exists in the mind of the other party but the
CAUSE is always known because it is an essential requisite of the
contract, the presence of MOTIVE cannot fill the absence of CAUSE.
CAUSE has to exist; it is again an essential requisite of the contract,
without a cause the contract is void. Even if you have a motive but the
motive is different from the cause as a general rule. In the case of
Liguez, if it predetermines the purposes of the contract motive may be
regarded as a cause.
Art. 1352. Contracts without cause, or with unlawful cause, produce
no effect whatever. The cause is unlawful if it is contrary to law,
morals, good customs, public order or public policy.
So that’s another requisite, the contract without a cause is void, or
with unlawful cause it is likewise void. So the requisites for a contract,
insofar as the CAUSE TO BE VALID;
first, the cause must be present, it should exist at the time of the
contract;
second, it must be a true cause it cannot be simulated; and
third, it must be lawful.
That is why as we discussed yesterday, a simulated contract, an
absolutely simulated contract is void because in reality there is no
cause or consideration for that contract. Like a contract of sale with
your son, just for the purpose of disposing that property to defraud
your creditors, so there is no cash involved there, so there is no cause
that is why it is void. It is void because there is no cause and cause
should exist.
Art. 1353. The statement of a false cause in contracts shall render
them void, if it should not be proved that they were founded upon
another cause which is true and lawful.
So even if you state the cause of the contract but it is not the true
cause, the contract will be void, unless there is another cause which is
true and lawful.
Art. 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary.
Remember this article ha, even if there is no cause stated in the
contract, even if it did not apprise in the contract you cannot say that
the contract is already void, because the presumption is the cause
exists. It is not the burden of the party to prove that there is the cause
the other has the burden of proving that there is no cause. The
presumption is, THERE IS A CAUSE even if not mentioned in the
contract. The party alleging that there is no cause has to prove that
indeed there is no cause.
Art. 1355. Except in cases specified by law, lesion or inadequacy of
cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence.
Lesion or inadequacy of cause, the value of the property is 3 million
but it is stated only as 2 million, so there is inadequacy of cause or
lesion. That itself will not invalidate the contract, unless THERE IS
FRAUD, MISTAKE OR UNDUE INFLUENCE TOGETHER WITH LESION
that will invalidate the contract. There are also cases expressly
provided for by law where LESION will invalidate the contract, that
would be in Article 1381 paragraph 2 (kinsay naay codal?)…
Art. 1381. The following contracts are rescissible:
(2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in the preceding
number;
Another would be in
Art. 1098. A partition, judicial or extra-judicial, may also be rescinded
on account of lesion, when any one of the co-heirs received things
whose value is less, by at least one-fourth, than the share to which he
is entitled, considering the value of the things at the time they were
adjudicated.
In that case there is lesion by at least one-fourth (¼). So in those
cases even if there is no fraud, mistake or undue influence, that would
be a cause for rescinding a contract because that is expressly provided
by law, but in Article 1355, there has to be fraud, mistake or undue
influence before lesion will invalidate the contract.
FORM OF CONTRACTS
Article 1356. Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential requisites for
their validity are present. However, when the law requires that a
contract be in some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that requirement is
absolute and indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised. (1278a)
General rule: Contracts shall be obligatory in whatever form they
may have been entered into, whether it is verbal, written, just a
3RD Exam Coverage | 21
private document, that would be valid unless the law requires a certain
form or certain requisites for the contract to be valid or enforceable.
We discussed before the different kinds of contracts. We have
consensual contracts, real contracts and formal contracts.
1) Consensual – perfected by mere consent
2) Real – perfected by delivery
Ex.: Commodatum
3) Formal or solemn – require certain forms for them to be
valid
Ex.:
1) Donation
Article 748. The donation of a movable may be made orally or in
writing. An oral donation requires the imultaneous delivery of the thing
or of the document representing the right donated. If the value of the
personal property donated exceeds five thousand pesos, the donation
and the acceptance shall be made in writing. Otherwise, the donation
shall be void. (632a)
This is with respect to a movable. It may be made orally or in writing.
If it is oral, there has to be simultaneous delivery but if the value
exceeds 5k, the donation and the acceptance should be in writing.
Article 749. In order that the donation of an immovable may be valid,
it must be made in a public document, specifying therein the property
donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is
done during the lifetime of the donor. If the acceptance is made in a
separate instrument, the donor shall be notified thereof in an authentic
form, and this step shall be noted in both instruments. (633)
If it is real property, regardless of the value, it has to be in a public
document both the donation and the acceptance.
2) Partnership where real parties are distributed
Article 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary. (1667a)
Article 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph
shall not affect the liability of the partnership and the members thereof
to third persons. (n)
Article 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
(1668a)
That is when a movable property is contributed to the partnership.
There has to be a public instrument, a registration, and an inventory
attached to the public instrument. Without the observance of that
form, that contract is void.
3) Contract of antichresis
Article 2134. The amount of the principal and of the interest shall be
specified in writing; otherwise, the contract of antichresis shall be void.
(n)
- That is the form required. The principal and the interest must be in
writing. A verbal contract will not suffice. If you will just enter into a
verbal contract of antichresis, that is void. It has to be in writing.
Take note of these contracts ha?
4) Agency to sell real property or interest therein
Article 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. (n)
- Halimbawa, naa nay niadto sa imoha, I’m selling this land for 2M. I’m
the agent. Asa diay imong principal? Naa sa Canada. Asa man imong
authority? Wala, giingon lang niya sa akoa na I have the authority.
Then you bought the land and paid 2M. Can you get the land from the
owner? No, because the sale is void. Even if he was really authorized,
since it is not in writing, the authority as well as the subsequent sale
are void. The principal can, of course, always ratify pero kung wala,
remember Art 1874.
5) Interest
Article 1956. No interest shall be due unless it has been expressly
stipulated in writing. (1755a)
- So, if you lend money and you charged interest, the contract has to
be in writing. Otherwise, you cannot claim or collect the interest which
is not agreed upon in writing.
6) Stipulation between a common carrier and
shipper
Article 1744. A stipulation between the common carrier and the
shipper or owner limiting the liability of the former for the loss,
destruction, or deterioration of the goods to a degree less than
extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service
rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.
Here, there can actually be a stipulation limiting the liability to a
degree less than extraordinary diligence but these are the formalities
to be observed under Art 1774. Otherwise, that stipulation is void.
7) Chattel Mortgage Law
The chattel mortgage has to comply with Sec. 5 of the
Chattel mortgage Law. There has to be signature of at
least 2 witnesses. There should be an affidavit of good
faith, it should be under oath or acknowledgment and
recorded in a chattel mortgage register.
8) Sale of large cattle
It has to be entered in the book of the Municipal
Treasurer. Kung mamaligya ka ug large cattle, you
have to comply with the forms under Act 1147.
Otherwise the sale is void.
Article 1357. If the law requires a document or other special form, as
in the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form, once
the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract. (1279a)
1357 refers to contracts which require form merely for convenience.
So, the contract is valid, pwede nimo ma-enforce sa other party per
okay kinahanglan man public document like for example, sale of a land
na nagbayad naka sa price pero walay dokumento or naa pero private
lang and then karon ang seller dili na gusto mu-execute ug another
deed of absolute sale, you can compel him to observe the form. Since,
the contract is valid, you can file a case against him for
delivery/specific performance at the same time, compel him to sign the
Deed of Sale and have it notarized. The contracting parties may
compel each other to observe that form once the contract has been
perfected. This right may be exercised simultaneously with action upon
the contract.
3RD Exam Coverage | 22
Article 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein are
governed by articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing
in a public document.
All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by articles, 1403, No. 2 and
1405. (1280a)
Now as to form, you have to remember 3 things.
1) There might be cases when form is required for validity. Like
the ones we just enumerated. In those contracts, form is
required for validity. Without observing those forms, the
contract is void.
2) Form may be required for enforceability. Meaning, the
contract will still be valid but it cannot be enforced because
it failed to observe the required form but it can be ratified.
3) Form may be required only for convenience. Meaning, the
law says na it has to be in a public document but it is merely
for convenience so that the contract is still valid and
enforceable but you can compel the other party to observe
the forms.
These are the contracts mentioned in Art 1358.
The law says, these contracts must appear in a public document but
actually, the requirement her of public document is not for validity
(because the contract is valid), not for enforceability (because the
contract is enforceable) but merely for convenience.
Under par. 1, sales of real property are governed by the Statute of
Frauds. The minimum requirement there is it has to be in writing for it
to be enforceable. We will discuss that when we go to Art 1403 and
1405. So, exception sya. You cannot enforce these contracts if they’re
not in writing. But other contracts in 1358 are enforceable and valid
even if not in writing or only in a private document but for
convenience, they have to be in a public document.
The last paragraph refers to sales of goods, chattels , or things in
action are also governed by the Statute of Frauds. Form in these
contracts is required for enforceability. We will just discuss that when
we go to Statute of Frauds. Again, remember Art 1358. The contracts
are valid and enforceable in whatever form. The form here is just for
convenience.
Article 1359. When, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a
meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.
What you have to remember in reformation is there is meeting of the
minds between the parties.
Nagkasinabot jud sila about a certain contract or transaction but
because of fraud, accident, mistake, negligence, etc., the contract as
written did not express their true agreement. So they had agreed on a
mortgage pero ang contract is sale with right to repurchase. The
remedy here is ireformatio. Ireform ninyo. Meaning, usabon ninyo ang
contract pero actually reformation would only come in the picture if
the other party does not agree voluntarily. “A, diba nagsabot ta na
mortgage lang, nganong deed of sale man ni?” Then, nisugot si A.
Kana, walay problema. Pero kung mu-deny si A, we have to go to
court for reformation. If there is no meeting of the minds like ang
gusto nako mortgage, ang gusto niya, sale. Then ang nakabutang sa
contract kay sale. Waly meeting of the minds in the first place kay dili
man ta same wavelength. The remedy her is annulment and not
reformation because in the first place, walay kontrata. Walay meeting
of the minds. That is the first principle you have remember in
reformation.
Article 1360. The principles of the general law on the reformation of
instruments are hereby adopted insofar as they are not in conflict with
the provisions of this Code.
There might be jurisprudence relating to reformation but actually they
are already mentioned in the new Civil Code. The provisions in the CC
are the prevailing ones. There might be other provisions scattered
under the general law which are in conflict with those provided for
under the CC. In that case, those will be disregarded. They can be
applied only if they are in accordance with the provisions of the NCC
on reformation.
Article 1361. When a mutual mistake of the parties causes the failure
of the instrument to disclose their real agreement, said instrument
may be reformed.
There is mutual mistake but there is meeting of the minds. Again, the
remedy is reformation.
San Miguel Brewery v Law Union and Rock Insurance Co
Facts:
> On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt
of 10T.
> Mortgage contract stated that Dunn was to have the property insured at
his own expense, authorizing SMB to choose the insurers and to receive the
proceeds thereof and retain so much of the proceeds as would cover the
mortgage debt.
> Dunn likewise authorized SMB to take out the insurance policy for him.
> Brias, SMB’s general manager, approached Law Union for insurance to the
extent of 15T upon the property. In the application, Brias stated that SMB’s
interest in the property was merely that of a mortgagee.
> Law Union, not wanting to issue a policy for the entire amount, issued one
for P7,500 and procured another policy of equal amount from Filipinas Cia de
Seguros. Both policies were issued in the name of SMB only and contained
no reference to any other interests in the propty. Both policies required
assignments to be approved and noted on the policy.
> Premiums were paid by SMB and charged to Dunn. A year later, the
policies were renewed.
> In 1917, Dunn sold the property to Harding, but no assignment of the
policies was made to the latter.
> Property was destroyed by fire. SMB filed an action in court to recover on
the policies. Harding was made a defendant because by virtue of the sale, he
became the owner of the property, although the policies were issued in
SMB’s name.
> SMB sought to recover the proceeds to the extent of its mortgage credit
with the balance to go to Harding.
> Insurance Companies contended that they were not liable to Harding
because their liability under the policies was limited to the insurable interests
of SMB only.
> SMB eventually reached a settlement with the insurance companies and
was paid the balance of it’s mortgage credit. Harding was left to fend for
himself. Trial court ruled against Harding. Hence the appeal.
ISSUE:
3RD Exam Coverage | 23
Whether or not the insurance companies are liable to Harding for the
balance of the proceeds of the 2 policies.
HELD:
NO.
Under the Insurance Act, the measure of insurable interest in the property is
the extent to which the insured might be indemnified by the loss or injury
thereof. Also it is provided in the IA that the insurance shall be applied
exclusively to the proper interest of the person in whose name it is made.
Undoubtedly, SMB as the mortgagee of the property, had an insurable
interest therein; but it could NOT, an any event, recover upon the two
policies an amount in excess of its mortgage credit.
By virtue of the Insurance Act, neither Dunn nor Harding could have
recovered from the two policies. With respect to Harding, when he acquired
the property, no change or assignment of the policies had been undertaken.
The policies might have been worded differently so as to protect the owner,
but this was not done.
If the wording had been: “Payable to SMB, mortgagee, as its interests may
appear, remainder to whomsoever, during the continuance of the risk, may
become owner of the interest insured”, it would have proved an intention to
insure the entire interest in the property, NOT merely SMB’s and would have
shown to whom the money, in case of loss, should be paid. Unfortunately,
this was not what was stated in the policies.
If during the negotiation for the policies, the parties had agreed that even
the owner’s interest would be covered by the policies, and the policies had
inadvertently been written in the form in which they were eventually issued,
the lower court would have been able to order that the contract be reformed
to give effect to them in the sense that the parties intended to be bound.
However, there is no clear and satisfactory proof that the policies failed to
reflect the real agreement between the parties that would justify the
reformation of these two contracts.
Atty Y: There was a mortgage contract and the subject property was
insured. The question is, to whom shall the proceeds of the insurance
go? To the owner or the mortgagee?
A: To the owner because it was very clear in the contract of insurance
that it was the intention of the parties and it was not proved na there
was mistake, fraud, etc. which caused the contract not to express the
true agreement. It was actually the true agreement of the parties.
Atty Y: For example you are the mortgagee, a property was mortgaged
to you but the property is also insured by the owner. So the owner is
the one who mortgages because you cannot mortgage if you are not
the owner, the mortgagor-owner. And then, the property, as
mortgagee, would be the security kung si mortgagor dili makabayad.
Now if the property is lost, asa maadto ang proceeds sa insurance, kay
mortgagee because that’s the security or kay owner kay iyaha man
tong property?
That would depend upon the contract of insurance kung asa maadto
ang proceeds. Diri, clear man sa contract na dapat kay owner, so, sa
iyaha maadto.
Q: Unsay remedy nimo as mortgagee?
A: You can collect on the loan or you can ask for another equivalent
property as collateral but you cannot invoke any right on the contract
of insurance or ask for reformation because there is no mistake in that
contract. It is possible. It is not unusual na ang proceeds maadto sa
mortgagor-owner even if the property is mortgaged.
Article 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the instrument does not
show their true intention, the former may ask for the reformation of
the instrument.
So one party was mistaken, the other acted fraudulently and by reason
of that, the contract did not express their true agreement. But again,
there is meeting of the minds. So here, the remedy is reformation.
PARAS:
UNILATERAL MISTAKE
In this Article, the mistake is unilateral but the other party acted
fraudulently or inequitably.
Example
A agreed with B that A would be loaned P10,000,000 by B. In the
contract signed by A and B, it was stated that A was selling his house
to B for said amount. A signed the contract in the belief that it was
really a contract of loan. Who, if any, may ask for the reformation of
the instrument if B had acted fraudulently?
ANS.: A may ask for the reformation of the instrument because after
the meeting of the minds, one party (B) acted fraudulently or
inequitably in such a way that the contract does not show their real
intention. In such a case, the law provides that the person who acted
by mistake may ask for the reforma- tion of the instrument.
Article 1363. When one party was mistaken and the other knew or
believed that the instrument did not state their real agreement, but
concealed that fact from the former, the instrument may be reformed.
Again, only one party was mistaken and ang isa wala pero naghilom-
hilom lang sya (Ah, sige sale, mas better na para sa akoa para dili na
niya makuha ug balik). The contract may still be reformed.
Article 1364. When through the ignorance, lack of skill, negligence or
bad faith on the part of the person drafting the instrument or of the
clerk or typist, the instrument does not express the true intention of
the parties, the courts may order that the instrument be reformed.
Another instance where reformation is possible is that because of the
ignorance, lack of skill, negligence or bad faith on the part of the one
drafting the instrument so the contract does not express the true
agreement. The contract may be reformed.
Illustration: Consideration is 1M then ang na-type sa contract kay 10M
unya wala nabasa sa other party, nipirma lang sya. Then naningil si
seller ug 10M. Niana si buyer na 1M lang ang sabot pero dili na
musugot si seller na iacknowlegde tong ilang gisabutan nga 1M. In
that case, the remedy is reformation because kung dili nimo ipausab,
mag sige ug paningil si seller sa iyang 10M. So, there was an
agreement as to the 1M but because of the ignorance, lack of skill, or
negligence of the typist, it was typed as 10M.
Failure to Convey the True Intent
The court may order the reformation of the instrument if the
instrument does not convey the true intention of the parties because
of the:
(a) ignorance
(b) lack of skill
(c) bad faith of
1) the drafter of the instrument
2) or the clerk
3) or the typist.
Article 1365. If two parties agree upon the mortgage or pledge of
real or personal property, but the instrument states that the property
is sold absolutely or with a right of repurchase, reformation of the
instrument is proper.
I already explained this before. This is the usual scenario in
reformation. The bottom line here is, in all the articles that we have
discussed previously on reformation, there is meeting of the minds but
the contract does not express the true agreement. Why didn’t the
contract express the true intention? Maybe because there was mistake,
mutual or only by one party, or there was fraud, or there was
negligence, lack of skill, etc. Those are the possible reasons. But as
long as there is meeting of the minds, the remedy of reformation will
be available.
Article 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
3RD Exam Coverage | 24

Take note of Art 1366. Under these cases, reformation is NOT
available as a remedy.
1) Donation – The cause is the liberality or generosity of the
donor.
2) Wills – The cause is also the liberality or the generosity of
the testator.
ILLUSTRATION: Tagaan ko nimo ug yuta sa imong will then
nagstorya ta before na hatagan ko nimo ug 10 hectares(salamat kayo
col). Pagbutang sa will, 1 hectare lang. Nabasa nimo. “Diba col ana ka
10 hectares?” “10? murag 1 hectare ra man to dong.” Dili na sya gusto
usbon iyang will. Ni-file ka ug kaso sa court for reformation. In that
case, the testator or the donor may even revoke the legacy or the
donation. So, ingrato na kaayo ka. Gihatagan na gani ka ug 1 hectare,
gipugos pa jud nimo tong 10. Dili nimo sya dapat pugson kay
generosity lang na sya, walay agreement. Unilateral act na. Pasalamat
na lang ka nga guhatagan ka ug 1 hectare. Pwede niya usabon
voluntarily pero he cannot be ordered by the court to change what he
has written in the donation or in his will.
3) When the real agreement is void, of course, there is
nothing to reform because a void contract in legal
contemplation does not exist.
Article 1367. When one of the parties has brought an action to
enforce the instrument, he cannot subsequently ask for its
reformation.
The principle that applies here is estoppels. If you file an action for
specific performance, you are saying na this contract is what it is as
written. This is really the contract between us so dapat ienforce ni sya.
Then subsequently muingon ka nga “Ay, mali diay ang contract. Dapat
diay 10M.” No, you are already stopped. When you enforce the
contract, you cannot subsequently change your mind and file an action
of reformation.
Article 1368. Reformation may be ordered at the instance of either
party or his successors in interest, if the mistake was mutual;
otherwise, upon petition of the injured party, or his heirs and assigns.
Q: Who can file an action for reformation?
A: Kung mistake, either party who committed the mistake. If it’s fraud,
etc., the one who committed the fraud could not file an action for
reformation. He who comes to court must come with clean hands. So
it should be the innocent or the injured party or their heirs and
assigns.
PLAINTIFFS IN ACTION FOR REFORMATION
(a) If the mistake is mutual, either party or his successors in interest;
(b) In all other cases:
1) the injured party;
2) his heirs and assigns.
PROBLEM
A and B agreed on a certain contract, but A fraudulently made a
document reciting another kind of contract. Later, both A and B died.
(a) May the son of B bring an action to reform the instrument?
(b) May the son of A bring an action to reform the instrument?
ANS.:
1) Yes, the son of B may bring an action to reform the instrument
because he is the heir of the injured party.
2) No, the son of A cannot bring a successful action to reform the
instrument inasmuch as it was the father who caused the fraud.
Query: But suppose the son of A wanted to correct the fraud made by
his father?
ANS.: This is all right but in such a case, no court action is needed
anymore, since both parties can agree to reform the instrument by
themselves.
Article 1369. The procedure for the reformation of instrument shall
be governed by rules of court to be promulgated by the Supreme
Court.
So, what is the reformation procedure under the Rules of Court? You
will discuss that when you go to Civ Pro and that is covered under the
provision on declaratory relief. You will ask the court to declare that
there is a mistake in the agreement as written and then it has to be
corrected and this is the proper contents of the document. That is the
proper procedure. So, that will be for reformation.
March 7 , 2013
Transcribed by: Jade
Article 1370. If the terms of a contract is clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. If the words appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former.
If there is no doubt and the words of the contract are clear as to its
meaning then how do we interpret the contract –literally, according to
what is written.
So in the case of UP VS GABRIEL. Did I assign this case? GR No.
70806, October 12, 1987. There was a construction contract between
UP and Beta Construction for the construction, blocking and extra
works at the Biological Science Bldg. of UP and then Beta on the other
hand subcontracted to Allied Plumbing Company. So that was their
arrangement. Under the contract of Beta and Allied, there was a
stipulation that the work finished by Allied shall be paid by UP if
approved by UP, so the work of Allied shall be approved by UP. Now in
this case, Beta did not pay Allied, so beta sued UP for collection for the
services rendered under the construction contract.
ISSUE: WON UP shall be held liable for the work performed by allied.
Held: The SC referred to the subcontract between Allied and Beta, in
it, it was stipulated that UP shall pay the works which are accepted
and approved by UP so the liability here of UP will only arise if it has
accepted and approved the works done by Allied. In this case the work
was not yet accepted and approved by UP so the stipulation in the
subcontract is clear and leaves no doubt as to the intention of the
contracting parties. Consequently, the literal meaning of the
construction shall control. In this particular case, applying the general
rule, Allied had no recourse against UP, although Allied could go
against Beta because it had a contract with Beta. Not with UP because
under the contract also it was not stated that UP and Beta shall be
solidarily liable. So UP’s liability will only arise if it has accepted and
approved.
The case if Nool vs CA, GR 116635, this also applies to 1370 but as of
now, I think we cannot yet fully understand unless we add the law on
void contracts, 1422.
Article 1371. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered.
Again pls. bear in mind that the rules on interpretation and
construction will only apply when there is doubt, kay when there is no
doubt then there is no use to resort to the rules on interpretation. We
apply the contract as it is written, so did I assign the case of Sandiego
vs Evangelista? GR 163680 January 24, 2006. No? This case involves a
tenancy dispute. So a tenant is one, if you have encountered the law
on CARP (Comprehensive Agrarian Reform Program) or RA 3844
kanang naa kay agricultural land and there is a person there who
cultivates the produce in that land and he shares the harvest and the
purpose is agricultural production, so under that there is a tenancy
relationship and if you are the landowner, it is unfortunate because
being the tenant you cannot just evict him, if you evict him you have
to pay compensation equivalent to the last five years of gross harvest.
So you have to be careful, kung naay muingon na sir pwede ba ko
magtukod sa ug payag diri sa imong yuta. Ayaw jud or kung gusto ka
para dili jud xa ma-tenant, maghimo mog kasulatan na caretaker xa.
And bayaran ra nimo xag sweldo, ayaw ra nang mag-sharing ug
harvest kay dali ra na niya ingnon na tenant ka. So here, there was
actually a leasehold agreement and the contract mentioned about a
particular title number of a land, the land here consists of 3 hectares
so it was contended by the tenant that he was the tenant of the entire
3RD Exam Coverage | 25
3 hectares but it was contended by the land owner that the tenancy
was only 1 hectare. So walay nakabutang sa contract kung pila jud but
the 2 hectares consisted of bamboo land and 1 hectare rice land. So
the tenant alleged that he was the tenant on both. Resort was made
to the subsequent and contemporaneous acts of the parties and based
on the records, it was shown that the tenant was actually remitting to
the owner rice, palay, so ang iyang payment consisted on palay, no
bamboo. And the tenant also occupied only the rice land not the
bamboo land plus the bamboos existed long before the tenancy was
entered into. So the SC here, applying the provisions of 1371 said that,
you are just a tenant in the rice land. This was evidenced by the fact
that you only remitted rice, you should have proof that you share with
the landowner the portions of the proceeds from the bamboo land but
there was no proof. So here the contemporaneous act was the sharing
of the proceeds of the rice lands so that was considered by the SC in
resolving the dispute.
Article 1372. However general the terms of the contract may be, not
understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree.
I think we discussed the case of REYES VS LIMJAP, GR L-5396
March 12, 1910. That case where the deed of sale of a parcel of land
which is not owned by the seller, there were warranties made by that
deed of sale so, SC said that even if that said land was included in the
deed of sale but it could not have been contemplated by the parties
and it could not have been agreed upon or included in the agreement
because however broad or general the terms of the deed of sale might
be which included that portion of lands it could only be limited to that
portion of lands within the disposal of the seller. A person could not
dispose or sell what he does not own. So it could not have been
included in that sale. However, even if the terms in the deed of sale is
too general, if you read that literally it would include the neighboring
land but it could not have been included there because it would be a
legal impossibility only those which has been contemplated by the
parties.
1373 (nagjump xa sa 1374 ani)
Article 1373. If some stipulation of nay contract should admit of
several meanings, it shall be understood as bearing that import which
is most adequate to render it effectual.
Article 1374. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which
may result from all of them jointly.
In interpreting a contract you must interpret a contract as a whole,
you do not interpret a contract piece by piece and the interpretation
should reconcile or harmonize all the provisions of the contract. Pls.
read the case of Bundalian under 1374. The issue here is WON the
deed of sale with right to repurchase should be declared as an
equitable mortgage. I already explained this before in the other
provisions, even if the contract is written as a deed of sale but if there
are circumstances that would show that it was really intended to be a
mortgage like the price of the sale is really low, the seller remains in
possession of the property, the seller still pays the real property taxes
over the property, there is an intimate relationship of the deed of sale
and the mortgage contract or the documents, example: instead of the
purchase price there is a loan granted and the property subject matter
instead of being sold is given as a collateral so you could relate the
two contracts. In this case, there was also an increase in the alleged
redemption price and the SC construed that as the interest to be
imposed. Read this case.
Article 1375. Words which may have different significations shall be
understood in that which is most in keeping with the nature and object
of the contract.
Co vs Donaldson, (Recitation) [Pls. refer to the case digest na lang]
Mam Yangyang: So Kammerzell here was authorized under a power of
attorney and pursuant to that authorization he instituted an action for
collection, now it was contended that he had no authority to institute
an action for collection, because to institute such action is an act of
ownership and what was conferred upon him was merely an authority
to administer an act of administration. So if your power was merely an
act of administration, you could not include in that power an act which
would amount to an act of ownership, so in this case would it matter
that an act of instituting a suit is an act of administration or an act of
strict ownership, so they were arguing that an act of instituting a suit
is an act of ownership. So does it matter if an act of instituting a suit is
not an act of administration?
Ha? It would not matter. So WON the act of instituting a suit is an act
of ownership or just an act of administration, it does not matter
because that act of instituting a case is already included in the power
given to Kammerzell. Where? In that clause stating “to exact payment
by legal means” so that would cover an act to institute a case for
collection. That was covered in the authorization given pursuant to rule
1375 which will apply here.
Article 1376. The usage or custom of the place shall be borne in mind
in the interpretation of the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily established.
Andreas vs Bank. (Recitation) [Pls. refer to the case digest]
Mam Yangyang: So assuming that the bank was able to prove the
existence of a custom or a usage, with respect to the charging of
interest. In this case the SC said that it was not proved but assuming
that it was proved could you say that the bank would be able to collect
the interest pursuant to 1376? Assuming in this case, the answer is
yes, but under our present state of laws, can you collect interest by
proving the usage even if it is not stipulated? It should be stipulated in
the contract. We have learned before that a stipulation to pay for
interest should be in writing otherwise it is void. So it is one of the
formal contracts that we’ve discussed before. For interest, there should
be an essential requisite –the form which should be in writing. It
cannot be imposed just because there is a custom or practice to that
effect.
Did I assign to you the case, I forgot the title, the one in that the
Supreme Court mentioned about gacetas. Because in that case there
was an agreement to pay a sum of money and the currency mentioned
was gacetas so it was doubtful whether that refers to Spanish or
Mexican gacetas. And in resolving that, the SC look into the customs of
that place, what currency they are using in that place, what was the
usual currency and the SC said that in that locality, it was proved that
Mexican currency ang ginagamit so in that case the customs, usage
and practice of the place may be inquired into to resolve the contract.
Article 1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity.
If the contract is drafted by one party and the other has no option but
to accept the __ contract, that is a contract of adhesion. Adhere or
not. In case of doubt, the doubt shall be resolved strictly against the
one who drafted the contract because in the first place they had the
opportunity to clarify the terms in the contract and the other party had
no participation in the drafting. They could not have dictated na “kani
ang gamita na word” it was the one who drafter the contract. I
assigned to you the case of Rizal Surety and Insurance Company vs.
CA GR 112360 July 18, 2000
FIELDMAN INSURANCE CO vs. VDA. DE SONGCO
25 SCRA 70
Facts:
> In 1960, Sambat, an agent of Fieldman’s Insurance, induced
Songco, a man of scant education to enter into a common carrier
insurance contract with Fieldman.
> During the inducement, a son of Songco butted in and said that
they could not accept the type of insurance offered because theirs was
an owner-type jeepney and not a common carrier.
> Sambat answered that it did not matter because the insurance
company was not owned by the government and therefore had
nothing to do with rules and regulations of the latter (Fieldman).
> The insurance was executed and approved for a year from Sept.
1960-1961. It was renewed in 1961 for another year.
> In Oct. 1961, the jeepney collided with a car in Bulacan and as a
result, Sonco died. The remaining members of the family claimed the
proceeds of the insurance with the company but it refused to pay on
the ground that the vehicle was not a common carrier.
That is all that needs be said insofar as the first alleged error of
respondent Court of Appeals is concerned, petitioner being adamant in
its far-from-reasonable plea that estoppel could not be invoked by the
3RD Exam Coverage | 26
heirs of the insured as a bar to the alleged breach of warranty and
condition in the policy. lt would now rely on the fact that the insured
owned a private vehicle, not a common carrier, something which it
knew all along when not once but twice its agent, no doubt without
any objection in its part, exerted the utmost pressure on the insured, a
man of scant education, to enter into such a contract.
Nor is there any merit to the second alleged error of respondent
Court that no legal liability was incurred under the policy by petitioner.
Why liability under the terms of the policy 5 was inescapable was set
forth in the decision of respondent Court of Appeals. Thus: "Since
some of the conditions contained in the policy issued by the
defendant-appellant were impossible to comply with under the existing
conditions at the time and 'inconsistent with the known facts,' the
insurer 'is estopped from asserting breach of such conditions.' From
this jurisprudence, we find no valid reason to deviate and consequently
hold that the decision appealed from should be affirmed. The injured
parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for
whose hospital and medical expenses the defendant company was
being made liable, were passengers of the jeepney at the time of the
occurrence, and Rodolfo Songco, for whose burial expenses the
defendant company was also being made liable was the driver of the
vehicle in question. Except for the fact, that they were not fare paying
passengers, their status as beneficiaries under the policy is recognized
therein." 6
Even if it be assumed that there was an ambiguity, an excerpt
from the Qua Chee Gan decision would reveal anew the weakness of
petitioner's contention. Thus: "Moreover, taking into account the well
known rule that ambiguities or obscurities must be strictly interpreted
against the party that caused them, the 'memo of warranty' invoked by
appellant bars the latter from questioning the existence of the
appliances called for in the insured premises, since its initial
expression, 'the undernoted appliances for the extinction of fire being
kept on the premises insured hereby, ... it is hereby warranted ...,'
admits of interpretation as an admission of the existence of such
appliances which appellant cannot now contradict, should the parol
evidence rule apply." 7
To the same effect is the following citation from the same
leading case: "This rigid application of the rule on ambiguities has
become necessary in view of current business practices. The courts
cannot ignore that nowadays monopolies, cartels and concentration of
capital, endowed with overwhelming economic power, manage to
impose upon parties dealing with them cunningly prepared
'agreements' that the weaker party may not change one whit, his
participation in the 'agreement' being reduced to the alternative to
'take it or leave it' labelled since Raymond Saleilles 'contracts by
adherence' (contrats d'adhesion), in contrast to those entered into by
parties bargaining on an equal footing, such contracts (of which
policies of insurance and international bills of lading are prime
examples) obviously call for greater strictness and vigilance on the part
of courts of justice with a view to protecting the weaker party from
abuses and imposition, and prevent their becoming traps for the
unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain,
13 Dec. 1934, 27 February 1942)."
Are contract of adhesion valid? In case of doubt? Classic example of a
contract of adhesion is an insurance contract. Have you seen an
insurance contract? Very lengthy and very fine prints. You cannot
bargain na I don’t like this provision number 1, etc. take it or leave it
so that is the usual nature of a contract of adhesion. They are valid.
In the case of Rizal, this is also a contract of insurance- a building. The
policy mentioned na "‘On stocks of finished and/or unfinished
products, raw materials and supplies of every kind and description, the
properties of the Insured and/or held by them in trust, on commission
or on joint account with others and/or for which they (sic) responsible
in case of loss while contained and/or stored during the currency of
this Policy in the premises occupied by them forming part of the
buildings situated (sic) within own Compound at MAGDALO STREET,
BARRIO UGONG, PASIG, METRO MANILA. In short the insurance was
for the building and the contents of the building located in the
compound.
Now a fire it affected not the main bldg. but the annex bldg. (a 2-
storey bldg.) so the insured wanted to claim the insurance for the loss
or damage sustained by the goods of the second portion of the
building. So the insurance company denied liability because according
to the insurance company , it is only liable for the main bldg., the 4th
story building and with the contents so the insurance company would
tell that the 2storey bldg. is not included because it was an annex not
part of the main bldg. but a close inspection would reveal that the
annex bldg. was really still a part of the main bldg.. so the structure
was reconnected with the main bldg. and then the SC also noted that
the two-storey annex bldg. was already in existence at the time when
insurance was procured so when the insurance company wanted that
bldg. to be excluded, it should have stated so in the insurance policy
but it did not. So doubt in the interpretation of the contract shall be
resolved against the insurance company because had it exclude to
include the annex building, had it chosen to do so but it did not. So
this is again a classic example of a contract of adhesion
RIZAL SURETY & INSURANCE COMPANY vs. CA
G.R. No. 112360. July 18, 2000
So also, considering that the two-storey building aforementioned was
already existing when subject fire insurance policy contract was
entered into on January 12, 1981, having been constructed sometime
in 1978,[18] petitioner should have specifically excluded the said two-
storey building from the coverage of the fire insurance if minded to
exclude the same but if did not, and instead, went on to provide that
such fire insurance policy covers the products, raw materials and
supplies stored within the premises of respondent Transworld which
was an integral part of the four-span building occupied by Transworld,
knowing fully well the existence of such building adjoining and
intercommunicating with the right section of the four-span building.
After a careful study, the Court does not find any basis for disturbing
what the lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy
under controversy has created a doubt regarding the portions of the
building insured thereby. Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved
against the petitioner, Rizal Surety Insurance Company, whose lawyer
or managers drafted the fire insurance policy contract under scrutiny.
Citing the aforecited provision of law in point, the Court in Landicho vs.
Government Service Insurance System, ruled:
"This is particularly true as regards insurance policies, in respect of
which it is settled that the 'terms in an insurance policy, which are
ambiguous, equivocal, or uncertain x x x are to be construed strictly
and most strongly against the insurer, and liberally in favor of the
insured so as to effect the dominant purpose of indemnity or payment
to the insured, especially where forfeiture is involved' (29 Am. Jur.,
181), and the reason for this is that the 'insured usually has no voice in
the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by
experts and legal advisers employed by, and acting exclusively in the
interest of, the insurance company.' (44 C.J.S., p. 1174).""
Equally relevant is the following disquisition of the Court in Fieldmen's
Insurance Company, Inc. vs. Vda. De Songco,to wit:
"'This rigid application of the rule on ambiguities has become
necessary in view of current business practices. The courts cannot
ignore that nowadays monopolies, cartels and concentration of capital,
endowed with overwhelming economic power, manage to impose upon
parties dealing with them cunningly prepared 'agreements' that the
weaker party may not change one whit, his participation in the
'agreement' being reduced to the alternative to 'take it or leave it'
labelled since Raymond Saleilles 'contracts by adherence' (contrats
[sic] d'adhesion), in contrast to these entered into by parties
bargaining on an equal footing, such contracts (of which policies of
insurance and international bills of lading are prime example) obviously
call for greater strictness and vigilance on the part of courts of justice
with a view to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the unwary (New Civil
Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27
February 1942.)'"
Art. 1378. When it is absolutely impossible to settle doubts by the
rules established in the preceding articles, and the doubts refer to
incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests.
3RD Exam Coverage | 27
If the doubts are cast upon the principal object of the contract in such
a way that it cannot be known what may have been the intention or
will of the parties, the contract shall be null and void. (1289)
DOUBTS – so if the doubts merely refer to the incidental
circumstances of a contract, you have to consider whether the contract
is onerous or gratuitous. If the contract is onerous (burdensome), the
doubt shall be resolve in favor of the greatest reciprocity of rights and
interests. If it is gratuitous contract (consideration is the liberality of
the transferor) , that will be resolved in favor of the least transmission
fo rights. But if the doubt refers to the principal conditions of the
contract, there is no longer interpretation because the contract is void.
Because you cannot understand what this contract refer to so there is
no room for interpretation because a substantial portion of the
contract is affected. The contract cannot stand without the principal
condition.
READ: GAITE vs. FONACIER L-11827 July 31, 1961
GAITE vs. FONACIER
L-11827 July 31, 1961
Facts: Defendant-appellant Fonacier was the owner/holder of 11 iron
lode mineral claims, known as the Dawahan Group, situated in
Camrines Norte.
By “Deed of Assignment, Respondent constituted and appointed
plaintiff-appellee Gaite as attorney-in-fact to enter into contract for the
exploration and development of the said mining claims on. On March
1954, petitioner executed a general assignment conveying the claims
into the Larap Iron Mines, which owned solely and belonging to
him. Thereafter, he underwent development and the exploitation for
the mining claims which he estimates to be approximately 24 metric
tons of iron ore.
However, Fonacier decide to revoke the authority given to Gaite,
whereas respondent assented subject to certain conditions.
Consequently a revocation of Power of Attorney and Contract was
executed transferring P20k plus royalties from the mining claims, all
rights and interest on the road and other developments done, as well
as , the right to use of the business name, goodwill, records,
documents related to the mines. Furthermore, included in
thetransfer was the rights and interest over the 24K+ tons of iron ore
that had been extracted. Lastly the balance of P65K was to be paid
for covering the first shipment of iron ores.
To secure the payment of P65k, respondent executed a surety
bondwith himself as principal, the Larap Mines and Smelting Co. and
its stockholder as sureties. Yet, this was refused by petitioner. Appelle
further required another bond underwritten by a bonding company to
secure the payment of the balance. Hence a second bond was
produced with Far Eastern Surety as an additional surety, provided the
liability of Far Eastern would only prosper when there had been an
actual sale of the iron ores of not less than the agreed amount of
P65k, moreover, its liability was to automatically expire on December
1955.
On December 1955, the second bond had expired and no sale
amounting to the stipulation as prior agreed nor had the balance been
paid to petitioner by respondent. Thus such failure, prompted
petitioner to file a complaint in the CFI of Manila for the payment of
the balance and other damages.
The Trial Court ruled in favor of plaintiff ordering defendant to pay the
balance of P65k with interest. Afterwards an appeal was affected by
the respondent where several motions were presented for resolution: a
motion for contempt; two motions to dismiss the appeal for becoming
moot and academic; motion for a new trial, filed by appellee Gaite.
The motion for contempt was held unmeritorious, while the rest of the
motions were held unnecessary to resolve
Issue: Whether or not the Lower Court erred in holding the obligation
of appellant Fonacier to pay appelle Gaite the balance of P65k, as one
with a period or term and not one with a suspensive condition; and
that the term expired on December 1955
Held: No error was found, affirming the decision of the lower court.
Gaite acted within his rights in demanding payment and instituting this
action one year from and after the contract was executed, either
because the appellant debtors had impaired the securities originally
given and thereby forfeited any further time within which to pay; or
because the term of payment was originally of no more than one year,
and the balance of P65k, became due and payable thereafter.
The Lower Court was legally correct in holding the shipment or sale of
the iron ore is not a condition or suspensive to the payment of the
balance of P65k, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy or
obligatory force as distinguished from its demandability,
issubordinated to the happening of a future and uncertain event; so
that if the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed.
The sale of the ore to Fonacier was a sale on credit, and not an
aleatory contract where the transferor, Gaite, would assume the risk of
not being paid at all; and that the previous sale or shipment of the ore
was not a suspensive condition for the payment of the balance of the
agreed price, but was intended merely to fix the future date of the
payment.
While as to the right of Fonacier to insist that Gaite should wait for the
sale or shipment of the ore before receiving payment; or, in other
words, whether or not they are entitled to take full advantage of the
period granted them for making the payment. The appellant had
indeed have forfeited the right to compel Gaite to wait for the sale of
the ore before receiving payment of the balance of P65,000.00,
because of their failure to renew the bond of the Far Eastern Surety
Company or else replace it with an equivalent guarantee. The
expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for
the unpaid P65,000.00, a security that Gaite considered essential and
upon which he had insisted when he executed the deed of sale of the
ore to Fonacier (first bond).
Under paragraphs 2 and 3 of Article 1198 of the Civil Code of the
Philippines: ART. 1198. The debtor shall lose every right to make use
of the period: “(2) When he does not furnish to the creditor the
guaranties or securities which he has promised. (3) When by his own
acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory.”
Appellants' failure to renew or extend the surety company's bond upon
its expiration plainly impaired the securities given to the
creditor (appellee Gaite), unless immediately renewed or replaced.
Nevertheless, there is no merit in appellants' argument that Gaite's
acceptance of the surety company's bond with full knowledge that on
its face it would automatically expire within one year was a waiver of
its renewal after the expiration date. No such waiver could have been
intended, for Gaite stood to lose and had nothing to gain barely; and if
there was any, it could be rationally explained only if the appellants
had agreed to sell the ore and pay Gaite before the surety company's
bond expired on December 8, 1955. But in the latter case the
defendants-appellants' obligation to pay became absolute after one
year from the transfer of the ore to Fonacier by virtue of the deed, first
bond.
Can you give me an example of an onerous contract where it is
resolved in the greatest reciprocity of interest?
Seatmate sa exam , the teacher said “if I hear anybody speaks minus
10” narealize na nimu na wala kay ballpen so gekuhit nimu imung
katapad, nagkuhag ballpen imung seatmate gehatag sa imuha,
pagkahuman sa exam gebawi sa imung seatmate ang ballpen dili nimu
iuli kay ingon ka donation toh kay wala man in case of doubt how to
we resolve? Is it a commodatum ? or a donation? Mere commodatum
or loan because it has the least transmission of rights. Kung
commodatum walay rights or ownership pero kung donation meaning
imuha nato. So that is an example.
Art. 1379. The principles of interpretation stated in Rule 123 of the
Rules of Court shall likewise be observed in the construction of
contracts. (n)
1379 I mentioned before there are rules of interpretation under the
ROC so those will also be discussed when you go to the law of
evidence.
Break of 5 minutes or continue next meeting? NEXT MEETING!!
March 08, 2013
Transcribed by: GlowingGloria
3RD Exam Coverage | 28
Defective Contracts
Art. 1380. Contracts validly agreed upon may be rescinded in the
cases established by law. (1290)
So in 1191 we also refer it as rescissible contract but that is another
kind. The proper term for 1191 is resolution.
So base on 1380 rescissible contracts are valid but can be rescinded
on the ground of lesion or contract is in fraud of contracts.
So what are these contracts?
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
So the basis for lesion under 1381 is economic injury, in 1191 it is
breach of faith. So what are these specific cases:
1. Those which are entered by guardians in behalf of ward
and ward suffered lesion by more than 1/4. Here, it is
because the guardian is supposed to advance the
interest of the ward, so as much as possible he should
get the best deal for his ward. Example, the value of
the property is 1M and you sold it for 500,000 only, the
ward will eventually be prejudiced.
2. same concept in #1
3. this is what we call accion pauliana .. when the
creditors cannot in any manner collect the claims due
them.
Case: China Banking
*the fact that there is valuable consideration does not negate the
presumption of fraud.
4. if the property is subject matter of pending case and it is dispose
without permission from the court, that is considered fraudulent.
5. we discussed this before, we enumerated those other contracts.
Art. 1382. Payments made in a state of insolvency for obligations to
whose fulfillment the debtor could not be compelled at the time they
were effected, are also rescissible. (1292)
Here the debtor is insolvent and he paid the debt which is not yet due,
it is considered rescissible because if it is not yet due, you do not have
the obligation to pay so why would you insist? So katong mga creditors
to which debts are matured can assail the payment made to those
creditors whose credits are not yet due.
Art. 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same. (1294)
So we discussed this before, subsidiary so meaning it is the last resort.
So kung wala nay lain na remedy ang creditor didto pa niya ma avai
lang rescission. This is best illustrated in the case of Siguan v Lim.
Case: Siguan v Lim
 subsidiary remedy defined
 7 badges of fraud
 Remember this case 
(Addtl case)Lalicon v NHA GR 185440, July 13, 2011
In this particular case, NHA sought to annul the sales made by NHA to
housing beneficiaries because when NHA sold these lots there was a
condition that this lot should not be sold to any other person within
specified period. Here they sold the lots within the prohibitory period.
The contention here is that the action of rescission will not prosper
because the period to file the action has prescribed, the prescriptive
period for 1381 and 1383 is 4 years.
Issue here is WON the action has prescribed?
SC held that we have to look into the nature of rescission sought by
NHA, does it fall under 1383? No because it is not under lesion. This is
actually a breach of faith under 1191, the prescriptive period for it is
10 years so the action is well within the prescriptive period.
Distinctions: refer to PINEDA just add the prescriptive period. 1191- 10
years, 1381- 4 years
Art. 1384. Rescission shall be only to the extent necessary to cover
the damages caused. (n)
If you are impugning a contract in fraud of creditors only up to the
extent of your credit, you cannot impugn the whole. Only to the extent
that you are prejudiced.
Art. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to
restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss. (1295)
Mutual restitution is required except if restitution is no longer possible
so damages will be paid.
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall
not take place with respect to contracts approved by the courts.
(1296a)
So even of there is lesion if the contract is approved by court, the
contract is perfectly valid.
Art. 1387. All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered into in
fraud of creditors, when the donor did not reserve sufficient property
to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made
by persons against whom some judgment has been issued. The
3RD Exam Coverage | 29
decision or attachment need not refer to the property alienated, and provisions: provisions: provisions: void or
need not have been obtained by the party seeking the rescission. inexistent
contracts
1380: Nature 1390: 1403: types of
In addition to these presumptions, the design to defraud creditors may of rescissible voidable unenforceable
be proved in any other manner recognized by the law of evidence. contract contracts may contracts 1410:
(1297) be annullable imprescriptibili
even if there ty
1381-1382: 1405: ratification
is no damage
So we discussed this in the cases earlier, China bank and Lim. types of of contracts
to parties;
rescissible infringing statute 1411:
Art. 1388. Whoever acquires in bad faith the things alienated in fraud contract of frauds contracts that
types of are both illegal
of creditors, shall indemnify the latter for damages suffered by them
voidable and criminal –
on account of the alienation, whenever, due to any cause, it should be 1383: 1407: express or
contracts; both parties
impossible for him to return them. subsidiary implied ratification
have no action
character by the parent or
against each
binding guardian of one
If there are two or more alienations, the first acquirer shall be liable other and shall
character (when both are
first, and so on successively. (1298a) 1384: extent be prosecuted
unless incapacitated) –
of rescission
annulled; same effect as if
If mutual restitution is not possible then indemnity for damages is only one is 1412:
remedy here. So if 2 or more are liable, didto ka una sa first then 1385: mutual incapacitated; contracts that
susceptibility
restitution; no are illegal but
second and so on and so forth. to ratification
rescission do not
Ratification by
when the constitute
Art. 1389. The action to claim rescission must be commenced within parent or
thing is 1391: criminal
four years. guardian of both
legally prescriptive offense
– contract is
possessed by period
validated from
For persons under guardianship and for absentees, the period of four a third person
inception 1413-1419:
years shall not begin until the termination of the former's incapacity, or 1392-1397: exceptions to
until the domicile of the latter is known. (1299) 1386: no ratification in pari delicto
1408: cannot be
rescission in rule
assailed by third
case of 1381
1398-1402: persons.
So this is what I said about prescriptive period, it’s 4 years. (1) and (2)
Mutual
when the
restitution
GlowingGloria-add-on: contract is
approved by
PINEDA NOTES court 1398:
mutual
RESCISSIBL VOIDABLE UNENFORCEAB VOID &
restitution
E LE INEXISTENT 1387:
Valid and Valid and Validable Does not and preseumption
enforceable enforceable transaction; cannot (existence of 1399:
until until annulled; produce legal fraud); exception to
rescinded; effect alienation by mutual
Cannot be enforce
gratuitous restitution –
The defect is unless ratified
title; defect is the
there is a sort more or less
alienation by incapacity
of extrinsic intrinsic
onerous title of one
defect
consisting of
economic 1388: 1400: loss
damage or acquisition in of the thing
lesion bad faith (of through
Causes: Causes: (Art. Causes: (Art. Causes: things fault/fraud
1390) 1403) alienated in of party
fraud of obliged to
injury or (void) illicit,
creditors) return the
damage to - legal - contract is prohibited or
thing but
one of the incapacity of entered into in declared by
has no right
parties or to one party; or excess or without law as void 1389:
to institute
third persons authority prescriptive
proceeding,
period
- vitiation of (inexistent) he shall
[GAFLAI – consent - non-compliance lacks one or all return the
Arts. 1381 – with Stature of of the fruits and
1382] Frauds requisites of a the value of
contract the thing
Legal incapacity
of both [CS-DOICE – 1401: loss
Art. 1409] of the thing
Cured by Cured by Not cured by Not cured by through
prescription prescription prescription prescription fault/fraud
Need not be Can be Can be ratified Cannot be of the
ratified ratified ratified person who
Can be Can be Can be assailed Can be may
assailed by assailed by a by a contracting assailed by a institute the
the injured or contracting party (Art. 1408) contracting proceeding
damaged party (Art. party or a (action for
party or 1397) third person annulment
injured or whose interest is
damaged is affected extinguishe
third person (Art. 1421) d)
Assailed Assailed Assailed directly Assailed
directly only directly or or collaterally directly or 1402: one
collaterally collaterally does not
Outline of Outline of Outline of 1409: types of restore –
3RD Exam Coverage | 30
 the other
cannot be
compelled
to comply
Voidable Contracts
* Contracts that are voidable or annullable:
1. When either party is incapable of giving consent to
a contract
2. When consent is vitiated by mistake, violence,
intimidation, undue influence, fraud
 *Binding, unless annulled by a proper court action
 Ratifiable (Art. 1390)
 Prescription for action of annulment: 4 years to begin:
when vice is due to intimidation, violence or undue influence – from
the time defect of consent ceases
mistake or fraud – from the time of discovery
entered into by minors or those incapable of giving consent – the
moment guardianship ceases (Art. 1391)
RATIFICATION
Extinguishes action for annulment (Art. 1392)
may be express or tacit (Art. 1393)
tacit ratification – the execution of an act which necessarily implies an
intention to waive his right by the party, who, knowing of the reason
which renders the contract voidable, has a right to invoke annulment.
-may be effected by the guardian of the
incapacitated person (Art. 1394)
- does not require the conformity of the person
who does not have a right to bring an action for
annulment (Art. 1395)
-cleanses the contract from all its defects from the
moment it was constituted (Art. 1396)
*Annulment
- Who may institute (Art. 1397)
- By all who are obliged principally or subsidiarily
Exceptions:
*Persons capable cannot allege the incapacity of those with
whom they contracted
*Persons who exerted violence, undue influence, who employed
fraud or caused mistake – action for annulment cannot be based
on these flaws
*Gives rise to the responsibility of restoring to each other things
subject matter of the contract, with fruits, price with its interest,
except in cases provided by law (Art. 1398)
Service – value thereof will serve as the basis for damages
*Incapacitated persons not obliged to make restitutions except insofar
as he has been benefited by the thing or price received by him (Art.
1399)
*If objects cannot be returned because these were lost through his
fault, he shall return the fruits received and the value of the thing at
the time of the loss, with interests from the same date (Art. 1400)
*As long as one of the contracting parties does not restore what in
virtue of the annulment decree he is bound to return, the other cannot
be compelled to comply with what is incumbent upon him. (Art. 1402)
*Extinguishment of action (Art. 1401)
 if object is lost through the fault or fraud of
person who has the right to institute the
proceedings
 if action based on incapacity of any one of
contracting parties, loss of thing shall not be an
obstacle to the success of action, unless loss or
fraud took place through the plaintiff’s fault
MARCH 14 , 2013
Transcribed by: Marlie Munoz
Last meeting we started discussing the defective contract. So the first
the co-owner of defect would be the rescissible contracts, then the
voidable contract, then the unenforceable contract and lastly the void
contracts.
So we know start with voidable contracts. Please read starting from
the back…
VOIDABLE CONTRACTS
Art. 1390. The following contracts are voidable or annullable, even
though there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a
contract;
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification.
Take note, voidable contracts are valid contracts, so if they are not
assailed the remained to be existing, enforceable and valid. What are
the reasons why a contract is voidable?
There are two:
1. Either one of the parties is incapable of giving consent.
That he is insane or minor. He is incapable of giving
consent. He cannot intelligently enter into the contract.
2. When there is vitiated consent.
Vices of consent: Mistake, violence, intimidation, undue
influence or control
So because of these defects the contract can be allowed, meaning
they can be terminated or extinguished. Who can annul the contract?
It is the court which will annul the contract, although Article 1390 says
they susceptible of ratification. The defect can actually be cleansed.
We will discuss ratification later.
3RD Exam Coverage | 31

Art. 1391. The action for annulment shall be brought within four
years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the
defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the
same.
And when the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship ceases.
Take note of the action, the prescriptive period. It is four (4) years. 4
years from when? So you should remember if it is by reason of
intimidation, violence, undue influence from the time that these
defects cease, when we say control, from the time that it is discovered
and minority or incapacity from the time that they cease. What if you
file to file an action for annulment within the prescriptive period, then
the contract is cleansed of its defect. You can no longer file an action
to annul, it is again another way of ratification, when you know the
defect and you did not act for 4 years so the contract is now probably
ratified. It remains to be valid it can no longer be annulled.
Art. 1392. Ratification extinguishes the action to annul a voidable
contract.
So when there is ratification, the person who is supposed to be
entitled to annul the contract can no longer do so, because of the
ratification. How can we ratify? Article 1393.
Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of the
reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an act
which necessarily implies an intention to waive his right.
So for example you entered into during minority, when you reached
majority, like when you entered into a contract when you are 17 but
when you reached 18 you ratified the contract, you acknowledge that
the contract is valid and he agreed to be bound by the contract. For
example when he is insane when he entered into the contract, he pays
the price then when he regain sanity he learned about the contract
and he spent the money that is also an act of ratification, or if he did
not file an action during the prescriptive period, he did not file an
action annulment it is already 5 years the contract is also ratified, it
can no longer be annulled. Acceptance of benefit that is also
inconsistent for filing later an action for annulment. If he accepted
knowingly the benefit under the contract you having reached the age
of majority or having gained capacity, or under force, violence,
intimidation then again that is ratification.
Art. 1394. Ratification may be effected by the guardian of the
incapacitated person.
An incapacitated person on his own cannot enter into a contract, if an
insane person and he enters into a contract, the contract is voidable.
But if his guardian discovered that he entered into the contract, the
guardian agreed to the contract, then the contract is now ratified. The
guardians can ratify the contract in behalf of the minor. So the minor
or insane, halimbawa legal age na siya he can no longer say that “Ay
dili ko gusto atong contract,” no more because it was already ratified
before by your parents or guardian.
Art. 1395. Ratification does not require the conformity of the
contracting party who has no right to bring the action for annulment.
So only the incapacitated person or his guardian or the innocent party
can ratify the contract and act is unilateral. So if he says na he was
minor at the time when he entered into the contract and now he is 18
and he said na “I like this contract so I will ratify this contract.” It is
already ratified; the other party cannot say that “no I don’t like you to
ratify the contract, I want to remain it as voidable” no, so the guilty
party who was capacitated does not have to agree to the ratification.
So you cannot say na “dili voidable jud na siya kay buang baya ka ato
na time” he does not required his consent.
Art. 1396. Ratification cleanses the contract from all its defects from
the moment it was constituted.
That is the consequence of ratification, retroactive, so it is as if that
the contract was never defective from the very beginning. So mag
RETROACT siya, ang effect sa RATIFICATION.
Art. 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.
So remember, the contract or the action for annulment can be
instituted only by the parties or their assigns or successors-in-interest.
Those are not party to the contract cannot assail the contract from
being voidable. And the principle that HE WHO COMES TO COURT
MUST COME WITH CLEAN HANDS also applied here, so only the
innocent party can speak for the annulment of the contract not the
one who exerted undue influence, violence, intimidation, etc., only the
incapacitated person not the one who is legally capacitated. So that is
the principle in the voidable contract.
So I assigned cases here? Yes!... BADANG volunteered…
Earth Minerals Exploration, Inc. vs. Deputy Exec. Secretary Macaraig,
Office of the President, Bureau of Mines Director Gonzales, and Philzea
Mning
FACTS: Zambales Chromite Mining Co., Inc. (Zambales Chromite, for short)
is the exclusive owner of ten (10) patentable chromite mining claims
located in the Municipality of Sta. Cruz, Zambales. On September 11,
1980, Zambales Chromite, as claim-owner, on one hand, and Philzea
Mining and Development Corporation (Philzea Mining, for short, herein
private respondent) as operator, on the other, entered into a "Contract of
Development, Exploitation and Productive Operation" on the ten (10)
patentable mining claims. During the lifetime of such contract, Earth
Minerals Exploration, Inc. (Earth Minerals, for short, herein petitioner)
submitted a Letter of Intent on June 30, 1984 to Zambales Chromite
whereby the former proposed and the latter agreed to operate the same
mining area subject of the earlier agreement between Zambales Chromite
and Philzea Mining. On August 10, 1984, Zambales Chromite and Earth
Minerals concretized their aforementioned Letter of Intent when they
entered into an "Operating Agreement" for the latter to operate the same
mining area. Consequently, the same mining property of Zambales
Chromite became the subject of different agreements with two separate
and distinct operators. On
November 29, 1984, petitioner Earth Minerals filed with the Bureau of
Mines and Geo-Sciences (BMGS,) a petition for cancellation of the
contract between Zambales Chromite and Philzea Mining, pursuant t
Section 7, P.D. 1281 which provides, inter alia:
Section 7. In addition to its regulatory and adjudicative functions over
companies, partnerships or persons engaged in mining exploration,
development and exploitation, the Bureau of Mines shall have original and
exclusive jurisdiction to hear and decide cases involving:
(a) a mining property subject of different agreements entered into by the
claim holder thereof with several mining operators;
(b) . . . .
(c) cancellation and/or enforcement of mining contracts due to the refusal
of the claimowner/operator to abide by the terms and conditions thereof.
In its petition, Earth Minerals alleged, among others, that Philzea Mining
committed grave and serious violations of the latter's contract with
Zambales Chromite among which are: failure to produce the agreed
volume of chromite ores; failure to pay ad valorem taxes; failure to put up
assay buildings and offices, all resulting in the non-productivity and non-
development of the mining area.
On December 10, 1984, Philzea Mining filed a motion to dismiss on the
grounds that Earth Minerals is not the proper party in interest and that
the petition lacks cause of action. Philzea Mining elevated the case to then
3RD Exam Coverage | 32
Ministry (now Department) of Natural Resources (MNR, for short) to
dismiss the appeal for the reason that the order of the BMGS was an
interlocutory order that could not be the proper subject of an appeal.
MNR on the other hand ordered BMGS to investigate and found out that
Philzea grossly violated the terms and conditions of the contract. BMGS
rendered a decision on July 23,1985, cancelling the said mining contract.
Aggrieved by the decision of the BMGS, Philzea Mining, aside from filing a
notice of appeal to the MNR on July 29, 1985, also filed a petition for
certiorari with the then Intermediate Appellate Court (now Court of
Appeals) on July 30,1985
On November 4, 1985, the Office of the President promulgated a decision
dismissing the appeal of Philzea Mining from the decision of the MNR
dated April 23, 1985, on the ground that an order denying a motion for
reconsideration is interlocutory in nature and cannot be the subject of an
appeal. On November 7, 1985, the MNR on the other hand, issued
another order this time dismissing the appeal of Philzea Mining from the
decision of the BMGS dated July 23, 1985. On November 18, 1985 Philzea
Mining appealed the aforementioned November 7, 1985 decision of the
MNR to the Office of the President. Meanwhile, on December 26,1985,
the then Intermediate Appellate Court dismissed the petition filed by
Philzea.
ISSUE: Is Earth Minerals the proper party to seek cancellation of the
operating agreement between Philzea Mining and Zambales Chromite?
RULING: YES. The record amply shows that the decision of the Director of
Mines as affirmed by the Minister of Natural Resources was supported by
substantial evidence. As found by the Bureau of Mines in its decision
dated July 23, 1985, the violations committed by Philzea Mining were not
only violations of its operating agreement with Zambales Chromite but of
mining laws as well.
The public respondent argues that the petitioner Earth Minerals is not the
proper party to file the petition for cancellation of the contract between
Zambales Chromite and Philzea Mining citing Article 1311 of the Civil Code
which provides that a contract takes effect only between the parties, their
assigns and heirs.
The contention is untenable.
Indeed, a contract takes effect only between the parties who made it, and
also their assigns and heirs, except in cases where the rights and
obligations arising from the contract are not transmissible by their nature,
or by stipulation or by provision of law (Article 1311, New Civil Code).
Since a contract may be violated only by the parties thereto as against
each other, in an action upon that contract, the real parties in interest,
either as plaintiff or as defendant must be parties to said contract. In
relation thereto, Article 1397 of the Civil Code lays the general rule that an
action for the annulment of contracts can only be maintained by those
who are bound either principally or subsidiarily by virtue thereof. The rule,
however, admits of an exception.
Petitioner Earth Minerals seeks the cancellation of the contract between
Zambales Chromite and Philzea Mining, not as a party to the contract but
because his rights are prejudiced by the said contract. The prejudice and
detriment to the rights and interest of petitioner stems from the
continued existence of the contract between Zambales Chromite and
private respondent Philzea Mining. Unless and until the contract between
Zambales Chromite and Philzea Mining is cancelled, petitioner's contract
with the former involving the same mining area cannot be in effect and it
cannot perform its own obligations and derive benefits under its contract.
The Director of Mines and Geo-Sciences in his order denying Philzea
Mining's motion to dismiss the petition for cancellation of the operating
agreement between Philzea Mining and Zambales Chromite stated:
From the documentary evidence submitted by the petitioner, i.e., the
Letter of Intent and Operating Agreement between Zambales Chromite
and Earth Minerals, it may be gleaned that, at least, there appears some
color of right on the part of petitioner to request for
cancellation/rescission of the contract dated September 11, 1980
between Zambales Chromite and Philzea Mining.
In affirming the abovementioned decision, the Minister of Natural
Resources made the following statements:
Moreover, the appellant by filing a Manifestation on October 1, 1985
wherein it prayed that the decision appealed from be reviewed motu
propio by this Office, is an implied admission that it has no justification
whether in fact or in law, for its appeal; otherwise, it could have specified
them in the appeal memorandum that it is bound by law to file.
The decision, therefore, of the Deputy Executive Secretary reversing the
decisions of the Minister of Natural Resources and Director of Mines
cannot be sustained. This is in line with the pronouncement of the Court
that the factual findings of the Secretary should be respected in the
absence of any illegality, error of law, fraud or imposition, none of which
was proved by the public and private respondents.
Ma’am: What would be his ground in assailing the contract?
Ms. Corpus: The non fulfillment of his obligation.
Ma’am: Take note the SC, you came an action for nullity. Technically,
you should apply for void contract. Because the same principle na void
contracts those who are not parties cannot file an action to declared
the nullity of the contract except when their rights and interest were
prejudice indirectly. So the ruling in the case of Earth Minerals is
actually more on the nullity, so void contracts, which we will discuss
later on. But the general principle in voidable contracts, only those
parties who are bound principally or subsidiarily. When you say
subsidiarily, what do you mean, can you give an example?
Ms. Corpus: For example Ma’am in a loan.
Ma’am: No, in a contract who are subsidiarily liable? Like principal, the
creditor and debtor they are principal parties in the contract. Who are
subsidiarily liable in that contract?
Ms. Corpus: Guarantors
Ma’am: ok, guarantors, they are subsidiarily obliged by the contract.
Even if they are not the principal parties but still they can assail the
contract for being voidable.
Art. 1398. An obligation having been annulled, the contracting parties
shall restore to each other the things which have been the subject
matter of the contract, with their fruits, and the price with its interest,
except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for
damages.
Just like rescission under Article 1191, rescission under Articles 1380,
1381, 1383, MUTUAL RESTITUTION is also required in annulment of
contracts. Once the contract is annulled the parties shall restore to
each other what they have received except in cases provided by law
which we will discuss in the subsequent articles. So, general rule,
MUTUAL RESTITUTION, if it is service then the value shall be the basis
of damages, if it is the thing the fruit and the price with interest.
There is somebody who wants to recite a case? (Abtik raised hand…
Bautista)… Ok… unya na lang ka… magcase sa ta…
Municipality of Cavite v Rojas
Facts: The provincial fiscal of Cavite, representing the municipality of
that name, filed a complaint in the Court of First Instance of said
province alleging that the plaintiff municipal corporation, duly
organized and constituted in accordance with Act No. 82, and as the
successor to the rights said entity had under the late Spanish
government, and by virtue of Act No. 1039, had exclusive right, control
and administration over the streets, lanes, plazas, and public places of
the municipality of Cavite; that the defendants, by virtue of a lease
secured from the plaintiff municipality, occupy a parcel of land 93
square meters in area that forms part of the public plaza known under
the name of Soledad, belonging to the municipality of Cavite, the
defendants having constructed thereon a house, through payment to
the plaintiff for occupation thereof of a rental of P5,58 a quarter in
advance, said defendants being furthermore obligated to vacate the
leased land within sixty days subsequent to plaintiff's demand to that
effect; that the defendants have been required by the municipality to
vacate and deliver possession of the said land, but more than the sixty
days within which they having done so to date; that the lease secured
from the municipality of Cavite, by virtue whereof the defendants
occupy the land that is the subject matter of the complaint, is ultra
vires and therefore ipso facto null and void and of no force or effect,
for the said land is an integral portion of a public plaza of public
domain and use, and the municipal council of Cavite has never at any
time had any power or authority to withdraw it from public use, and to
lease it to a private party for his own use, and so the defendants have
never had any right or occupy or to retain the said land under
leasehold, or in any other way, their occupation of the parcel being
furthermore illegal; and therefore prayed that judgment be rendered
declaring that possession of the sad land lies with the plaintiff and
ordering the defendants to vacate the land and deliver possession
thereof to said plaintiff, with the costs against the defendants.
The demurrer filed to the foregoing complaint having been overruled,
with exception on the part of the defendants, in their answer of April
3RD Exam Coverage | 33
10, 1912, they admitted some of the allegations contained in the
complaint but denied that the parcel of land which they occupy and to
which the complaint refers forms and integral part of Plaza Soledad, or
that the lease secured by them from the municipality of Cavite was null
and void and ultra vires, stating if they refused to vacate said land it
was because they had acquired the right of possession thereof.
Issue: WON the plaintiff municipality have the Authority to lease the
property in question.
Held: NO. According to article 344 of the Civil Code: "Property for
public use in provinces and in towns comprises the provincial and town
roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said
towns or provinces."
The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or exclude from
public use a portion thereof in order to lease it for the sole benefit of
the defendant Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff municipality
exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it
empowered so to do.
The Civil Code, articles 1271, prescribes that everything which is not
outside he commerce of man may be the object of a contract, and
plazas and streets are outside of this commerce.
Therefore, it must be concluded that the contract, Exhibit C, whereby
he municipality of Cavite leased to Hilaria Rojas a portion of the Plaza
Soledad is null and void and of no force or effect, because it is
contrary to the law and the thing leased cannot be the object of a
contract.
On the topic on Article 1398
“An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of
the contract, with their fruits, and the price with its interest, except in
cases provided by law.”
On the hypothesis that the said lease is null and void in accordance
with the provisions of article 1303 of the Civil Code, the defendant
must restore and deliver possession of the land described in the
complaint to the municipality of Cavite, which in its turn must restore
to the said defendant all the sums it may have received from her in the
nature of rentals just as soon as she restores the land improperly
leased. For the same reasons as have been set forth, and as said
contract is null and void in its origin, it can produce no effect and
consequently the defendant is not entitled to claim that the plaintiff
municipality indemnity her for the damages she may suffer by the
removal of her house from the said land.
For all the foregoing reasons we must reverse the judgment appealed
from and declare, as we do declare, that the land occupied by Hilaria
Rojas forms part of the public plaza called Soledad, and as the lease of
said parcel of land is null and void, we order the defendant to vacate it
and release the land in question within thirty days, leaving it cleared as
it was before her occupation. There is no ground for the indemnity
sought in the nature of damages, but the municipality must in its turn
to the defendant the rentals collected; without finding as to the costs.
So ordered.
Ma’am: What’s the reason here why the subject contract was
cancelled?
Ms. Bautista: The subject of the contract was precisely void…
Ma’am: Actually again, the case refers to a void contract subject
matter was outside the commerce or men. But the principle in Article
1398 is the same, that there should be mutual restitution. So if the
contract is cancelled, in all defective contracts, rescissible, the
rescission under Article 1391, rescissible contracts proper under Article
1380, voidable and void contracts, when these contracts are cancelled
or terminated there should be MUTUAL RESTITUTION.
Art. 1399. When the defect of the contract consists in the incapacity
of one of the parties, the incapacitated person is not obliged to make
any restitution except insofar as he has been benefited by the thing or
price received by him.
So remember the principle, in case of incapacity. Is the incapacity of
the person required to return? General rule NO but it does not prevent
the annulment of the contract because there is incapacity, there is a
defective consent but in so far as mutual restitution is concerned it is
only required of the incapacitated person if he has benefitted from the
thing or kept the thing.
Art. 1400. Whenever the person obliged by the decree of annulment
to return the thing cannot do so because it has been lost through his
fault, he shall return the fruits received and the value of the thing at
the time of the loss, with interest from the same date.
So here we are referring to the other party, the guilty party, the one
who exerted violence, intimidation, undue influence or the one who is
incapacitated. Just because he lost the thing does not mean his
obligation to return already ceases. In that case he shall return the
value, the fruits received and the value with interest. So there is still
mutual restitution but not the thing itself because it was lost but the
value plus fruit and interest.
Art. 1401. The action for annulment of contracts shall be
extinguished when the thing which is the object thereof is lost through
the fraud or fault of the person who has a right to institute the
proceedings.
If the right of action is based upon the incapacity of any one of the
contracting parties, the loss of the thing shall not be an obstacle to the
success of the action, unless said loss took place through the fraud or
fault of the plaintiff.
In Article 1400, the guilty party or the capacitated party was the one
who lost the thing so the action for annulment will still prosper. But
here in Article 1401 the one who has the right to institute action, the
innocent party, the one who lost the thing by reason of his fraud or
fault. In that case he can no longer file an action for annulment
because he cannot return the thing, because the lost of the thing is by
reason of his fraud or fault, he who comes to court again must come
with clean hands. So that is the principle under Article 1401. But then
again if the lost is not by reason of his fraud or fault, he can still
institute an action for annulment because in this case the lost was not
through his fault so his right to annul the contract should not be
prejudice by the lost of the thing which is not by reason of his fraud or
fault.
Art. 1402. As long as one of the contracting parties does not restore
what in virtue of the decree of annulment he is bound to return, the
other cannot be compelled to comply with what is incumbent upon
him.
So when the other does not return the thing itself or the equivalent
value of the thing then the other party who is also bound to return has
no obligation to deliver yet, dapat simultaneous. So when the other is
not ready so the other has no obligation to return. So that is the
principle under voidable contracts.
It is very easy the principle under VOIDABLE CONTRACTS, IT IS VALID
UNLESS IT IS ANNULLED but you can annul it only for a certain period
of time and you can also ratify it. When the contract is ratified the
contract is now cleansed of his defects which will retroact from the
very beginning of the contract and the fact that the contract is
voidable can be assailed only by parties to the contract and for those
who are bound subsidiarily and there is requirement of mutual
restitution.
Article 1403. The following contracts are unenforceable, unless they
are ratified:
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or
who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its
contents:
3RD Exam Coverage | 34

(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at
a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
( f ) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a
contract.
We will now discuss unenforceable contracts. What are these
contracts? You have to memorize these contracts. This is a very
important provision often asked in the bar exam. It is a mortal sin if
you don't know what the Statute of Frauds is. It is par 2 of Art 1403.
There are 3 classes of an unenforceable contracts:
1) Unauthorized contracts
- those covered under par 1
Q: What are these unauthorized contracts?
A: Those entered into in the name of another by one who has been
given no authority.
Illustration:
A - seller
B - owner
X - buyer
A sold the land of B without any authority at all to X. The contract
between A and X is unenforceable.
Or B authorized A to lease the land. So the latter has the authority
only to lease. If A sold the land to X, that is already in excess of his
authority. That sale is unenforceable.
2) Those that do not comply with the Statute of Frauds under par 2
Q: What is the Statute of Frauds?
A: That is discussed in the case of ORDUÑA V FUENTEBELLA.
ORDUÑA V FUENTEBELLA
June 29, 2010
FACTS:
This case involved a residential lot located at Fairview Subdivision,
Baguio City. The dispute started in 1996 when Gabriel Sr. sold the
subject lot to petitioner Antonita Orduña (Antonita), but no formal
deed was executed to document the sale. As early as 1979, however,
Antonita and her sons, Dennis and Anthony Orduña, were already
occupying the subject lot on the basis of some arrangement
undisclosed in the records and even constructed their house thereon.
They also paid real property taxes for the house and declared it for
tax purposes as if they are the owners of the said lot.
After the death of Gabriel Sr., his son and namesake, respondent
Gabriel Jr., secured a land title over the subject lot and continued
accepting payments from the petitioners. Gabriel Jr. acknowledged
receipt of a PhP 40,000 payment from petitioners.
Despite all those payments made for the subject lot, Gabriel Jr. would
later sell it to Bernard Banta (Bernard) obviously without the
knowledge of petitioners payment for the same lot.
Badly in need of money, Gabriel Jr. borrowed from Bernard the
amount of PhP 50,000, payable in two weeks at a fixed interest rate,
with the further condition that the subject lot would answer for the
loan in case of default. Gabriel Jr. failed to pay the loan. Thus, he
was forced to execute a Deed of Sale for the subject lot in the name of
Bernard who later sold the lot to Marcos Cid and Benjamin F. Cid
(Marcos and Benjamin or the Cids).
Marcos and Benjamin, in turn, ceded the subject lot to Eduardo
through a Deed of Absolute Sale.
As successive buyers of the subject lot, Bernard, then Marcos and
Benjamin, and finally Eduardo, each claimed, the title of their
respective predecessors-in-interest (Gabriel Sr. And Gabriel Jr.) with
the Baguio Registry and discovered said title to be free of
encumbrances. So they alleged that the passing of the land to them
was valid.
Sometime in May 2000, or shortly after his purchase of the subject lot,
Eduardo, through his lawyer, sent a letter addressed to the residence
of Gabriel Jr. demanding that all persons residing on or physically
occupying the subject lot vacate the premises or face the prospect of
being ejected. Basically, Eduardo contended that he had a better right
over the lot because of the considerations he has been paying Gabriel
Sr.
Q: How many transactions were involved here?
A: All in all, there were 5.
1) Gabriel Sr. to Eduardo
2) Gabriel Jr. to Bernard
3) Bernard to Marcos
4) Marcos to Benjamin
5) Benjamin to Eduardo
All are evidenced with Deeds of Absolute sale.
The complaint filed by Eduardo is for the annullment of the Deeds of
Absolute Sale of all the other transactions.
ISSUE: W/N the sale of the subject lot by Gabriel Sr. to Antonita is
unenforceable under the Statute of Frauds.
The SC, in this case, had the opportunity to discuss the Statute of
Frauds.
The Statute of Frauds expressed in Article 1403, par. (2) of the Civil
Code applies only to executory contracts, i.e., those where no
performance has yet been made. Stated a bit differently, the legal
consequence of non-compliance with the Statute does not come into
play where the contract in question is completed, executed, or
partially consummated. The term “Statute of Frauds” is descriptive of
statutes that require certain classes of contracts to be in writing before
they can be enforced.
Atty. Y: Par 2 of Art 1403 is our Statute of Frauds. It requires the
contracts enumerated therein to be in writing. Otherwise, the contracts
are unenforceable.
Q: Are unenforceable contracts valid?
A: Yes, but they are unenforceable. Meaning, you cannot take any
action with respect to these contracts.
Illustration:
You agreed to buy a land orally. You paid the purchase price but there
was no delivery. You filed an action for specific performance. Such
action would fail because the sale of a real property is covered under
the Statute of Frauds. It cannot just be verbal or oral. You need a
written document for it to be enforced. Even if it is valid, you cannot
enforce it. You cannot compel the other party to perform.
Q: What makes it different from a void contract then? (in a void
contract, you cannot also take any action for it to be enforced)
A: Contracts falling under the Statute of Frauds can be ratified,
whereas, void contracts cannot be ratified.
Q: What is the purpose of the Statute of Frauds?
A: The purpose of the Statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence 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.
Ma'am Y: Because if you rely on the oral testimonies of the witnesses,
chances are, these persons may lie or they may forget what really
transpired or what the real agreement really was.
Requirement under the Statute of Frauds: There has to be a written
document.
Let us now go to the specific contracts.
a) An agreement that by its terms is not to be performed within a year
from the making thereof;
Meaning the performance of the agreement is postponed for at least 1
year.
3RD Exam Coverage | 35
Illustration:
I. A and B agreed to lease the land for 5 months lang. That is
supposedly not covereed by the Statute of Frauds. What if, they
agreed to lease the land for 5 months pero effective sya after 1 and
1/2 years pa from the date of the agreement. That has to be in writing
for it to be enforced. Dugay pa man gud ang performance so at least,
naay written document to evidence the transaction kay basig
makalimot na ang either party sa ilang agreement.
II. A and B entered into an agreement that A will not pass the road
infront of B's house for 1 year.
Q: Is that covered under (a)?
A: No, because the performance starts immediately. The term of the
contract which is "not to pass" is immediately enforceable. That is
different from one that is to be enforced 1 year from the date of
execution.
(b) A special promise to answer for the debt, default, or miscarriage
of another;
Like, you act as a guarantor. Your guaranty should be in writing.
Otherwise, the guaranty is unenforceable.
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
Remember in your Persons, the donation propter nuptias. You give
property/ies to each other in consideration of marriage. Or marriage
settlements, pre-nuptial agreements. Those contracts should be in
writing for them to be enforceable.
Q: How about a breach of promise to marry?
Illustration:
A told B na "I will marry you B" (verbally). So, nagprepare na ug mga
invitations, nakapareserve na sa hotel then nag backout si A at the last
minute.
Q: Can B file an action against A?
A: Yes, A can be held liable for damages and he cannot allege that the
contract was not in writing but merely oral in nature. Breach of
promise to marry is not the one contemplated under the Statute of
Frauds. It is not an agreement made in consideration of marriage. As
you learned before that generally, breach of promise to marry is not
actionable unless it will constitute a violation of the law on human
relation. In that case, the guilty party is liable for damages lang. You
cannot compel the other party for specific performance.
(d) An agreement for the sale of goods, chattels or things in action, at
a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
Sale of movables (iPad, cellphones, jewelry, furnitures, etc.). Kung 500
up na gani na, it has to be in writing. Otherwise, the sale is
unenforceable. (Polaris!) Pero kung nagbayad na, as discussed in the
case of Orduña, dili na sya covered under the Statute of Frauds. Pero
kung nagstorya lang mo then nagchange ang mind sa isa, dili nimo sya
ma-compel kay dili man in writing.
(e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
Lease for more than 1 year should be in writing. But lease than 1 year,
dili na kailangan in writing.
Sale of real property has to be in writing regardless of the amount.
( f ) A representation as to the credit of a third person.
This is different from a special promise to answer for the debt ha.
Here, you don't promise to pay for the debt. You only say na "This
debtor is good. He can pay you."
Illustration:
A loaned from B 1 M. Si B kay dili sure kay A, so nangutana sya kay X
kung okay ba mubayad si A. Ana pud si X na okay sya mubayad, on
time, etc. Then it turned out na dili.
Q: Can X be held liable for his misrepresentation?
A: No, because it is only verbal. For X to be held liable, the
misrepresentation should be in writing. Otherwise, it will be
unenforceable.
(3) Those where both parties are incapable of giving consent to a
contract.
Illustration:
A and B entered into a contract. A is insane. B is a minor. (or both are
insane or both are minors)
Q: What is the status of the contract?
A: Unenforceable.
Q: Kung ang isa normal then ang isa kay insane, unsa ang status sa
contract?
A: Voidable.
The law says that there should be a sufficient note or memorandum.
Dili kailangan nga formal contract as long as it can gather from the
written document, note or memorandum, the essential requisites if a
contract.
That is discussed in the case of Berg v Magdalena Estate.
In this case, there was no formal contract but there were series of
exchanging of letters. It was alleged that such transaction is not
covered under the Statute of Frauds because there was no sufficient
note or memorandum. (walay nagvolynteer) I'll discuss nalang. Here, I
will just discuss the nature of the written document required under the
Statute of Frauds. So as discussed in this case:
No particular form of language or instrument is necessary to constitute
a memorandum or note in writing under the statute of frauds; any
document or writing, formal or informal, written either for the purpose
of furnishing evidence of the contract or for another purpose, which
satisfies all the requirements of the statute as to contents and
signature, as discussed respectively, is a sufficient memorandum or
note. A memorandum may be written as well as with lead pencil as
with pen and ink. It may also be filled in on a printed form.
The note or memorandum required by the statute of fraud need not be
contained in a single document, nor, when contained in two or more
papers, need each paper to be sufficient as to contents and signature
to satisfy the statute. Two or more writings properly connected may be
considered together, matters missing or uncertain in one may be
supplied or rendered certain by another, and their sufficiency will
depend on whether, taken together, they meet the requirement of the
statute as to contents and the requirements of the statute as to
signature, as considered respectively.
Atty. Y: So, even if not in a single document, even there were various
papers, as long as you can connect these papers, you can relate them
and they are signed by the parties, they will be sufficient.
Papers connected. — The rule is frequently applied to two or more, or
a series of letters or telegrams, or letters and telegrams sufficiently
connected to allow their consideration together; but the rule is not
confined in its application to letters and telegrams; any other
documents can be read together when one refers to the other. Thus,
the rule has been applied so as to allow the consideration together,
when properly connected, of a letter and an order of court, a letter
and order for goods, a letter and a deposition, letters or telegrams and
undelivered deeds, wills, corresponding and related papers, a check
and a letter, a receipt and a check, deeds and a map, a memorandum
of agreement and a deed, a memorandum of sale and an abstract of
title, a memorandum of sale and a will, a memorandum of sale and a
receipt, and a contract, deed and instruction to a depository in escrow.
The number of papers connected to make out a memorandum is
immaterial.
Atty. Y: So, kung based sa inyong mga letters nag agree ka to buy his
land then nag agree pud sya. All those letters can be connected to
prove the existence of the contract between you and the seller. Those
letters or papers will be sufficient memoranda under the Statute of
Frauds.
Article 1404. Unauthorized contracts are governed by article 1317 and
the principles of agency in Title X of this Book.
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We discussed already Art 1317.
Article 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked
by the other contracting party. (1259a)
Article 1405. Contracts infringing the Statute of Frauds, referred to in
No. 2 of article 1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same, or by the acceptance
of benefit under them.
Those contracts, even if they do not comply with the Statute of Frauds
and are supposedly unenforceable, can be ratified.
Q: How can it be ratified?
A: 1) By failure to object to the presentation of oral evidence to prove
the same;
2) By the acceptance of benefit under them.
Now, let's go back to Mr. Alabastro...
From the case:
Lest it be overlooked, a contract that infringes the Statute of Frauds is
ratified by the acceptance of benefits under the contract.[34]
Evidently, Gabriel, Jr., as his father earlier, had benefited from the
partial payments made by the petitioners. Thus, neither Gabriel Jr. nor
the other respondents—successive purchasers of subject lots—could
plausibly set up the Statute of Frauds to thwart petitioners’ efforts
towards establishing their lawful right over the subject lot and
removing any cloud in their title. As it were, petitioners need only to
pay the outstanding balance of the purchase price and that would
complete the execution of the oral sale.
Atty. Y: Remember, even if the contract was not covered by any note
or memorandum (supposedly unenforceable), once there is
performance, partial or total for no reason, you can no longer avail of
the defenses under the Statute of Frauds.
If you are the seller and you accepted payments, you can no longer
rely on the defense under the Statute of Frauds precisely because
there was already acceptance of payment (benefit). If you will be
allowed to put up the Statute of Frauds as a defense even if you
already benefited from the agreement, that will already be a way of
perpetrating fraud. And that is not the purpose of the Statute of
Frauds.
Again, if naa nay performance, even if the agreement is not in writing
and is supposed to be covered under the Statute of Frauds, that
contracts is enforceable. That is one way of ratification - acceptance of
benefit.
Another would be failure to object to the presentation of evidence.
This is where your role as lawyers come to play.
ILLUSTRATION:
A and B entered into an oral contract of sale over a parcel of land.
Under the Statute of Frauds, it should be in writing but it was not.
Then, walay payment yet from B, the buyer. He now wants to get the
land but A refused to deliver. B filed an action against A for specific
performance. If you are the lawyer of A, your first action should be to
file for a Motion to Dismiss on the ground that the contract is
unenforceable or you can file an answer and allege that as an
affirmative defense.
Q: What if you failed to allege that? (Nakalimot ka sa imong ObliCon)
A: Under the Civil Procedure, Omnibus Motion Rule, defenses and
objections not raised in the Motion to Dismiss or in the answer are
deemed waived. In that case, B can prove the existence of that sale.
He can ask the Brgy. Captain who was present during that time nga
nag-inom sila, unya nagsabot sila na magpalit ug yuta. The latter can
testify. So, that is your duty. You should allege that defense in the
Motion to Dismiss or in the answer.
Halimbawa, na-allege nimo, so okay ka, wala na-waive. Then during
the trial, gitawag sa lawyer ni B ang Brgy. Captain to testify as a proof
na there was a sale between A and B. As the lawyer for A, you should
object to that presentation of the testimony of the Brgy. Captain
because it is not allowed in the Statute of Frauds. Dili nimo sya ipa-
testify because his testimony is inadmissible. He cannot prove an oral
contract of sale because it is unenforceable under the Statute of
Frauds. The issue is not W/N there was a contract of sale but W/N his
testimony is admissible.
Pero basig nag sige lang ka ug text2 didto or nakalimot na pud ka sa
imong Evidence or sa imong ObliCon, so gipa-testfiy nimo si Brgy.
Captain kay excited naka mag cross-examine. In that case, gi-waive na
pud nimo ang Statute of Frauds. Kung maayo ang pagka-testify ni
Brgy. Captain, pwede nila ma-prove ang existence sa contract even if
you allege that in your motion or in your answer. So pwede gihapon
ma-enforce ang contract because that is another form of ratification of
unenforceable contracts covered under the Statute of Frauds.
Remember: The contracts enumerated under par 2 of Art 1403 are
exclusive. We don't have other contracts governed by the Statute of
Frauds.
ROSENCOR V INQUING
FACTS:
Respondents are tenants of a two-storey residential apartment in
Tomas Morato QC. The lease was not covered by any contract.
Lessees were verbally given by the lessors the pre-emptive right to
purchase the property in case of sale.
The original lessors died and their heir also promised the lessees the
same pre-emptive right to purchase. The new lessors represented by
Eufrocina de Leon demanded the lessees to vacate the property
because the building will allegedly be demolished but after the lessees
declined, she sent them a letter offering to sell the property for 2M.
Lessees made a counter offer of 1M but no reply was made by the
lessors.
De Leon subsequently informed the lessees that the property was
already sold to Rosencor. Lessees claimed that they were deceived
because the property was already sold to Rosencor before it was
offered to them. They offered to reimburse the payment to the lessors
but the offer was declined as hence, this petition.
ISSUE:
WON the lessors should recognize the pre-emptive right of the lessees
even if it was only given verbally.
HELD:
The enumeration under the Statute of Frauds is exclusive.
FACTS:
Respondents are tenants of a two-storey residential apartment in
Tomas Morato QC. The lease was not covered by any contract.
Lessees were verbally given by the lessors the pre-emptive right to
purchase the property in case of sale.
3RD Exam Coverage | 37

The original lessors died and their heir also promised the lessees the
same pre-emptive right to purchase. The new lessors represented by
Eufrocina de Leon demanded the lessees to vacate the property
because the building will allegedly be demolished but after the lessees
declined, she sent them a letter offering to sell the property for 2M.
Lessees made a counter offer of 1M but no reply was made by the
lessors.
De leon subsequently informed the lessees that the property was
already sold to Rosencor. Lessees claimed that they were deceived
because the property was already sold to Rosencor before it was
offered to them. They offered to reimburse the payment to the lessors
but the offer was declined as hence, this petition.
ISSUE:
WON the lessors should recognize the pre-emptive right of the lessees
even if it was only given verbally.
HELD:
We have previously held that not all agreements “affecting land” must
be put into writing to attain enforceability. The enumeration under the
Statute of Frauds is exclusive. The reason simply is that these
agreements are not among those enumerated in Article 1403 of the
New Civil Code.
The right of first refusal is not covered by the Statute of Frauds. The
application of such statute presupposes the existence of a perfected
contact which is no applicable in this case. As such, a right of first
refusal need not be written to be enforceable and can be proved by
oral evidence.
Lessees have proven that the lessors admit the right of first refusal
given to them when the property was offered to them by 2M.
The prevailing doctrine is that a contract of sale entered in violation of
right of first refusal is rescissible. However, this doctrine cannot be
applied here because the vendees (Rosencor) is in good faith. Under
Art.1358, rescission cannot take place when things which are the
object of sale is legally in possession of third person who did not act in
bad faith.
Rosencor could not have acted in bad faith because they are not
aware of the right of first refusal given verbally. Respondents should
instead file for damages.
Ma'am Y: This is not yet a sale. The right of first refusal is only an
option.
Other contracts mentioned by the SC in this case which are not
covered under the provisions of the Statute of Frauds:
1) Setting up of boundaries
2) The oral partition of real property
3) An agreement creating a right of way
They are not covered because they are not mentioned in the
enumeration. That is why, I said that you have to memorize (although
not necessarily in verbatim, basta kabalo lang mo unsa ang
transactions nga covered) so that you will know if a certain transaction
is covered. Para makatubag pud mo kung pangutan-on mo.
SPS. CASTRO V MIAT
Q: Why is it that an oral partition is not covered?
A: The requirement in Sec. 1, Rule 74 of the Revised Rules of Court
that a partition be put in a public document and registered, has for its
purpose the protection of creditors and the heirs themselves against
tardy claims. The object of registration is to serve as constructive
notice to others. The object is not for enforceability but for
convenience only. It is only for registration. It is valid and enforceable.
From the case:
The requirement of Article 1358 of the Civil Code that acts which have
for their object the creation, transmission, modification or
extinguishment of real rights over immovable property, must appear in
a public instrument, is only for convenience, non-compliance with
which does not affect the validity or enforceability of the acts of the
parties as among themselves. And neither does the Statute of Frauds
under Article 1403 of the New Civil Code apply because partition
among heirs is not legally deemed a conveyance of real property,
considering that it involves not a transfer of property from one to the
other but rather, 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.
Q: Is partition a conveyance of a real property? Is it considered a sale?
A: It is not the partition that transfers ownership but succession. When
the decedent dies, the ownership is transferred to the heirs by
operation of law. The heirs now become co-owners of that property by
succession. So, they already own the property. They only enter into a
partition to allocate for themselves certain portion of the property. It is
not covered by the Statute of Frauds.
Article 1406. When a contract is enforceable under the Statute of
Frauds, and a public document is necessary for its registration in the
Registry of Deeds, the parties may avail themselves of the right under
Article 1357.
Q: For example, sale of a real property, is it covered by the Statute of
Frauds?
A: Yes, it is covered regardless of the value. So, it is unenforceable if it
is verbal.
Q: What if there has already been payment? Is it still covered?
A: No, it is no longer covered by the Statute of Frauds as discussed in
the case of Orduña. That contract is now enforceable even if it is only
verbal or oral.
Q: What if the seller does not want to execute the written document?
A: You cannot have it verbally agreed upon forever because without a
written document, the ownership cannot be transferred to you. You
should file an action for specific performance against the owner plus
compel him to sign the Deed of Sale and have it reduced in a public
document. This action can be simultaneously filed with the action for
the enforceability of the contract.
Pero kung verbal ang sale then walay partial or total performance,
unenforceable ang contract. Only when the comtract is enforceable
can you file an action for specific performance.
Article 1407. In a contract where both parties are incapable of giving
consent, express or implied ratification by the parent, or guardian, as
the case may be, of one of the contracting parties shall give the
contract the same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be,
of both contracting parties, the contract shall be validated from the
inception.
So, if both parties are incapacitated like both are minors or insane,
then it is unenforceable. If isa lang ang nag suffer sa incapacity,
voidable lang ang contract.
Q: What if ang insanity or minority is gone then gi-ratify nila ang
contract? What happens to the contract?
A: It is now perfectly valid. The ratification has a retroactive effect. It
retroacts to the date of execution or inception of the agreement.
Article 1408. Unenforceable contracts cannot be assailed by third
persons.
The same principle as to voidable contracts.
ILLUSTRATION:
A and B entered into an oral contract of sale over a parcel of land. A
third person to the agreement, X, convinced A to sell to him the same
land. In effect, he convinced A to sell the land to him instead of B. Nag
file ug action si B against X for tortious interference because he was
the reason A violated his contract with the former.
Q: Can X allege na the contract between A and B is unenforceable
because it was only an oral one and that he should not be considered
as a tortious interference?
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A: He cannot allege that. He cannot avail of such defense because he
is not a party to the contract.
The principle is very simple, only the parties to the contract can raise
the defense of its enforceability. Being enforceable is always a defense
especially if it is for claims of damages or specific performance.
March 20, 2013
Transcribed by: Jade & Gloria
VOID AND INEXISTENT CONTRACTS
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
If you notice under Article 1409 , the defect in the contract consist of
the absence of any of the essential requisites of the contract or the
subject matter of the contract is declared illegal, contrary to law, good
customs.
1.) those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy; - like a
contract to sell rugs, so even if the subject matter is tangible, can be
transferred from one person to the oterh, but it is prohibited by law so
it is void.
2.) Those which are absolutely simulated or fictitious; - we
already discussed this before when the parties do not intned to be
bound by all. Maybe the parties intended the contract to be a joke ,
nagatik2 lang sila, nagduladula lang sila, “gebaligya naku ni sa imuha
ha pero there are just playing, there is relaly no intention to be bound
at all by the contract. Absolutely simulated. When the parties did not
have the intention at all to enter into a contract. It is absolutely
simulated because if it is a relatively simulated, it depends noh the
parites are bound by their real agreement if the agreement is valid,
then that can be enforced but if the real agreement is void, the
contract is also void.
3.) Those whose cause or object did not exist at the time of
the transaction; now take note that here the law says did not exist
at the time of the transaction. When you go to Sales, there is a sale
involving a future fate, is it valid because at the time of the sale the
thing is not yet in existence dba? Like you have a 10-hectare lot,
planted with bananas, as of now nagtubo palang. So you entered into
a contract to harvest all the bananas to that land. Is the contract valid?
It is valid. As long as the thing will exist. That is what we call a
contract of ____ spirit as distinguished from a contract of __ esperati .
essfer- sale of hope or expectancy like you buy a lotto ticket. Do you
buy the ticket because of its value as the ticket itself? NO, you buy the
ticket because of the hope / expectancy. That is a valid sale. Because
if you bought a ticket which was presented to you wala pa nag draw
pero wala jud xa nag draw, in that case the expectancy is vague so
that sale is void.
So sale of hope/expectancy not actually a sale of future thing because
you are already as of the present there is already a hope. So that is
different from the sale of future thing . The sale is not yet not in
existence at the present but subject to a condition. If the thing will not
exist in the future, then the contract becomes ineffective.
4.) Those whose object is outside the commerce of men; we
already discussed this in the object of the contract. Its not res nullus,
res communes..
5.) Those which contemplate an impossible service; - A and B
entered into a contract where B will make a potion that will make B
young forever . is it possible? Dili jud xa matinguwang or live forever.
That is impossible.
6.) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained; - like a
contract where it is not what is sold upon like for example a contract
to sell something. So what is that something? It cannot be ascertained
even if you use all the rules on interpretation. Take note ha relative
to the principal object cannot be ascertained. Because if it relative
only to an incidental circumstance in a contract, and the contract is a
gratuitous contract, the interpretation shall be resoleved with the least
transmission of rights. If it is zn onerous contract and there is doubt as
to the incidental circumstances, the doubt shall be resolved in favor of
the greatest reciprocity of rights and interest.
7.) Those expressly prohibited or declared void by law.
Now I assigned to you the Case of
FUENTES VS. ROCA
G.R. No. 178902, April 21, 2010
Is the contract null and void?
Under the FC, a sale of real property without the written consent of
the other spouse if void. It is a void contract. So what is the
consequence if it is void? It has no legal effects. Meaning in
contemplation of law, it does not exist, you cannot assert any right on
that contract. That is void and you entered into the contract like in that
case, can the heirs of the spouse on their own take back the property?
Article 173 gave Rosario the right to have the sale annulled during the
marriage within ten years from the date of the sale. Failing in that, she
or her heirs may demand, after dissolution of the marriage, only the
value of the property that Tarciano fraudulently sold.
So that’s one principle, an action to declare a void contract as such
does not prescribe, you can assail that anytime there is no time limit
but as I’ ve said, can the heirs for example or somebody possessing
the land, can you just go to the house and demand them to vacant the
house? No why?
You go to court to have the contract declared as null and void. Is there
a need? Because we said that a void contract is an inexistent contract?
So is there a need to go to court to have the contract declared null and
void?
GR a void contract has no legal effects even if no action is taken to
set it aside, when any of its terms have been performed, an action to
declare its inexistence is necessary to allow restitution of
what has been given under it meaning if there is already a
performance, like it’s a sale, the seller already delivered, so in
that case you need the court to declare it as null and void
because mutual restitution is required just like any other
contracts. So that’s the ruling in the case of Fuentes vs. Roca.
So as discussed in 1409, the contracts cannot be ratified, a void
contract is void it cannot be cured, ratified and you can always raise
the defense that the contract is void you cannot say that “I deemed
waived na because you have accepted the benefits of the contract”
NO. The defense of illegality cannot be waived.
Art. 1410. The action or defense for the declaration of the inexistence
of a contract does not prescribe.
And also as discussed in 1410 and in the case of Fuentes vs. Roca, the
action to declare the contract as void does not prescribe.
Art. 1411. When the nullity proceeds from the illegality of the cause
or object of the contract, and the act constitutes a criminal offense,
both parties being in pari delicto, they shall have no action against
each other, and both shall be prosecuted. Moreover, the provisions of
the Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but
the innocent one may claim what he has given, and shall not be bound
to comply with his promise. (1305)
Here the contract is void because the object or cause is illegal and in
addition it constitutes an illegal offense like for example again a sale of
illegal drugs so the law says if both are in pari delicto, they shall have
no action against each other so pasagdahan lang sila sa korte. The law
shall leave them where they are. And the effect shall be confiscated.
Now if only one of the parties is guilty, the innocent one may claim
what he has given. Like naghatag xag money sa drugs human wala xa
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kabalo na shabu di i toh pag tuo nia drugs lang, he can claim what he
has given by reason of the contract.
Art. 1412. If the act in which the unlawful or forbidden cause consists
does not constitute a criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both contracting parties, neither
may recover what he has given by virtue of the contract, or demand
the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot
recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not at
fault, may demand the return of what he has given without any
obligation to comply his promise. (1306)
Here the contract is void but it does not constitute a criminal offense.
Actually if you examine it the rule is the same, even if it is not a
criminal offense. The rule is if both in pari delicto, they cannot recover
from each other. If only one is at fault, he cannot recover what he has
given but the innocent party may demand the return of the contract
given.
I assigned here the case of Nagoya?? ____
So the subject matter here is a market store owned by the
government so it is outside the commerce of men, it cannot be the
subject of sale, lease or assignment. How about the rentals paid? Can
those be recovered?
What is the legal basis here?
It applied the 2nd paragraph of Article 1412, one of the parties is at
fault and the other is not, so here the court ordered the __ may be
returned with interest. Because here the assignor/transferor could not
be considered as innocent because he knew that he is not the owner
of the market stall and there is now evidence to show that the buyers
knew from the start that the sellers had no ownership of the market
stall.
Art. 1413. Interest paid in excess of the interest allowed by the usury
laws may be recovered by the debtor, with interest thereon from the
date of the payment.
Will this still apply now? We had discussed before that the Usury Law
has been suspended by Central Bank Act 905. Legally speaking the
Usury law is not applicable even if you imposed high interest rates,
that is not usurious but of course in the cases that we discussed, the
court may still reduced the interest if it is unconscionable, etc. legal
interest is 12% per annum but if compounded monthly, that is
excessive, shocking and iniquitous.
Art. 1414. When money is paid or property delivered for an illegal
purpose, the contract may be repudiated by one of the parties before
the purpose has been accomplished, or before any damage has been
caused to a third person. In such case, the courts may, if the public
interest will thus be subserved, allow the party repudiating the
contract to recover the money or property.
So here the contract has not yet been consummated. Before any
damage had been done, any parties can repudiate. So just remember
1414. And the one who repudiates can recover his money or property
if the public interest will be subserved.
Art. 1415. Where one of the parties to an illegal contract is incapable
of giving consent, the courts may, if the interest of justice so demands
allow recovery of money or property delivered by the incapacitated
person.
Here one of the parties is incapacitated (insane, minor or under civil
interdiction) so it depends when the court sees under the
circumstances when the interest of justice will be served, that innocent
(incapacitated) person may recover. It is based on the premise that an
incapacitated person has no full possession of his judgment.
Art. 1416. When the agreement is not illegal per se but is merely
prohibited, and the prohibition by the law is designated for the
protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered.
Here take note the agreement is not illegal per se but only prohibited
by law, in criminal law you have mala in se , mala prohibita , its not
really criminal but just prohited by law. Take for example the case of
Guiang vs. Kintanar
Guiang v. Kintanar, 106 SCRA 49, 92 (1981).
[71]
An example of a prohibition beneficial to a plaintiff is the prohibition
in the Public Land Act which prohibits the alienation of
homesteads granted by the State within the 5 year
prohibitive period. The primordial aim of this prohibition is
to preserve and keep in the family of the homesteader the
piece of land that the State had gratuitously given. Thus,
in Santos v. Roman Catholic Church of Midsayap, et al. (94
Phil. 405, 411 [1954]) this Court held:
The case under consideration comes within the exception
above adverted to. Here appellee desires to nullify a
transaction which was done in violation of the law.
Ordinarily the principle of pari delicto would apply to her
because her predecessor-in-interest has carried out the sale
with the presumed knowledge of its illegality, but because
the subject of the transaction is a piece of public land, public
policy requires that she, as heir, be not prevented from re-
acquiring it because it was given by law to her family for her
home and cultivation. This is the policy on which our
homestead law is predicated. This right cannot be waived.
“It is not within the competence of any citizen to barter
away what public policy by law seeks to preserve.” We are,
therefore, constrained to hold that appellee can maintain the
present action it being in furtherance of this fundamental
aim of our homestead law. (Citations omitted)
March 21, 2013
Transcribed by: Marlie Munoz
NATURAL OBLIGATIONS
So now we go to NATURAL OBLIGATIONS, we already discussed
before what are the natural obligations. These are the articles which
will give you the examples of what really are natural obligations.
Art. 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. Some natural
obligations are set forth in the following articles.
So in the beginning of our lesson we discussed the different kinds of
obligations. So as to the major type of obligations as to sanctions, we
have CIVIL OBLIGATIONS, NATURAL OBLIGATIONS and MORAL
OBLIGATIONS. So civil obligations we define that under Article 1156,
so these obligations can be compelled by court action in civil
obligations. Natural obligations, as mentioned here it is not based on
positive law but based on equity and natural law and we cannot
compel performance of natural obligations. Essentially it just
authorizes the retention of what has been voluntarily delivered. What
are the different kinds of natural obligations? Article 1424.
Art. 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the
contract cannot recover what he has delivered or the value of the
service he has rendered.
So this is the usual example of natural obligation which we deal
before, a debt which has already prescribed, it cannot be enforced by
court action but the debtor despite having known of the prescription,
voluntarily performed or paid he can no longer recover what he has
delivered or paid or the value of service he has rendered.
Art. 1425. When without the knowledge or against the will of the
debtor, a third person pays a debt which the obligor is not legally
bound to pay because the action thereon has prescribed, but the
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debtor later voluntarily reimburses the third person, the obligor cannot
recover what he has paid.
Payment by a third person without the knowledge or against the will of
the debtor, in that case as we discussed the third person is only
entitled to beneficial reimbursement. So if the debt has already
prescribed he cannot recover anything from the debtor because the
debtor did not benefit but the debtor despite that voluntarily paid then
he cannot recover again what he has paid. So another example of
natural obligation.
Art. 1426. When a minor between eighteen and twenty-one years of
age who has entered into a contract without the consent of the parent
or guardian, after the annulment of the contract voluntarily returns the
whole thing or price received, notwithstanding the fact the he has not
been benefited thereby, there is no right to demand the thing or price
thus returned.
Art. 1427. When a minor between eighteen and twenty-one years of
age, who has entered into a contract without the consent of the parent
or guardian, voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation, there shall be no right to recover
the same from the obligee who has spent or consumed it in good faith.
Article 1426 and 1427 would no longer apply. They are no longer
applicable because these articles contemplate a minor between 18-21
years old but as of our present state of law a person 18 years old is of
legal age already. So Article 1426 and 1427 are no longer applicable.
Art. 1428. When, after an action to enforce a civil obligation has
failed the defendant voluntarily performs the obligation, he cannot
demand the return of what he has delivered or the payment of the
value of the service he has rendered.
A case was filed against the defendant by the plaintiff and the plaintiff
lost in the case but despite that the defendant still paid. A filed an
action against B for collection and then after trial A did not prove his
claim where the court dismiss the claim filed by A, so free na si B. And
then siguro si B nakonsensya after 10 years of litigation nagbayad siya,
that is another example of a natural obligation and he cannot recover
again what he has paid. He cannot demand later of what he has
delivered or the payment or the value of service he has rendered.
Art. 1429. When a testate or intestate heir voluntarily pays a debt of
the decedent exceeding the value of the property which he received by
will or by the law of intestacy from the estate of the deceased, the
payment is valid and cannot be rescinded by the payer.
Under the LAW ON SUCCESSION, properties, rights and obligations
can be inherited. They can be inherited, either by will or by legal
succession. When we say LEGAL SUCCESSION walay will, in
TESTAMENTARY SUCCESSION naay will. But in so far as obligations
are concerned ang ma-inherit lang sa heir will only be up to the value
of the inheritance. Halimbawa, a decedent left an estate worth 1
million pero nagbilin pud siya ug utang na 1.5 million. So ang heir will
he be liable to pay the 1.5 million? NO, only up to the value of what he
has inherited, meaning naa siya gidawat na asset na 1 million naay
gidawat na liability sa 1.5 million so e-bawas na lang tong 1 million
minus 1.5 million so negative so naa pay balance na 500 thousand, dili
na macompel si heir to pay that 500 thousand because again his
liability is only up to the value of the estate. Pero despite that
nagbayad gihapon si heir out of his own pocket voluntarily then that
payment is valid and under the law on natural obligations he cannot
receive that payment. He cannot later on say na “Ay dili nagbag-o
akong mind kay up to 1 million lang akong bayronon, kay dili ko
macompel to pay beyond.” He paid that before knowing na mao lang
na siya ang iyang liability, knowing na 1 million lang iyang pwede
bayaran pero voluntarily nibayad gihapon siya ug excess na 500
thousand or 1.5 million jud iyang gibayad so again the law on natural
obligation will apply.
Art. 1430. When a will is declared void because it has not been
executed in accordance with the formalities required by law, but one of
the intestate heirs, after the settlement of the debts of the deceased,
pays a legacy in compliance with a clause in the defective will, the
payment is effective and irrevocable.
In succession again we have what we call a LEGACY and DEVISE. A
LEGACY is a gift of personal property, so sa WILL halimbawa gitagaan
ka sa namatay ug alahas , celfon, kotse so that is a legacy, specific
personal property. DEVISE is a gift of specific real property, so
gitagaan ka ug balay, yuta, etc., so that is a devise. So a legacy or
devise can be given only when there is a WILL, so halimbawa dili ka
compulsory heir. Ang compulsory heir katong mga anak, asawa,
parents, so the compulsory heirs are those who cannot be excluded.
So halimbawa friend lang ta if the testator has no will, last will and
testament, if you are a friend you cannot inherit from him but there is
no prohibition if he will institute you as a legatee in his will. So you will
be given money or jewelry or a car, so that is a legacy in your favor.
Now, the validity of the legacy will depend upon the validity of the will.
If the will is not valid as to form the legacy cannot be given. In that
case if the will is void there would be intestacy or legal succession,
wala na tong will e-disregard na to. So for example si testator in his
will he give his 1 million to his friend X, but it turns out that the will is
void because the witnesses are only two (2) persons, the will has to
be witnessed by at least three (3), so void. Technically ang legacy ni X
is no longer effective. Now if the estate of the testator, if his heirs still
give 1 million to X knowing that the will is void, “Sige kay mao na ang
gusto sa atong ginikanan so atong ihatag bisag walay will.” So if that
was given that can no longer be recovered the law on natural
obligation will now apply and prevent the recovery or the return of the
property which was voluntarily delivered, that is another example of a
natural obligation.
So humana ta… hehehe… break mode…
ESTOPPEL
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon.
I believe in your other subjects, last semester you have already heard
of ESTOPPEL or ESTOPPED. So when you say estopped that means
you are already barred from claiming otherwise. If you acted that this
person is your wife or you mentioned or made a statement that this
person is your wife but in truth and in fact she is not your wife, and by
reason of that representation other persons have acted for example if
they paid their debt to you, your wife and then it was accepted later
on you cannot say that “dili man nako to siya asawa dapat magbayad
ka usab sa akoa.” If that would be allowed that person relying on your
representation would be prejudice so basically the LAW ON ESTOPPEL
will prevent you from claiming otherwise. So there are specific
examples on estoppel, basically ang estoppel is maybe by inaction or
by silent or by declaration whether in verbal or in writing.
Art. 1432. The principles of estoppel are hereby adopted insofar as
they are not in conflict with the provisions of this Code, the Code of
Commerce, the Rules of Court and special laws.
Now there are several scattered principles on estoppel. This is of
COMMON LAW origin. So these principles are also applicable but only
in so far that they will not in conflict with the expressed provision in
the Civil Code, the Code of commerce and the Rules of Court and other
special laws. You will discuss other kinds of presumptions under the
Rules of Court also operate as estoppel. Now take note, let’s go back
first to the Article 1431, the law says RENDERED CONCLUSIVE
meaning that really APPLIES ABSOLUTELY it cannot be repudiated
anymore you cannot present evidence on the contrary anymore. So
mao na jud na siya in so far as the law is concerned, it cannot be
rebutted.
Art. 1433. Estoppel may be in pais or by deed.
So there are two (2) kinds of estoppel mentioned in Article 1433
ESTOPPEL IN PAIS. What do we mean by ESTOPPEL IN PAIS or
ESTOPPEL BY CONDUCT? This arises when one by his acts,
representations or admissions or decided when he ought to speak out
intentionally or through culpable negligence induces another to believe
certain facts to exist and such other rightfully relies and acts on such
belief as a consequence of which he would be prejudice if the former is
permitted to deny the existence of such facts.
3RD Exam Coverage | 41
So basically when you say in PAIS we are referring to a conduct, an
act or it maybe an omission. ACT or OMISSION which constitutes a
misrepresentation or silence with one ought to speak. So because of
that act or omission, again as we discussed before, other persons
relied and acted and as a consequence if you wouldn’t stop, you would
allow B to renounce your earlier representation that person would be
prejudice. So that law will not allow you to subsequently repudiate
your own act or omission. So again the easiest way to remember is
PAIS means an ACT or OMISSION.
ESTOPPEL BY DEED is what we call technical estoppel. Generally,
there are two kinds of technical estoppel, we have ESTOPPEL BY DEED
and ESTOPPEL BY RECORD.
When we say ESTOPPEL BY DEED it is a type of technical estoppel by
virtue of which a party to a deed, meaning a document, a contract and
his privies are precluded from asserting as against the other parties of
his privies, any right or title in derogation of a deed or from denying
any material fact asserted therein. If there is a deed, a document,
contract and the parties made representation in that contract they are
bound by that contract or deed so they cannot later on repudiate that
deed especially if other persons have relied on that contract or deed.
So ang deed ha dili kanang deed na buhat or action but deed na
document.
ESTOPPEL BY RECORD it is a type of technical estoppel by virtue of
which a party and his privies are precluded from denying the truth of
latter set forth in the record whether judicial or legislative.
When you say DEED, persons participated in that deed so sila ang
nagbuhat.
RECORD, not necessarily na sila ang nagbuhat sa record but it was
made by somebody else but if they have opportunity to correct that
record but they did not, they allow it to prevail or stand. Anything
contained on that record would be CONCLUSIVE against the person to
whom the record is applicable, whether the record is a judicial record
or legislative record. For example nagtestify ka sa court, so when you
testify your testimony are actually been transcribed, so lahi imong
gisulti tapos lahi diay ang pagkatranscribe, you have opportunity to
correct that but you did not so that is already applicable to you, or
anything that you said girecord, so kung unsa ang nakabutang sa
record that is conclusive as against the person whom the record is
applicable.
Art. 1434. When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
I think I already explained this before, halimbawa A is not the owner
of the land A is just the administrator the owner is X, and then A
representing himself as the owner sell the land to B. B bought the land
and paid the value of it. Wala pa nadeliver ang land, si X na tag-iya sa
land now donated the land to A sa iyang administrator because of his
loyalty, fidelity and courtesy. B wants the land to be delivered to him
because he already paid to A. Can A say, “dili B our sale is void when I
sold to you the land I was really not the owner I just misrepresented,
the land was actually owned by X.”? NO, he is not allowed to repudiate
his representation; another example na deliver na ang land kay B
because of that sale, ordinarily walay transfer of ownership kay B
because when the sale was made by A to B, A was not the owner. So
even if he delivered the land to B he would not transfer any
ownership, he could not transfer what he does not have, but when X
subsequently donated the land to A, by OPERATION OF LAW the title
now passes to B the buyer. So A cannot later on say na “Ah ako na
diay ang tag-iya sa land sige bawion na lang nako to kay B kay in the
first place katong pag baligya nako sa iyaha dili to siya valid, bawion
nako.” No, he cannot do that, he is stopped from asserting his own
title to the grantee. So here the title transfer by OPERATION OF LAW
to the buyer or grantee if there was previous delivery. Remember this
principle because this is also applicable on the LAW ON SALES.
Art. 1435. If a person in representation of another sells or alienates a
thing, the former cannot subsequently set up his own title as against
the buyer or grantee.
So this time nabaliktad, A said na he is the agent of X, so ang tag-iya
sa land si X siya lang ang agent, he sold the land to B. Later on he
wants to recover the land on the ground that he is the real owner and
he did not authorize the sale of the land. That is absurd, because in
the first place he represented himself to be an agent authorized to sell,
in fact dili siya agent because he was the owner. So if for example the
buyer would like to get the land, he cannot set up his own title, he
cannot say na “the sale to you is void because it was not really made
by the owner, because I sold that to you in my capacity as agent of X,
so meaning the sale between X and the buyer because ako agent lang,
but real thing is I am really the owner, so I will not deliver to you this
land because I did not sell this to you, because X will sell this to you
thru me.” That cannot be allowed. So again he is estopped because if
he is the owner, he should have told the buyer that he is the owner
not just an agent or representative.
Art. 1436. A lessee or a bailee is estopped from asserting title to the
thing leased or received, as against the lessor or bailor.
We will also find this presumption or rule under the RULES OF COURT,
under the rule on CONCLUSIVE PRESUMPTIONS. Lessee meaning
nagarenta ka, nagabayad ka ug renta sa iyaha for 5 years and then
karon bawion na ang balay kay nag-expire na ang rent di naka gusto
muhawa, ngano man?, “kay akoa maning balay in the first place,” so
ngano nagrenta man ka kung imuha nang balay? The fact that you are
renting the house is your admission that you are not the owner. Or
bailee, meaning kanang nagborrow, so nagborrow ka ug ballpen sa
imong classmate and then later on bawion na niya dili na nimo i-uli,
“akoa mani, murag akoa mani oh, actually naa pa ganiy pangalan.”
The fact that you borrowed you acknowledge that you are not the
owner, so ang presumption is CONCLUSIVE, the lessee or the bailee
cannot present any evidence to prove otherwise, unless iyahang
contention is “akoa mani kay napalit na nako ni sa imoha.” Lahi na siya
na istorya, like lessee ka tapos imong napalit na ang yuta, so karon
imuha na, it is a different story. But when you say from the very
beginning you are the owner of the land or you are the owner of the
ballpen in the first place, so in that case you cannot say later on na
“dili na nako i-uli sa imoha ang ballpen or dili na nko i-uli ang balay,
kay akoa man jud ni sa tinuod lang, from the very beginning.” So your
act of borrowing or leasing is an admission that you are not the owner.
So you are already estopped from claiming otherwise.
Art. 1437. When in a contract between third persons concerning
immovable property, one of them is misled by a person with respect to
the ownership or real right over the real estate, the latter is precluded
from asserting his legal title or interest therein, provided all these
requisites are present:
(1) There must be fraudulent representation or wrongful concealment
of facts known to the party estopped;
(2) The party precluded must intend that the other should act upon
the facts as misrepresented;
(3) The party misled must have been unaware of the true facts; and
(4) The party defrauded must have acted in accordance with the
misrepresentation.
Actually Article 1437 applies to all kinds of ESTOPPEL. Because of
course there must be FRAUDULENT REPRESENTATION OR WRONGFUL
ADMISSION OF FACTS so you represented what is not true or you did
not reveal what is the truth. And second you have the INTENTION that
because of your representation you want the other party to believe
and act accordingly. And third of course, the party was not aware,
because if he is aware estoppel will not lie, because the CONCEPT OF
ESTOPPEL is had he known otherwise he would not acted this way but
because of your misrepresentation you made him to believe that this
estate exist and to his prejudice he acted on that, so you should not
be allowed to benefit from your misrepresentation. He must be
UNAWARE of the true facts. And fourth of course in all cases the party
who was defrauded should have acted, because if he did not act, bisan
unsa pa nimo ug pangatik walay effect sa iyaha, so NO ESTOPPEL. So
there should be an ACTION which is the consequence of the
representation.
Art. 1438. One who has allowed another to assume apparent
ownership of personal property for the purpose of making any transfer
of it, cannot, if he received the sum for which a pledge has been
constituted, set up his own title to defeat the pledge of the property,
made by the other to a pledgee who received the same in good faith
and for value.
In a pledge it is essential that the PLEDGOR SHOULD BE THE OWNER
OF THE THING PLEDGE, if that is not owned by the pledgor the
pledgee is void. For example, A borrowed money from B 1 million,
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tapos si B dili siya satisfied sa standing ni B alone, “A I want a pledge, -In ascertaining WON are merely talking of time, 10 years
I want a collateral.” Then A has no property, but she borrowed laches would apply, you would na ba, 5 years na ba, so the fact
diamond necklace kay X, nananghid siya kay X “X pwede ba nako na examine WON there would be and not the effect.
siya e-pledge.” So gi-pledge niya kay B, “B naa na koy kulintas akong prejudice to the other party if
e-prenda sa imuha. ” ingon si B “Giunsa nimo pagka diamond you will allow the action.
necklace, pagsure, pagsure diha, pangutan-on nako si X.” “X iyaha jud
ning diamond necklace?” Ana si X na “Yes iyaha na.” Pero in truth kay Principally a quench of It is a matter of time
X to. So that basis B granted the loan, that there was a pledge inequity of permitting the
agreement. Subsequently nagbag-o ang isip ni X niadto siya kay B, “B claim to be enforced, this
bawion nako ang necklace kay kanang necklace akoa jud na siya dili inequity is founded on some
na siya kay A, so the pledge A made to you is void, because under the change in the condition of
law the pledgor should be the owner, in your case A is not the owner, the property or the relation
I am the owner.” But A allowed B to believe that A is the owner of the of the parties
thing pledge. So in that case X is estopped from setting up his title as -Again there are cases
against B. So that is an example of Article 1438, he cannot set up his the right of action has not yet
own title to defeat the pledge of the property. Of course the pledge prescribed but plaintiff maybe
katong si B should be in good faith, wala siya kabalo, kay kund kabalo barred from instituting the
siya all along na nangatik lang tong duha , they are all in pari delicto, action because of laches. The
so the law believe them as they are. court will consider if WON it
would be allowed the action to
prosper would there be
Art. 1439. Estoppel is effective only as between the parties thereto or prejudice, will this be just, will
their successors in interest. this be equitable. Prescriptive
period would not matter, tan-
So the PRINCIPLE OF ESTOPPEL applies only between the parties and awon lang nimo within the
their predecessors-in-interest, it cannot be bind by third person, it period ba siya, although had
cannot be invoked by third person. If you remember the case of Liguez not yet prescribed but barred
v CA, katong si old man si Don Lopez that in order to cohabit with nonetheless of laches
Conchita he donated properties to her, he died and his heirs wanted to
recover the land. The law says that Don Lopez himself was barred Not statutory Statutory
from taking the donated property because he was not innocent, he is
-There is no specific law -The law says, what is the
estopped. Because he is already dead and being represented by his
that describe what is laches or prescriptive period for certain
heirs, his heirs are bound by the same estoppel that lies against their
defines or gives the condition action. It is provided for by law.
predecessors-in-interest. So you cannot have better rights as against
for laches, so it is on a case to
your predecessors. If your parents are estopped, if the doctrine of
case basis
estoppel would lie against your parents for example with respect to
certain property, they passed away and you inherited the property, Applies in equity Applies to specified in number
that estoppel would also apply to you because you merely step into three (prescriptive period)
their shoes. So the DOCTRINE OF ESTOPPEL APPLIES TO PARTIES
AND THEIR SUCCESSORS-IN-INTEREST ONLY. So kantong wala nag Not based on fixed time Based on fixed time
succeed in the rights of their predecessors are not bound by estoppel.

Example of an application for laches like in the case of ALONZO V CA.

Lastly, I would like to discuss to you the PRINCIPLE OF LACHES.
LACHES is a kind of estoppel in pais or equitable estoppel. What is
laches? That was asked in BAR exam.
LACHES is a failure or neglect for an unreasonable and unexplained
length of time, to do that which by exercising due diligence could or
should be done earlier. It is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it.
So kanang nagdelay delay ka, like you have a cause of action but you
did not timely file the case, so you allowed 13 years to pass wa jud
kay gibuhat and then suddenly you remembered you filed the case.
Usually kung dili prescription, laches ang e-invoke. Laches because for
such a long period of time you did not act on your rights so because of
your inaction and silence there is a presumption now that you have
declined to exercise your right or you have already abandoned it, so
laches.
Sometimes laches is confused with prescription. In prescription there is
a prescriptive period for you to institute an action like an action to
enforce a written document prescribes in 10 years. So basically kung
wala pa naglampas ang 10 years you can still file the action, you are
still within your rights to file the action but there are cases that despite
the fact na wala pa nag lapse ang 10 years dili na ka ka file, you are
barred because of laches.
In that particular law it is a concept of succession, when a co-heir sells
his hereditary right to a stranger, the other heirs have 30 DAYS FROM
NOTICE IN WRITING within which to effect the redemption. So 30
days from notice in writing. General rule is pag walay NOTICE IN
WRITING nanakaabot sa ilang co-heirs about the sale, the redemption
period will not run. Hangtod walay na receive na notice ang ubang
heirs they can invoke the right of redemption any time because ang
prescriptive period na 30 days dili pa magdagan even if there is actual
knowledge. Bisan pag nag ingon “gibaligya na nako akong share.”
That is not a sufficient notice, will not start running within 30 days
period, dapat sulatan jud nimo siya. That is the requirement of the law
to preclude any other doubt of WON there has been notification. In
that case 16 years na ang naglapse from actual knowledge, so ang co-
heirs kabalo na sila na gibaligya na sa ilang co-heir ang iyahang
hereditary right pero they never exercised their right to redemption
and after 16 years they are claiming to redeem. Their basis is the
prescriptive period did not even begin to run. WHY? Because we are
not even notified in writing, so under the law which we know it must
be in writing. But the SC said that is too much, if you have kept silent
for 16 years you did not do anything at all there is now a presumption
against you that you have abandoned your right. Even if technically
the right to redemption has not yet prescribed but applying the law on
laches it will be inequitable to allow them to still depend on that
presumption na walay written notice. So here the doctrine of laches
will apply, because it is the one which is just and equitable under the
circumstances. Again kung prescription lang wala pa nagrun ang
prescriptive period but again 16 years ang nag lapse wala kay gibuhat,
karon lang ka muingon na e-redeem nako after 16 long years, it would
be too much.
ENDENDEND!!!!

So we will distinguish between LACHES AND PRESCRIPTION.

BYE OBLICON~~ Thanks ACID Gals for a JOB Well DONE! (CLapCLap)

With God Almighty, Nothing is Impossible ! 

LACHES PRESCRIPTION

Concern with EFFECT OF Concern with FACT OF DELAY

DELAY
-We do not consider that, we

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