Title II
CONTRACTS
GEMERAL PROVISIONS
(Arts. 1305·1317)
1.
Define contracts.
ANS: A ccntract is a meeting of minds between two (2) persons
h respect to the other, � give
whereby one binds himself, wit
something or to render somr. service. (Art. 1305, NCC.)
2.
What are the basic duties of persons when they
enter into contracts?
ANS: All men are presumed to be sane and normal and
subjected to be �noved by substantially the same motives. When of
age and sane, they must take care of themselves. In their relations
with others in the bus;ness oflifo, wits, sense, intelligence, training,
ability and judsment meet and clash and contest, sometimes with
gain and advantage to all, sometimes to a few only, with loss
and injury to .)thers. In these contests, men must depend upon
themselves - upon their own abilities, talents, training, senses,
acumen, judgrr-ent. The fact that one may be worsted by another,
of itself, furnishes nc cause of complaint. One man cannot complain
because another is more abloe, or better trained, or has better sense
or judgment then he has; and when the two (2) meet on a fair field,
the inferior car not murmur if the battle goes against him. The Jaw
furnishes no protection to the inferior simply because he is inferior,
any more than it protects the strong because he is strong. The Jaw
furnishes protection to both alike - to one no more or less than
the other. It makes no distinction between the wise and the foolish,
the great and the small, the strong and the weak. The foolish may
lose all they have to the wise but that does not mean that the law
will give it back to them again. Courts cannot follow one every step
of his life and extricate him from bad bargains, protect him from
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unwise investments, relieve him from one-sici.ed contracts, or annul
the effects of foolish acts. Courts cannot constitute themselves
guardians of persons who are.not legally competent. Courts OiJerate
not because one person has been defeated or overcome by another,
but because he has been defeated or overcome illegally. Men may do
foolish things, make ridiculous contracts, use miserable judgment,
and lose money by then- indeed, all they have in the world; but not
for that alone can the law intervene and restore. There must be, in
addition, a violatio� of law, the commission of what the law knows
as an actionable wrong,· before the courts are authorized. to lay hold
of the situation and remedy it. (Valles vs. Villa, 35 Phil. 769; Sps.
Pascual vs. Ramos, G.R. No. 144712, July 4, 2002.)
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tracts?
Explain the duty of courts in interpreting con-
ANS: It is not the province of the court to alter a contra �t by
construction or to make a new contract for the parties. Its duty is
confined to the interpretation of the one which they have made for
themselves without regard to its wisdom or folly as the court cannot
supply material stipulations or read into the contract words which
it does not contain. (Cuizon. vs. CA, 260 SCRA 645.)
4.
Distinguish an ordinary contract:
(a)
from a contract of marriage;
(b) from an obligation;
(c)
from an imperfect promise;
(d)
from a pact;
(e). from a stipulation.
ANS: (a) An ordinary contract and a contract of marriage may
be distinguished from each other in the following ways:
(1) In an ordinary contract, the parties may be two (2) or more
persons of the same or of different sexes, whereas in a marriage
contract, it is necessary that the parties must be one man or one
woman.
· · (2)
In the first, the natu.re, consequences and incidents are
governed primarily by the agreement of the parties, whereas in the
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second, the nature, consequences· and. incidents are governed··by
law.
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(3) In the first, once the contract is executed, the result is a
contract, whereas in the second; once the marriage is celebrated the
result is a status.
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(4) The first ·��n'. be te�inate:d cir dissolved by the m.�;�.
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agreement of the partie's, where�s t.he second cannof..
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5) In the first, in case :of breach, the usual remedy is for the
injured party to il).stitute an . action for damages, whereas, in the
second, in case of breach; the .usual remedy is for the injured pa�y
to institute a civil action for legal separation or a criminal .action for
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adultery or coqcubinage.
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(i)). A contract can easily be distinguished from 'an
obligation, ·oecause one is the cause, whereas the other is the effect.
There are, however, five (6) ·sources. of obligations and the most
important run.ng them is contracts. Consequently, we can very well
say that thL!re can be an obligation Without a contract, but there can
be no contract without a .resultant obligation.
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(;:) An imperfect promise (policitation) is merely an
unaccepted offer. Therefore, it represents the starting point for the
formation of a contraet.
(d) A pact is an incidental part of a contract which can be
separated from the principal agreement.
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(e) A stipulation is an essential and dispositive part of a
contract which cannot be separated from the principal agreement.
5.
What are the elements of a contract?
ANS: The elements of a contract may be classified as follows:
(1) Essential -The essential elements are those without which
there can ht! no contract. These elements are, in turn, subdivided
into commvn (comunes), special (especiales) and extraordinary or
peculiar (efpecial isimos). The common elements are those which are
present in all contracts, such as consent, object certain and cause;
the special elements are present only.in a certain contracts, such as
delivery in real contracts or form in solemn ones; the extraordinary
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elements are those which ·are peculiar to a specif c contract such as
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the price in a contract of sale. (3 Castan, 7th Ed., pp. 322-324.)
, .:(2) •"Natural.- The natural elements are those which are
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derived frc m the nature of the contract and ordinarily �.ccompany
the same. They are presumed by the law, although they can be
excluded by the contracting parties if they so desire. (3 Castan, 7th
Ed.,"p. 324.) Thus, wil.rranty against eviction is implied in a contract
of sale, although the: contracting parties may increase, diminish or
eveMruppress it. (Arts.1547, 1548, NCC.)
.· ' Y3) ''�'Accidental - 'hie· accidental clements are those which
e:id.!£ oD.i{ wheii the parties expressly provide for them for the
purpo�e of limiting"or modifying the norinal efef cts of tht contract
Examples of these are conditions, terms and modes. (Castan, 7th
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Ed.,.p. 324.)
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What are the different classes of contracts?
Contracts may be classified as follows:
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(a)
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OBLIGATIONS AND CONTRACTS
Contract.a
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According to their relation to other contracts:
Preparatory - those which have for their object the
establishment of a condition in law which is necessary as a pre­
liminary step towards the celebration of another subsequent
contract. Examples - partnership, agency.
(1)
(2) Principal - those which can subsist independent­
ly from other contracts and whose purpose can be fulfilled by
themselves. Examples - sale, lease.
(3) Accessory - those which can exist only as a conse­
quence of, or in relation with, another prior contract. Examples
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- pledge, mortgage.
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(b)
According to their perfection:
(1) Consensual - those which are perfected by th� mere
agreement of the parties. Examples - sale, lease.
(2)
Real - those which require not only the consent of
the parties for their perfection, but also the delivery of the ob­
ject.by one party to the other. Examples - commodatum, de­
posit, pledge.
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· (c)
Arts.. 1305-13 l7
According to their form:
(1) Commo�"Cir informal - those which do not ��quire
some particular form. Examples - loan, lease.
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(2) Special or formal - those which require some pa'!"­
ticular form. Examples - donation, chattel mortgage.
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(d)
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(e1
(f)
produce:
According to their purpose:
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(1)
Transfe1· of ownership. Example - sale.
(2)
Conueyance of use. Example - commodatum. · ·
(3)
Rendition of services. Example - agency.
According to their subject matter:
(1)
Things. Examples - sale, deposit, pledge.
(2)
Services. Examples - agency, lease of services.
According to the nature of the vinculum which' ihey
(1) Unilateral - those which give rise to an obligation
for only one of the parties. Examples .- commodatum, gratu...
itous deposit..
(2) Bilateral - those which p,ive rise to reciprocal obli­
gal.iMs for both parties. Examples � sale, lease.
(g)
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According to their cause:
U) Onerou s - those in which each of the parties aspires
to procure for himself a benefit through the giving of an equiva­
lent or compennation. Example - sale.
(2)
Gratuitous - those in which one of the parties pro­
poses to give to the other a benefit without any equivalent or
corr.pe11sation. Example - co.mmodatum.
(h)
According to the risks involved:
(1)
Commutative - those where each of the parties ac­
quires an equivalent of his pre.station and such equivalent is
pecuniarily appreciable and-already determined from the mo·
mr.nt of the celebration of the contract. Example - lease.·
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(2) Aleatory - those where each of the parties hag to hi5
,. !l�count the acquisition of an equivalent of his prestation, but
· such equivalent, alth.ough pecuniarily appreciable, is not yet
determined, at the inoment of the celebration of the contract,
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since it .. depends upon the happening of an uncertain event,
thu!l. ch�rging the.parties with the risk ofloss or gain. Emmple
- insurance.
According to their names or norms regulating them:
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·(1) Nominate - those which have their own individual·
ity•arid are regulated by special provisions of law. Examples
(i)
- sale, le.a se.
(2) Innominate - those which lack individuality and
are not regulated by special provisions of law. (4 San<"hez Ro­
man, pp. 381 387; 3 Castan, 7th Ed., pp. 310-314.)
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7: · ·What are the different phases or sta ges in the life
or biology of a contract?
ANS: The life of a contract has three (3) phases or stages generation,· petfection, consummation. Th� first comprehends the
preliminary or preparatory process for the formation of the r.c ntract;
the second, the birth of the contract; and the third, the fulfilln1ent of
the purpose for which the contract was constituted. (3 Castan, 7th
Ed., 399.)
8. What are the four (4) most essential characteristics
of contracts?
·ANS: The four (4) most essential characteristics ofcontracts are
first, the obligatory force or character of contracts (obligator:edari
del contrato), or the principle that once a contract is perfected, it
shall be of obligatory force upon both of the contracting parties(Arts.
1159, 1315, 1356, NCC.); second, the autonomy of contracts, or the
principle that the contracting parties are free to enter into a contract
and to establish such stipulations, clauses, terms and conditions as
they may deem convenient (Art. 1306, NCC.); third the mutuality of
contracts, or the essential equality ofthe contracting parties whereby
the contract must bind both of them (Art. 1308, NCC.); and fourth,
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the relativity of contracts (relpttuidad del contrato), er the principle
that the contract takes effect oiity between the parties, their assigns
and heirs. (Art. 1311, NCC.)
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9.
Defi1e breach of contract.
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ANS: Breach of contract· is defined as the failu.re , without legal
reason, ·1.0 comply with the terms of the contract. It is also defuied
as the failure, without legs) excuse, io perform any promise which
forms the whole or part of the contract. (Sps. Omengan us. Philippine
National Rank, G.R. No. 1 61319, January 23, 2007).
10. What are the limitations upon the right of the
contracting parties to establish �uch stipulations, clauses,
terms and conditions as they may deem convenient?
ANS: According to Art. 1306 of the NCC, the stipulations,
ch.uses, terms or conditions established by the contracting partien
must not be contrary to: (1) Jaw, (2) morals, (3) good customs, (4)
pubiic orner, or(5) public policy. Under the Spanish NCC (Art. 1255.),
good customs and public policy are not i11cluded, although Spanish
jurisprudE:nce has always considered good customs as included
within th£: sphere of morals, and public policy a!i synonymous with
public order. (Ferrazzini us. Gsell, 34 Phil. 697; 8 Manresa, 5th Ed.,
Bk. 2, p. 288: 20 Scaeuola 505.)
11. (a) What is a compromise? Compromise Agreement?
(b) What j., its effect upon the parties thereto? (c) When
does a compromise agreement become binding between the
parties?
ANS: In the case of Santos Ventura Hocorma Foundation, Inc.
us. Santo!' (0.R. No. 123004, November 4, 2004), the Court held the
following:
(a)
Compromise is a contract whereby the parties, by malting
reciprocal concessions, avoid a litigation or put an end to one already
com1;ienc1Jd. It is an agreement between two (2) or more persons,
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who, for !)reventing or putting an end to a law suit, adjust their
difficultief. by mutual consent in the manner which they agree on,
and whi�h everyone of thPm prefers in the hope of gaining, balanced
by the danger of losing.
Under Art. 1306 of the NCC,.contracting parties may establish
such stip1tlations, clauses, terms and conditions as they may deem
conveniell'� in a compromise agreement, provided they are not
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contrary to law, morals, good customs, public order, or public policy.
Thus, a compromise 1tgreement whereby the parties make reciprocal
concessions to resolve their differences to thereby put an end to
litigation is binding. on the contracting parties and is expressly
acknowledged ·as a juridiCal agreement between them. (National
Commercial Bank ofSaudi Arabia vs. CA, G.R. No. 124267, Jan•wry
17, 2005.)
"(b) ' The general ·rule is that a compromise has upon the
parties the effect and authority of res judicata, with respect to the
matter definitely stated therein, or which by implication from its
terms should be deemed to have been included therein. This holds
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true �ve� if the agreement has not been judicially approved.
(c) : ·Applying existing jurisprudence, the compromise agree· .
ment as a consensual contract became bindin5 between the parties
upon its execution arid not upon its court approval. From the time
a compromise is validly ent�red into, it becomes the source of the
rights and obligations of the parties thereto. The purpose of the com·
promise is precisely to replace and terminate <:ontroverted claims.
However, in the case of National Commercial Bank of Saudi
Arabia vs .. CA, G.R. No. 124267, January 17, 2005, the Court held
th�� 'to have the force of res judicata, how•�ver, the compromise
agreement must be approved by final order of the court. To be valid,
the compromise agreement must be based on real claims and actually
agreed upon in gooq faith. In the case at bar, each of the parties have
manifested their desire, by forging the Compromise Agreement, to
abbreviate the legal battle and settle the case amicably to both their
satisfaction. As the Agreement is not contrary to Jaw, public order,
public policy, morals or good customs, is approved.
12.
In the contract of employment between A and B,
the latter agreed that for a period of five (5) years after the
termination of his employment, he shall neither engage or
interest himself i n any business enterprise similar to._ c•r in
competition with those operated by A, nor enter into the
employment of any enterprise in the Philippines, except
after obtaining the written permision of A. Is the agreement
valid? Reasons.
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Arts. 1305-1317
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ANS: The agreement is void because it is contrary to public
policy. As held by the Supreme Court in Ferrazini vs. Gsell (34 Phil.
697), the agreement is dearly one in undue or unreasonable restraint
of trade. 1t is not necessary·for the protection of A. Besides, it would
practically force B to get out of the country in order to obtain a
livelihood in case A 3hould decline to give him a written permission
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to work elsewhere in the country.
In aE,reements of this sort, in order that there will be no und�e
restraint of trade, there are two. (2) tests that must alway� �e .ai>·
plied. They are: first, is there a limitation as to time or place;'.and
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second, is the. prohibition reasonably necessary for the pro�cti�n
of the parties? If the answer to both of these questions is in' the,�f·
firmative, then the prohibition or restraint is not contrary to public
policy. (See Del Cas.tillo vs. Richmond, 45 Phil. 697.) It is clear that
the agreemem between A and B does not pass the second test.
13. "Lorna K.," a very popular movie star; was· under
contract with "P" Movie Productions to.star· exclusively in
the latter's films for two years. "Lorna K.'' was prohibited
by the contract to star. in any film produced "by another
producer. "Chico" Fihn. Co; induced "Lorna K." to break her
contract with "Vive" Movie Productions by giving her· twice
her sal1 n y. "Vive" Movie Productions sued "Chico" Film Co.
for damages. "Chico" Film Co. contended that it had a right to
compete for the serVices of "Lorna K." and that her contract
with "Vive" Movie Productions was ittrestraint of trade and
a restriction on her freedom to contract.
Wh!>se contention would you sustain? (1980)
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ANf": The contention of "Vive" Movie Productions should be
sustained, According to the NCC, any third person who inducea
another to violate his contract shall be liable for damages to the
0th .er cont,·acting party. In the law of torts, we call this "interference
with contra :tual
relations." However, in order th&t it will. be
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actionable, it h necessary that the following requisites must concur:
(a) the exfatence ofa valid contract; (b) knowledge on the part of the
third pers.m of the existence of such contract; and (c) interference
by the third person without legal justification or excuse. All of these
requisites are pre �ent iJ. the case at bar.
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The contention of"Chico" Film Co. that "Lorna's" contract with
"P" ·Movie Productions was in restraint of trade and a restrict.ion
on her freedom to contract, on the other· hand, cannot be sustained.
Well-established is the rule that in order to determine whether or not
an agreement ofthis nature constitutes an undue restraint of trade,
and thet'efore, is contrary to public policy, two (2) tests are always
applied. They are first, is there a limitation as to time or place? and
second, is the prohibition or restraint reasonably necessary fo7 the
protection of the contracting parties? If the answer to both of these
questions· is in the affirmative, then the prohibition or restraint is
not ·contrary to publk policy. It is crystal clear that the agreement
between "LOrna. K" and "\'ive" Movie Productions passes both
tests:
(Note: The first paragraph of the ab ove answer is based on Art.
1314 cifthe NCC and on Daywalt us. Agustinos Recoletos, 39 Phil. 587.
The eecond paragraph, on the other hand, is based on Art. 1306 of the
'···NCC and on several cases, the most notable of which is Del Cast.ilia us.
· Richmcnd, 45 Phil. 697.) .
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· · 14. , A took up law at the Arellano University. He left
the University and .enrolled for the last semester of his
fourth year in the Abad Santos Law School. Subsequently, he
passed the bar examinations. During his stay at the Arellano
University, he was a constant recipient of scholarship grants.
However, he was made to sign a waiver of his right to transfer
to another school .unless he refunds to the University the
equivalent of his scholarship grants. Sirtce, in taking the bar
examinations, he had to secure his trans·�ript of records from
the University, he was required to make a refund, which he
did, but under protest. Subsequently, he brought an action
to recover the amount which he had paid. Will the action
prosper? (1978)
ANS: Yes, the action will prosper. The waiver signed by A is
contrary to public policy, and therefore, null and void. Scho!.arship
grants, as pointed out by the Director ofthe Bureau of Private Schools
in Memorandum No. 38, are awarded in recognition of merit and not
to attract ·and keep brilliant students in school for their pro!Jaganda
value. To look at such grants as a business scheme des:gned to
increase the business potential of an educational institution is not
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only inconsistent with sound public policy but also good mo rals. (Cui
vs. Arellano University, 112 Phil. 135.)
15. A, president and general manager of Price, Inc.,
executed in favor ofB a special power ofattorney authorizing
the latter to prooecute an application for a license· With
the Import Control Office for the Importation of industrial
starch for candy manufacture. It was agreed verbally that
as compensation for B's service he would be paid 10% of
the total value of the amount that would be approved .by
the Import Control Office. Ni it turned out, B was �J;>le to
prosecute the approval of the application successfully.
Subsequ�ntly, becaue:e of the refusal of A to pay the b'alance
of the 10% commission agreed upon, B brought this ·a:ction
against him to recover the amount. The latter contends that
the agreement is contrary to public policy, and therefore,
void ab initio. The former, on the other hand, maintains that
there is :110 evider.ce showlng that the contract in question
has violated any public policy. Decide the case.
ANS: The ahove problem is based upon the case of Sy Suan vs.
Regala, 105 Phil. 1024. In this case the SC held:
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"The contract is contrary to · good customs, public order and
public policy. Judicial notice may be taken of tbe fact that this
kind of contract sprouted as a result of the controls imposed by the
government on imports and dollar allo�ations, despite the enunciated
go·;emme�t policy that applications for imports and foreign exchang1!
should be 'considered and acted upon strictly on the basis of merit,
without intervention of intermtldiaries, which policy is revealed by
Secs. 16 and 18 of Rep. Act 650. If the granting of import licenses
d�pcr.ds solely upon the merits of each application, certainly the
intervention of intermediaries such as herein retpondent, would serve
no other purpose than to influence or possibly corrupt the judgment.
of the public officials performing an act or service connected with the
issuance of import licenses. Respondent, however, claims that there
is no evidence showing rhat the contract in question has violated any
pub:ic policy. But the question whether a contract is against a public
policy, depends upon its purpose an� tendency, not upon the fact th.at
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no herrn results from it. In other words, all agreements the purpoa·e of
whid. is to create a situation which tends to operate to the detriment
of th€· public interest are against· public policy and, therefore, void,
whether the purpose of the agreement is or is not effectuated. For a
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particular undertaking to be against public policy actual injury need
· not be shown: it is enough if the potentialities for harm are present."
The same doctrine can also be applied to similar contracts with
"influence peddlers" or "ten percenters" involving the approv':ll of
applications for foreign, exchange with the Central Bank. (See Tee
us. Tacloban Electric and Ice Plant Co., 105 Phil. 168.)
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16. What are the different kinds of innominate con­
tracts and how are they regulated? (1977)
. ANS! There are four (4) kinds ofinnominate contracts. They are:
{ij Do ut 'Cies - I give th11.t you give; (2) Do ut facias - I give that you
do; (3) Facio ut des - I do that you give; and (4) Facio ut faciC'.s - I
do that you do. These contracts shall be regulated by the stipulation
of the parties, by the general provisions or principles of oblig ations
and contracts, by the rules governing the most analogous nominate
contracts, an·d by the custom ofthe place. (Art. 1307, NCC.)
17.
(a) What is meant by the mutuality of contracts?
(b) A leased a certain building to B a nd C. In the
contract of lease there is a stipulation that B and C can con­
tinue occupying the building indefinitely so long aF." they
should faithfully fulfill their obligation of paying the rent­
als. In an action for ejectment, can B and C successfully set
up the defense �hat under the contract, they can continue
occupying the building so long as they faithfully fulfill their
obligation of paying the rentals? Reasons.
ANS: (a) The mutuality of contracts refers to the position of
essential equality which must be occupied by both ofthe cont.racting
parties in relation to the contract. This principle is confirmed by
Art 1308 of the NCC, which declares that the contract must bind
both 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 oflaw between the contracting parties. It is
repugnant to have one party bound by the contract while leaving the
other free therefrom. (Allied Ban.king Corporation us. CA, G.R. No.
124290, January 16, 1998.). "( · •:.,.
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(b) B and C cannot successfully set up the defense that
under the conti-act oflease, they can continue occupying the building:
so long as they will faithfully fulfill their obligation of paying the
rentals. It is clear that under this stipulation, the continuance. and
fulfillment of the contract would then depend solely and exclusively
upon their uncontrolled choice between continuing paying 'the
rentals or not, completely depriving the owner of all say on the
matter. If this defense is allowed, so long as defendants elected to
continue the lease by continuing the payment of the rentals, the
owner woulu never be able to discontinue it; conversely, although
the owner should desire the lease to continue, the lessees could
effective!] thwart his purpose by the simple expedient of stopping
payment of the rentals. This is, of course, prohibited by Art. 1308
of the NCC. (Encarnacion us. Baldemar, 77 Phil. 470. To the same
effect - N!e: General Enterpnses, Inc. us. Lianga Bay Logging Co., 11
SCRA 733; Garcia vs. Rita Legarda, Inc., 21 SCRA 555.)
18. X Co. hired A to become manager of the company.
In the contract of employment, there is a stipulation 'that
after tha terminatio11.-ofthe contract, he shall be entitled to IA
bonus "as the Board of Directors may see fit to grant.'' After
five years, when the ·contract was· finally terminated, the
Board of Dfrectors of the company granted to A bonus of only
PlOO. Not satisfied with the amount, the latter brought an
action against the company, contending that the stipulation
found in t.he contract of employmeni .violates the principlE!
enunciated in Art. 1308 of the NCC that the validity of or
compliance with a contract cannot be left to the will of one of
the contracting parties. He is now asking the court to fiX the
amount of the bonus. If you were the judge, how would -yon
decide the ces"?
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ANS: If I were the judge, I would decide the case against A.
The stipulation in the t:ontract by virtue of which the company shall
grant a bonus to A and that the amount thereof shall depend upon
the discretion of the Board of Directors of said company does not
violate the prohibition �ontained in Art. 1308 of th � NCC. A simplt�
perusal of the article will show that what the law prohibits are: first,
the delegatio::: of the power t.o determine whether the contract shall
be valid or not; and second, the delegation of the power to determine
823
Arts. 1305-1917
OBLIGATIONS AND CONTRACTS
Contracts
General Provisions
whether the contract shall be complied with or not. In the instant
case� there is neither a delegation of the power to determine the
validity·orthe contract nor a delegation of the power to determine
the performance of the •contract to the defendant company. As a
matter :of fact, the company admits the validity of the promise to
grant the plaintiff a bonus. What it did was merely to comply with
the promise.' Undoubtedly, therefore, a promise of tliis character is
legally binding; although In its actual results it may not infrequently
prove ·to be illusory. (Liebenow vs. Phil. Vegetable Oil Co., 39 Phil.
60.) .
.. 19. · Johnny borrowed P300,000.00 housing loan from
the bank at 18% per annum interest. However, the promissory
note contained a proviso that the bank "reserves th e right to
increase intererit within the limits allowed by law." By virtue
of such proViso;·over· the objections of Johnny, the b1mk
increased the interest rate periodically, until it rea che d 46%
per annum Johnny, filed an action questioning ·the right of
the bank to increase the interest rate up to 48%. The bl! n.k
raised the.defense that the Central Bank of the Philippines
had:·already suspended the Usury Law. Will the action
prosper or not? Why? (2001)
.
ANS: The action will prosper. While it is true that the intnest
ceilings set by the Usury Law are no longer in force, it has been held
that PD No. 1684 and CB Circular No. 905 merely allow contratting
pa.'rties to :stipulate .freely on any adjustment in the interest rate
on a loan: or forbearance of money but do not authorize a unilateral
increase of the interest rate by one party without the other's consent.
(PNB vs. CA, 238 SCRA 20 [1994}.J To say otherwise will violate
the principle of mutuality of contracts under Art. 1308, NCC. To
be valid, therefore, any chnnge of interest must be mutually agreed
upon by the parties. (Dizon vs. Magsaysay, 57 SCRA 250 [1974).) In
the present problem, the debtor not having given his consent to the
increase in interest, the increase is void.
20. (a) What is meant by the relativity of contrl'lcts?
What· are the different exceptional cases where a contract
may produce effect either.:directly or indirectly on third
persons?
824
OBLIGATIONS AND CONTRACTS
Contracts
�neral Provisions
Arts. 1305 ·1317
(b) What is meant by a stipulation pour autrui?
What requisites must concur in order that such a stipulation
m a y be enforced? (1977) What is the form of the acceptance
by the third. person or beneficiary?
ANS: (a) Relativity of contracts refers to the principle of the
civil law thal; a contra.ct cau only bind the parties who had entered
into it or their successors who have assumed their personality .or
their juridical pos�tion, and that, as a consequence, such contract
can neither fr.vor nor prejudice a third person (in· conformity with
the axiom res inter alios acta aliis neque nocet prodest). Thus, Art.
1311, of the NCC declares that contracts take effect only between
the parties, their assigns and heirs.
There are, however, four (4) exceptional case:i where a contract
may either· favor or prejudice a third person. They
are:
.'
.
.
.
Where the con";ract contains a'beneficial stipulation
in favor of a third person, provided that such third person has
communicated his accei;tance to the obligor before it is revoked
(1)
(Art. 1311, par. 2, NCC.);
(2) Where a third pr:!rson comes into the podsessio� of
the object of a contract creating a real right (Art. 1312, NCC.)/
(3) Where the contract is entered into in order to de­
fraud a third person (Art. 1313, NCC),- and
(4) Where the third person induces a contracting party
to violate his contract. (Art. 1314, NCC:)
(b) Using Art. 1311, paragraph 2, of the NCC as basis, a
stipulationpou;· autrui may be defined as a stipulation in a contract,
clearly anci deliberately conferred by the contracting parties as a
favor upon a third person, who must communicate his acceptance
of the favor or benefit to the obligor before it could be revoked. In
Florentino vs. Encarnacion (79 SCRA 192), it was defined as a
stipulation in favor of a third person conferring a clear and deliberate
favor upon him, and which stipulation is merely a part of a contract
entered into by the parties, neither of whom acted as agent of the
third person, and such third person may demand its fulfillment
provided that he communicates his.acceptance to the ol:.ligor before
it is revoked.
825
Arte. 1305-1317
OBLIGATIONS AND CONTRACTS
Contracts
General Provisions
The requisites are: (1) that the stipulation in favor of the t'lird
persori sbould be a part, not the whole, of the contract; (2) that the
favorable ·stipulation· should· not be conditioned or compensated by
any kind of obligation whatever; and (3) neither of the contrai:ting
parties bears the . legal representation or authorization of the
third.. pe·r�on. (Flo�entino vs. Encarnacion.) There is, of course, a
fourth• ri;qiiisite ...:.. 'acceptance of the benefit by the third person
comili.iliucated
to the ·obligor before it could be rev oked .
:
'
.!
.
: ·, The . acceptance by the third person or beneficiary does not
•
. -·
..
;
. �!
.
have to be done in any particular form. It may be done expressly or
impliedly.-(Florentino vs. Encarnacion, supra; see also Cristobal vs.
Gomez, 50 Phil. 810; 4 Tolentino, NCC, p. 410.)
' 21. A �nd B · entered into a contract of compromise.
ln the contract; there is a stipulation wherein the parties
ceded a. house and lot to X. Upon the sign:ing of the contract,
X entered into the possession of the property. Ten years
later; after the death of both A and B, their heirs revoked the
beneficial stipulation. Subsequently, they brought an nc tion
against X for the recovery of the prop'erty. Will the action
·
prosper? · ·
'
·
ANS: The action will not prosper. The stipulation in the i rwtant
case is a stipulation pour autrui. All of the requisites of a va . id and
enforceable stipulation pour autrui are present. It is a part, not the
whole, of a contra.ct; it is not conditioned or com pensated l y any
kind of obligation whatever; and neither A nor B bears the legal
representation or authorization of X. Additionally, there was an
implied. acceptance by X when he entered into the possessions of the
property. That implied acceptance is recognized by the law is now
well-settled. (Florentino vs. Encarnacion.) Therefore, the act of the
heirs of A and B in revoking the stipulation is an absolute nullity.
Since the stipulation was accepted by X, it is crystal clear that there
was a perfected agreement, with A and B as stipulators or benefactors
and X as beneficiary, although still constituting a part of the main
contract. Consequently, the cardinal rules of contracts, such as the
obligatory force of contracts and the mutuality of contract� based
on the essential equality of the· parties are directly applicable to the
. beneficial stipulation itself. It can no longer be revoked. (Florentino
'
vs. Encarnacion.)
826
OBLIGATIONS AND CONTRACTS
Contracts
General Provisions
Arts. 1305-1317
22. The Fieldrueu's Insui·ance Co. issued iri favor of the
Manila Taxicab Co,· a comnioli carrier accident insurance
policy, wherein it obligated itself to indemnify the Insured
in the event. of accident against all sums which th� Insured
will be•�ome legally liable to pay for the death or bodily
injury .to any pllssenger including the driver, conductor or
inspect-or who is riding in the vehicle insured at the time
of the accident. D, thn driver of one of the taxicabs of the
Insured, was killed in a vehicular accident. Because of the
failure of the Company and the Insured to indemnify them,
the parentE: of D, F and M, brought an action against the
Insurance Company to collect the plaintiffs have no cause
of action because they have no contractual relation with the
Company. Will the action prosper? Reasons.
ANS: Yes, th{; action will prosper. The policy in the instant
case is typical of contracts pour autrui. Although in general, only
parties to a wntract may bring an action based thereon, this rule is
subject to ex�eptions, one of which is found in the second paragraph
of Art. 1311 of the NCC. This is but a restatement of a well-knoW?l
principle concerning contracts pour autrui, the enforcement of which
may b� demanded by a third party for whose benefit it was made,
although not a party tO the contract, before the �tipulation in his
favor has bP-�n revoked by the obligor. It is clear, the�efore, that
plaintiffs, w:10 are admittedly the sole heirs of the decea9ed, have a
direct ca'Jse of action against the Company.,(Coquia vs. Fieldmen's
Insurance Co., 26 SCRA 178.)
·
23. A. married to B, executed a fictitious deed of sale
of a two-storey house and four (4) subdivision lots in favor
of his mistress, M, who at that time was pregnant, with the
understanding that the latt"r shall hold the properties in
trust for their unborn illegitimate child. After securing a
new traruifer certificate of title in her name, M mortgaged
the properties twice to a bank, and subsequently, ohe tried
to sell them. A then brought an action against her praying for
the issuance of a writ of preliminary injunction restrainhig
her from further alienating or disposing of the propertie
\
and for judgment ordering her to convey the propertie1d�
their illegitimate child, X, who by that time was already five
827
Arts. 1305-1317
OBLIGATIONS AND CONTRACTS
Contracts
General Provisions
(5) years old. A motion to dismiss was filed on the ground that
the illegitimate child, who is the beneficiary of the alleged
trust, is not included as a party-plaintiff, and that the action
in question . is unenforceable under the Statute of Frauds.
Subsequently, A amended his complaint so as to include X
as party-plaintiff. The lower court, however, dismissed the
case..Araised the case by direct appeal to the Supreme Court
on the.following questions of law:
. (af ' Is tlier� a valid cause of action in the instant ci;.se?
(b). . Is the action unenforceable under the Statute of
Frauds?.
·· ·ANs:· (a) There is a vulid cause of action in the insta.nt case.
Upon the facts alleged in the complaint, the contract between
appellant and appellee was a contractpourautrui, although cot1ched
in the form of an absolute deed of sale, and that the appellant's
action was,,in effect, one for specific performance. That' one of the
parties tO a contract. is entitled to bring an action for its enforcement
or to prevent its breach is too clear to need any extensive discussion.
'
Upon· . the other hand, that the contract 'involved contained a
stipulation pour autrui amplifies this settled rule only in the sense
that the'third person for wh.ose benefit the contract was ent<!red into
may also demand its fulfillment provided he had communicated his
acceptance thereof to the obligor before the stipulation in his favor
is revoked.
It appearing that the amended complaint submitted by ap·
,
pellant to the lower court impleaded the beneficiary under the con­
tract as a party co-plaintiff, it seems clear tha� the three (3) parties
concerned therewith would, as a result, be before the court and the
latter's adjudication would be complete and binding upon them.
(b) On the other hand, the contention that the c<mtract
in question is not enforceable by action by reason of the provisions of
the Statute of Frauds does not appear to be indubitable, it being clear
upon the facts alleged in the amended complaint that th<! 1 outract
between the parties had already been partially performed by the
execution of the deed of sale, the action brought below being only
for_the,enforcement Of another phase thereof, namely, the execution
by appellee of a: deed of conveyance in favor of the ben�ficiary
th'eretmder. (Constantino vs. Espiritu, 39 SCRA 206.)
828
OBLIGATIONS AND CONTRACTS
Contracts
Essential Requisites of Contracts
Arts. 1318-1346
24. . How are contracts perfected?
�; '
. ,
ANS: We must distinguish. If the contract is consensual, it is
perfected by mere consent(Art. 1315, NCC.); if the eontract, however,
is real, it is perfected by the delivery of the object of the contract by
one contrac.ting party to the other. (Art. 1316, NCC)
ESSF..NTIAL REQuISITES OF CONTRACTS
(Art. 1318)
25. What are th£· essential requisites of a contract?
•·:·
!
;� I
ANS: There is no cvntract unless the following requisites
concur:
(1)
Gov.gent of the contracting parties.
. .
(2) Object certain which is the subject matter of the
contract.
(3)
NCC.)
;
Cause of the obligation which is established. (Art. 1318,'
CONSENT
(Arts. 1319-1346)
26. What is meant by consent and what are its requi­
sites?
ANS: M applied to contracts, consent signifies the concurrence
of the wills of the contracting parties with respect to the object and
the cause which shal1 constitute the contract. Or using the language
of the Code, it signifies tha meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.
(Art. 1319, NCC.)
�
!
\I
II
Under the NCC, in order that then' is consent, the followi�
elements m U:st concur: fi;-st, the consent must be manifested . by
the concurrence of the offer and the acceptance (Arts. 1319-13$6�
NCC.J; second, the contracting parties must possess the necessaij,
legal capacity (Arts. 1.327-1329.) and third, the consent must b�
intelligent, free, :ipontaneous, and real. (Arts. 1330-1346, NCC.) '· ·
829
Arts. 1319-1346
OBLIGATIONS AND CONTRACTS
Contracts
Consent
The first is expressly stated in the Code; the second and the
third are implied.
..,:
.
.
.
: • · ' · · · . . ·. r·
. , , ... ., , . !
.
' ·
. . i·� .·J1
:
i ·;
27;' . i \,.When are contracts perfected?
•
· ANS: In general, contracts are perfected from the moment that
there is a manifestation of the concurrence between the offer and
the acceptance,with respect. to the object and t:he cause which shall
constitute the. �ontract. (Art. 1319, par. 1, NCC.)
ffowever, i f the acceptance is made by letter or telegram,
we must. distinguish. According to Art. 1319, par. 2, of the NCC,
the con'tr�c£ is pe;fected from the moment that the offemr has
knciwledge ofsuch�acceptance, while according to Art. 54 of the Code
of Commerce, the contract is perfected from the moment an answer
is made accepting the offer. Because of the repealing clause found
in Art. 2270 of the NCC, it is submitted that Art. 54 of the Code of
Commerce can now be applied only to purely commercial contracts,
such as joint accounts, maritime contracts, etc. We can, therefore,
sayrtpat the ,r,ule ,found in the second paragrai:h of Art. 1319 of the
NCC is the general rule, while that found in Art. 54 of the Code of
Commerce is the exception.
28. In an offer to sell, parties failed to agree on the size
of the land to be sold. Is there a meeting of the minds of the
parties that would perfect a contract?
ANS: There is no consent that would perfect a contract as there
is no agreement on the exact area to be sold. Contracts that are
consensual in nature are perfected upon mere meeting of the minrls.
A contract is produced once there is concurrence between the offer
and .the acceptance upon the subject matter, consideration, and
terms ofpayment. The offer must be certain. To convert the offer into
a . contract, the a.cceptance must be absolute and must not qualify
the terms of the offer. It must b� plain, unequivocal. Otherwise, it
unconditional, and without vari�nce of any sort from the proposal,
constitutes a counter-offer and is a rejection of the original offer.
Herice, .when something is desired which is not exactly what is
·
p�opos.ed 1n the offer, such acceptance is not sufficient to generate
consent because any modification or variation from the terms of the
· • bffer annuls the offer. (ABS-CBN vs. CA, 301 SCRA 572; Palattao us.
CA, G.R. No. 131726; May 7, 2002.)
830
OBL:GATIONS AND CONTRACTS
Contracts
Consent
Arte. 1319-1346
29. Gigi offered to construct the house of Chito·for a
very r<msonable price of Pl Million, giving the latter 10 days
within which to accept or reject the offer. On the fifth day,
before Chito could make up his mind, Gigi withdrew; the
offer. What is the effect of the withdrawal of Gigi's offer?;r,
II
I
Ii
ANS: The withdrawal of Gigi's offer will cause the offer to
cease in law. Hence, even if subsequently accepted, there could
be no concurrence of the offer and the acceptance. In the absence
.
of �oncur:cence of offer and acceptance, there can be no consent.
(Laudico us. Rodriguez, G.R. No.1 6530, March 31, 1922). Without
the consent, there is no perfected contract for the construction of
the housP. of Chito. (Salonga· us. Farra/es, G.R. No. L-47088, Ju�y
10, 1981.J Article 1318 of the Civil Code 'provides that there can be
no contract unless the following requisites concur: (1) consent of the
parties; (:l) object certain which is the subject matter of the contract;
and (3) cause of the obligation.
Gigi will not be liable to pay Chito any damages for withdrawing
.
the offer ·ae''ore the' lapse of the period g:�anted. In this case, no
consideration was given by Chito for the option given. Thus tli.e�e
is no µerfe.cted contract of option for lack of cause of obligation: Gigi
cannot be heiJ to have breached the contract. Thus, he cannot be held
lia hie for <i amages. (Suggested Answers to the 2005 Bar Examination
Questions, Philippine A .-sociation ofLaw SchDols.)
,.
30. A offered to sell his automobile to B for P50,000.
After inspecting the automobile, B offered to buy it for
P50,000. Tr.i11 offer was accepted by A. The next day, A
offered to deli.ver the automobile, but B, being short of funds,
secured a postponement of the delivery, promising to pay A
the price "upon arri�·al in this port of the steamer Helena,"
The stearuer, howeYer, never arrived because it was wrecked
somewhel e off the coast of Samar.
(a)
ls there a perfected contract in this case? Why?
(b) rs the promise to pay made by B conditional or with
a term? Why?
(c) Can A compel B to pay the purchase price andi;to
accept the automobile? Why?
831
Arts. 1srn.1s4s
OBLIGATIONS AND CONTRACTS
Contracts
Consent
·P.) ANS:� '(a)' Yes,· there ··is a perfected contract because there is
alreiidY' aY(:oncurrence between the offer and the acceptance with
resped/t<i the object and · the cause which shall constitute the
contract; Stich concilrrence is manifested by the acceptance madf'! by
A o(tli�' offei-'inade by B.
' ..: '-"'"' .. . , ; (b) The proniise to pay made by B is not conditional, but
mtlf a term. The· promise' is to pay the P50,000 upon arrival iri this
port'of the steamer, Helena, not if the steamer Helena shall.artive
in 'this port; Hence, the promise is with regard to the date of arrival
and ;not' with regatd to the fact of arrival.
·:
0
;.\ .. � . '., .:- 'cc)
A can compel B to pay the• purchase price, and
tO accept the automobile. He will, however, have to wait for the date
�hen the steamer, Helena, would have arrived were it not for the
shlpWreck., A.fter all, _there is already a perfected contract..
: ;
Y��.
. 3�. What is meant by the manifestation, expedit�on,
reception�· ruid cognition theories as applied to perfection
of co'iitracts? 'Which :of these theories 's followed in the
�pptiies?
Ph
.. ANS: There are actually four (4) different theories which
have.been advanced in order to pin-point the exact moment when
a contract is perfected if the acceptance by the offeree is mnde by
means of a letter or-telegram. They are:
' \ · (l} Manifestation theory (manifestacion) - The contract is
pei-fected frOm the moment the acceptance is declared or made. This
is the · the'ory which is followed by the Code of Commerce. (Art. 54,
Code ·of Commerce.)
.. ·
'
· , Expedition theory(expedicion) - 'l'h.1:: contract is perfP.cted
. . . (2�,
from the moment the offeree transmits the notification of accept!!.nce
to the offeror, as when the letter is placed in the mailbox. This is the
theory which is followed by the majority of American courts.
(3)
Reception theory (recepcion) - The contract is perfected
fromthe moment that the notification ofacceptance is in the h:md of
the iifferor in such a mannt:r that he can, under ordinary conditions,
proture the knowledge of its contents, even if he is not able actually
ta' 'acquire SllCh ktlow}edge by reason Of absence, sickness OT !;Orne
832
OBLIGATIONS AND CONTRACTS
Arts. 1319·1346
Contracts
Consent
other cause. This is the theory which is followed by the Germen
Civil Code.
(4) Cognition theory (cognicion)
The contract is perfected
from the moment. the acceptance comes to the knowledge of the
offeror. This is the theory which is followed by the Spanish Civil
Code.
-
In the Philippines, we have adopted the cognition theory.
According to the second paragraph of Art 1319 of the NCC,
acceptan-::e by letter or telegram does not bind the offeror except
from the time it comeB to his knowledge. The contract, in such a
case, is presu:ned to have been entered into in the place where the
offer was made.
.
3�. X applied for a life annuity of P6,000 at the local
office of the Sun Life Assurance Co. in Manila. He paid the
amount of PB,000 and was issued a provisional receipt. The
upplication was forwarded to the head office of the Company
in Canada. Notice of acceptan.ce, however, · was received'kt
the residence ofX ori.e day after his death. Can his legal heirs
still recover the PG,000? Reasons.
·
I
J
·"!
ANf:l: Yes, the legal heirs of X can still recovtlr the P6,000
already paid to the Company. The reason is that there is still no
i;erfected contract of life annuity. Under the provisiori of the second
paragrap!1 of Art 1319 of the NCC, it is'clear that the contract is
perfected 1nly once the offeror has knowledge of the acceptance
made by the offeree. In the instant case, the offeror was already
dead when the notice of acceptance was receivecl. (Enriquez us. Su.n
Life Assurance Co., 41 Phil. 269.) Besides, under the provision of
Art. 1323 of the Code, there can be no possible contract that can
be gener&.kd here. An offer, says the law, becomes ineffective upon
the death, ci•1.l interdiction, insanity or insolvency of either party
before ac<:eptance is conveyed. The word "conveyed" in this provision
denotes tiiai it has already been communicated.
.
33. On March .:i, 1956, A wrote a letter to B offering to
him the lease of a builrling. On March 6, 1956, at 1:00 P.M., B
sent a letter of acceptance which was received by A at 4:00
P.M. that day. But at 2:00 P.M., A had already sent B a letter
833
Arts. 1319-1946
OBLIGATIONS AND CONTRACTS
Contract8
Consent
of withdrawal of the offer which was received by B at 1>:00
P.M. Was the contract perfected? Reasons.
ANS: The contract has not been perfected. The deci�:ive
moment to consider in this case is the time when the offeror, A,
had knowledge of the acceptance made by the offeree, B. This i,; so
because, according to the law, the contract is perfected only from
the moment that the offeror has knowledge of the acceptancfl by
the offeree. '(Art. 1319, par. 2, NCC.) According to the facts st.ated
in the problem, A received the letter of acceptance at 4:00 P.M. But
two (2) hours before that, at 2:00 P.M., he had already sent a lette.�
to B withdrawing the offer. Consequently, at 4:00 P.M., although
there was acceptance, there was no longer any offer. Therefore,
the contract was not perfected because it is evident that there was
no concurrence between the offer arid the acceptance. (Laudico vs.
Arias, 43 P.hil. 270.)
36. (a) A offered to lease a certain building to B. Within
the period of the option given to him, B finally accepted the
offer. A few hours after mailing the letter of acceptance, he
change's his mind. May he revoke his acceptance by means of
a telegram.
(b) When the offeror has not fixed a period for the
offeree to accept the offer is made, when should accep·Lance
be made?
ANS: (a) Manresa believes that he cannot. Tolentino, however,
believes that he can. According to Manresa, the NCC grants the
power to revoke only to the offeror. There is no similar grant to the
offeree. The reason for this is the fact that the offeree is the first
to know of the concurrence of wills of the parties. Conseqn<?ntly,
as far as he is concerned, the obligation must commence earlier.
According to Tolentino, since there is still no perfected contract, and,
as a consequence, the parties are not yet bound, there is no juridicaI
reason why the offeree cannot revoke his acceptance .
. . ,. It is submitted that the view of Tolentino is more logical. Ifwe
a�c�pt,the view of Manresa, that would be tantamount to saying
that a co�tract may be perfected at two different moments, which is
j�tjdically impossible.
;
834
OBLIGATIONS AND CONTRACTS
Contracts
Consent
Arts. 1319-184-6
(b) Ifno time was given to the offeree to accept, he must
accept it immediately. (Marlboro vs. Court of Appeals, G.R. ,No.
1.25761, April 30, 2003.)
35.
What is the effect of the death, civil interdiction,
insanity, or insolvency of either offeror or offeree before
acceptance is conveyed?
ANS: The offer becomes ineffective. (Art. 1323, NCC.)
36.
Suppose that an option has been granted by the
offerer to the offeree within which to decide whether or not
he will accept ·the C1ffer, will it still be possible for such offeror
�:
to withdraw the offer during· the pendency of the option
ANS: We must iistinguish between the effect of an option
which is without a consideration and one which is founded upon a
consideration upon the right of the offeror to withdraw his offer 01·
proposal. If the option is without any consideration, the offeror may
withdraw his offer by communicating such withdrawal to the offeree
at any time before acceptance; if it is founded upon a consideration,
the offeror can not withdraw his offer. (Art. 1324, NCC.)
3'/.
S and R executed an instrument entitled "Option to
Purchase," whereby the latter agreed to sell to the former· a
parcel ot' lan.� for Pl,500 within a period of two (2) years from
the execution thereof. S made several tenders of payment,
but R always refused the te,nders. Finally, S brought an
action against R for specific performance and damages.
Defendant set up the defense that her contr.act with plaintiff
is a mere unilateral offer to sell, and consequently, since it
fa unsupported by a consideration which is separate from
the purchase price, 11aid promise is not binding upon her
pursuant to Art. 1479 Clf the NCC. Will the action prosper?
.
Reaso niJ.
ANS: The factual setting ofthe above problem is identical to that
ofSanchez vs. Rigas (45 SCRA 368). In that case, the Supreme Court,
s;:ieaking through Chief Justice Concepcion, ruled that tha action
will prosper thus abandoning the view adhered to in Southwestehi
Sugar aad Mollasses, Co. vs. Atlantic and Pacific Co. (97 Phil. 2'49).
835
Arts. 1319-1346
OBLIGATIONS AND CONTRACTS
Contraeta
Consent
In · unilateral offers to buy or to sell, since there may be no vdid
contract without u cause or consideration, the promisor is not bound
by bis promise and may, accordingly, withdraw it. Pending notice of
bis withdrawal, bis promise partakes of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale .
. As a matter offact, in a concurring opinion, Justice Antonio even
states: "Ifthe option is given without a consideration, it is a mere offer
to sell, which is not binding until accepted. If, however, acceptance is
made before a withdrawal, it constitutes a binding contract of .>ale.
The. concurref,l�e of both acts, the offer and the acceptance, could in
such event generate a contrar.t. While the law permits the offeror to
with�raw.the offer at any time before acceptance, he cannot exercise
this right� an.arbitrary and r.apricious manner. This is based upon
the principle that an offer implies an obligation on the part of the
offerer to maintain it for such length of time as to permit the offr.ree
to decide whether to accept or not, and therefore, cannot arbitrarily
revoke the offer without being liable for damages which the offoree
may suffer. A contrary view would remove the stability and security
of business transactions."
38. "A" agreed to sell to "B" a parcel of land for
P5,000.00. "B" was given up to May 6, 1975 within which i�
to raise the necessary funds. It was further agre ed thnt if
"B" could not produce the money on or before said date, no
liability would attach to him. Before May 6, 1975 "A" backed
out of the agreem'ent. Is "A" obliged to sell the property to
"B"? ·Explain. (1975)
,
Al'fS: Assuming that the offer of "A" to sell the land to "B" is
mereiy a unilateral offer to sell, and that there is still no bilateral
agreement in the se�se that "B" bad already agreed to buy the land,
"A" is not obliged tO sell the property to "B." In such case, it is clear.
that .the general rule stated in Art. 1324 and the particular rule
stated in Art. 1479, par. 2, of the NCC are applicable. As a nntter
of fact, even if "B" has formally accepted the option given him by
"A," such acceptance would be of no moment since the option is not
supported by any consideration distinct from the purchase price . "A"
can always change his mind at any time. Th•? option does not bind
him for lack of a cause or consideration. It would have been different
.
if"B" bad accepted the offe-r to sell within the period of the option
836
Arts. 1319-1346
OBLIGATIONS AND CONTRACTS
Contracts
Coneent
before said offer was withdrawn b y "A." In such a case, a contract of
sale would have been generated right then and there. AB · it turned
out, "A" withdrew his offer in time. (See Sanchez vs. Rigor;45 SCRA
368.)
.
'
;
i ,; ,
(Note: I n Sanchez vs. Rigor, supra, the Supreme Court finally
resolved a question which arose out of the use of the word ."acce'pted�
in modifying the phrase "t:nilateral promise to buy or to sell" in,Art.
.,
1479, par. 2, of the NCC. "Accepted" refers to the option, · rioflo the
offer to buy or to sell; in other words," it refers to the acceptance by
either prospective vendee or prospective vendor of the optii:in of; let ua
say, ninety days within which he shall decide whether or riot he ·shall
buy or sell the thing. Thus, if a offers to sell a lot to B for P200,000, and
gives the latter rm option of 90 days within which to decide whether
or nJt he shall buy the property, and the latter 3cceptE the option, 2
possible situations may arise:
I
1.:
'
f
(1)
In accept,ing the option, B pays to A an "option moneY" o>f,
let 'JS say P5,000 which is distinct from the purchase price. In such
case, there is already a perfected preparatory contract of option; A is
bound by his offer. B shall now decide within the period of the·dption
whether or not he shall buy the property. Ifhe decides to buy, he shall
then pay to A the price ofF200,000 ifhe decides otherwise, no contract
'
of sale will ever be perfected.
(?.) In accepting the option, B does not pay any "option money"
to A. In such case, t!1ere is no perfected preparatory contract of option
for lack of a conaideration. The result is a mere offer to sell, acceptance
ofwhich will b<:? sufficient to generate a petfected contract of sale.. But
suppose that, meRnwhile, A has changed-his mind? The lot is no longer
for sale. B, on the .:>ther hand, has decided to buy the property. What
will now happen? Under this situation, the one who is first to notify
the other of his decision emerges the victor. If A is the first to notify n
of his change of mind, no contract ofsale will ever be perfected; if B is
the f.rst to notify A of his acceptance ofthe offer, a contract of sale haa
already been perfected.)
39. X, the owner of a house and lot in Quezon City,
gave an option to A to purchase said property for Pl00,000,00
within VO days from May 1, 1979. A gave X one peso (Pl.(){))
as option money. Before the expiration of the 90-day period,
A went to X. to exercise b.is option and to pay the purchase
price but X refused because somebody wanted to buy ,his
property for P15<i,OOO.OO and because there was no suffl.Ci�nt
837
OBLIGATIONS AND CONTRACTS
Arts. 1319-1346
Contracts
Consent
consideration for the option. A sued X to compe l him to accept
payment· and execute a deed of sale in his favor. Decide the
case. (1980)
·
ANS: X should bn compelled to accept the purchase price of
Pl00,000.00 and to execute a deed of sale of the subject property in
favor of A: The reason is that there is already a r.-erfected contract of
sale. Undoubtedly, in the ins·�ant case, there is a unilateral offer of
X to' sell.the' subject property to A. For that purpose, the latter was
given an option of90 days from May 1, 1979 within which to exercise .
the option. The consideration for the option is Pl.00. Since th• )re is
a consideration for the option, X is now bound by his promise to sell
the property to A so long as the latter will exercise the option within
the a·greed period of 90 days. A exercised the option. Therefore,
there is already a perfected contract of sale. As ·a matter offact, even
if the option is without any consideration, the end result would still
be the same. Since there was an acceptance by the offe:ree of the
offer before the offeror could revoke or withdraw his offer, the,.e is
already a perfected contract of sale. (Sanchez us. Rigos, G.R. No. L-
25494, June 14, 1972.)
.The above conclusion is clearly supported by Art. 1324 the NCC,
which declares that "when the offeror (X) has allowed the offer"e (A)
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 consid,eration, as something paid or
promised." It is also supported by the second paragraph of Art. 1479
of the NCC.
True, X shall sU.ffer lesion or damage ifhe is compell ed to execute
the contract of sale in favor of A. If what he says about another buyer
is the truth he will be losing something like P50,000.00. True also,
the consideration for the option is grossly inadequate. However,
the law is clear and categorical. According to Art. 1355 of the NCC,
"except in cases specified by law, lesion or inadequacy ofcause shall
not invalidate a contract, unless there has been fraud, mista'.ce, or
undue influence." Under the facts stated in the instant case, there
is no basis for invalidating the preparatory contract of option on the
ground of fraud, mistake or undue influence.
. : 40. A gasoline manufacturing company (TPMC) ob·
tainod a loan from PNB and executed a real estate mortgage
ofer its· parcel of land in Paraftaque City to secure its loan.
'
·
838
OBLIGATIONS AND CONTRACTS
Contracts
Arts. 1319-1346
Consent
When the loan matured, PNB sent collection letters to TPMC.
In reply, TPMC propos�d to · pay its obligations by.way. .oh1
dacion en pago conveying its TCT No. 122533. Instead of ac·
cepting the offer, PNB filed a petition for extrajudicial fore·
closure of the REM. .TPMC.filed a complaint for annulment
of extrajl>.dicial foreclosure'sale alleging that its debt has al­
ready been extinguished by its offer of dacion· en pagiJ; PNB
contended. that the proposal of TPMC to pay by way, ,of da·
cion en pago did not extinguish its obligation. RS it \YRS. not
accepted hy PNB. Hence, the extrajudicial foreclosure .saie
was proper.Was PNB correct?
·
ANS: Yes, TPMC har. no clear right to an injunctive relief be­
cause its proposal to pay by way of dacion en pago did not extinguish
its obligation. Undeniably, TPMC's proposal to pay by way of dacion
en pago was not accepted by PNB.
Dacion enpago is a special mode of payment whereby the debtor
offers another thing to the crerlitor who accepts it as equivalent of
payment of an outstanding obligation. The undertaking is really one
of sale, that is, the creditor is really buying the thing 01' properly of
the debtor, pay:nent for which is to be charged against the debtor's
debt. AJ; such , the es1>ential elements of a contract of sale, namely,
consent, object certain and cause or consideration must be present.
It is only v1hen the thing offered as an equivalent is accepted by the
creditor that novation takes place, thereby, totally extinguishing the
debt.
Thus, the unaccepkd proposal neither novates the parties'
mortgage contract nor suspends its execution as there was no
meeting of the minds between the parties on whether the loan Will
be extinguished by way 'lf dacion en pago (Technogas Philippines
Mfg. Corp. us. Philippine National Bank, G. R. No. 161004, April 14,
2008).
41. "R" and Co. published in the newspaper an "Invita­
tion To Bid" inviting proposals to supply labor and materials
for a construction project described in the invitation. "L,"
"M," and "N" submitted bids. When the bids were opened, it
appeared that "V' submitted the lowest bid. However, ..�
and Co. awarded the contract·to "N," the highest bidder; .C!n
r
1!
I'
·I
l
1:
,,
·
839
OBLIGATIONS AND CONTRACTS
Arts. 1319-1346
Contracts
Consent
the» ground that-he was the most experie nced and re1Jpon·
sible.·bidder. "L" brought an action against "K" and Co. to
compel the award ofthe contract to him and to recover dam·
ages. : · · .
.
: · .;• i8' �'s" positlo� meritorious? (1980)
·,
'
•
• • � '. •• : .:
•
,•
,
I_
·' · 1 ANS: "L's" .position is not meritorious.
.,
r._ ·1,. ;
,.
· · · According to the NCC, advertisements for bidders are simply
.••
.. •
•
.
•
.
invitation� tO make proposals, and the advertiser is not bound to
a�c�p·t the hlghest :or lowest bidder unless the contrary appears. It
is clear that the general rule applies in the instant case. In its ad­
vertisement "K" and Co. did not state that it will award the contract
to th•dowest-bidder.. Therefore, in awarding the contract to "N," the
defendant company acted in accordance with its rights.
· :(:.,:1 . ; , (�ote.: The �bove answer is based on Art. 1326 of the NCC.)
· .. 1i:. · i : : '
. .
Who are incapacitated to give their consent to a
contract?
.
.
•
42.
· 'ANS:
The following are incapacitated to give their consent
to a :contract: (1) unemancipated minors; (2) insane or dl,mented
persons; (3) deaf-mutes who do not know how to write; (4) narried
women ·of age in cases specified by law; (5) persons suffering from
civil interdiction; and (6) incompetents under guardianship. (Art.
1327, NCC; Art. 34, R.P.C.; Rules 93-94, Rules of Court.)
.43. Is a person of advanced years or age , or by reason of
physical infirmities, incapacitated to enter into a contract?
ANS:' A person is not incapacitated to enter into a contract
merely because of advanced years dr by reason of physical infirmi·
ties, unless such age and infinnitie� impair his mental faculties to
the extent that he is unable to properly, intelligently and fairly un­
derstand the provisions of said contract (Yason Arciaga, G.R. No.
'
145017, January 28, 2005).
44.
What are the excep�ions to the rule that a contract
�b:tered into by an emancipated minor without the consent
J,
· f,hfs" parents or guardian is voidable?
840
OBLIGATIONS AND CONTRACTS
Contracts
Consent
Arts. 1319-1346
ANS: The exceptions are:
(1\
When the contract is entered into by a minor who
misnpresents his age, applying the doctrine of estoppel (Mercado
and Mercado vs. Espiritu, 37 Phil. 125; Sia Suan vs. Alcantara, 47
Off. C'
nzz. 456; Hermosa vs. Zobel, 104 Phil. 768.);
(2)
Where the contract involves the sale and delivery. of
(3)
Where it involves a natural obligation and such obligation
necessarie; to the minor (Art. 1489, par. 2, NCC.);
is voluntarily fulfille d by the minor, provided that such minor. is
between 18 and 21 years of age (Arts. 1426, 1427, NCC.);
(4)
When it is a marriage settlement or a donation by reason
of marriage, provided that the minor is between 20 and 21, if male,
or between 18 and 21, iffemale (Arts. ·120, 128, NCC.); and
(5)
When it is a life, health or accident insurance taken on the
life of the minor, provided that the minor is 18 years old or more and
the beneficiary is the minor's estate, or the minor's father, mother,
husband, ·Nife, child, brother, or sister. (Act No. 2424, as amended.)
45. On October 20, 1944, Rosario Braganza and her two
(2) minor sons, Rodolfo and Guillermo, who were then 18
j·
f<
.i
and 16 yaars old respectively, borrowed from Villa Abrille
P70,000 in Japan�se military notes, prom.i11ing to pay the
latter solidarily Pl0,000 "in legal currency of the Philippinesi,
two (2) years after the cessation of present hostilities or as
soon as Internatfonal Exchange has been established in
the Philippines," plus 2% interest per annum. For failure
to pay Villa Ahrille sued them in March 1949. Defendants,
however, interposed the minority of Rodolfo and Guillermo
de Braganza at the time they signed the note as a defense.
Consequently, the principal questions to be decided are: first,
whether or not the minority of her co-signers .has any effect
upon the liability iJf Mrs. Braganza; and second, whether or
·
not s1.1.ch co-signers can be held liable.
ANS: Mrs. Braganza is liable because the minority of her co·
signers does not release her from liability, since it is a personal
defense of the minors. However, she can avail herself of the defense
but such defense will benefit her only as regards the part of the debt
for which the minor are responsible. (Art. 1222, NCC.) Therefore,
841
Arts. 1319-1346
OBLIGATIONS AND CONTRACTS
Contracts
Consent
she shall pay 113 of Pl0,000, or P3,333.33, plus 2% interest from
October, 1944.
"·
·
. t r:-·
. . . . .. It"is true that Mercado us. Espiritu (37 Phil. 215), it was held
that "when .minors pretended to be of legal age, when in fact they
were not, they will not later on be permitted to excuse themselves
from �he fulfillment of the obligation contracted l:Jy them, or to have
it annulled." Howe·ver, the Mercado case is different because t.he
document signed therein by the minor specifically stated that they
wer� of age; ·here, the promissory note contained no such statement.
In other words, in the Mercado case, the minors were guilty of ac�ive
misrepresentation; whereas, in this case, the minors are guilty of
passive or constructive misrepresentation. From the minor's faPure
to disclo.se "i4�ir niinority, it does not follow as a legal proposition
that they: . w
.ill not be permitted thereafter to assert it. According
s"Juris Secundum (3, p. 206), "mere silence when making
to Corpu
a contract' as to hiS ·age does not constitute a fraud which can b..i
made' the basis of ah aCtion for deceit. In order to hold the infant
liable,-the fraud must be actual and not constructive." Therefore, the
minors in the case at bar cannot be legally bound by their signature
in the promissory note. They cannot, however, be absolved entirely
froni monetary responsi!)i!ity. Under the NCC, even if their written
contract Is v'oidable because of non-age, they shall make restitution
to the eXtent'that they may have profited by the money they received.
(A rt. 1399, NCC.) There is testimony that the funds were used for
their support during the Japanese occupation. Such being the case,
it is but fair to hold-that they had profited to the extent of the value
of such mon'ey, whkh value has been established in the Ballantyne
Schedule. . .In October; 1944, P40 Japanese military notes were
equivalent to'Pl.00 .. of current Philippine money. Hence, they shall
pay jointly · Pl,666.67, plus 6% interest beginning March 7, 1949,
when tlie complaint was filed. (Braganza vs. Vi lla Abrille, 105 Phil.
.
45
:
.
6)
46. Who are prohibited from entering into n contract?
ANS: The following persons are prohibited from entering into
certaiil contracts:
(1) Insolventa before they are discharged by the Insolvency
Ctiu:rt. Under the Insolvency Law (Act No. 1956.), they tannot
e'ncumber, alienate or otherwise dispose of their properties.
842'
OBLIGATIONS AND CONTRACTS
Contracts
Consent
Arts. 1319-1346
(2) l'<on-Christians of Mindanao, Sulu, Mountain Province,
and Nueva Vizcaya. Under the Revised Administrative Code
(Secs. 145-146.), they cannot sell real property without the written
approval of the provincial governor or his representative. This rule
is still intact under R.A. No. 3872, although the sale is now subject
to. thn approval of the Chairman of the Commission on National
Integration
(3) Husband and wife. Under the NCC, as a general rule,
they are prohLited from donating or selling property to each other
during the marriage. (Arts. 133, 1490, NCC.)
(4) Persons v;ho &:re prohibited from giving each other any
donation or advantage. Un::ler the NCC, they are prohibited from
entering into a contract of universal partnership. (Art. 1782, NCC.J.
(5) PerF.ons holding a fiduciary relation with respect to certain
properties. Thus, under Art. 1491 of the NCC, the following cannot
acquire by purchase, even at a public or judicial auction, in person
or thro.igh t.h� mediation of another:
(a) The guardian, the property of the person or persons
who m!iy be under his guardianship;
(b) Agents, the property whose administration or sale
may hwe been intrusted to them, unless the consent of the
principnl has been given;
(c) Executors and administrators, the property of the
estate under administration;
(cl) Public officers and employees, the property of the
State or of any subdivision thereof, or of any government owned
or controlled corporation, or institution, the admir.istration of
which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner whatso­
ever, ta«:e part in the sale;
(d_ Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officer� and employees
connected with the administration of justice, the property and
rights in lit.igation or levied upon on execution before the court
within whose jurisdiction or territory they exercise their re-
843
Arts: 1319-1346
·
OBLIGATIONS AND CONTRACTS
Contracts
Consent
spei:tive functions; this prohibition includes the act of acquir­
ing by assignment and shall apply to lawyers, with respect to
the property and rights which may be the object of any litiga­
, tion in whkh they may take part by virtue of their profession;
· (0
Any others specially disqualified by law.
47. Distinguish between incapacity to enter info a
contract and prohibition to enter into a contract.
ANS: Incapacity to enter into a contract and prohibition to
enter into a contract may be distinguished from each other in the
following ways:
. �: o:')
�p
In � acity restrains the exercise of the right to contract,
.
whereas prohibition to contract restrains the very right itself; in
other words, in the first, the incapacitated person may still enter
into the contract, but with the consent of his parents or guardian,
whereas 1n the second, the disqualified person c.snnot;
Incapacity is based upon subjective circumstances of
(2)
certain persons which compel the law to suspend for a definite 0r
indefinite period their right to contract, whereas prohibition to
contract, which has been improperly called special incapacity by
certain authors, is based upon public policy and morality; and
A contract enterer! into by an incapacitated person is
(3)
merely voidable in accordance with Art. 1390 of the NCC, whereas
that entered into by one against whom a prohibition is directed
is void in accordance with Arts. 5 and 01409, No. 7, of the NCC. (S
Castan, 7th Ed., p. 255.)
· . 48
.
.
'
What are the vices of consent?
ANS: According to Castan, the vices of consent may be
divided into two (2) distinct groups - vices of the will (vicious de
la formacion de la voluntad) and vices of declaration (vicious de la
declaracion). The first comprehends mistake, violence, intimidation,
undue influence, and fraud; the second comprehends all forms of
simulated contracts. (3 Ca.stan, 7th Ed., p. 330; Art. 1330, NCC.)
.,
.
_,. .
844
OBLIGATIONS AND CONTRACTS
Contracts
Coruient
Arts. 1319-1346
49. Define mistake of fact and mistake of law; .Which
of these mistakes can vitiate consent rendering the contract
.
· , . ,.,.
voidable'!
ANS: There is a �istake of fact when �ne or both' of the
contractinrr parties believe that a fact eXists when in reality iflloes
not, or that such fact does . not exists when in reality it does;' On
the other hand, there is a mistake of law when one cir both o't'the
contractrng parties arHve at·a:n erroneous conClusio'ri. regardihi{ the
int.?rpretation of a question of law or the legal effects of a �eiirun
act or tr&nsaction. As a .general rule, it is only a mistake of fact
which will vitiate conaent thus rendering the contract voidable;
a mistaki; of law, on the other hand, does not render the contract
voidable because of the well-known principle that'ignorance of the
law does nut excuse anyone from compliance therewith. (Ignorantia
legis neminem excusat)..(Luna vs. Linatoc, 74 Phil. 15; 3 Castan, 7th.
Ed., pp. 380-331.J
50. What mistakes of .fact will render . a contract
voidable?
ANE:: The mistake� offact which will render a contract voidable
are the follo .ling:
(1) Mistake as to the object of the contract (error in re)
This may refer to: (a) 1ilistakc as to the identity of the thing (error
in corpon::), or (b) mistake as to the substance of the thing (error in.
sul•stanci.-z), or (c) mistake as to the condi�ion of the thing, provided,
such condition has principally moved one or both of t.he parties to
enter into tl.e contract, or (d) mistake as to the quantity of the thing
(error in quantitate), provided that the extent or dimension of the
thing was one of the principal reasons of one or both of the parties
for entering into the CC'ntract.
-­
(2) Mistake as to person (error in persona) - This refers to
mistake with regard to thf! identity or with regard to the qualification
of one of the parties. (Art. 1331, NCC,- 3 Castan, 7th Ed., pp. 33.1-
332.)
..
ls there any exception to the rule that a mistake of
law cannot viii.ate con11ent rendering the contract voidable?
Explain.
51.
845
· Arts. 1319-1346
OBLIGATIONS AND CONTRACTS
Contracta
Consent
_; ) ' ' ' ANS:iMistake· oflaw'as· a rule will not vitiate consent. There
is,' however;1an' exception to this rule. According to Art. 1334 (a new
provision), mutual error as to the legal effect of an agreement when
the real. purpos� of �he , parties is frustrated, may vitiate con!;ent.
·
Three re.quisites "are; ·.therefore, necessary in order that such mis­
tak'�
�ll' , ' tfate
. consent..
In the first place, the mistake must be with
• .I " (
�
l
• •� 1t • I
,o •
•'
'• • •
resp �;c� i �q. .t�� legal e��ct o.f an agreement; in the second place, the
!Tli �t.� � . m.u �t �. m.ut?.al; and in the third place, the real purpose of
th,e j
(niust be .(iustrated.
> ii rf:�e!
'1:{
,
· ' . : Explaining
the reason forthe insertion ofArt. 1334 in the NCC,
J
'
the' Code Commissiorii!rs
stated in their report:
I
• !(. ::'
•
· :
;
· : ; ;,� T•!"
"Mistake
of law does not· generally vitiate consent. But when
'
« •· · ;thete'.is a mistake
on a doubtful question oflaw, or on the constrl'ction
•
·. . •ot application of law, this is analogous to mistake of fact, and the
maxim of 'lgncrantia legis neminem excusat' should have no proper
application. When even the highest courts are sometimes· divided
.. . . · )1:11>?.'} d,ifficu!pegal quP.stions .and when one:half of the lawyers in all
.
. ' controversies "cih. a legal question are wrong why should a layman be
held accountable for h is honest mistake on a doubtful IP.gal i�sue?"
., : r ; (Report of the Coc/,e Commission, p. 136.)
:
.. 1
.
52. What is meant by violence and intimidation'?
. . .
. .. ·. . . ' . � ,;
ANS·: There is violence when in order to wrest consent, serious
or irresistible force.is employed .
There is intimidation when one of the contracting partit!s is
compelled by· a reasonable and well-grounded fear of an imminent
and gra:ve· evil upon his person or property, or upon the pC'rson
or property of his spouse; descendants or ascendants, to give his
consent. (Art. 1335, pars. 1 and 2, NCC.)
. 53. , .What are th� requisites of violence and intimida lion
which will render a contract voidable?
ANS: In order that consent is vitiated through violence, it is
essential. that the following requisites must concur: first, the force
employed to wrest consent must be serious or irresistible; and
second;' it:must be· the determining cause for the party upon whom
1t is ·employed in . entering into the contract. (3 Castan, 7th Ed., p.
336.)
846
OBLIGATIONS MD CONTRACTS
Arts. 1319-1346
C<>ntracte
Consent
Intimidation, on the other hand, requires the concurrence ofthe
following requisite�: first, one· of the contracting parties is compelled
to give his consent by a reasonable and well-grounded.fear of art evil;
second, th(j evil must be imminent and grave; third, the evil must
be unjust; and fourth, the evil "must be the determining cause for
the party upon whom it is employed in entering into the contract.
(!bid.)
Distinguish betiv�en violence and intimidatio�.
54.
Because of the similarity between violence and
inLimidatiun, especially with regard to their effects both upon the
will of the person upon from they are exerdsed and upon the contract
which is produced thereby, the two are sumetimes known as duress.
One, however, must be distinguished from the other. While violence
ANS:
is external , intimidation is internal; while the first prevents the
expression of the will substituting it with a material act dictated "by
another, the second influences the operation of the wiJl, inhibiting
it in such a way that the expression thereof is apparently that of
a pe<"son who has freely given his consent. (8 Manresa, 5th Ed.,
Bk. 2, p. 408.) In the terse. language of Castan, violence is physical
co:npulsion, while intimidation is moral compulsion. _(3 Castan, 07th
.
Ed., p. 336.)
55.
Wliat is meant by undue influence?
ANS: Thl..re is undue influence when .a person takes improper
advantage of '1is power over the will of another, depriving the latter
of a reasonable freedom of choice. The following circumstances shall
be conside.ced: the confidential, family, spiritual and other relations
between the partie:;, or �he fact that the person alleged to have been
unduly im1uenced was suffering from mental weakness, or was
ign0rant OT in financial distress. (Art. 1337, NCC.)
fi6. What is meant by fraud?
ANS:
There is fraud when, through insidious words : or
machinations of one of the contracting parties, the. other is induced
to enter iuto a contract which, without them, he would not have
agreed to. 1Art. 1338, NCC.)
847
Arts. 1319-1346
OBLIGATIONS AND CONTRACTS
Contracts
Conse.nt
' - 57.-. · What- are the requirements of fraud to vitiate con­
sent.for purposes of �ulling a contract?
. . ' _'ANS:' The requirements are:
_., a)
_It was employed by a contracting party upon the other;
h)
It was serious; and
'
c}
It resulted in damages and injury to the party seeking
annlflment.-(Constantino us. CA, 264 SCRA 59.)
· . 58.· «What are the different classes of fraud?
. ANS:· In general, fraud may be classified as civil or criminal,
dependitlg upon whether it is governed by the NCC or by the
Revised Penal Code. Civil fraud may be classified as either fraud
in the perfection of a contract (Art. 1338, et seq., NCC.) or fraud in
the performance of an obligation. (Art. 11 70, NCC.) The first is the
fraud which is employed by a party to the ccntract in securing the
consent ' of the other party, while the second is the fraud which is
employed by the obligor. in the performance of an existing obligation.
Fraud or dolo which is present or employed at the time of the birth
or perfection of a contract, on the other hand' may be either causal
(dolo causante) or incidental (dolo incidente). Causal fraud ·refers
to those deceptions or misrepresentations of a serious character
employed by one party without which the other party would not
have entered into the contract, while inciden�al fraud refers to those
incidental deceptions or misrep�esentations employed by one party
without wgich the other party would still have entered into the
contract.
59.
cknte.
Distinguish betwl?en dolo causante and do ln inci·
ANS: Dolo causante (Art. 1338.) and dolo incidente (Art. 1344.)
may be distinguished from each other in the following ways:
(1) The first refers to a fraud which is serious in character,
whereas the second is not serious.
· � 1 r . (2) The first is the cause which induces the party upon whom
it�is;employed in entering into the contract, whereas the second is
noti the cause.
,
848
OBLIGATIONS AND CONTRACTS
Contracts
Consent
(3)
Arts. 1319-1346
Th€ effect of the first is to render the contract voidable,
whereas the effect of the second is to render the party who employed
it liable for carnages.
60. Do.:>es failure to disclose facts to the other party
constitute fraud which will render a: contract voidable? Hciw
about an exaggeration in trade? How about an expressfon of
an opinion'!
ANS: Under our law, ifthere is a failure of one party to disclose
facts to the other party, when there is a duty to reveal them, as
when they are bound by rohfidential relations, such failure would
constitute fraud which will render a contract voidable; however;:
if there fr no duty to reveal them, such failure does not constitute
fraud. (Art. 1339, NCC; Strong us. Gutierrez Repide, 213 U.S. 419/
41 Phil. 974.)
In the case· of the UStlal exaggerations in trade, so long as the
other party had an opportunity to know the facts, under our law,
they are mt in themselves fraudulent. (Art. 1340, NCC; Songco us.
Sellner, 37 Phil. 254; Azarraga us. Gay, 52 Phil. 599.)
.. �
· Similarly, under our law, a mere expression of an opi.nion does
not signify f1 aud1 unless made by an expert and the other party has
relied on the forroer's special knowledge. (Art. 1341, NCC; Songco
us.
Sellner. 3upra.)
61. C, an old and ignorant woman, was helped by V in
obtaining a loan of P3,000.00 from X Rural Bank secured by
a mortgage on her house and lot. On the day she signed the
promissory note and the mortgage covering the loan, she also
signed several documents. One or these documents signed
by her w.J.s a promissory note of V for a loan of P3,000.00
also secured by a mortgage on her house �nd lot. Several
years later, she received advice from the sheriff that her
property i;hall be sold at public auction to satisfy the two
obligations. Immediately she filed suit for annulment of her
participation as co-maker in the obligation contracted by
V as well aEt of the mortgage in relation to said obligation
of V on the ground of fraud and mistake. Upon filing of the
849
�· .
ArU!. 1319-1346
OBLIGATIONS AND CONTRACTS
Contracts
Consent
complaint, she deposited P3,383.00 in court as payment of
her personal obligation Including interests.
(a)
Can C be held liable for the obligation ofV? Why?
(b), Was there a valid and effective consignation con·
,
sidering that there was no previous tender of payment made
by C to the Bank? Why?
ANS: (a) C cannot be held liable for the obligation of V. It is
crystal clear that C's participation in V's obligation both as co-maker
ai;id as mortgagor is voidable not on the ground offraud becaus1� the
B.a�.wa!j. ,not a participant in the fraud committed by V, but 011 the
giciund of riiistake. There was substantial mistake on the part of
both C and the Bank mutually committed by then as a consequence
of the fraud· employed by V. (See Rural Bank of Caloocan City uJ.
CA, 104 SCRA 151.)
·
,. (Note: In reality, the above answer of the Supreme Court is
based upon the explicit provisions ofArt. 1342 of.the NCC.)
(b) Despite the fact that there was no previous tender of
payment made directly to the Bank, nevertheless, the consig:iation
was valid and effective. The deposit was attached to the record of
the case and the Bank had not made any claim thereto. Therefore, C
was right in thinking that it was useless and futile for her to make
a previous offer and tender of payment directly to the Bank. Under
the foregoing circumstances, the consignation was valid, if not un·
der the strict provisions of the law, under the more liberal consider·
ations of equity. (Ibid.)
.
�
'
.
· ·
62. What is meant by si.Inulation of contracts and what
are its effects?
· 'Simulations of contract, which Castan calls vices of declaration
(uicios de la declaraci6n), may be either ahsolute or relative. The
simulation is absolute when there is colorable contract but it nas no
substance as the contracting parties do not intend to be bounrl by the
contract at all, as when a debtor simulates the sale of his properties
to·a friend in order to prevent their possible attachment by cr1Jditors.
The' l:ia'sic characteristic of this type of simulation of contract is the
fad. that the apparent contract is not really desired or intended to
850
OBLIGATIONS AND CONTRACTS
Contracts
Object
Arts. 1347-1349
produce legal effects or in any way alter the juridical situation of the
parties. It is relative when the contracting parties state a false cause
in the con.;ract to conceal their true agreement, as when a person
conceals a donation by simulating a sale of the property to the
beneficiary for a fictitious consideration. The primary consideration
in determining the true r..ature of a contract is the intention of .the
parties . Such intention is determined from the express terms of their
agreement as well as from their contemporaneous and subsequent
acts. (Tating vs. Marcella, G.R. No. 155208, March 27, 2007).
While the other vkes of consent (picios de la form.acion de la
uoluntad) render the contract voidable, simulation of contracts af­
fects the contract in an entirely different manner. Thus, accordin·g
to Art. 134':i, an absolutely simulated contract is void and the par­
ties may recover from each other what they may have given ·under
the contract, while a relath
1 ely simulated contract is binding and
··;
enforceable between the parties and their successors in interest to
their real agreement, when it does not prejudice a third person and
is not intended for any purpose contrary to law, morals, good cus­
toms, public order or public policy (Valerio vs. Ref1·esca, G.R.
No.
·
163689, March 28, 2006).
The legal presumption is in favor of the validity of contracts.
The party who impugns the validity and regularity of a contract has
the burden of proving hi3 allegation.
OBJECT
(Arts. 1347-1349)
63. What is meant by object of contracts?
ANS: The object of a contract maybe defined as the thing, right
or service which is the subject matter of the obligation which is
created or established.
64. "What requisites must concur in order that a thing,
righ t or service may be the object of contracts?
,
-�·
ANS: AB a general rule, all things, rights or services may be
the object of contracts. It is, however, essential that the followirig
. . �·
"·
requisiteu must concur:
851
. , .
'
Arts. 1347-1349
OBLIGATIO."IS AND CONTRACTS
Contracts
Object
(1) The object should be within the commerce of men; in other
words, it should be susceptible of appropriation and transmis�ible
from one person to another.
(2) The object should be real or possible; in other words, it
should exist at"the moment of the celebration of the contract, or, at
least, it can exist subsequently or in the future.
(3) The object should be licit; in other words, it should no� be
contrary to law, morals, good customs, public order or public policy.
(4) The object should be determinate, or at least, pos1ible
of determination, as to its kind. (3 Castan, 7th Ed., pp. 342-343, 8
Manresa, 5th Ed., Bk. 2, pp. 431-432.)
65. What things, rights or services cannot be the object
of contracts?
ANS: !he following cannot be the object of contracts:
(1)
Things which are outside the commerce of men;
(2}
Intransmissible rights;
(3)
Future inheritance except in cases expressly authorized
(4)
Impossible things or services;
bylaw;
(5) Services which are contrary to law, morals, good customs,
public order or public policy; and
(6)
Objects which are not determinable as to their kind. (See
Arts. 1347, 1348, 1349, NCC.)
If the parties enter into a contract with respect to the above
objects, the contract is void or inexistent.
66. What are the exceptions to the rule that no p 3rson
can enter into a contract with regard to future inheritnnce ?
ANS: They are:
(1) Under Art. 130 of the FC, which allows the future sp0uses
to give or donate to each other in their marriage settlement their
future property to take effect upon the death of the donc.r and
852
OBLIGA'1'IONS AND CONTRACTS
Contracts
Object
Arts. 1347-1349
to the extent laid down by the provisions of the NCC relating to
testamentary'succession; and
(2) Under Art. 1080 of the Code, which allows a person tO
make a partition of his estate among his heirs by an 'act inter vi­
vos, provided that the lr:gitime of the compulsory heirs is not preju�
·
.,
diced.
67. A married B in 1930. Out ofthis marriage, there were
three (3) children, D, E and F. In 1940, B died. The following
year after B's death, A contracted a second marriage with C;
There were no children out. of this marriage. At the time of
this second marriage, no liquidation of the properties of the
first marriage was made. On December 26, 1956, only over a
week befo1·e his death on January 9, 1957, A executed·a will
declaring all of his properties as conjuge.l and giving one·
half thereof to C as her share. On the same date, C. signed
a notarized document, stating that she had read the will
of her -husband and that she promises to convey by will 1/2
of the share glven to her to the children of her husband by
his previous marriage. C died in 1960 without complying
with her promise. AB a result, D, E and F brought an action
against her estl\te asking for the enforcement of the promise
contained in the document. Will the action prosper?
ANS: Ac,cording to the Supreme Court in Blas vs. Santos (111
Phil. 503), the action will prosper. Considering that the properties
of the first '!llarriage had not been liquidated and the further fact
that such properties w·�re actually included as conjugal properties
of the second marriage, it is clear that the document signed by C is
the compromise defined by Art. 2028 of the NCC. It is, therefore, a
contract with sufficien� cause or consideration. There is of course the
i
question as to whether or not the contract would fall within the p.ir­
view of Art 1347 of the NCC which prohibits contracts with respect
to future inheritance. According to the Supreme Court in the ca.se
just citkd however, the prohibition does not apply. In other words,
according to the Court, the document signed by C is not void under
Art. 134 of the NCC. What is prohibited is a contract which deals
with any yroperty or right not in existence or capable of detennin�i
tion at the time of the con�act, that a person may in the future· .'a�
quire by succession. Here the subject-matter of the contract signed
853
;, •
.
Arte. 1350-1355
OBLIGATIONS AND CONTRACTS
Contracts
Cause
by C are. well-defined properties, existing at the time of the agree­
ment.
68. Can the certainty of the object of the contract
be µegated by the failure of the parties to state the exnct
location ·of the property in the contract?
ANS: In the case of Camacho us. CA (G.R. No. 127520, Feb·
ruary 9; 2007), the SC held that Arts. 1349 and 1460 of the NCC
provide' the' guidelines in determining whether or not the obje.;t of
the c·ontract is certain. In this case, the object of the contract is a
5;000 sq.m:portion of Lot 261, Balanga Cadastre. The failure of the
parties'to: state the·exact location in the contract is of no moment.
This is atmere error occasioned by the parties' failure to des<:ribe
with pa'rticularity the subject property, which does not indicau: the
absence 'of the· principal 'object as to render the contract void. Since
i'n this case;Cainacho bound herself to deliver a portion of Lot 2ol to
Atty. Bahzon, the description of the property subject of the cont.ract
is· sufficient to validate the same.
CAUSE
(Arts. 1350-1355)
69.
What is meant by the cause of contracts?
ANS: In general, cause is the why of the contract or the
essential reason which moves the contracting parties to enter into
the contract. (8 Manresa, 5th Ed., Bk. 2, p. 450.) In other words, it
is the immediate, direct or most proximate reason which explains
and justifies the creation of ·an obligation through the will of the
contracting parties. (3 Castan, 7th Ed., p. 347, citing 2 Planiol, .Sec.
277.) In particular, 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 contracts, it is the service or
benefit which is remunerated; and in contracts of pure beneficence,
it is tho liberality of the benefactor. (Art. 1350, NCC.J
70.
Distinguish between cause and consideration.
' ANS: Actually, in this jurisdiction, cause and considcrntion
nre used lnterchimgeubly. Alt<Jr nil, carrncr l8 111oroly lho civil luw
854
OBLIGATIONS AND CONTRACTS
Contracts
Cause
Arts. 1350-1365
term, while consideration is the common law term. It is, however,
undisputed. that causa in civil law . jurisdictions is broader.Jn
scope than considerat�on in Anglo�American jurisdictions. Many
agreemenb; which cannot be supported in Anglo-Amerl.can law for
want of corsideration can be eriforced under the broader doctrine
. . of'
causa. (See 4 Tolentino, NCC, 1956 Ed., p. 486.)
,
71.
Distinguish the cause from the object of contracts.
ANS: The cause must not be confused with the object of the
.
contract. Of course, there can. be ·.no question about the difference
between tht- two in ca�es ofreniuµ"eratory and gratuitous contract�:
thus, in the first, the cai.ise is the" service or benefit whii:h.: '.is
remunerated, while the object is the thing which is iive�' in
remuneration, and in the second, the cause is the liberality of the
benefactor, while the· object is the thing that is donated. In onerous
contracts, the cause fr.r each contracting party is the prestation ·or
promise of a thin or service by the other, while the· object is the
thing or service itself. Thus, in a contract of sale, the cause for the
vendor is the acquisition of the purchase price, while the cause for
the vendee is the acquisition of the thing sold. The objects, on the
other hand, are the thing.which is sold and the price which is paid.
(3 Castan 346; 8 Manresa, Bk. 2, 450.) Dr. Tolentino, however, while
concurring �ith this view with respect to the cause, maintains that
the object is the thing that is sold because it is the starting point of
agreement without which the negotiations would never have begi.J.n.
(4 Tolentino 585.) Dr.. Padilla, on the other hand, contends; that in
bilateral contracts like sale, the thing sold is the object, while the
.
price paid is the cause. (3 .Padilla 553.) It is submitted that the view
of Dr. Tolentino is the mo3t logical.
�
72. Distinguish the cause of a contract from the motives
of the contracting parties.
ANS: The cause of a contract and the motives of the parties in
cnt1.:l'ing into the contrnC't inay be distinguished from each other as
·
·
follows:
(1)
The cause is the direct or proximate reason of a contract,
whcranH t.he motive� ore-the indirect or remoto reoeonR.
855
Arts. 1350-1355
OBLIGATIONS AND CONTRACTS
Contracts
Cause
·
(2) -The' cause is the objective or juridical reason of a contract,
whereas the motives are the psychological or personal reasons.
: . · ·• t'(3). . . . ...The
; . .. . ; cause
.
.
for· . a certain contract is always the same,
.
whe�eas the Di.otives Will differ or vary depending upon who are the
·
parti�s� '' · · '. . .
.
(4) The cause can affect
the validity of a contract, whereas
·
the tµQtiv.es �annot. •
.. . ).�_.;1 •
I�'t_here �ny. exception to the rule that the particular
niotiveifOfthe partiesin entering into a contract are different
fro.m. tiie cause of the. contract? It there is, what is it? Give
ex�ples;
" .·
.
.'
.�
'
:
.
·
..
. : ANS: .There is an exception to the rule and that is when the
·
contract is conditioned upon .the attainment of the motive of either
contracting party. In other words, the motive may be regarded a�
causa when it predetermines the purpose of the contract. (Liguez vs.
Court ofAppeals, 102 Phil. 577.)
. The best examples are the decided cases. Thus ...:..
. . ;. .
(1) Where a married man of mature years donated a parcel
of land to a girl of 16 subject to the condition that the latter !.hall
cohabit with him, and such condition is accepteJ, it is clear that the
donation is conditioned upon the attainment of the motive of t.he
donor; in othf;!I' words, it predetermines the purpose of the contract.
Thus considered, the conveyance is clearly predicated upon an iliegal
causa. Consequently, it is void. Therefore, under what is now Art.
1412 of the NCC, there can be no recovery of what has already been
delivered. (Liguez us. CA, supra.)
(2) Where a mother sold two (2) fishponds to a daughter and
the latter, in turn, resold the same fishponds to her and her utep­
father, as a consequence of which said fishponds were converted
into conjugal properties, it is clear that the motive or purpose is to
circ�mvent the law _against dona�ions between spouses. (Art. 133,
NCC.) This ·motive or purpose is the illegal causa rendering th� con­
tr�ct void. Consequently, the rule of in pari delicto non oritul' actio,
now·. enunciated· in Art. 1412 of the NCC, is applicable. (Rodriguez
vs. ·Rodriguez, 20 SCRA 908.J
·
856
OBLIGATIONS AND CONTRACTS
Contracts
Cauae
Arta. 13(;0-1355
(3) Wh�re a Filipino leased a parcel of land to an alien for 99
yeurs with an option to buy the property within 50 years, provided
that the latter shall be�ome a Filipino citizen, it is clear that the
motive or purpose of the arrangement, which has resulted in the
virtual transfer of ownership to the lessee, is to circumvent the
Const\tutional prohibition of transfer oflands to aliens. This motive
or purpose is t.he illegal .causa rendering the contract void. However,
it will be the provision ofArt. 1416 and not of Art. 1412, of the NCC
that will apply. Because of public policy the lessor will be allowed
to recover the property. (Phil. Banking Corp. vs. Lui She, 21 SCRA
52.J
1
l
i
l
I
�
74. May a moral ohligation constitute a sufficient cause
to support an onerous contract?
ANS: Where the moral obligation arises wholly from ethical
considerations, unconnected with any civil obligation, and as such,
is demandable only consr:ience, and not in law, it cannot constitute
a cause to suppo:ct ari onerous contract (Fisher vs. Robb, 69 Phil.
101.J, but where such moral obligation is based upon a previom1
civil obligation which has already been barred by the statute
of limitations at the time when the contract is entered into, it
constitutell a sufficient cause or consideration to support the said
contract. ("lillaroel vs. E�trada, 71 Phil. 14.)
75. What requi�ites must concur in order that there
will be a sufficient cause upon which a contract may hE!
founded?
I
A..\l'S: In order that there will be a sufficient cause upon which 11
contract may be founded, it is essential that the following requisiteB
must concur:
(1)
The cause should be in existence;
(2)
The cause shoulrl be licieor lawful; and
(3)
The cause should be true.
If the contract has no cauue, or even ifit has, if the cause should
be illicit or unlawful the rule is that it shall not produce any effect
whatsoever, or what amounts to the same thing, it is inexisterit.o:r
.
I
.
,
void from the beginning. (Arts. 1352, 1409, os. 1, 2 and 3,
N
857
N9,C.)
Arts.11360·1355
. OBLIGATIONS AND CONTRACTS
Contracts
Cause
.The same is_true if the cause stated in the contract is false, unless it
can be= proved that the contract is, in reality, founded upon another
cause which is true and lawful. (Art. 1353, NCC.)
; - � !1 ; ; '·; ' � ;. . .
•
' '76/'' W, wife of H and daughter of F, while employod in
a paW1lshop owned by P, embezzled P2,000 belonging to said
pawnshop. In orde1· to prevent her criminal prosecution for
estafa; H and F signed a document obligating "themselves
Jointiy and severally to pay to p the amount embezzled
including mterest. Because of their failure to comply with
their promise, the latter brought an action agai n st them for
c�llecti�n.
the action prosper? Reasons. (2000)
_
�ill
ANS: The action will not prosper. The consideration for the
agreement is clearly illicit, which fact is apparent on the face of the
contract, and the case is accordingly
governed by Art. 1352 of the
.
NCC. · '
· '. There has been no period since contract law reached the state
of consciousness, when the maxim ex turpi causa non oritur (l�tio
was riot recognized. ·A contract based upon an unlawful object is and
always has been void ab. initio by the common law, by the civil law,
moral law, and all laws whatsoever. It is immaterial whether the
illegal character is revealed in the matter of the consideration, in the
promise as expressed in the agreement or in the purpose which the
agreement, though legal in expression, is intended to accomplish. If
the illegaiity lurks in any element, or even subsists exclusively in
the purpose of the parties, it is fatal to the validity of the contract.
. . By the universal consensus ofjudicial opinion in all ages it has
been considered contrary to public policy to allow parties to make an
agreement designed.to prevent or stifle prosecution for crime. (Velez
vs. Ramas, 40 Phil. 787.)
77. A gave to B P2,000, to be used in the purchase of
-palsy, with the obligation to return said amount with in 10
days, if not spent for said purpose. B neither bought palay
nor .returned said amount. As a result, A accused him of
-' est1ifa. When the case was about to be heard, X, a common
·. :fri1'litd; acting upon B's request prevailed upon A to move for
· th'Ei"ctisniiss8.l of the case and be contented with a pron.issory
riote: fo be e:x:ecnted by B. The note was executed, and
·
858
OBLIGATIONS AND CONTRACTS
Contrar.ts
F'orm of Contractu
Arts. 1356-1368
accordingly, the criminal case was dismissed. B, however,
was unable to comply with ·his promise despite repeated
demands. Subsequently, A brought an action against B for
-th.a recovery of the P2,000. B, however, contends that the
promissory note is void because the consideration thereof is
the dismisr.al of the estafa case which is certainly contrary to
public policy. Is this correct?
ANS: This is n?t correct. It is admitted that B had received
'
P2,000 from A t0 be used in the purchase of palay, The cause .9r
i'
consi:leration, therefore, for the promise was this pre-existing debt
of B, not the dismissal of the estafa case, which merely furnished
the ocrasion fc,t the execution of the promissory note. (Mactal us.
Melegrito, 111 Phil. 363.)
I
l
FO:PM OF CONTRACTS
I
1i
(Arts. 1356-1358)
78. As a general rule, what is the form of a contract in
order that it will be of obligatory force?
·
1
ANS: Whatever may be the form in which a contract may
have been i:ntered into, the general rule, according to Art. 1356 of
the NCC, is that it shalJ be obligatory provided all of the essential
requisites for it3 validity are present. We have, therefore, retained
the "spiritual system" of the Spanish NCC by virtue of which the Jaw
looks more at the spirit rather than at tl.e form of contracts. Hence,
under our li:gal system, the form in which a contract is executed has
no effect, af: a general rule, upon its obligatory force, provided all of
the essentfa-1 requisites for its validity are present.
79. What a1·e the exceptions to the above rule?
-
j
i
�i
ANS: lt must be observed that when Art. 1356 speaks of con­
tracts as b1;i_ng obligatory regardless of the form in which they may
have been entered into, it does not include those contracts for whfoh
the Jaw preJcribes a certain form either for validity or for enforce­
ability. It is, therefore, evident that there are two (2) exceptions to
the general rule. These exceptions are:
(1) When the law requires that the contract must be in ·a
certain forrr. in order to be valid; and
-
859
Arte. 1356-1358
OBLIGATIONS AND CONTRACTS
Contracts
Form of Contracts
(2) 'When the law requires that the contract must be in a
certain·form in order to be enforceable.
·
80� What are the different kinds oi' forma li tie s which
'
are prescribed by law for certain contracts?
ANS: The formalities required by law for the execution of
certain contracts are: (1) those which are for c:onvenience or for the
purpose cif binding third persons; (2) those which are necessary for
the validity of the contract; and (3) those which are necessary for the
enforcement of the contract. The first is governed by Arts. 1356 to
1358 of the NCC; the second by scattered pro,isions of the NCC and
by special laws; and the third by the Statute of Frauds.
81• . (a) What are the formalities which are merely for
the convenience of the parties?
(b) Marlene Dauden, a movie star, filed a complaint
against X Co. to recover P14,700 representing the balance of
her compensation as leading actress in two (2) motion pic­
tures produced by the company. Upon motion of defendant,
the lower court dismissed the complaint because "the claim
of plaintiff was not evidenced by any wl'itten document, ei­
ther public or private" in violation of Art. 1358 of the NCC. Is
this order of dismissal in accordance with law'! Reasons.
ANS: (a) Tlie 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 prope1ty or of an
interest therein are governed by Arts. 1403, No. 2, and 1 405;
(2)
The cession, repudiation or renunciation of heredi­
tary rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other pow­
er which has for its object an act appearing or which should ap­
pear 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.
860
OBLIGATIONS AND CONTRACTS
Arta. 1366-1358
Contracta
Form of Contracta
:II
All ether contracts where the amount involved exceeds P500.00
must appear in writin5, even a private one. But sales of· go6d11,
chattel� or thi,ngs in action are governed by Arts. 1403, No. 2, md
i
1405. (Ar�. 1358, NCC.)
(b) The lower· court's orders of dismissal is not in
accordance with law. In the matter of formalities, in general,
contracts are valid and binding from their perfection regardless
of form, whether they be oral or written. This is plain from Arta.
1315 and 1356 of the preiile�t NCC. Con�eque�tly, so long ii;i.the
three (3) elements (consent, object and cause) exist, the contz:aci: :is
generally valid and obligatory. To this rule, the Code admits.· the
following exceptions: (a) Contracts for which the law itself requires
that they be in a particular form in order to make them valid and
enforceable (the so-called solemn contracts); and (b) contracts that
the law r�quires to be proved by some writing of its terms as in
those cov�red by· the Statute of Frauds. The contract sued upon by
plaintiff in the case at bar does not fall under either exception. 'rt is
true that it is ·covered by the last clause of Art. 1358, bcit Art. 1357
clearly indicates that contracts covered by Art. 1358 are binding
and enforceable by action or suit despite the absence of writfog.
Hence, this case must be remanded to the lower court for further
proceedings not at variance with this decision. (Dauden-Hernaez vs.
De los Angele.o, 27 SCRA 1276.)
82. What are the formalities which are necessary for
the validity of contracts?
ANS: Contracts which must appear in writing are as follows:
(1) Donations of personal property whose value exceeds
P5,000.00. According to Art. '748 of the NCC, the donation and the
acceptance shall be made in writing; otherwise, it shall be void.
(2) Sale of a piece ofland or any interest therein by an agent.
According to Art. 1874 of the NCC, if the authority of the agent is
not in wrUng, the snle is void.
(3) According to Art. 2134 of the NCC, in contracts of an­
tichresis, the amount of the principal and of the interest shall be
specified in writing; otherwise, the contract shall he void.
·
861
OBLIGATIONS AND CONTRACTS
Arts. · 1356-1358
. Contracts
Fonn of Contracts
li:l(4) ; i Agreements regarding payment of interest in contrac�s
onoan}According to Art. 1956 of the NCC, no interest shall hrl due
·unless it has been expressly stipulated in writing. The validity of the
contract of loan, however, is not affected.
·
"Contracts which must appear in a public document are as
follows: .
. (i)
. Donations of immovable property. According to Art. 749
of.the NCC',' the donation must be made in a public document. The
ac�eptance, on the other hand, may be made in the same deed of
doh'atioli or'in a 'separate public document. Ifthe acceptance is made
hi ;a.separate p�bli� document, the donor shall be notified thereofin
aii ;a'utlie:ritic form, and this step shall be noted in both instruments.
Ncinlconiplia:rice with' any of these formalities shall render the
"'
-
·
donatioii.''void.
.
·
".: '.'.'_ c2)' Partn�rsliips where immovable pr Jperty or real rights arr.
co�trll:lute<l to the
. common fund. According to Arts. 1771 and 1773 ot
.
...
. '
.
'·
·l' . ...
.
tp� NCC, in a contract of partnership where immovable property or
�eiil ri'g.hts_··are contributed to. the common fund, it is necessary that
tlie coritra'Ct must appear in a public instrum3nt and that there must
oe' kn ii:i.ventory of the immovable property or real rights, signed by
u.;b p:�i-tiiers, and attached to the public instniment; otherwisr., the
co'ntract is void
.
Contracts which must be registered are as follows:
(1) · Chattel mortgages. According to Art. 2140 of the NCC,
by a chattel mortgage, personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation.
Ifthe movable, instead ofbeing recorded, is delivered to the crr�ditor or
a third person, the contract is a pledge and not a chattel mortgage.
_
(2) Sales or transfers of large cattle. According to the Cattle
Registration Act, no sale or transfer of large cattle shall be valid
unless· it is duly registered and a certificate of transfer is secured.
(Sec. 22, Act No. 1147; Art. 1581, NCC.)
83. Spouses Robert and Yollie wanted to sell their house.
They_. found a prospective buyer, Nina. Yollie negotiated
·
'
With Nina for· the sale .of the property. They agreed on a fair
price of P2 Million. Nina sent Yollie a letter confirming her
862
OBLIGATIONS AND CONTRACTS
Contracts
Reformation oflnatnimenta
Arts. 1359-1369
intention to buy the property. Later, another couple, Marius
and Ellen, offered a similar house at a lower price of Pl.I>
Million. But Nina insisted on buying the house of Robert
and Yollie for sentunentai �easons. Nina prepa·red a deed of
sale to be signed by tl�e couple and a manager's ch
.�or
P2 Million. After receiving' the P2 Million, Robert sig:tied the
deed of sale. However, Yollie was not able to sign it becii(18e
she was saying she changed her mind. Yollie filed suit for
nullification of the deed of sale and for moral and exemplary
damages against Nina. Does Nina have any cause of action
· .1.against Robert and Yollie?
�c�
ANS: Consideri�;g· th-�t th� contract has �l;�ady been ��tl,°�'��d
and taken out of the: operation of the statute of (rauds, Nina, can
compel Robert · arid Yollie_ to .observe the forffi. require4 b:V1 l�W. Jn
order for the i ropertY: t0 be registered in the name of Nina'whl·�h
can be filed together with the action for the recovery of house.
(Art. 1357, NCC). In the . alternative, she can recover the amount
of P2 Million that sh� pa"icl. OtherWise, it would rks�lt in solution
indebiti or unjust enrichment. (Suggested Answers to the. 200� Bar
Examination Questions, PALS.)
REFORMATION OF INSTRUMENTS
(Arts. 1359-1369)
84. What is the doctrine of reformation of instrumentll
under the NCC? What requisites must concur in order that an
instruml.:nt may be reformed? What is the difference between
reformation of instruments and annulment of contracts?
ANS: When the true intention of the parties to a perfected and
valid cont"�act are not expressed in the instrument purporting to
embody tr.eir agreement, by reason of mistake, fraud, inequitable
cond.uct or accident, one of the parties may ask for thP. reformation
of the instrument so that such true intention may be expressed.
(Art. 1359. Nt.:C.) In order that there can be a reformation of the
· ·1 :
instrument, 'ie following requisites must, therefore, concur:
·
(1)
There must be a meeting of the minds of the parties;
863
;·,
Arla. 1359·1369
OBLIGATIONS AND CONTRACTS
Contrac:te
RA:formation of Instruments
. : : r· . (2) · Their true intention is not expressed in the instrument;
and ·. · .
'
..
.1_ tS) · Such' f�l�e to express their true intention is due to
mistake, ·rrauo, ineqUitable conduct or accident. (Huibonhoa vs.
..
,
�.
.
'.
COA, 3iO SCRA 625j Sarming vs. Dy, G.R. No. 133()43, .lune 6,
.
2002:) . .
. ·
.
; ·. · ·· ·
· · ; ' If the ·first reqi.tisite is lacking, the proper remedy is not the
reformation · of" the instrument but the annulment of the contract.
Hence, the most fundamental distinction between an action for the
reformation of an instrument and an action for the annulmt:nt of a
contract consists of the fact that the first presupposes a p�rfectly
valid contract in which there has already been a meeting ofthe minds
"of th� contracting' parties, while the second is based on a defective
cbntr�Ct in which there . has been no meeting of the minds because
"th'e-C:onse'nt of one rif the contracting parties has been vitiated.
·' ,
I
: . i . r. •
I!
•
. . · 85 What is the basis and nature of the remedy of
refo!:mation of instrument?
• ..
ANS; The remedy of reformation of an instrument ' s based
.
on the principle of equity where, to express the true intention of
the contracting parties, an instrument already executed is allowed
by law to be reformed. The right of reformation is necessarily an
invasion or limitation ofthe parol evidence rule since, when a writing
is reformed, the result is that an oral agreement is by court decree
made legally effective. Consequently, the courts, as the 3gencies
authorized by law to exercis!l the power to reform an instrument,
must necessarily exercise that power sparingly and with great
caution and zealous care. The remedy, being an extraordinary one,
must be subject to limitations as may be provided by law. A suit
for.reformation of an instrument must be brought within the period
prescribed by law, otherwise, it will be barred by the mere lapse of
time. (Bentir vs. Leanda, G.R. No. 128991, April 12, 2000.)
Reformation is that remec,ly in equity by means of which the
instrument is amended to conform to the real intention of the
. parties. (NJA vs. Gamit, et al., 215 SCRA 436; Conde us. Cuenva, 99
·Phil. 1056; Sarming vs. Dy, supra.)
864
OBLIGATIONS AND CONTRACTS
Contracts
of
Arts. 1359-1369
Reformation Instruments
86. (a) Give five (5) examples of instruments which may
be reformed.
(b) In the above examples, who are the parties who can
bring the action for reformation of the instrument?
ANS: (a) The best e:xamples are the following:
(1) When a mutual mistake of the parties causes the
failu.re of the instrument to disclose their real agreement. (Art.
1361, NCC.)
(2) If one party was mistaken and the other acted fraud·
ulently or inequitably in such a way that the instrument does
not show their true intention. (Art. 1362, NCC.)
(3) When one party was mistaken and the other knew
or be:lieved that the instrument did not state their real agree­
ment, but concealed that fact from the former. (Art. 1363,
NCC.)
(4) When tnrough the ignorance, lack of skill, negligence
or bl'!.d faith on the part of the person drafting the instrument
or of the clerk or typist, the instrument does not express the
1
true inten.;ion of the parties. (Art. 1364, NCC.)
(5) If two (2) 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 .(Art.
1365, NCC.)
(b) In No. (1) the party who can bring the action is either
party or his successors in interest; in Nos. (2), (3), (4) and (5), the
party who can"oring the action is the injured party or his heirs and
assigns. (Art. 1368, NCC.)
B'l.
What instruments cannot be reformed?
ANS: The following instruments cannot be reformer!:
(1)
Simple donations inter uivos wherein no condition is
. (2)
Wills; and
(3)
Those where the real agreement is void.
imposed;
NCC.)
865
(Art. 1366,
Arts. 1859·1369
OBLIGATIONS AND CONTRACTS
Contracts
Reformation of Instruments
· 88. (a) What is a contract of adhesion? (b) Are contracts
of adhesion void or prohibited?
·
;
ANS: ·In the case of Development Bank of the Philippines us.
Perez (G.R: No. 148541, November 11, 2004), the Court held foat:
(a) A contract of adhesion is so-called because its terms are
prepared by on.:y one party while the other party merely affix �s his
signature signifying his adhesion thereto.
(b) A contract of adhesion is just as binding as ordinary
contracts. Jt is true that we have, on occasion, struck clown such
contracts as void when the weaker party is imposed upon in <lealing
with the dominant bargaining party and is reduced to the altc,rnative
of taking it or leaving it, completely deprived of the opportunity to
bargain on ·equal footing. Nevertheless, contracts of adhesion are not
invalid per se; they are not entirely prohibited. The one who 2 dheres
to the contract is in reality free to reject it entirely; ifhe aclheres, he
gives his consent. ·
·1n the case of Sps. Francisco vs. BPI Family Savings Bank,
Inc. (G. R. Nos. 149840-41, March 31, 2006), where the petitioner
spouses undertook to secure the P15M loan of Transbuilders
Resources & Development Corporation to BPI-FSB "and othe� credit
accommodations of whatever nature obtained by the Bo,.rower/
Mortgagor" under the Real Estate Mortgage they executed in
favor of BPI-FSB, the SC held that while the stipulation proved to
be onerous to the petitioners, neither the law nor the courts · will
extricate a party from an unwise or undesirable contract antered
into with all the required formalities and with full awareness of its
cor.scquences. Petitioners voluntarily executed the REM on their
property infavor ofBPI-FSB to secure the loan. They cannot now b�
allowed to repudiate their obligation to the bank after Transbttilder's
default. While petitioner's liability was written in fine print and in
a contract written by BPI-FSB, it has been the consistent holding
of the Court that contracts of adhesion footing are not invalid per
se. On numerous occasions, the SC has upheld the binding effects of
such contracts.
89. Comment on the acceptability/validity ofstipulations
of.the credit card company that (i) it is not respo"lsible if
the card is not honoured by any merchant affiliate for any
866
OBLIGATIONS AND CONTRACTS
Contracts
!lefonnation oflnetruments
Arts. 1369-1369
reason; (ii) its liability is limited to Pl,000.00 or actual
damage proven, whichever js lesser.
ANS: ln the case of Emmanuel Aznar us. Citibank, N.A.
(Philippines) (G. R. No, 164273, March 28, 2007), the SC held that the
terins and con<litions of Citibank's Mastercard constitute a contract
of adhesion. It is settled that the contracts between cardholders
and the credit card companies are contracts of adhesion, so-called,
because their terms are prepared by only one party while the other
merely affixes liis signature signifying his adhesion thereto. In this
case, paragraph 7 of the terms and conditions states that Citibank is
not responsible if the ca1·d is not honoured by any merchant affiliate
for any reason. While it is true that Citibank may have no control
of all the actions of its merchant affiliates, and should not lie .held
liable therefor, it is incorrect, however, to give it blanket freedom
from liability if its card is dishonoured by any merchant affiliate
for any rt!aSon. Such phrase renders the statement v&gue . and as
the said terms and conditions constitute a contract of adhesion, any
ambiguity in its provisions must be construed against the party who
prepared the contract, in this case Citibank.
- ;_;
'
Citibank also invokes paragraph 15 of its terms and conditions
which limits its liability to Pl,000.00 or actual damage proven,
whichever is lesser. Again, st.ch stipulation cannot be considered as
valid for :J-eing unconscionable as it precludes payment of a larger
amount even though damage may be clearly proven. The Supreme
Court is not precluded from ruling out blind adherence to the terms
of a contract if the at�endant facts and circumstances sb.ow that they
should be ig-.1ored :or being obviously too one-sided.
90. (a) What is the cardinal rule applicable in a case
where the terms of a contract are clear and leave no doubt
upon the in1eution of the contracting parties? (b) If the
words appear to be contrary to the evident intention of the
parties, which shall prevail? (c) How are intentions of the
parties judged?
ANS: (a) It is a cardinal rule that if the terms ofa contract are
clear and leave no doubt as to the intention of the contracting partie:i,
the literal meaning of its stipulation shall �ontrol. The contract i.s
857
Arts. 1369-1369
OBLIGATIONS AND CONTRACTS
Contracts
Defective Contracts
the law between the parties and when the words of the contract are
clear and can easily be understood, there is no room for construction.
(Oliuares andRobles us. Sarmiento, GR. No. 158384, June 12, 2008.)
In the case of PhiUppiM National Construction Corporation us. The
Hon. CA, G.R. No. 159417, January.25, 2007, the Court held that
the contract between parties is the formal expression of the parties'
rights, duties and obligations. It is'the best evidence of the intention
of the parties. Thus, when the �rms of an agrr.ement have been
reduced to writing, it is considered as containing all the terms f\greed
U:pon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the
written agreement.
It is further required that the various stipulations of a contract
shall be interpreted together, attributing to the doubtful ont:s that
sense which may result from all of them taken jointly (Frias I'S. San
.
Diego-Sison, G.R. No. 155223, April 3, 2007.)
(b)· · Ifthe words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.
(c) In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts are principally
considered. This is without prejudice to thi:i consideration of other
factors as fixed or determineq by the other rules of interpretation
mentioned in the Civil Code and the Rules of Courts. As a •5eneral
rule, documents are interpreted in the precise terms in which they
are expressed, but the courts, in the exercise oftheir sound dis·:retion,
are called upon to admit direct and �imultaneous circumstantial
evidence necessary for foeir interpretation with the purpose of
making the true intention of the parties prevail.
DEFECTIVE CONI'RACTS
·9i.
tracts?
What are the different classes of defective · con­
Ai�S: There are four (4) classes of defective contracts under the
present NCC. They are:
(1)
Resclssible contracts;
868
OBLIGATIONS AND CONTRACTS
Contracts
liefective Contre-:ts
(2)
Arts. 1359-1369
Voidable contracts;
(3)
:Jnenforceable contracts; and
(4)
'\Toid and inexistent contracts.
92. Where shall the action for reformation of instrument
b e instituted?
ANS:
The action for reformation of instrument shall be
instituted m a special civil action for declaratory relief.
93.
What are the essential features or characteristicEJ
of defective contracts?
ANS: Rescissible cor,tracts possess the following features or
characteristics:
(1)
Their defec• consists in injury or damage either to one of
the contracting parties or to third persons.
(2)
'
Before rescission, they are valid and therefore legally
(3)
They are susceptible of convalidation only by prescription,
effective.
and not by ratification.
(4)
They can be attacked directly only, and not collaterally.
(5)
They can be attacked either by'a contracting party who
suffers injury or by a third person who is defrauded.
Void'.Lble contracts possess the following features or character··
is tics:
(1)
Their defect consists in the vitiation of consent or in the
legal incapacity of one of"the contracting parties.
(2)
They are binding until they are annulled by a competent
coi;.rt.
(3)
They are susceptible of convalidation either by ratification
or prescription.
(4)
They cannot be attacked or assailed by third persons.
869
OBLIGATIONS AND CONTRACTS
Contracts
Reecissible Contracts
Arts. 1380-1389
Unenforceable contracts possess the following features or
c)1aracteristics:
(1) Their defect coniJists either in the fact that they were
entered into in excess or without any authority, or they do not
comply with the Statute of Frauds, or both contracting parties are
legiilly inbipacitat�d.
(2)
. ..
They cannot be enforced by a proper action in court.
' (3) ' They are susceptible of convalidation by ratification.
(4)
. .
'.
'l'hey cannot be attacked or assailed by third persons .
: �· ..� . . . . '
.
"V(nd and inexistent contracts possess the following features or
characteristics:
' "(if' Their defect consists in the fact that they lack absolutely
either · in fact or in law one or some of the elements of a valid
,
contract. .
(2) As a general rule, they produce no legal effects in
accordance with the principle "quod nullum est nullum producil
cffectum."
, . (3) They are not susceptible of convalidation either by
ratification or by prescription.
(4) The right to set up the defense of absolute nu'lity or
inexistence cannot be renounced.
(5) They can be attacked or assailed either by a contracting
party or by a third person whose interest is directly affected.
RESCISSIBLE CONTRACTS
(Arts. 1380-'1389)
94.
Define rescissible contracts.
ANS: A rescissible contract is a contract. which is valid l:ecause
it contains all of the essential requisites prescribed by law, bnt which
is defective because of injury or damage to either of the contracting
parties or to third persons, as a consequence of which it may be
rescinded by means of a proper action for rescission.
870
OBLIGATIONS AND CONTRACTS
Contracts
Arts. 1380-1389
Resciesible Contracts
95.
Define rescission.
ANS: Rescission is a remedy granted by law to the co�tracting
parties, a�1d even to third persons, to secure the reparation of
damages caused to them by a contract, even if the same should, be
valid, by means of the restoration of things to their condition prior to
the celebration of the contract. (8 Manresa, 5th Ed., Bk. 2, p. 545.)
96. Distinguish rescission of contracts from rescission
or resolution of reci:procal obligations.
ANS: Rescission of rescissible contracts must not be confused
w:ith the -:escission or resolution of reciprocal obligations ).mder Art.
1191 of the NCC. Although there are simil�rities both with respect
to validity and effects, they are distinguish from e.ach other in thEi
following w.-iys:
(1) A s .to party who may institute action: _In rescission the
action may be instituted not.only by a party to the contract but,even
by third persons, whereas in resolution
the action may be institUted.
·
·
· · '
only by a party to the contract.
(2) As to causes: In rescission there ·are several causes or
grounds such as lesion, fraud and others expressly specified by faw,
whereas in resolution the only ground is failure of one of the parties
· ·
to comply with what is incumbent upon him.
(3) As t0 power of the courts: In rescission there is no power
of the com t to grant an extension of time for performance of the
obligation >o long as there is a ground fcrr rescission, whereas in
resolution the law expressly declares that courts shall have the
discretionary power to grant an extension for performance provided
that there is a just cause.
•··
(4) As to contracts which may be rescinded or resolved: In
resciss�on any contract, whether · unilateral or reciprocal, may be
rescinded, whereas in reso:ution only reciprocal contracts may be
resolved.
97.
· ·'
.....
What. contracts are rescissible?
ANS: 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
·l ·
the value of the thingr. which are the object thereof;
871
Arts. 1380-1389
OBLIGATIONS AND CONTRACTS
Contract8
Rescissible Contracts
(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) Th�se which refer to things under litigation if they have
bee� enter-ed " into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) Ali other contracts specially declared by law to be subject
to rescission (Art. 1381, NCC.);
'·. '(6) : Payi:D.ent�. made in a state of insolvency for obliga ti•ms to
whose.'fuIBlltµent"the debtor could not be compelled at the time they
were effected are also rescissible. (Art. 1382, NCC.)
.
98. May a contract of sale entered into in violation of a
third party's right of first refusal be rescinded in order that
su�h thfrd party can exercise said right?
ANS: In Guzman, Bocaling and Co., Inc. vs. Bonnevie, the
Court upheld the decision of a lower comt ordering the rescission of
a deed of sale which violated a right of first refusal granted to one of
the parties therein. The Co.urt held:
"
x x x Contract of Sale was not voidable but rescissible.
Under Arts. 1380 to 1381(3) of the Civil Code, a contract oth­
erwise valid-may nonetheless be subsequently rescinded by
reason of injury to third persons, like creditors. The status of
creditors could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale of the
subject property to the petitioner without recognizing their
right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law
to the contracting parties.and even to third persons, to secure repa­
rations for damages caused to them by a contract, even if this should
be valid, by means of the restoration of thinrrs to their condition at
the moment prior to the celebration of said contract. It is a relief al·
lowed for the protection of one of the contracting parties and even
third per�one from all injury and damage the contract may cause,
or to protect some incompatible and preferent right created by the
872
OBLIG,o.TIONS AND CONTRACTS
Arts. 1380-i3119
Contract3
Rescissible Contracts
contract. Rescission implies a contract which, even if initially valid,
produces a lesion or. pecuniary damage to someone that jui:tifies itF.1
invalidation for reasons of equity.
In i;h<! recent case of Litonjua vs. L & R Corporation, the Court,
also citiHg the case of Guzman, Bocaling & Co. vs. Bonnevie, held
that the sale made therein in violation of a ri.ght of first refusal
embodied in a mortgage contract, was rescjssible.
Thm, the prevailing doctrine, as enunciated in the cited cases,
is that a .::ontract of sale entered into in VJ.olation of a right of first
refus!ll of ai.other person, while valid, is rescissible. (Rosencor
Developmen • Carporation vs. lnquing, G.R. No. 140479, March 8,
2001.)
'
�-
99. •:a) Stat., the nature of an action for rescission. (b)
When should it be filed?
ANS: (a) The action for rescission is subsidiary. It cannot be
instituted e':<:ept when the party· suffering damage has no other
legal means to obtain reparation for the same. (Art. 1383, NCC.)
Hence, it �ust be availed of as the last resort, availed only after all
legal rem�ciies have been exhausted and proven futile. (Khe Hong
Cheng vs. CA, G.R. No. 144169, March 28, 2001.)
(b) The action for rescission must be commenced within
four (4) years. For persons under guardianship and for absentees,
the perio<i llf four (4) years shall not begin until the termination of
the former's incapacity, or until the domicile of the latter is known.
(Art. 1389, NCC.) It is the legal possibility of bringing the action
which det1::rmines the starting point for the computation of the 4·
year presc.riptive period as provided in the law. (Khe Hong Cheng v.�.
CA, G.R. No. 144169, March 28, 2001.)
100. What requisites must concurbefore a contract may
be rescinded on the ground of lesion?
ANS: Whether the contract is entered into by a guardian
in behalf of his ward or by a legal representative in behalf of an
absentee, before it can be rescinded on the ground of lesion, it· . is
indispens•!ble that the following requisites must concur:
I ·.
i'
�·:
(J.)
The contract must be entered into by the guardian in.
873
Arts. 1380-1389
OBLIGATIONS AND CONTRAC'l'S
Contracts
Resclssible Contracts
behalf o'f his ward or by the legal representative in behalf of an
absentee. (Art. 1381, Nos. 1 and 2, NCC.)
(2) The ward or absentee suffered les;on of more than one­
fourth of the value of the property which is the object of the contract.
(Ibid.) . '
. .. . I . ': . . . . .
(3) · The contract must be entered into without judicial
. ,c
approval. (Art. 1386, NCC.)
. (4f i There must be no other legal means for obtP.ining
NCC.)
�ep�ratib'n for the lesion. (Art. 1383,
'
.
(5) . The person bringing the action must be able to return
whatever he may be obliged to restore. (Art. 1385, par. 1, NCC.)
·-.
'" ·
·'
·\:
•''\; " \ '
' ' .
'
(6) The object of the contract must not be legaliy in the
p6�se!lsidri"Ofnthird person who did not act in bad faith. (Ari. 1385,
par. 2, NCC.)
.t
.•
'i
101. .What requisites must concur before a contract
entered into in fraud of creditors can be rescinded?
.. ·
'
' :A.NS! Before a contract can be rescinded on the ground that it
has'been entered into ih fraud of creditors, it is indispensable that
the following req�isites must concur:
(1) There must be a credit existing prior to the celebration of
the contract.
(2) There must be a fraud, or at least the intent to commit
fraud, to .the prejudice of the creditor seeking the rescission.
(3)
credit.
·
'The creditor cannot in any other legal manner collect his
(4) The object of the contract must not be legally in the
possession of a third person who did not act in bad faith .
. 102. Can a contract of sale entered into in violation of a
third party's right of first refusal be rescinded, so that such
third party can exercise said right?
· ; . ANS: A contract of sale entered into a violation of a third
party's right offitst refusal can be rescinded. In the case of Guzman,
Bocaling and Co., Inc. us. Bonneuie (206 SCRA 668), the Court held
874
·
Arts. 1380-1389
OBLIGATIONS AND CONTRACTS
ContractS
Resclssible Contracts
that such contract of sale is not voidable but rescissible. Under Arts.
1380 to 1381(3) of the NCC, ··a :valid contract· may nonetheless. be
subsequently rescinded by reason of injury to third persons; like
creditors. The parties could be valid�y accorded the status ofcreditors.
The part.'.es could be validly accorded the .'sta'tus· of c�eqi.tors .for
. It�, e, .:r,(
had substantial interests that were prejudiced by .the sal�. of.th¢
subject property to another Without recogmzing their right '(>£° first
·
priority under the Contract of Lease. · . . .
.
'
,.
,
·�
•
103. Who are the. persons who may insti�ute an action
for the rescission of a rescissible contract?
ANS: The action for rescission may be instituted by the
following: (1) The person who is prejudiced, such as :the person
suffering the lesion in resciasory actions based on iesion,· the neditor
who is de[�auded in rescissory actions ba�ed on fraud, and other
persons at•.thorized to exercise the same in other rescissory actions;
(2) their rPpresentativea; (3). their heirs; and (4) their creditors by
virtue of tho subrogatory action defined in Art. 117'7 of the NCC. (3
Castan, 7th Ed, p. 423.)
. '
104. Un-ier our NCC, an heir may institute an action
for rescission of a rescissible contract in his capacity as a
repres�nto.tive or successor-ill-interest ofa person who suffers
from lesio:n ..;r of the creditor who is defrauded. . Suppose,
however, t'hat it can be established that .the decedent, during
his lifetime, entered in�o a contract with another in order to
defraud him of his Jegitime, can he institute an action for the
rescission ")f such contract after the death of the decedent?
·
ANS: Yes, he can institute an action for the rescksion of the
contract uncier No. 3 ofArt. 1381 of the NCC. According to Manresa,
the reason i'> that the right of a compulsory heir to his legitime is
similar to the right of a creditor with respect to his. credit. More
accurately, using the exact language of the eminent commentator,
"the rights of a forced heir to. the legitime are undoubtedly similar
to a credit of a creditor insofar as the right to the legitime muy be
defeated by fraudulent contracts, and are superior to the will of those
bound to m;pect them." (8 Manresa, 5th Ed., Bk. 2, pp. 555-556.
This opinion ofManresa was quoted with approval in Concepcion vs.
Sta. Ann.a, 87 Phil. 787.)
875
Arts. 1380·1389
OBLIGATIONS AND CONTRACTS
Contracts
RP.sciesible Contracts
105. · In rescissory actions based on fraud, it is essential
that the fraud or the intent to defraud must be proved. How
can this be done?
. 'A.N's:' · Su�h fraud or the intent to defraud may be either
presunied in' accordance with Art. 1387 of the NCC or duly proved in
accordance with 'the ordinary rules of evidence.
.� ;
:-
The law presumes that there is fraud of creditors in the
following cases:
·Y
(1)' · Alie:ii�tions of property by gratuitous title if the debtor
has not reserved sufficient property to pay all of his debts before
such alienation. .
· :'! (2) · .Alienations of property by onerous title if made by a
debtor. against' whom some judgment hai: been rendered in ar.:r
instance· ·ar ·some writ of attachment has been issued. The decision
or attachinerit need not referlo the property alienated, and need not
have beeri o�tained by the party seeking the rescission.
It must be observed, however, that the above presumptions are
disputable. (Art. 1387, NCC.)
' ' : � .. :
'• ' ' :. .
. . 106. A died. intestate, survived by his wife, B, and several
children, X. Y .and Z, by a Chinese wife. B subsequently
filed a claim against A's estate for P250,000 which the court
approved on the strength of a deed wherein the decedent
acknowledged said indebtedness to his wife . Thereafter, the
administrator of the estate proceeded against A & Co., a firm
founded by the decedent, for an accounting of the income
derivedfrom the shares ofstock owned by the decedent in the
company. In answer; the company alleged that the decedent
had already transferred all his shares to his children, X, Y
and z. It is admitted that the transfer was made gratuitously.
B, on the other hand, testified that the P250,000 borrowed by
the decedent from her had been invested in the company.
Can the transfer be rescinded on the ground of fraud?
:ANS: Yes, the transfer can be rescinded on the ground a• fraud.
Its fraudulent character is clearly inferable from the facts that the
transferees are the decedent's own children, that no consideration
was given for the transfer, that the corporation was the only
876
OBLtGATIONS AND CONTRACTS
Arts. 1380·1389
coiitncte
fu!Bcissible Contracts
business of the decedent, and that he-has lin outstanding obligation
of P250,00u with his wife which he had invested in the corporation.
.
·
(Rivera us. Li Tam & Co.: � SCRA IOii.J · ·
. ; � i; i J ' ;
'
J
107. What &rl.'l the badges of fraud?
•! ' ·'
- ���./..
I '
I
• •. ' '. '
•
ANS: If the. fraud or intent to defraud cannot be establi�)led-by
means of the prf'sumptions enunciated in Art. 1387 o(the. �C.C; ,it
may still be proved in ar.cordnnce with the ordinary rules of evjd�nce.
This may be done by proving the existence of any one of the following
circumstanr.es which have been denominated by the courts badges of
fraud:
j ·: ·
. , . , , , . ' .,; . · ,. " '· ,., , :.;i:: · : : 1 ; : . : ' .1' ! r
'
(1)
The fact that the cause or r.onsideration ofthe cO'rl.vllyatfce
is inadequate ..
.
· ! · . · ' e. :,
A transfer made by a debtor after suit has been begun and
while it is pending against him.
..
.
•
(2)
(3)
A sale on cre'dit by an insolvent debto:r.
·::"·
·
Evidence bf large indebtedness or com lete. insolvencY�
. . . . ,. ,
' ·.
::
(5) The transfer of ail or nearly an of his property by a debtor,
especially when he is insolvent or g_reatly embarrassed financially.
p
(4)
(6) The fact that the transfer is made· between father and
son, when there are present others of the above circumstances.
(7) The failure of the vendee to take exclusive possession of
all the property. (Oria us. McMicking, 21 Phil. ·243.) ·
108. What is the period of prescription for an action to
·
claim re �cission?
'
.
ANS: As a general rule, the action u; claim:rescission must be
commencEd within four (4) years. Ifthe action is based on lesion (Art.
1381, Nos. 1 and2, NCC.), the period must be counted from the time
of the termination of the incapacity of the ward or from the time the
domicile of th., absentee is known. !fit is based on fraud (Arts. i3$1,
Nos. 3 and 4, . 1332, NCC.), the period must be counted from the time
of the discovery of the fraud. However, in certain contracts of sale
which are specially declared by law to be rescissible, the periodds
6 months or even rn days, counted from the day of delivery. (Art8.
.
·. :.:·.
1543, 157j:, 1577. NCC.)
877
Arts: 1390·1402
i•' ; :
; ;; I ·
;�::; 1 r
·.
· · • •: ·: · : •
OBI.IOATIONS AND CONTRACTS
Contracts
Voidable Contracts
r� •
•
i.
VOIDABLE CONTRACTS
(J\i.ts., i390-1402)
109. ·Define voidable contracts.
;:h r" : � · Li ' > . . . . .
ANS: Voidable contracts are those in which all of the essential
e!E!ril.efit�'rfcit · va:Jidity 'ar�"present,· but the element of consent is
Vitiat�d! eith�r hY: lack 'ofleg!il' capacity of one of the contracting
parties;, 'oi: by ;Iriistakei Violence, intimidation, undui; influen�c or
fraud/ i ,_;· · > '
110. Distinguish voidable contracts from rescis>ible
contr_acts.,
" ' , . ,, i,. . .""b"..
·
ANS: Voidable and rescissible contracts may be distingtti$hed
from each-other in the following ways:
(1) In a voidable contract, the defect is intrinsic because it
consists of a vice whieh . vitiates consent, whereas in a rescia sibl e
contract the defect is external · because it consists of damuge or
prej'udi�e 'eith'er 'to bAe of the contracting parties or to a third person.
(Arti.'138lii 1'390/ NCC.J ·
,- ; : I : ' ' ) •1. I·. ,·; i� f• . � ..... .. : : :·: i : j'� : ; ·. ; . . .
.
"(2)" In: the former, the contract is voidable even if there is
no dani:age or prejudice, whereas in the latter the contract is not
rescissible if there is no damage or· prejudice. (Ibid.)
' (3) ' In 'the fQrmer, the annulability of the contract is based
on the law, whereas in the latter, the rescissibility of the contract is
based on equity. Hence; annulment is not only a remedy but a sanc­
tion1:whereas rescission is a mere remedy. Public interest, therefore,
predominates in the first, whereas private interest predominat\ls in
the
Bk. 2, pp. 5t4-555.)
.
.second. (8. Manresa,
: : . 5th Ed.,
.
.
' 1 (4).-. The causes ofannulment are different from the causes for
resdssfon;· . . : · ·.-.: "" ·
.
•'
.
' �:�;. (5)'. ;The ·r��e{is ' susceptible of ratification, where:is the
latter hi riot. <Arls. , 1381, 1390, NCC.J
. , l u: (6)·: Annulment -may be invoked only by a contracting party,
whereas rescission may be invoked either by a contracting pnrty or
byi-a',third,person-who is prejudiced. (8 Manresa, 5th Ed., Bh. 2, p.
545:)
878
Arts. 1390-1402
OBLIGATIONS AND CONTRACTS
Contracts
Voidable Contracts
1 1 1 . What contracts are voidable?
.
.
ANS. The fcillo�ng contracts a�e voidable or �niiulilible,'e�en
though there m�y have been �o da�age
to th� contracting
parties:
.
.
.
.. .
(1) Those where one of the parties js_incapable of giving his
;·
co;1sent to a contract; anrl
· ·
(2) Those where the consent ia vitiaterl by rriistake, violence,
·· :
intimidation, undue influence or fraud. (Art. 1390, NCC.) ·
112. How may a voidable contract be convalidated?
ANS: There are three (3) ways or modes of convalidating a
voidable contract. They are: (1) by prescription of the action for
annulment (Art. 1391, NCC.); (2) by ratification or confirmatfon
(Art. 1392-1396, NCC.); and (3) by the loss of the thing which is the
object of the contract through the fraud or fault of the person who
is entitled to institule the action for the annulment of the cb'rih�ct.
(Art. 1401, NCC.)
I 13. What is the period of prescription for an action for
annulment of a voidal>le contract?
ANS: The action for annulment of a voidable contract 'must
be commenced within a period of four (4) years. If the action refers
to contracts entered into by incapacitated personii, the period shall
be cour.ted frr..m the time' the guardianship ceases; if it refers ·to
those whue consent is vitiated by violence, intimidation or undfie
influence, the' periorl shall 'be counted from the time such violence,
intimidation or undue influence ceases or disappears; and. if ' it
refers to those where consent is vitiated throug� mistake or fraud,
the period shall be counted from the time of the discovery of such
mistake or fraud. (Art. 1391. NCC.)
114. X was the owner of a 10,000-square meter property.
X married Y and out of their union, A, B and C were born.
After the death· ofY, X married Z and they begot as children,
D, E and F. After the death ofX, the children of the first and
-.�·
second marriages executed an extrajudicial partition of.the
nforesta led property on May 1, 1970 - D, E and F were given
a oue tbQousand square meter portion of the property. At that
879
OBLIGATIONS AND CONTRACTS
Contracts
Voidable Contracts
Arts. 1390-1402
time, D, E and F were minors - D was 17 years old, E was 14
and .F,,'r�. .12 They were made to believe by A, B and C that
unles·s"they sigri the document they will not get any share.
Z was ·not present then. In January 1974, D, E and F filed an
action in court to nullify the suit alleging they
' discovered
the fraud only m. 1973.
•
.
· .(a) Can the minority of D, E and F be a basis to nuUify
the partition? Explain your answer.
(b) How about fraud? Explain your answer. (1990)
AN�i
'<�> Yes minority can be a basis to nullify the pa:-tition
because 'ti, E and F were not properly represented by theil' parents
or guardians at the time they contracted the extrajudicial partition.
(Arts. ·1�21, ·1391, NCC.)
. . . ' . · · · (h) In the case of fraud, when through insidious words
or machinations of one party the other is induced to enter into the
contract Without which he would not have agreed to, the action
would still prosper because under Art. 1391 of the NCC, in case of
fraud, the action for annulment may be brought within 4 years from
the discovery of the fraud.
115. In 1960, an unregistered parcel of land was LlOrt·
gaged by owner 0 to M, a family friend, as collate ral ior a
loan. 0 acted· through his attorney-in-fact, son S, who W!\S
duly authorized by way of a special power of atto-:-ney,
wherein 0 declared that he was the absolute owner of the
land, that the tax declarations/receipts were all issued in his
name, and that he has been in open, continuous and adverse
possession in the concept of owner.
As 0 was unable to pay back the loan plus interest for
the past 5 years, M had to foreclose the mortgage. J\t the
foreclosure sale, M was the highest bidder. Upon issuance
of the sheriff's final deed of sale and registration in January,
1966, · the mortgaged property was turned over to M's
possession and control. M has since then developed the said
property. In 1967, 0 died, survived by sons S and P.
· ,u :In ;1977, after the 10th death anniversary of his father 0,
son1P filed a suit to annul the mortgage deed and subsequent
sale :of the property, etc., on the ground •lf fraud. He asserted
880
I
OBL1GATIONS AND CONTRACTS
Contracts
Voidable Contracts
Arte. 1390-1402
that the property in qU1�stion was conjugal in nature actually
belonging, at the ti.me of the mortgage, to 0 and his wife, W,
whose conjugal ·share went to their sons CS and P) and to 0.
(a) Is the suit filed by P barred by prescription? Explain
your answer.
(b) After the issuanc(J of the sheriff's final deed of sale
in 1966 in this case, assuming that M applied for registration
under the Torrens System &nd was issued a Torrens Title to
the said property iri question, would that · added fact ' have
any significant effect on your conclusion? State your reilsoris.
.
(1990)
,.i'. '"
· 1
•:
'ANS: (a) Under Art. 173 of the NCC, the action is barred. by
prescripti1m because the wife had only 10 years from the transaction
and duriP.g the marriage to file a suit for the annulment of the
mortgage deed.
ALTERNATIVE ANS: (a) The mortgage contract executed by
0 is only J. voidable contract since it involves a conjugal partnership
property. The action to aunul the same instituted in 1977, or ll years
after execution of the sheriffs final sale, has obviously
prescribed
·
bec.:a.use:
11
l.
An action to annul a contract on the ground of fraud
must be brought within 4 years from the date of discovery of the
fraud. Since thid is in essence an action to recover ownership, it
must be reckoned from the date of execution of the contract or
from the registration of the alleged fraudulent document with
the assessor's office for the purpose of transferring the tax dec­
laration, this beiug unregistered land. (Bael us. Intermediate
Appellate Cour�. G.R. L-74423, January 30, 1989, 169 SCRA
617)
· .l
2. If the action is to be treated as an action to recover
ownership of land, it would. have prescribed just the same be­
cause more than 10 years have already elapsed since the date
'
of the execution of the sale.
(b) IfM had secured a Torrens Title to the land, all the more
S and P could not recover because if at all their remedies would be:
1. . A Petition to Review the Decree ofRegistratiori; This
can Le availed of within one year from the entry thereof, out
881
Arts. 1390·1402
OBLIGATIONS AND CONTRACTS
Contracts
· Voidable Co;itracts
·.
' · ··:_only·upon the b·aais of"actual fraud." There is no showing that
M committed actual fraud in securing his title to the land; or
2. . A:Ii. action in personam against M for the reconvey·
arice of the title in their favor. Again, this remedy is available
within four years from the date of the discovery of the fraud
,, but not later than 10 years from the date ofregistration of the
title in the name of M.
. � , :•.U6. Mrs. S borrowed P20,000.00 from PG. She and her
19-year•old son, Mario, signed the promissory note for the
loan, which note did not say anything about the capncity
of the signers. Mrs. S made partial payments little by little.
After.several years, she died leaving a balance of Pl0,000.00
on the noie. PG demanded payment from Mar io who refused
.
to pay. When sued for the amount, Mario raised the dtfense
that when he signed the note he was still a minor. Should the
defense be sustained? Why? (1979)
: · ANS: No. l: The defense should be sustained. Mario cannot
be bound by his signature in the promissory note. It must be
obser\red. that the promissory note does not say anything about the
capacity of the signers. In other words, there is no active fraud or
misrepresentation;· there is merely silence or constructive fraud or
misrepresentation. It would have been different if the n0t.e says
that Mario is of age. The principle of estoppel would then apply.
Mario would not pe allowed to invoke the defense of minority. The
promissory note would then have all the effects of a perfectly valid
note. Hence, as far as Mario's share in the obligation is concerned,
the promissory note is voidable because of minority or non-age. He
cannot, however, be absolved entirely from monetary responi:ibility.
Under the NCC, even if his written contract is voidable because of
minority he shall make restitution to the extent that he may have
been benefited by the money received by him. (Art. 1399, NCC.! True,
more than four (4) years have already elapsed from the time that
Mario had attained the age of21. Apparently, his right to inLerpose
the defense has already prescribed. However, where minority is used
a·s ·a defense and no positive relief is prayed for, the 4-year pedod
(Art. 1391, NCC.) does not apply. Here, Mario is merely ink·posing
hi.s minority as an excuse from liability. {Braganza us. Villa Abrille,
105 Phil. 456.)
882
OBLIGATIONS AND CONTRACTS
Contracts
Voidable Contracts
Arts. 1390-1402
ANS: Alternative Answer: The defense should not be sustained.
It must b� noted that the action for annulment we.a instituted by PG
against Mario when the !utter was already 26 years old. Therefore,
the right '.lf Mario to invoke his minority as a defense has already
prescribed. According to the NCC, actions for annulment of voidable
contracts ·;hall prescribe after four (4) years. In the case of contracts
which arE voidable by reason of minority or incapacity, the 4�year
period sh11ll be counted from the time the guardianship ceases. (Art.
1391, NCC.) The same rule �hould also be applied to the defense.
In the ins•:ant case, since more than four (4) years had already
elapsed fr<•rn the time Mario had attained the age of 21, therefore ,
he can no longer interpose his minority as a defense. 1t would have
been dim.rent if four (4) years had not yet elapsed from the time
Mario had attained the age of 21. Since there was no active · fraud
or misrepresentation on his part at the time of execution of the
promissory note, it i� clear that the contract is voidable as far as he
is concerned. In such case, the defense of minority should then be
sustained. (Braganza vs. Villa Abrile, 105 Phil. 466.)
(Note: Spanish commentators sustain the view that the defonse
shall also prescribe after the lapse of 4 years since the basis of the
action ancl the basis of the defense are the sam�. (3 Castan, 7th
Ed., 415-416, citing Manresa, De Buen and Ramos.) In Braganza,
however, the Supreme Court declared that "there is reason to doubt
the rertinency of the period fixed by Art. 1301 [now Art. 1389] of the
NCC where minority is set up only as a defense to an action, without
the minors asking for positive relief from thll contract." NeverthelesH,
we believe that this statement in the decision is not controlling
because it is based on a mere assumption, since the Court found as
a fact that when the defense of minority was interposed, the 4-year
period of prescription had not yet expired. Hence, the question is still
cont:oversial. Personally, we believe that the first answer {supra] is
more just and logical.)
117. What is meant by ratification ofvoidable contracts?
What are its requisites?
ANS: RatificatiOn, or confirmation as it is known in the Spanish
NCC, is defined as ·che act or means by virtue of which efficacy' is
.,
;
';
.,
;
·-.'�
given to a contract which suffers from a vice of curable nullityJ
B
· "
Manresa, 5i'h Ed., Bk. 2, p. 665.)
883
··
:
f__,,.,
Arts. 1390-1402
OBLIGATIONS AND CONTRACTS
Contracts
Voidable Contracts
• Ratification or confirmation requires the concurrence or the
following;requisites:
(1) The contract should be tainted with a vice which is sus­
ceptible ,of being cured.
. (2)· The confirmation should be effected by the person who is
entitled to do so under the law.
(3) ·It should be effected with knowledge of the reason which
renders the contract voidable.
(4) The reason which renders the contract voidable should
have already disappeared.
. us. What are the forms of ratification of voidable con·
tracts? What are the effects of ratification?
· ANS: The ratification of a voidable cont::act may be effected
either expressly or tacitly. There is an express ratification if, with
knowledge of the reason which renders the contract voidable and
s".1ch reason having ceased, the person who has a right to invoke
it should expressly declare his renunciation of his right to annul
the contract; On the other hand, 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. (Art. 1393, NCC.)
There are two"(2) distinct effects ofratification or confirmation.
In the first place, it extinguishes the action to annul the contract;
and in· the sec<>nd place, it cleanses the contract of its defects from
the moment it was constituted. (Arts. 1392, 1396, NCC.)
119. Who has the right to institute an action for the
annulment of voidable contracts?
ANS: Two (2) different requisites are necessary in <>rder that
a person may institute the action for ,the annulment of a voidable
con.tract. In the first place, the plaintiff must have an interest in the
contract in the sense that he is obliged thereby either principally
or subsidiarity; in the second place, the victim and not the party
responsible for the vice or defect must be the one who must. assert
the same. (Art. 1397, NCC..'
884
OBLIGATIONS AND CONTRACTS
Contracts
Arta. 1390-1402
Voidable Contracts
120. rt a person ib' not obliged principally or subsid.iiµ-ily
under a contract, would it be possible, for him to institute an
action for the annulment of the contract?
·.
. r•
·
ANS: A._q a rule, a contract cannot be assailed by one who is
not a party thereto. However, the Supreme Court in several cases
.
has held that a person, who is not a party obliged prindp'ally or
subsidiarily under a contract, may bring an action for annulment.of
the contract if he is prejudiced in his rights with respect to orie of the
contracting parties, and can show detriment which would positively
result to him from the �ontract in which he has no interventihn.
(Singsong ;Js. lsabela .Sawmill, 88 SCRA 623, 643, citing. Teves us.
People's HoTtleeite & Housing Corporacion, 23 SCRA 1114 and De
Santos us. CUy of Manila, 45 SCRA 409.)
Thus, ·nhere the remaining partners of a partnership, whi�h is
heavily indebted to several creditors, executed a chattel m�rtgage
of practica:ny all properties of the partnership in favor of 1/- former
partner ti) secure an bbligation, undoubtedly, the contract of
.
chattel mortgage h�s prejudiced the rights of the creditors of the
partnership. Consequently, if such creditors can prove or show the
detriment which would positiVE!ly result to them, they can ask for the
annulment )f the contract of chattel mortgage. (Singson us. lsabela
Sawmill, sipra.)
121. X, of age, entered into a contract with Y , a minor. X
kne.w and the contract specifically stated the age of Y. May
X successfully demand annulment of the contract? Reasons.
(1971)
ANS: X cannot successfully demand annulment of the contract.
True, said contract is voidable because of the fact that at the time
of the celebration of the contract, Y, the other contracting party,
was a minor, and such minority was known to X. (Arts. 1327, No.
1, 1390, No. 1, NCC.) However, the law is categorical with regard
to who may in:ititute the action for annulment of the contract. In
addition to the requirement that the action may be instituted only
by the party who has an interest. In the contract in the sense t:!;iat
he is obliged thereby either principally or subsidiarily, Art. ),3?,7
of the NCC further requires that in case of contracts voidabl�,;RY
reason of incapacity of one of the contracting parties, the party,y.iho
885
Arte. 1390-1402
OBLIGATIONS AND CONTRACTS
Contract&
Voidable Contracts
incapacity
has capacity'cannot allege the
of the party with whom he
contracted, · Because of this additional requisite, it is clear th ;t Y,
and not X can institute the action for annulment.
, .
,:.
;,
. 122. P�di-o rmld a piece of land to his nephew Quintin,
1or�.· One month later, P�dro died. Pedro's heirs then
a inh
brougJ;i.� ,.e.ti action to annul the sale on the ground that
Quintin was a minor and therefore without legal capacity
to'.cont�act. It you are the judge, would you annul the uule?
( 19�4L,:, ,· .
-ANS: If I were the judge, I will not annul the sale. The NCC
in Art. 1397 is explicit. Persons who are capable cannot allege the
incapacity of those with whom they contracted. True, Pedro who
sold . the land to the minor Quintin is already dead, and it is his
heirs who are riow assailing the validity of the sale. However, unr!er
the .prlil'cipl� of reiativity of contracts recognized in Art. 1311 of the
NCC," the contract takes effect not only between the contracting
parties;
also between their assigns and heirs.
:?ut
.
(Note: Aziother way of answering the above problem would be to
state the two· requisites which must concur in order that a voidable
" contract may be annulled. These requisites are: (aJ that the plaintiff
must have
interest in the contract; and [b) that the victim or the
incapacitated party must be the person who must assert the same.
The second requisite is lacking in the instant case.)
an
123. What is the effect of the annulment of a voidable
contract?
ANS: •Ifthe contract has not yet been cor.sumrnated, it is evi­
dent although, the NCC does not expressly say so, that the contract­
bg parties shall be released from the obligations arising therefrom.
(3 Castan, 7th Ed., pp. 416-417.) However, if the contract has al­
ready been consummated, the rules provided for in Arts . 1098 to
1402 of the NCC shall gover .
n
Upon 'the annulment of the contract, if the prestation thereof
consisted in obligations to give, the parties shall restore to each
other the things which have been the subject matter of the coPtract,
Witl·.hheir fruits, and the price with its interests, except in cases
pro'vided by law. If,"on the other hand, the prestation consisted in
886
OBLIGATIONS' AND
CONTRACTS
Contracia
Unenforceable Contracts
Arts. 1403-1408
obligation!> to do or not to· do;·there will have t:o be an apportionment
of damages based on the value of such prestation with corresponding
interests. (Art. 1398, NCC; 3 Castan; 7th Ed., pp. 416,417.) In· other
words, upun annulment the contracting parties sho.uld be r�stored
to . their original position by �ufual):es�ifotio�. rcadd,iva,�la_der. ,�
Co. µs. Smith, Bell &: Co., 7 Phil, 416; Dumasag us. Modelo, 34 Phil.
252; Oliver.JS us. Porciungcoia, 69 Phil. 306; Talag vs: Tankerig�o�''
9"2'
.
.
Phil. 1 066.J
The · principle of 'in.utuai: resti_tuti6n as enunciated in.. ..i\r,t.
1398 is, how ver,. modified by the provisions of ,Art.: 1399.'. .W,hen
the defect of the contract _consists _in· the incapacity .of on�, of �he
contracting parties, the incapacitated person is not obliged tO make
any restitution except msofar as he has.been benefited by th� th..fr1g
or price re,�eived by him. It is . evident that this rule is app1icable
only and exclusively to those cases where the nullity arises from
the incapacity o[ one of the coiitra'ct'ing parties. Coruiequently, if
the nullity should arise from some other cause, .the general rule
enunciated in Art. 1398 would govern. (8 Manresa, 5th Ed., Bk. 2; p.
647.)
.
i
UNENFORCEABLE CONTRACTS
(�. 1403-1408)
124. Define unenforceable contracts.
ANS: Unenforceable contracts are those which cannot be
enforced by a proper action in court, unless they are ratified, because
either they are entered into Without or in excess of authority or they
do not comply with the Statute of Frauds or both of the contracting
parties do aot possess.the required legal capacity.125. Distinguish unenforceable contracts from othel'
defective contracts.
ANS: In general unenforceable contracts may be distinguished
from the o�her defective contracts in the following ways:
(1) From rescissible contracts - first, unenforceable contracts
cannot be enforc�d by a proper action in court, whereas rescissible
contracts are valid and enforceable unless they are rescinded. Second,
887
Arts. 1403-1408
OBLIGATIONS AND CONTRACTS
Contracts
Unenforceable Contracts
the former are susceptible of ratification, whereas the latter arc not.
And·third, the former" cannot be assailed by third persons, whereaf.
the·latter'tnay be assailed by third persons who are prejudiced.
. ·
,,, , ,, ( 2) "'fi:�fu'' vofda"bte contracts
Unenforceable contracts
�aifuo(b� 'ei:ifor�ed :bv . a proper action in court, . whereas voidable
;
:
-
h
.and enforceable unless they are annulled by a
cb�trll. t8
' tlfe binding
.
·,1' . ,., �' ::·' 'J
proper
action m. court.
.
..
:
\
.
•
.
•
.
.
�
, : ' .�3) f, . �rp� void . con acts - There . are some unenforceable
·
. , are va
cont.racts.,..\
vhich
hd an"d, therefore, may produce P.fTects,
.
al�h:ough tlier cannot be enforced by a proper action in court; void or
iriexi"stent contract�; on the other hand, do not produce, as a general
·
·rwe',! 8.ny'; eft'Jet' whatSoever. Hence, unenforceable contracts are
siisceptlbte of ratificatfon,. whereas void contracts are not.
·L)i�'"d�:fF:
· ·'•::.ti •p··
.
',;"'/\
,
:.; :
; '. ·
:·
·
..
•., ·
..
'
.
·
·
. . i l26. What contracts are unenforceable?
·. · • · ···.-: · ··
J
• .,
•
"ANS:'.The following contracts are unenforceable, unless they
are ratified:\ :·
'•r•
(1) Those entered into in the name of another person by one
who has been given no authority or legal repn:sentation, or who has
acted beyond hls'powers;··
(2) Those that do not comply with the Statute ofFraudi as set
forth in this number. In the following cases an agreement thereafter
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 f>y his agent; evidence, therefore, of the agreement
cannot.be received without the writing, or a secondary evidence of
its conterits: .
,·
(a) An agreement that by its terms is not to be per­
formed within a year from the making thereof;
I
�
,
:
I
'
(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 t.o 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,
888
OBLIGATIONS AND CONTRACTS
Contracta
Unenforceable Contracta
Arts. 1403-1408
or the evidence, or some or them, of such thlngs in action;: cl'r
pay at th� time some pr.rt of the purchase money; but when· a
sale is made by auction and 1mtry is made by the auctioneer:in
hit; sales book at the time of the sale, of the amount and kind
of prvperty sold, term.a of ail.le, price, names of the purchasei;s
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 �·ear, or for the sale of real property or an interest therein;
(f)
(3)
A representation as to the credit of a third person.
Those where both parties are incapable of giving consent
to a contract. (Art. 1403, NCC.)
127. C, husband of D, sold paraphernal property in her
name without her (D's) consent. Was such sale valid, void,
voidable, rescissible or unenforceable? Explain. (1976)
ANS: The sale is unenforceable. According to the NCC under
the law on defective contracts, a contract entered into in the name
of another prson by one who has been given no authority or legal
representution., or who has acted beyond his powers, is unenforceable.
(Art. 1403, No. l, NCC.) Th.is rule reiterates a general principle ofthe
law on contr�cts which declares that a contract entered into in the
name of auother by one who has no authority or legal representation,
or who h&s acted beyc:id his powers, is unenforceable, unless it
is ratified expressly or impliedly, by the ' person on whose behalf
it he been executed, before it is revoked by the other contracting
party. (An. 1317, NCC.) Since the property which was sold by C is
paraph(jrnal, and therefore, it belongs exclusively to C's wife D, and
since the sale was made without D's consent, obviously, the sale in
unenforceable.
'Note: D, thernfore, has a valid cause of action against C and/
or the vendee for recovery of the property or of indemnification for
dama5es depending upon the circumstances.)
I
128. "A" and "B" entered into a verbal contract whereby
·..�
"A" agrei:,rl to sell to "B" his only parcel of land for P20,000
and B agr e ed to buy at the aforementioned price. "B" went to
889
Arte. 1403-1408
OBLIGATIONS AND CONTRACTS
Contracts
Unenforceable Contracts
the banll:, withdrew the necessary amount, and returned to
'.'A" for the consummation of the contract. "A," however, had
changed his mind and refused to go through with the sale.
Is the agreement valid? Will an action b y "B" against "A" for
sp c?ic performance prosper? Reason. (1982)
ANS ; It must be observed that there are two (2) ques�.ions in
·
�
the case at bar. They are:
:· , . , _:
=.
. . '. '
.
. (1) . Is the agreement valid? The answer is yes. It is a time
.
honored rule that even a verbal agreement to sell land is valid so
long as· there is already an agreement with respect to the obj1.:ct and
the purchase price.
.
_,
.
·
·:
,
(2) Will an action by "B" against "A" for specific performance
prosper? The answer is no, unless it is ratified. The re:ason is
obvious: The property is covered by the Statute of Frauds. It cannot,
therefore,· be enforced by a court action because it is not evidenced
by any'.riote' Or ffienforandum Or writing properly SUbRcribed by the
pa,t:ty charged.
<'ii
: , �..
. (Note: The above ans'rer is based o n No. 2 o f Art. 1403 of the
., , . �CC and_ on decided cases.)
. 129 (a) What is the "Statute of Frauds"? (b) What is its
purpose? .
•.
ANS: (a) The "Statute of Fr11-uds" is descriptive of statutes
which require certain classes of contracts to be in writing. The
contract' shall be unenforceable by action unless the same or some
note or memorandum thereof be in writing and subscribed by the
p�rty' ch�rged or by his agent. Evidence of the contract, therefore,
cannot be received without the writing or a secondary evidence of its
content. (Art. 1403[2}, NCC.)
· ' · (b) The purpose of the Statute of Fraud s is to prevent
frau'd and perjury in the enforcement of obligations dependiug for
their evidence on the unassisted memory of wi tn esses by rec:uiring
certain enumerated contracts and transactions to be evidenced by a
writing a' signed by the party to be charged. (Rosencor Development
CoTj
/''v!J. -�nquing, supra.)
890
OBLIGATIONS AND CONTRACTS
Contract.'!
Unenforceable Contracts
Arts. 1403-1408
130. Can the Gtatute or Frauds be applied to transac·
tions involving right or first refusal?
ANS: The Statute of Frauds cannot apply to transactions not
enumerated therein. 'fhe Statute of Frauds does not contemplate
transactions involving a ri.;ht of first refusal because the application
of such statute p�esupposes the eltistence of a perfected contract. A
right of first refusal is only a contractual grant over · the prliperty
sought to be· sold and is riot a perfected contract of sale 'of riial
property. Thus, a right offirst refusal may be proven 'by oral eViden
ce
arid need not be · wiitten to be etiforceable. (Rosencor Deuelopmeiit
·
Corp. us. lnquing, supra.)
131. B purcbased from A, a parcel .ortand, paying a parl
of the agrt?ed price with the tinderstanding that he Will pay
the balance upon the execution of the deed of conveyance.
Subsequently, A sold the. same land to C, who knew of the
first sale. As a result B hrought this action against both A
and C to enforce the contract. Defendants contend that th�
contract i.s unenforceable under the Statute of· Frailds as
enunciated in No. 2 of Art. 1403 of the NCC. Decide the case�
stating yorir reasons.
. .1:
·
ANS: This i s the case of Carbonell us. Poncio (103 Phil. 655).
According to the Supreme Court:
, ..
.
"It i s well-settled i n this jurisdiction that the Statute of
Fraurls is applicable only to executory contracts (Facturan us.
Saban.al, 81 Phil. 512.), not to contracts that are totally or par�
tially pdrforrned. (Almirol us. Monserrat, 48 Phil. 67, 70; Robles
us. Lt::arraga Hermanos, 50 Phil. 387; Diana us. Macalibo, 75
Phil. 71.) The reason is simple. In executory contracts, there is
. a widn field for fraud because unless they be in writing there
is no palpable evidence of the intention of the contracting par·
ties. 'l'he statute has precisely been enacted to prevent fraud.
(Moran, Comments on the Rules of Court, Vol. III, 1956 Ed., p.
1 78.) Hrwe•1er, if a contract has been totally or partially per·
formej, the exclusion ofparol evidence would promote fraud ·or
bad faith for it would enable the defen.dant to keep the benefits
already derived by ilim from the transaction in litigation, · atid,
at the, same time, evE.de the obligations, responsibilities ot'li-''
891
Arts. 1403-1408
OBLIGATIONS AND CONTRACTS
Contracts
Unenforceable Contracts
abilities assumed or contracted by him thereby. So that when
the party concerned has pleaded. partial performance, such
party is entitled to a reasonable chance to estab!i�h by parol
· eVidence the truth
of his allegation, as well as the contrnct it.
,, �eif." · ·
132. "0,. verbally loased his house and lot to "L" for two
(2) years at a monthly rental of P250.00 a month. After the
first year, "0" demanded a rental of P500.00 claiming that
due to the energy crisis, with · the sudden increase of the
price of oil, which no one expected, there was also a general
increase in prices. "0,. proved an inflation rate of 100%. When
':'L� .refused .to vacate the house, "0" brought an action for
ejectment.:"O,. denied that they had agreed to a lease for two
(2),years
•.
·
;A. ' Can the lessee testify on a verbal contract of l ease?
Rei.soils. (l981)
'
: · ·. :
I
, . 1Ar:ol'S:.Yes, the lessee "L" may testify on ' the .verbal contract of
lease. Well-settled is the rule that the Statute of Frauds by virtue
of which oral contracts (such as the contract in the instant case) are
unenforceable by court action is applicable only to those contracts
which have not been consummated either totally or partially. The
reason for this rule is obvious. In effect, there is already a ratill.cation
of the contract by acceptance ofbenefits. Here, "L" has been paying to
"O" a monthly rental of P250.00 for one year. The case is, t.herefore,
withdrawn from the coverage of the Statute of Frauds.
(Note: The above answer is based on Arts. 1403, No. 2, and 1405
of the NCC and on decided cases.)
B. . .Assuming that "0" admits the two (2)-year contract,
is he justified in increasing the rental? Why? (1981)
ANS: Yes", "O" is justified in increasing the monthly rental.
Since it is admitted that the contract oflease is for a definite term or
period of two (2) years, it is crystal clear that the case is withdrawn
from th'e coverage of the new rental law. Now, during the hearing of
th1foase/'O" was able to prove an inflation rate of 100%. Therefore,
an"il'lcrease is justified. (Batas Pambansa Blg. 25.)
892
Art.9. 1403-1408
OBLIGATIONS AND CONTRACTS
Contracts
Unenfon:eable Contracts
·
134. What is the Statute of Frauds? Whnt is the purpone
·
of the Statute of Frauds?
·
·
· ANS: The term · "statute of frauds" is descriptive of. statutes
which require certain classes of contracts to be in· writing; · Thia
statute does not depri·..e the . parties of "the right to contrliet with
respect to the matters therein involved, but merely regulatea
the fom.alities of the contract necessary to render it enforceable.
Tnus, they are included in the· provisions of the NCC regarding
unenforceable contracts, more· particularly Art. 1403, paragraph 2.
(Rosencor Development Corporatw
�
us.
Inquing, supra.)
•
•
.
1.''
135. Is a right of firSt refusal akin to "e.ii agreeDlerit for
the leasing of a longer period than one·year, or for the" sale" of
"
real property or of ah hiterest therein" as contempiated by
· · · 1 i · :.
·
Article 1408, "par. 2(e) of th� NCC? ; ,
. : l}··i i • • .
'· ' :
·
AN8: Not all agreemerita "affecting land" must be put in writing
to attain enforceability. Thus, the setting up of boundaries, the oral
partition of real propercy, and an agreement creating a right ofwny
are not covered by. the proViaions of the statute of frauds. The re��on
simply is that these agreements are not among those enumerate_d in
Article 1403 oftJ:.e NCC.
·
"'j
A right offtrst refusal is not among those listed �s unenforceable
under the statute of frauds, Furthermore, the npplication of Alt.
1403, par. 2(r;) of the NCC presupposes the existence of a perfeeted,
albeit unwritten, contract of sale. A right offirst refusal, such as the
one involved iii. the instant case, ls not by any means a perfected
contr:i.ct 0f sale of real property. At best, it is a contractual grant,
not of the sale of the real property involved, but of the right of first
refusal over the property sought to be sold.
It is thus evident that the statute of frauds does not contem­
pl&tE! cases involving a right of first refusal. As such, a right ot first
refusal :1eed not be written to be enforceable and may be proven by
ornl evidence. (Rosencor Development Corporation vs. Inquing, "su­
pra.)
y
136. Can an oral sale of land be judiciall enforced a11
between the contracting parties, if the land has not· been
893
ArtB. 1403-1408
OBLIGATIONS AND CONTRACTS
Contracts
Unenforceable Contmcts
delivered but ·the buyer has · paid '10% of the purchase price?
(1974)
. , · · ANS: Yes, an- oral sale of land where the land has not been
delivered ·but the buyer has paid 10% of the purchase price may be
judicially enforced. Well-settled is the rule that the Statute of Frauds
by virtue of which oral contracts are unenforceable by court action is
applicable.only to tho.se contracts which are executory and not to those
which have .been .consummated either totally or partially. (Almirol
us.. Monserrat, 48 Phil. 67; Asturias Sugar Central us. Montinola, 69
Phil. 725; Diana us. Macalibo, 74 Phil. 70; Arroyo us. Azur, 76 'Phil.
493; Facturan us. Saban.al, 46 Off. Gaz. 310; Carbonell us. Poncio,
103 Phil.. 655.) .The reason is obvious. In effect, there is already a
r�t . i A · o(th. con rac:t because of �cceptance a·f benefits . As .a
m!ltt�r, pf.fa._ct._tbis.r!'lason is now embo!fied in the NCC. According to
Art. 1405 ofsaid Code, contracts infringing the Statute o� Frauds .are
ratified by the failure to object to the presentation of oral evidence to
prove·the same, 6r·by the acceptance of benefits under them.
.
: .,. ·.--r ·
���!�
·
�
�
•
· '13'7; W & Co".; a logging company, re ce ived a letter from
M, the iiew'owner of a certain property, notifying it thn.t the
·
Iaiter Will close the road running through his property and
through which W & C o.'s trucks pass in hauling logs to its
sawmill .W & Co., therefore, begged M n ot to do so and upon
the latter's refusal, W & Co. filed an actio n for injuuction
alleging among others that it had acquired a right of way
through M's land before by virtue of a verbal agreement. with
the previous .owner. Will the action prosper? (1979)
•
ANS: Yes, the action will prosper. The right of way, although
arising from a verbal agreement between M and the predecessor of
W & Co., still subsists. Obviously, the Statute of Frauds cannot be
applied because the agreement is not an agreement for the sale of
real properly or an interest therein. Therefore, the agreement is not
only valid but also enforceable at the same time. (Western Mindanao
Lumber Co. us. Medalla, 79 SCRA 702 .)
Besides, it is a well-settled rule that the Statute of F!·au ds is
applicable only to purely executory contracts and not to contracts
which have already: been executed either totally or partially. Here,
the verbal agreement with respect to the right of way had already
894
OBLIGATIONS AND CONTRACTS
Contracts
Arts. 1403-1408
Unenforceable Contracts
been totally executed; Ab a consequence, it is withdrawn from the
purview of the Statute of Frauds.
' ' ·
138. Suppose that in. an oral contract, which by its ternrn
is not to be performed within one year from the execution
thereof, one of the contracting parties has already complied
within the year with the obligations imposed him by said
contract, can the other party avoid the fulfillm ent of those
incumbent upon him by invoking the Statute of Frauds (Art.
1403, No. 2, NCC)?
ANS: No, he cannot. This is so, because the Statute of Frauds
aims to prevent and not to protect fraud. It is well-settled that when
�·
the law declares that atf agreement which by its terms is not'to'be
perforinf'.i within a year from the making therec-f is 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: it
refers only to an agi·eement which by its terms is not to be perforni:ed
on either side within a year from the execution thereof. Hence, onE!
which bus already been fully performed on one side within a year is
'I
taken out of the operation of the statute. (PNB vs. Phil. Vegetable
Oil Co., 49 Phil. 857; Sho�maker vs. La Tondeiia, 68 Phil. 24.)
139. In 1968, D borrowed P5,000 from C. This debt· is
evidenced by a promissory note wherein D promised to pay the
obligation within two years. In 1970, when the note matured,
A, a friend ofD, assumed orally, without the knowledge ofD,
but'with the consent of C, the payment of the debt within six
(6) months. Because of .A's failure to pay within the period
agreed upon, C finally deci.ded to bring an action against him.
Will such an action prosper, assuming that the oral contract
can be proved by testimonial evidence?
ANS: Yes, the action will prosper. Itis well-settled that a special
promise to answer for the debt, default or miscarriage of another in
order to fall within the operation of the Statute of Frauds should he
collateral not independent or original. (Reiss vs. Memije, 15 Phil.
350.) Example of this would be the undertaking of a guarantor .or
a surety. In .he instant ca11e, the promise of A is independent· ·or
original.
895
Arts. 1409-1422
OBLIGATIONS AND CONTRACTS
Contracts
Void or lnexist.ent Contracts
140. · How may contracts infringing the Statute of Frauds
be ratified?
ANS: Contracts infringing the Statute of Frauds may be ratified
either·: (1) by the' ffillui-e to object to the presentation of oral �vidence
to prove the same,· or (2) by the acceptance of benr.fits under them.
(Art.: 1405, NCC:)
•. ' ; .
' ·,·· 141, Distinguish from each other "confirmation," "rati­
fication," and "recognition."
ANS: Under the Spanish Civil Code, the terms "confirmation"
and �ratification" were not interchangeable. Confirmation was a
term used · to designate the act by which avoidable contract was
cured of. its vice. or defect, while ratification was used exclusively
to designate the act by·which a contract entered into by a person
i� behalf:of.another without or in excess of authority is cured of its
defect. Ratification, therefore, was a specie of confirmation. Under
the preilent Code, the term ratification is now used to designate the
act of validating any kind of defective contract.
·
Under the old law, it was also customary to distinguish ronfir­
mation ·and ratification from recognition. Recognition or acknowl­
edgment refers to an act whereby a defect of proof is cured, snch as
when an oral contract is put in writing, or when a private instru­
ment is converted into a public instrument. Thus, according ;o the
Supreme Court, in the case of Luna us. J.inatoc (74 Phil. 15): "Con­
firmation tends to.cure a vice of nullity and ratification is for the
purpose of giving authority to a person who previously acted in the
name of another without authority. Recognition, on the other hand,
is merely to cure a defect of proof. In recognition, there is no vice to
be remedied, such as fraud, violence or mistake, so that the case is
distinguished from confirmation. In recognition, the person '3.cting
on behalf of another is duly authorized to do so, so the situa�ion is
different from ratification."
VOID OR INEXISTENT CONTRACTS
.
'
,._
(Arts. 1409·1422)
142. Define void and inexistent contracts .
....... '"ANS: In general, void and inexistent contracts may be rlnfin11rl
as those which lack absolutely either in fact or in law one or some
896
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inexistent Contracts
Arts. 1408-1422
or all of those elements which are essential for its validity. In
particular, void contracts are the contracts where all ofthe requisites
prescribed by law for contracts are present, but the cause, object or
purpose is contrary to law, morals, good customs, public order or
public policy, or they are prohibited by law, or they are declared by
law to b'"' void. Inexistent contracts, on the other hand, are those
contract which lack absolutely one or some or all of those requisites
which are essential for validity.
143. Pistinguish between void and inexistent contracts.
ANS: Void a.nd ineriste�t contracts may be distinguished from
·
each other in the following ways:
.
.
·
(1) Void cont�·acts refer to those where all ofthe requisites of
a contract are present, but the cause, object or purpose is contrary
to la·n, morals, good customs, public order or public policy, or the
contract itself is prohibit«:d or declared by law to be void; inexistent
contrads, on the other hand, refer to those where one or sonie or all
of those requisites which arE' essential for validity are absolutely
lacking (LiguP.z us. Court ofAppeals, 102 Phil. 577.)
(2) The principle of in pari delicto is applicable in the firllt,
but not in the second. Consequently, the first may produce effects.
(Arts . 1411, 1412, NCC.), but the second does not produce any effect
whatsoever.
144. Distinguish. void and inexistent contracts from the
other defective contr acts.
Al\S: A void or inexistent contract may be distinguished from
a rescissible contract
the following ways:
ir,
(1)
A void or inexistent contract produces as a rule no effect
even if it is not set aside by a direct action, whereas a resciesiblc
contract is valid unless it is rescinded. (Arts. 1380, 1409, NCC.j
(2) The d3fect of the former consists in absolute lack in fact
or in law of one or som� or all of the essflntial elements of a contract,
whereas the defect •)f the latter consists in lesion or damage to one
of the contracting parties or to third persons. (Ibid.)
(3)
In the fon.1er the nullity or inexistence of the contract
is bnscd on lhe luw, whcreue In the lattor its rcsc1sslblo chnrncter
897
Arte. 1409-1422
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inexistent Contracts
is based on equity. Hence, an action for declaration of absolute
nullity or inexistence ia not only a remedy but a sanction, whernas
an action for rescission is a mere remedy. Public interest, thereforl!,
predominates in the first; whereas private interest predominates in
the' second. (8 Manresa, 5th Ed., Bk . 2, pp. 544-545.)
.•
.I
'
The action for the declaration ofthe nullity or inexistence
of'a contract is' imprescriptible, whereas the action for the rescission
of a contract is prescriptible. (Arts. 1389, 1410, NCC.)
.
(4)
(6) . The nullity or inexistence of a contract cannot as a rule
be assailed by third persons, whereas the rescissible character of a
�ontract may be assailed by third persons. (Arts. 1381, 1382, 1409,
NCC).
.
'.A v"oid contract may be distinguished from a voidable contract
.
in. tlie, followlli.g ways:
· -·(l) : A void or inexistent contract produces as a rule no effect
even if it is not set aside by a direct action, whereas a voidable
contract is binding unless it is annulled. (Arts. 1390, 1409, NCC.)
(2) The causes for the inexistence or absolute nullity or the
former are different from the causes for the annulability or relative
nullity ofthe latter. (Ibid.)
(3)" The former is not susceptible of ratification , where'l.s the
latter is susceptible of ratification. (]bid.)
(4)
The action for the declaration of the nullity or inexistence
of a contract is imprescriptible, whereas the action for the annulment.
of a contract is prescriptible. (Arts. 1391, 1140, NCC.)
(6) The defense ofinexistence or absolute nullity is av?jlable
to third persons whose interests are directly affected, wherea.s the
defense of annulability is not available to third persons. (Arts. 1397,
1421, NCC.J
A void contract may be distinguished from an unenfo"ceable
contract in the following ways:
"(1)
In a void or inexistent contract, there is in law or in reality
rio contract at all, wheref\s in an unenforceable contract there is
actually a contract which cannot be enforced by a court action unless
it is·ratified. (Arts. 1403, 1409, NCC.)
898
OBLIGATIONS AND CONTRACTS
Contracts
'foid or Inexistent Contracts
Arte. 1408-1422
(2) The causes for the inexistence or abso!ute nullity of the
former are different from the causes for the unenforceability of the
latter. (Ibid.)
(3) The former is not susceptible of ratification, while the
lattr.r is susceptible of ratification. (Arts. 1404, 1405, 1407, 1409,
NCC.)
(4) The former can be assailed by third persons whose
interest.s are directly affected, whereas the latter cannot be assailed
by third ()ersons. (A.rts. 1408, 1421, NCC.)
·
145. What contracts are void or inexistent?
ANS: The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary tci law,
morals, f;ood customs, public order or public policy;
·'
(2)
·i
Those which are absolutely simulated or fictitious;
(3)
Thode 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 th:
principal object of the contract cannot be· ascertained;
(7)
Those expressly prohibited or declared void by law..(Art.
1409, N,CC.)
In addition, we ca11 also include those which are the direct.
results of previous illegal contracts (Art. 1422, NCC.), those wher<!
there is no concurrence between offer and acceptanr.e with regard
to the object and the. cause of the contract, and those which do nor.
comply with the required form where such form is essential for
validity.
146. (a) Cite an example of a contract which is cont.re.ry
to morals. (b) Can the nullity of the stipulation �n the,
usurious interest affect (!) the lender's rights to recover th1!
principal loan; (ii) the terms of the real estate mortgage?
.
899
.,
Arts. 1409-1422
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inexistent Contracts
. · ; !·ANS: (a) Stipulations ·authorizing iniquitous or unconsc:ona­
ble interests are contrary to morals, if not against the law. Under
Art. 1409 of the NCC, these contracts are inexistent and void from
t.h� very beginning. They cannot be ratified nor the right to set up
their'illegality as a defense be waived.
(b) The nullity ofthe stipulation on the usurious interest
does not, however, affect the lender's right to recover the principal
loan. Nor would it affect the terms of the real estate mortgage (REM).
The rlght to. foreclose the mortgage remains with the creditors and
said right can be exercised upon the failure of the debtors to pay the
debt due. The debt due is to be considered without the stipulation
of the excessive' interest. A legal interest of 12% per annum will be
added in place of the excessive interest formerly imposed.
But in a situation where the total amount of indebtedness
during the foreclosure proceedings is pegged in an amount which
inciuded interest which is excessive, iniquitous and exorbitant, the
foreclosure proceedings cannot be given effect and will be considered
invalid. If·the· foreclosure proceedings were considered valid, this
would result in an inequitable situation wherein the borrowers will
have their land foreclosed for failure to pay an over-inflated loan
only a small part of which they were obligated to pay. (Heirs ofZoila
Espiritu and Primitiua Espiritu us. Sps. Landrito, G.R. No. 169617,
April 3, 2007).
147. (a) What is the period of prescription for bringing
an action for a judicial declaration of the absolute nullity or
inexistence of a void or inexistent contract?
(b) On the basis of a document entitled "Deed of
Absolute Sale," a certain lot and building then leased by its
owner PC to JG with monthly rental of Pl,000.00, was sold
to and thus registered, in the latter's name. Six (6) years
after the issuance of the title to JG, MC, the sole heir of PC
who had just died, brought an action for recovery of the
property alleging in his complaint, among others, that PC
then very old and with weak eyesight was tricked b; JG
into signing the Deed of Absolute Sale upon the frundnlent
misrepresentation that said document wa11 only a renewal
of the lease con�ract over the property; that the price stated
in the· documl!nt is only P50,000.00. JG moved to dismiss the
900
OBLIGATIONS AND CONTRACTS
Contracts
'{oid or Inexistent Contracts
Arts. 1408-1422
action o:a the ground of prescription. Should the motion bu
grante d? (1979) ·
ANS: (a) There is no period of prescription. In other words, the
action is im'prescriptible. (Arl. 1410, NCC.)
·
(b) The motion should not be granted. In reality, the
actio:ri for recovery ofthe subject property brought by MC against JG
is an action tr· declare the fictitious deed of sale as void or inexistent
because: first, there is absolutely no consent of the alleged vendor to
the sale; and second, there is no cause or consideration for the. sale
a>i far.as the.alleged vendor 'is eoncerned. Fraud was merely alleged
in the complaint to shvw or explain why the alleged ve�dor sigrted
the absolute deed of sale. Consequently, since the action instituted
by MC against JG is an action for the judicial declaration of the
inexistence of the alleged deed of sale, it is imprescriptible. (Art.
1410, NCC; Maria Castillo us. Josefa Galvan, 85 SCRA 526; Ocejo,
Perez and Co. vs. Flores, 4o Phil. 921; Mapalo us. Mapalo, 1 7 SCRA
..
1 14.)
148. What is the principle of in pari delicto?
ANS: When the defect of a void contract consists in the illegality
of the cause or object of the contract, and both of the parties are
at fault O:'.' in pari delicto, the law refuses them every remedy and
leaves them where they are. This rule which is embodied in Arts.
1411 and 1412 of the NCC is what is commonly known as the
principle of in p1,ri. delicto. It is a rule which is expressed in the
maxims; ·Bx dolo malo non oritur actio" and "In pari delicto potior
est conditio defendentis." The law will not aid either party to an
illegal agreement; it leaves theµi where they are.
149. What are the e xce ptions to the principle of pad
delicto?
ANS: The exceptions to the principle of pari delicto are the
following:
(1) Payment of money or delivery of property for an i,llegal
purpose, where the party who paid or delivered repudiate� ,th�
contract before the purpose has been accomplished, or before . any
damage has been cat.sed to a third person. In such case, the court,e
901
Arts. 1 409-1422
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inexieumt Contracts
may allow such party to recover what he has paid or delivered, if the
public interest will thus be subserved. (Art. Ul4, NCC.)
,
...
, (2). Payment of money or delivery of property by an incapac­
itated person. In such case, the courts may allow such person to
recover what he has paid or delivered, if the interest of justice so
d�mand1{fArt'. 1415, NCC.)
·
; .·, � :��
. , A e�ment �r. contract which is not illegal per se but is
merely prohibited by law, and the prohibition is designed for the
pr,otection ofthe plaintiff. In such case, such plaintiff, if public policy
is. th�reby enhanced, may .recover what he has paid or delivered.
.NCC.) · ..
_.
: (3),, �
/,i1
( .J4��.
'
; :. , ,:, {4) . Payment ofany amount in excess of the maximum price
ofany article or commodity fixed by law. In such case, the buyer may
rec·over'the excess; (Art. 1417, NCC.)
�
.I • ·
,
1
•
•
. . .(5) . Contract whereby a laborer undertaltes to work longer
thru;' 'th'e' maXimu.m number of hours fixed .by law. In such case, the
laborer may demand for overtime pay. (Art. 1418, NCC.)
(6) Contract whereby a laborer accepts a wage lower than the
minimum wage fixed by law. In such case, the laborer may demand
for'the defidency'. (Art. 1419, NCC.)
· 150. On January 24, 1934, M executed a deed of sale con­
veyance ownership to two (2) fishponds located in Malabon
to X, a daughter by a pdor marriage. On January 27, 1934,
X executed a deed of sale conveying ownership of the same
properties to her stepfather F and her mother M. In 1953, F
died intestate, survived by his widow M and three child1·en
A. B, and C, by a prior marriage. After the death of F, M and
her stepchildren partitioned the properties. Subsequently,
the relationship between M and her stepchildren turned for
the worse. Finally, in 1962, M brought an action against her
stepchildren for conveyance of the shares given to thllm in
the aforementioned properties on the ground that the. con­
veyances made in 1934 are null and void. Defendants set up
the defenses, among others, of pari delicto and laches. De·
cide· the case.
:··
ANS: What would invalidate the conveyances under scrutiny
is .the•:fact that they were resorted to in order to circumvent the
902
Arts. 1408-1422
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inexiste�1t Contracts
prohibition against ·d'lnations between spouses ·contained .in· ,Art.
1334 (now Art..133) ofthe NCC1 The illegal purpose tainted the two
contradr,. The ,illeg� Qr illicit. purpose .then .becomP.s illegal causa
.
within the terms of the NCC. Consequentiy, the contracts are null
and. void. Unfortunately for 'j)ia'iritlff, in cont�acts invalidaled' 'by
me·gal causa, Arts� l305 �d. 1306 (now Arts. i411 and. 1�i2) of
y. the �le in pari delicto non oritu� ·a�tio,
the NCC apply rigorousl
1, .
..
denying all' re'covery . to the guilty oarty inter se. And .of .course
it · cannot be denied that she had biowledge of the nuliity of the
contract� . since 1934 hecaus� she was a party thereto. An4 ye(�el'
present ;i.Ction was filed only in 1962 and after th�. breaki�P
I �P,,Of
friendly relations between her and her stepchildren. Her inaction t;o
enforce her right for 28 years. ·cannot be justified by the iame eicuse
that sh� assumed that the transfer was valid. Knowledge of the efiect
of that t.ransaction would haV(l been obtained by the exercise 0( due
diligence. Ignorance which is .the effect of inexcusable negligence, it
has been said, is no excuse.for. laches. (Rodriguez vs. Rodrigue;, 20
�
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'
••
•
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-
(
\
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•:
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,
SCRA 908.)
151. A. married to B, donated in 1940 a paroef of liind
belonging to the conjugal. partnership to c, a mirior \of•l6,
subject tt. the condition that c shall become his mistress.
The do:o.atfon was duly accepted by c · and by her"parents.
After the perfectior'. of the donation, c became the mistresll
of A. Wheri A died hi 1945, his widow, B, and his legitimate
children, X and Y, took possession of the land. Subsequently,
C commenced an action for recovery of the property, Defen·
dant11 adv"lnced the defense that the contract of donation. ia
inexistent because of the illegality of the cause; consequent·
ly, it has not produced any effect whatsoever. Plaintiff, how­
ever, contended that what is illegal is the motive of the do·
nor and not the c11use, since the contract in this case is one
of pure beneficence.
(1) what is .the character of the contract - is it valid.,
void or i!lexistent? Reasons.
(2) Assuming that the contract is either void m:
·
·
inexistent, what are its effects if any? Reaaons.
ANS: The factual bac�drop of the above problem is identica1
903
Arts. 1409·1422
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inemtent Contracts
to that ofLiguez us. CA (102 Phil. 577). The answers given by the SC
to the question·s propounded above may be summarized as follows:
'.
.., .. '' " ( 1j ,. The" cont�act in the instant case is void. The facts clearly
denionstr�te that tlie contract is onerous in character since the uo�or
was'.'.not "illoved exclusively by the desire to benefit the donee, but
alsd tb iratify his sexual impulse. While it is true that the causa of
a "corttraCt must not be confused with the motives of the parties (Art.
13_51�' "NCC.X there is an exception. -The motive may be regarded
Ii� ·.caus'a'.1.when it predetermines the purpose of the contract. In
otherw:otds;'we 'must except from the rule those contracts that are
c161iaitfon�d upon the attainment of the motives of either party:
rJ. 'the pte'sent case;'it is scarcely disputable that the donor would
rio01ave '�onveye'd the property in question had the donee refused
t<\"a�cept the condition that she will cohabit with him. Hence, the
cohabitatfon: was an implie:l condition of the donation, and being
U'n1ii'wru1: necessarily tainted the donation.
•'·.
.. . . . .
(2) Since the contract is void by reason of the illegality of
the cause, the provisions of Art. 1412 of the NCC are, therefore,
appllcable.,However,-the rule ofpari delicto is not applicable. C was
only 16 years old at the time of the donation. It is well-known that
mmors !)Ccupy a privileged position under our law. As a matter of fact,
the law'·s.tender care for them is .now emphasized in Art. 1415 of the
Code. At'.any rate, even if they were in pari delicto, the same rules
would still apply. Under Arts. 1411 and 1412, nullity of contracts due
to illegal cause or object, when executed (and not merely execntory)
wilL produce the effect of barring any action by a guilty party to
recover.where has already given under the contract. These articles
make it plain that as far as the guilty party is concerned, his act of
conveying property pursuant to an illicit contract operates to divest
him ofthe.ownership of the prop·erty, and to bar him from recovering
it from hi!! transferee, just as if the transfer were through a bargain
legal from its inception. Although repugnant, the law deems it. more
repugnant that a party should invoke his own guilt as a reason for
relieffrom a situation which he has deliberately entered. This serves
to explain why the tainted conveyance to the extent that it has been
carri�d,out becomes conclusive as between the guilty parties, even
if without effect against strangers without notice; · and why a guilty
party-may not ask the courts for a restoration to the status quo ante .
Tbe:Sa.me reasons can also be applied to the case of the successors
904
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inexietent Contracts
Arte. 1408-1422
or heirs of the guilty party. They ca;mot attract the validity of the
donation in their qu8.lity as successors or heirs of the guilty party
since it is undeniable that they cannot be placed in a better position
than their predec_essor.
.
Consrquently, since the property donated is conjugal . and
since the donation was made when the Spanish NCC. was still in
force, Art. 1419 of said Gode is applicable. The second paragraph
of this article considers the donation as merely fraudulent, subject
to collation upon liquidation of the conjugal partnership propet1ies
and deduction of its. value from the donor's share in the conjugal
profits. Therefore, C is . entitled,to so much of the .donated prcipei;ty
as may be four::i upon propE!r liquidat'ion not to prejudice the sli�
of the widow or the legitimes of the compulsory heirs.
.. .
: . : 1·
ll'i2. , \ partnership borrowed P20,000.00 from "A" �t
clearly us·urious interest. Can the· creditor recover anytlµng
from the debtor? Explain. (i975)
_ '\
·'
...
!
i
·
ANS:. Yes, the creditor can recover from the debtor the following:
the principal, legal interest on the principal from the date of demand
(Art. 220[1, NCC.), legal interest on thn legal interest from the time
of judicial demand (Art. 2212, NCC.), nnd attorney's fees, if proper,
under Art. 2208 of the NCC.
That the creditor can recover the principal from the debtor is
now well-fettled. (Angel Jose us. Chelda Enterprises, 23 SCRA 119;
Briones u.�. Cammayo, 41 SCRA 404.) In a usurious contract of loan,
there are always two (2) stipulations. They are: first, the principal
stipulation whereby the debtor undertakes t!o pay the principal; and
second, thP. accessory stipulation whereby the ciebtor undertakes
to pay a usuriou11 interest. These two (2) stipulations are divisible.
Acco:ding to Art. 1420 of the NCC, in case of a divisible contra.ct,
if the �llegal terms can be separated from the legal ones, the latter
may bP. enforc ..d. It is clear that what is illegal is the prestation to
pay the stipul�tcd interest. Hence, being separable, the latter only
should be deemed void.
<Note: It amst :Oe noted that in Angel Jose us. Chelda, it was
held that attorney's fees cannot be awarded. The principal reason
is that, at the time when the decision was promulgated, there wits
yet no definit:e ruling on the point of law involved. Now, it is already
905
Arts. 1409-1422
OBLIGATIONS AND CONTRACTS
Contracta
Void or Inexistent Contracts
well-settled that plaintiffcreditor may recover the principal plus legal
interest under Arts. 2209 and 2212 of the NCC. Hence, attorney's fees
: _m_ay now be awarded.)
153. On January 15, 1958, D borrowed Pl0,000 from C.
AB ._.eVide�ce 'of the indebtedness, D executed a promi!isory
note·j>romisiiig to pay the entire obligation on January 15,
1959 at 24%' interest per annum. As security for the payment
of ihe· obligation, he also executed a real estate mortgage on
a house 'an:d iot registered In his name in favor of C. This
mo'rtga'ge''�as duly registered. When the note maturr.d, D
pii:t(fthe 'entire obligation plus interest amounting to P2,400.
C'oll"siderfri.g that the contract is usurious, if D institutes an
action againsCC for the recovery of the usurious interest
which he has paid, how much can he recover? Reason.
;
)' !
·�.�
\)
•: I
.
•
:"l • J I
" ':
. . . , . :ANS: D. can recover the entire interest of P2,400 which he has
paid phis 6% interest thereon from the date of payment. This is in
accordance with Sec. 6 of the Usury Law and Art. 1413 of the NCC.
It·ro.ust be observed that under Sec. 6 of the Usury Law, the debtor
may ·recover the whole interest paid. Under the NCC, in Art. 1413,
"interest paid in excess of the interest allowed by the usury laws
may be rec'ovi!red by the debtor, with interest thereon from the date
of payment." When the Code speaks of "interest paid in ex·:ess of
the interest allowed by usiiry laws," it means the whole usurious
interest. The two (2) provisions, therefore, are almost identical . The
only change effected by Art. 1 41 3, NCC, is not to provide for the
recovery of the interest paid in excess of that allowed by law, which
the Usury Law already provided for, but to add that the same can be
recovered "with interest thereon from the date of payment." (Angel
Jose Warehousing Co. us. Chelda E�terprises, 23 SCRA 119.)
(Note: Prior to January 1, 1983 and under the Treasur) Laws,
no person shall receive a rate of interest including commissior.s,
premiums, fines and penalties, higher than 12% per annum or the
nirocmun1 rate prescribed by the Monetary Board for a loan secured
by a mortgage upon real estate the title to which is duly registered.
. Therefore, the 18% interest rate plus the additional interest and
penalty charges of 18% and 8%, respectively, are highly i:.surious.
[Development Bank of the Philippines r.:s. Perez, G.R. No. 148541,
-: , ; · : Nouember .11, 2004.] Under Central Bank (CB) Circular No. 905,
·
..
···which became effective on January 1, 1983, whereby the Monetary
906
OBLIGATIONS AND CONTRACTS
Contract8
Void or Inexistent Contracts
Arts. 1408-1422
Board i3 authorized to fix interest rates, the ceiling rates under the
Usury law [Act No. 26fi5, as amended by P.D. No. 116) have been
abolished.
.
,
.
I� should be note-:! that Central Bank CB Circular No. 905 did
not repeal nor in any way amend the Usury Law but simply suspended
the lat�er's etTectivity. The le�slation'of usury is wholly the. creat11Xe
of legislation. A Centr�.Bank Circular cannot repeal a law. OnlY,.�
law can repeal another law. Thus, retroactive application of a Centriil
Bank Circular cannot, and should not, be presumed. fDeueUJ iHent
p
.Bank of the PhiiippiMs us. Perez, G,R. No. 148541, November 11,
2004.]
In declaring vllid the stipuletions'authorizing �xcessive .intereiit
and charges, the SC declared ·that although the Usury Law . was
suspended by .qi. Circular No. 905 end consequently the p11rties
are given wide latitude to agree on any interest rate, . nothing in.the
said Circular grant.a lenders carte blanche authority to raise intere�t
rates to levels which will either 1mslave their borrowers or lead to a
hemorrhagin� o!'their assets. { e rs ofZoilo Espiritu 1,1s. Sps. Laruirito;
supra, G.R. No. 169617, April 3, 2007])
.,
Hi
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154. X Co. broughi an action against ABC Co. for.the
recovery ofan unpaid loan of Pl0,000 with legal interest front
the filing of the complaint, . plus attorney's fees. Defendant
interj>osetl the defetise that since the loan is usurious and
therefore void, consequently the principle of pari delicto
a s enunciateC:.0 in Art 1411 of the NCC is applicable. To
strengthen its defense, defendant invoked the provisions of
Arts. 1413 and 1961 of the NCC as well as'the case of Sebastian
vs. Bautista (58 Off. Gaz; 3146.) .wh rein '.the Court of Ap eals
held that in usuriou.S contracts, although the NCC .in Art
1413 provides for an exception to the.rule of pad c.\elicto'iri
th·e case of·.�he debtor, it, does not provide for an exceptio� in
the case of the creditor. Decide.
.
�
p
.
ANS: rhe factual setting of the above problem is identical
e
to th3.t of Angel Jose Warehousing Co. vs. Chelda Enterpris s Co.
(supra.) In t hat case, the Supreme· Court held that the creditor would
be able to recover the entire principal plus legal interest of 6.% per
i:omplairit, but not attorneys fees.
anr,um from the' filing ofthe'
,·
,\
,\ contract o f loan with usurious interest consists of principal
and accesso� stipulations, the principal one is to pay the debt; the
907
Arts. 1409-1422
OBLIGATIONS AND CONTRACTS
Contree�
Void or Inexistent ContTacts
acce·ssory is to pay interest thereon. These two (2) stipulations are
divisible in 'character. According to Art. 1420. of the NCC, "in case
of a divisible contract, if the illegal terms can be separated from
the legal ones, the latter may be enforced." In a simple contract
of loan with usurious interest, the prestation of the debtor to pay
the principal debt is not illegal; what is illegal is the pre stati :m to
pay the stipulated interest: Hence, being separable, the la.tte:- onJy
.·
shouid ge,deenied void.
·The foregoing interpretation is more in accordance with the
philosophy of our usury legislation for the following reasor.s: (1)
It,discourages - usurious : contracta; (2) It is in consonance with the
principle that .no person shall enrich himself unjustly at the expense
of ·another; 1(3) Penal sanctions are available against a usurious
dehtOr'as
a further deterrence to usury.
.
: i:' . :
" t�
· .. : X: :Co. is therefore · entitled to the recovery of the pri11cipal
of the foam plus legal' interest of 6% per annum from the filing of
the complaint pursuant to Art. 2209 of the NCC. Attorney's fees,
however cannot be awarded since there is no showing that thn case
falls under any 'of the exceptions provided for in Art. 2208 o)f the
NCC, Besides; defendant had reason to resist the d!iirn since there
was yet :no definite Tuling on the point of law involved in thP. light
of the NCC. (The foregoing decision was subsequently reiterated· in
Briones vs. Camniciyd, 41 SCRA 404.)
155. In usurious loans, the entire obligation does not
become void beclt.use of an agreement for usurious interest;
t�e ·unpaid principal debt still stands and re ma ins .valid,
but the stipulation as to the usurious interest is void.
Consequ·ently, the debt Is to be considered without stipu lation
as to the interest: In the absence of an expresE; stipulation as
to the rate of interest, what interest rate shall be imposed?
vs.
ANS: The legal rate at 12% per annum shall be imposed. (DBP
Perez; G.R. No. 148541, November 11, 2004.)
1�6. On March 1, 1936, a homestead patent was issued
to A. On March 1, 1937, he sold the homestead to X. In 1955,
A:ffied: sur\rived by his children; B ana C. Subsequently, B
and 'C brought an action against X for the recovery of the
908
Arts. 140S-1422
OBLIGATIONS AND CONTRACTS
Contracts
Void or Inexistent Contracts
homestead on" the growid thatfthe sale is void pursuant to
Sec. 118 of the Public Land Law. X, however, ·contends that
there can be no recovery under "the rri.le ·of pari delicto.
Decide the case.
.
ANS: The rule of pari del�t"o is not applicable here� While it
is true that both vendor and vendee· are guilty of violating the'law,
nevertheless, public ·policy dictates that the homesteader br hls
heirs should be &!lowed to reacqwre the land even ifit"has be�n ·eold;
since the avowed purpose of the law is to give said land to a family
for home and cultivation. This exception to the rule ·or pari delicto
is sanction•!d by Art. 1416 of the NCC. The action for recovery; of
course, will not prescribe 11iiice the contract is void.·However, whlle
the principle of pci.ri delicto is not applicable to the homestead, it is
applicable to the products and the improvements. In other words,
becaus"e of the principle, the homesteader or his heirs cannot re"cover
from the vendee the value of the products .realized 'by said vendee
from the land; neither can the veridee or his heirs recover froni the
vendor the value of the improv'ements made by them on ti.;e land.
(Angeles us. Court of Appeals, 102 Phil. 1006. To the same''effect
Ras us. Sua, 25 SCRA 153, ·Nhere the Supreme Court citing the
Angeles case, applied the same doctrine to land acquired from the
National Abaca and Other Fiberil 'Corporation [NAFCO) pursuant
to Rep. Act No. 477 and ·subsequently leased to another by the
'
registered applicant L1 violation of the law.)
-
157. JS, blind, er it>pled and 90 year's of age, entered into
a contract with her friei:id, WH, ·a Chinese, by virtue of which
she leased to the latter a portion Of her property in Rizat
Avenue, Manila, for 50· years at a monthly rental of P3;120;
This contrnct was amended four times in a period of about a
year so as to cover the entire property, giving the lessee an
option to buy said property for Pl20,000 payable within 50
years, and extending the terin of the lease to 99 years, at a
monthly rental of PS,480, but imposing the condition that the
lessee muEt become' a Filipino citizen. About six (6) months
after the ex:ecution of the last contract, the lessor brought
an action agai-.1st the lessee. for the annulment of the lease
contracts. (1) In these contracts, is there a violation or.
e
Constitutional ban against alien landholding? (2) If ther� i�:
;1b.
909
Arts. 1409·1422
OBLIGATIONS AND CONTRACTS
Contracte
Void or Inexistent Contracts
a violationfis the principle«1fpari delicto appli ca ble so as to
prevent · the lessor or her' heirs from recovering the leased
property front the'lessee? · ·
.
ANS: (1) Taken singly, the contracts show nothing that is
necessarily illegal, but. considered collectivel:v, they reveal an
insidious pattern to subvert. by indirection what the Const.itution
directly:prohibits. ;To. be sure, a. lease .to an alien for a reasonable
period is. valid. So fa an option giving an alien the right to buy real
property on .the, condition that he is granted Philippine citi.:enship.
But if an alien,is.given not .only a lease . of, but also an ortion to
buy· a ·piece of,Iand ·by virtue of which the Filipino owner cannot
sell'or otherwise' dispose of his property, this to last for 50 years,
thenA.;becomes clear that the. arrangement is a virtual transfer of
ownership, whereby the owner divests himself in stages, not only of
the . .right to . enjoy the land. (jus possidend.i, jus utendi, jus fruendi,
andjils :<;lbutendi) but !llso tQ.e .right to dispose it Uus disponendi)
righ�e the sum total of which make up ownership. It is just as if
today �he possession is transferred, tomorrow, the use, the next day,
�he. . qisposition, and so on, until ultimately all the rights c,f which
own rsI:J.ip i� made up . are consolidated in an alien. And yet this is
exacttY. .what th.e parties in this case did. If this can be done, then
the ,C.onstitut�onal ban against alien landholding in the Philippines,
i
i s aiuicn.lnced in Kriuenko us. Regi.ster of Deeds, is indeed in grave
·
peril.
:'"'."'
'e.
(2) However, it does not follow that because the parties
are in pari deliclo, they will be left where they are ·.vithout relief.
For one thing, the original parties arll already dead; for another
thing and this is important, Ait; .1416 pf the NCC provides, as an
e.xception tO.the.rule on pari delic;to, that "when the agreement is not
illegal per se but is merely prohibited, and the prohibition by law is
designed. for. the protection of. the plaintiff, he may, if public policy
is .thereby- enhance.d, recover what he has paid or deli ver�d ." It is
welk.se�tled that the provision· of the Constitution in Art. XIII, Sec.
�. :isian expression. of public.policy to conserve lands for Filipinos.
This policy would .certainly be defeated and its continued violation
siw,c_tioned, if the general rule of pari delicto is applied. Hence, the
.�\>.��ac�s i11 question are annulled. (Phil. Banking Corp us. Lui She,
.
.
.
':·ci �trf-.il! �
.
�Ji@fRil 52.) .
I
:
910