ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES,

THIRD DIVISION

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision ¹ of the Court of Appeals ² (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are likewise ordered dismissed. No pronouncement as to costs. ³

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision. ⁴ All three of them also agreed to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project. ⁵

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition. ⁶

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as well as profits in a joint venture should be distributed equally, ⁷ the CA invoked Article 1797 of the Civil Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article 1769, and other related provisions of the Civil Code of the Philippines. ⁸

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property. ⁹

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the uses and purposes therein stated. ¹⁰

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. ¹¹

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771, ¹² "The execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. ¹³ They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 ¹⁴ of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another. ¹⁵

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, "the land was in effect given to the partnership as [petitioner's] participation therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the project. ¹⁶ But it also ruled that neither was respondent responsible therefor. ¹⁷ In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. ¹⁸ Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED

Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

Footnotes

1 Penned by Justice Ramon U. Mabutas Jr.; concurred in by Justices Emeterio C. Cui, Division chairman, and Hilarion L. Aquino, member.

2 Second Division.

3 CA Decision, p. 1; rollo, p. 15.

4 CA Decision, p. 2; rollo, p. 16.

5 CA Decision, p. 3; rollo, p. 17.

6 The case was deemed submitted for resolution on September 15, 1999, upon receipt by the Court of the respective Memoranda of the respondent and the petitioners.

7 CA Decision, p. 32; rollo, p. 46.

8 Petition, p. 2; rollo, p. 10.

9 Petitioners' Memorandum, pp. 6-7; rollo, pp. 82-83.

10 CA Decision, pp. 5-6; rollo, pp. 19-20.

11 Jo Chung Cang v. Pacific Commercial Co., 45 Phil. 142, September 6, 1923.

12 Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

13 Petitioners' Memorandum, pp. 6-7; rollo, pp. 82-83.

14 Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.

15 Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.

16 CA Decision, p. 20; rollo, p. 34.

17 Ibid., p. 28; rollo, p. 42.

18 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.

OBLIGATORINESS * CONSENSUALITY OF CONTRACTS

More than anything else, the parties, by a solemn document freely and voluntarily agreed upon by them, agreed to be bound by the report of the commission and approved by the trial court. The agreement is a contract between the parties. It has the force of law between them and should be complied with in good faith. Article 1159 and 1315 of the Civil Code explicitly provides:

Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

Furthermore, during the hearing on 22 November 1996, petitioner did not interpose a serious objection.¹¹ It is therefore too late for petitioner to question the valuation now without violating the principle of equitable estoppel. Estoppel in pais arises when one, by his acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.¹² Records show that petitioner consented to conform with the valuation recommended by the commissioners. It cannot detract from its agreement now and assail correctness of the commissioners' assessment.1âwphi1.nêt

Finally, while Section 4, Rule 67 of the Rules of Court provides that just compensation shall be determined at the time of the filing of the complaint for expropriation,¹³ such law cannot prevail over R.A. 7160, which is a substantive law.¹⁴

AUTONOMY OF CONTRACTS

ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

The subordinate position of the individual employee vis-a-vis management renders him especially vulnerable to its blandishments and importunings, and even intimidations, that may result in his improvidently if reluctantly signing over benefits to which he is clearly entitled. Recognizing this danger, we have consistently held that quitclaims of the workers' benefits win not estop them from asserting them just the same on the ground that public policy prohibits such waivers.

That the employee has signed a satisfaction receipt does not result in a waiver; the law does not consider as valid any agreement to receive less compensation than what a worker is entitled to recover. A deed of release or quitclaim cannot bar an employee from demanding benefits to which he is legally entitled. ⁸

Release and quitclaim is inequitable and incongruous to the declared public policy of the State to afford protection to labor and to assure the rights of workers to security of tenure.

MUTUALITY OF CONTRACTS

 MUTUALITY OF CONTRACTS

In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held —

. . . The unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of contracts ordained in Article 1308 of the Civil Code:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void . . . . Hence, even assuming that
the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. (Citation omitted.)

RELATIVITY OF CONTRACTS

Art. 1311 of the Civil Code provides, as follows —

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

x x x           x x x          x x x

The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.

In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible.

The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows:

Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services under the contract to the probate court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the minors; the lawyer was limited to a recovery on the basis of quantum meruit.⁹

In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render such service." ¹⁰

It has also been held that a good measure for determining whether a contract terminates upon the death of one of the parties is whether it is of such a character that it may be performed by the promissor's personal representative. Contracts to perform personal acts which cannot be as well performed by others are discharged by the death of the promissor. Conversely, where the service or act is of such a character that it may as well be performed by another, or where the contract, by its terms, shows that performance by others was contemplated, death does not terminate the contract or excuse nonperformance. ¹¹

In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to lease the same may very well be performed by her heir Victor.

As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." ¹² In 1952, it was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject to the liability affecting their common ancestor. ¹³

It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him. ¹⁴ This is clear from Parañaque Kings Enterprises vs. Court of Appeals, ¹⁵ where this Court rejected a similar defense —

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.

In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract. ¹⁶

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy.

That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during the two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the payment of such reservation fees, except those for February and March, 1990 were admitted by Victor. ¹⁷ This is clear from the transcripts, to wit —

ATTY. MOJADO:

One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in that stipulation that it was issued November of 1989 and postdated January 1990 and then we will admit all.

COURT:
All reservation fee?
ATTY. MOJADO:
Yes, Your Honor.
COURT:
All as part of the lease?
ATTY. MOJADO:

Reservation fee, Your Honor. There was no payment with respect to payment of rentals. ¹⁸

Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome, ¹⁹ for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over the subject property. ²⁰

Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease through its letter dated Match 12, 1990, ²¹ well within the two-year period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner to have addressed its letter to her heir.1âwphi1

It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy.

Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower court and that such denial was never made the subject of an appeal. As the lower court stated in its Order, the alleged right of the tenant may well be ventilated in another proceeding in due time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to:

(a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy;

(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds for registration and annotation thereon of the subject Contract of Lease with Option to Buy;

(c) pay costs of suit.

Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a copy thereof to his office.

SO ORDERED.1âwphi1.nêt

reciprocal obligations

In our view, the crucial issues for resolution in this case are as follows:

(1) Whether or not private respondent violated the order agreement, and;

(2) Whether or not private respondent is liable for petitioner's breach of contract with Philacor.

Petitioner's contention lacks factual and legal basis, hence, bereft of merit.

Petitioner contends, firstly, that private respondent violated the order agreement when the latter failed to deliver the balance of the printing paper on the dates agreed upon.

The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay therefor a sum of money or its equivalent (price).⁶ Both parties concede that the order agreement gives rise to a reciprocal obligations⁷ such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.⁸ Thus, private respondent undertakes to deliver printing paper of various quantities subject to petitioner's corresponding obligation to pay, on a maximum 90-day credit, for these materials. Note that in the contract, petitioner is not even required to make any deposit, down payment or advance payment, hence, the undertaking of private respondent to deliver the materials is conditional upon payment by petitioner within the prescribed period. Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September and October 1980.

There is no dispute that the agreement provides for the delivery of printing paper on different dates and a separate price has been agreed upon for each delivery. It is also admitted that it is the standard practice of the parties that the materials be paid within a minimum period of thirty (30) days and a maximum of ninety (90) days from each delivery.⁹ Accordingly, the private respondent's suspension of its deliveries to petitioner whenever the latter failed to pay on time, as in this case, is legally justified under the second paragraph of Article 1583 of the Civil Code which provides that:

When there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or more installments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. (Emphasis supplied)

In this case, as found a quo petitioner's evidence failed to establish that it had paid for the printing paper covered by the delivery invoices on time. Consequently, private respondent has the right to cease making further delivery, hence the private respondent did not violate the order agreement. On the contrary, it was petitioner which breached the agreement as it failed to pay on time the materials delivered by private respondent. Respondent appellate court correctly ruled that private respondent did not violate the order agreement.

On the second assigned error, petitioner contends that private respondent should be held liable for petitioner's breach of contract with Philacor. This claim is manifestly devoid of merit.

As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by petitioner with Philacor. Private respondent is not a party to said agreements. It is also not a contract pour autrui. Aforesaid contracts could not affect third persons like private respondent because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, ¹⁰ even if he is aware of such contract and has acted with knowledge thereof. ¹¹

Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct bearing on the contracts of petitioner with Philacor. As pointed out by private respondent and not refuted by petitioner, the paper specified in the order agreement between petitioner and private respondent are markedly different from the paper involved in the contracts of petitioner with Philacor. ¹² Furthermore, the demand made by Philacor upon petitioner for the latter to comply with its printing contract is dated February 15, 1984, which is clearly made long after private respondent had filed its complaint on August 14, 1981. This demand relates to contracts with Philacor dated April 12, 1983 and May 13, 1983, which were entered into by petitioner after private respondent filed the instant case.lawphi1

To recapitulate, private respondent did not violate the order agreement it had with petitioner. Likewise, private respondent could not be held liable for petitioner's breach of contract with Philacor. It follows that there is no basis to hold private respondent liable for damages. Accordingly, the appellate court did not err in deleting the damages awarded by the trial court to petitioner.

The rule on compensatory damages is well established. True, indemnification for damages comprehends not only the loss suffered, that is to say actual damages (damnum emergens), but also profits which the obligee failed to obtain, referred to as compensatory damages (lucrum cessans). However, to justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable by the injured party, the actual amount of loss. ¹³ In the case at bar, the trial court erroneously concluded that petitioner could have sold books to Philacor at the quoted selling price of P1,850,750.55 and by deducting the production cost of P1,060,426.20, petitioner could have earned profit of P790,324.30. Admittedly, the evidence relied upon by the trial court in arriving at the amount are mere estimates prepared by petitioner. ¹⁴ Said evidence is highly speculative and manifestly hypothetical. It could not provide sufficient legal and factual basis for the award of P790,324.30 as compensatory damages representing petitioner's self-serving claim of unrealized profit.

Further, the deletion of the award of moral damages is proper, since private respondent could not be held liable for breach of contract. Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. ¹⁵ Finally, since the award of moral damages is eliminated, so must the award for attorney's fees be also deleted. ¹⁶

WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

G.R. No. 115117               June 8, 2000

INTEGRATED PACKAGING CORP., petitioner,
vs. COURT OF APPEALS and FIL-ANCHOR PAPER CO., INC., respondents.

CONTRACTS

         

           

Stages in the life of a contract:

1.     Preparation/Generation

2.     Perfection/Birth

3.     Consummation/Death

Characteristics of Contracts: (ROMA)

1.    Relativity (Art. 1311)

2.    Obligatoriness & Consensuality (Art. 1315)

3.    Mutuality (Art. 1308)

4.    Autonomy (Art. 1306)

Stipulation pour Autrui - stipulation in favor of a 3^rd party.

Requisites:

1.    The stipulation must be part, not whole of the contract;

2.    the contracting parties must have clearly and deliberately conferred a favor upon a 3^rd person;

3.    the 3^rd person must have communicate his acceptance;

4.    neither of the contracting parties bears the legal representation of the 3^rd party.

General Rule: Contracts (except real contracts) are perfected from the moment there is a manifestation of concurrence between the offer and the acceptance regarding the object and the cause.

Except: Acceptance by letter or telegram which does not bind the offerror except from the time it came to his knowledge.

Theories applied to perfection of contracts:

1.     Manifestation theory - the contract is perfected from the moment the acceptance is declared or made;

2.     Expedition theory - the contract is perfected from the moment the offeree transmits the notification of acceptance to the offerror;

3.     Reception theory - the contract is perfected from the moment that the notification of acceptance is in the hands of the offerror;

4.     Cognition theory - the contract is perfected from the moment the acceptance comes to the knowledge of the offerror. This is the theory adopted in the Philippines.

Persons incapacitated to give consent:

1.     Unemancipated minors;

Except:

·         Contracts for necessaries;

·         Contracts by guardians or legal representatives;

·         Contracts where the minor is estopped to urge minority through his own misrepresentation;

·         Contracts of deposit with the Postal Savings Bank provided that the minor is over 7 years of age.

2.     Insane or demented persons unless the contract was entered into during a lucid interval;

3.     Deaf-mutes who do not know how to write.

The following may not acquire by purchase, even by public or judicial auction, in person of though the mediation of another:

1.    the guardian, with respect to the property of his ward;

2.    agents, with respect to the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;

3.    executor or administrator, the property of the estate under administration;

4.    public officers and employees, with respect to the properties of the government, its political subdivisions, GOCCs, that are entrusted to them;

5.    judges, justices, prosecuting atty.’s, clerks of courts, etc., the property in custogia legis; and

6.    any other person specially disqualified by law.

Simulation of a contract

Kinds of simulation:

1.     Absolute - no real transaction is intended;

Effect: simulated contract is      inexistent.

2.     Relative - the real transaction is hidden;

Effect: the apparent contract is void, but the hidden contract is valid if it is lawful and has the necessary requisites.

         : as to third persons without notice - the apparent contract is valid on the principle of estoppel.           

Effect of:

Absence of cause	the contract confers no right and produces no legal effect
Failure of cause	does not render the contract void
Illegality of cause	the contract is null and void
Falsity of cause	the contract is void unless the parties can show that there is another cause which is true and lawful
Lesion	does not invalidate the contract unless: ·         there is fraud, mistake or undue influence ·         when the parties intended a donation or some other contract.

Form of Contracts

Rules:

1.    Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present.

2.    Contracts must be in a certain form when the law requires that a contract be in some form to be:

·         valid;

·         enforceable;

·         for the convenience of the parties.

3.    The parties may compel each other to reduce the verbal agreements to writing except:

·         Solemn contracts such as the following:

a.    Donations of real estate or of movables if exceeding Ps 5,000;

b.    Transfer of large cattle

c.    Stipulation to pay interest in loans

d.    Sale of land through an agent (authority must be in writing)

e.    Partnership to which immovables are contributed

f.     Stipulation limiting carrier’s liability to less than extra-ordinary diligence

g.    Contracts of antichresis

h.    Sale of vessels

Note: in such case, if the contract       is not in writing it is VOID

·         Real contracts that require delivery for perfection.

·         In contracts under the Statute of Frauds where the party sued makes a timely objection to the absence of a written memorandum.

Reformation of instruments:

Requisites:

1.     Meeting of the minds to the contract;

2.     The true intention is not expressed in the instrument by reason of mistake, accident, relative simulation, fraud, inequitable conduct (MARFI).

3.     Clear and convincing proof of MARFI.

Cases when there can be no reformation:

1.     Simple, unconditional donations inter vivos;

2.     Wills;

3.     When the agreement is void.

Classes of Defective Contracts: (RUVI)

1.     Rescissible

2.     Unenforceable

3.     Voidable

4.     Void or Inexistent

COMPARATIVE TABLE OF DEFECTIVE CONTRACTS:

VOID	VOIDABLE	RESCISSIBLE	UNENFORCE-ABLE
1.     defect is caused by lack of essential elements or illegality 2.     not cured by prescription 3.     cannot be ratified 4.     not binding	1.     defect is caused by vice of consent 2.     cured by prescription 3.     can be ratified 4.     binding until annulled	1.     defect is caused by injury/ damage either to one of the parties of to a 3rd person 2.     cured by prescription 3.     need not be ratified 4.     binding unless rescinded	1.     defect is caused by lack of form, authority, or capacity of both parties 2.     not cured by prescription 3.     can be ratified 4.     binding unless the defect is raised against enforcement.

RESCISSIBLE CONTRACTS

Contracts which may be rescinded:

1.     those entered into by guardians where the ward suffers lesion of more than ¼ of the value of the things which are objects thereof;

2.     those agreed upon in representation of absentees, if the latter suffer lesion by more than ¼ of the value of the things which are subject thereof;

3.     those undertaken in fraud of creditors when

the latter cannot in any manner claim what are due them;

4.     those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants and the court;

5.     all other contracts especially declared by law to be subject to rescission;

6.     payments made in a state of insolvency on account of obligations not yet enforceable;

Circumstances denominated as badges of fraud:

1.     consideration of the conveyance is inadequate or fictitious;

2.     transfer was made by a debtor after a suit has been begun and while it is pending against him;

3.     sale upon credit by an insolvent debtor;

4.     transfer of all his property by a debtor when he is financially embarrassed or insolvent;

5.    transfer is made between father and son, where there are present some or any of the above circumstances;

6.    failure of the vendee to take exclusive possession of the property;

Distinctions:

RESCISSION	RESOLUTION (Art. 1191)
1.    Action by the contracting parties even by a 3rd party; 2.    based on lesion/fraud of creditors; 3.    courts cannot grant periods for compliance	1.    Action only by the injured party; 2.    based on non-fulfillment of the obligation; 3.    courts may grant periods

VOIDABLE CONTRACTS

Causes of extinction of action to annul:

1.     Prescription

·         the action must be commenced within 4 years from:

·         the time the incapacity ends;

·         the time the violence, intimidation or undue influence ends;

·         the time the mistake or fraud is discovered.

2. Ratification

·         Requisites:

a.    there must be knowledge of the reason which renders the contract voidable;

b.    such reason must have ceased;

c.    the injured party must have executed an act which expressly or impliedly conveys an intention to waive his right.

3.    By loss of the thing which is the object of the contract through fraud or fault of the person who is entitled to annul the contract.

UNENFORCEABLE CONTRACTS

Kinds of unenforceable contracts:

1.    those entered into in the name of another by one without or acting in excess of authority;

2.    those where both parties are incapable of giving consent;

3.    those which do not comply with the Statute of Frauds.

Agreements within the scope of the Statute of Frauds:

1.    Agreements not to be performed within one year from the making thereof;

2.    Promise to answer for the debt, default or miscarriage of another;

3.    Agreement in consideration of marriage other than a mutual promise to marry;

4.    Agreement for the sale of goods, etc. at a price not less than Ps500.00

5.    Contracts of lease for a period longer than one year;

6.    Agreements for the sale of real property or interest therein;

7.    Representation as to the credit of a 3^rd person.

Modes of  Ratification:

1.    For contracts infringing the Statute of Frauds:

·         expressly

·         impliedly - by failure to object to the presentation of oral evidence to prove the contract, or by the acceptance of benefits under the contract.

2.    If both parties are incapacitated, ratification by their parents or guardians shall validate the contract retroactively.

VOID OR INEXISTENT CONTRACTS

The following contracts are void:

1.     Those whose cause, object or purpose is contrary to law, morals good customs, public order or public policy;

2.     Those whose object is outside the commerce of men;

3.     Those which contemplate an impossible service;

4.     Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

5.     Those expressly prohibited or declared void by law;

The following contracts are inexistent:

1.     Those which are absolutely simulated or fictitious;

2.     Those whose cause or object did not exist at the time of the transaction.

CONTRACTS

Art 1305

ELEMENTS OF A CONTRACT

1. Essential Elements

 1.Consent

 2.Subject Matter

 3.Cause or Consideration

2. Natural Elements- presumed to exist, unless the contrary is stipulated

Ex. Warrants against eviction and against hidden defects

3. Accidental Elements – existence of such is dependent on the agreement of the parties.

Classification of Contracts

1. According to perfection or formation
1. Consensual
2. Real-perfected by delivery
3. Formal or Solemn

2. According to cause of equivalence of the value of prestations:
1. Onerous
2. Gratuitous or Lucrative
3. Remunerative

3. According to Importance or dependence of one upon another
1. Principal – can stand alone
2. Accessory – depends upon the existence of another contract
3. Preparatory – here, the parties do not consider the contract as an end by itself, but as a means thru which future transaction or contracts may be made

Ex. Agency, partnership

4. According to the parties obligated
1. Unilateral
2. Bilateral

5. According to their Name or Designation
1. Nominate
2. Innominate

6. According to the risk of fulfillment
1. Commutative
2. Alienatory

7. According to the time of performance or fulfillment
1. Executed- one completed at the time the contract is entered into
2. Executory – one where the prestations are to be complied with at some future time

8. According to subject matter
1. Contracts involving things
2. Contracts involving rights or credit
3. Contracts involving services

9. According to obligations imposed and required by law
1.  Ordinary
2. Institutional-like contract of marriage

10. According to the evidence required for its proof
1. Those requiring merely oral or parol evidence
2. Those requiring written proof

11. According to the number of persons actually and physically entering into the contracts
1. Ordinary – two parties are represented by different persons
2. Auto Contracts –where only one person represents two opposite parties, but in different capacities

12. According to the number of persons who participated in the drafting of the contract
1. Ordinary
2. Contract of Adherence

13. According to the nature of the contract
1. Personal
2. Impersonal

STAGES OF A CONTRACT

1. Preparation
2. Perfection
3. Consummation (or death or termination)

Basic Principles or Characteristics of a Contract

1. Freedom to stipulate
2. Obligatory force and compliance in good faith
3. Perfection by mere consent
4. Both parties are mutually bound
5. Relativity

Art 1306 – Freedom or autonomy of contract

Art 1307

Four Kinds of Innominate Contracts

1. Du ut des (I give that you may give)
2. Do ut facias (I give that you may do)
3. Facio ut des (I do that you may give)
4. Facio ut facias (I do that you may do)

Art 1308-1310

MUTUALITY OF CONTRACTS

• The validity or fulfillment of a contract cannot be left to the will of one of the contracting parties.
• The validity or fulfillment may be left to the will of a third person.
• The validity or fulfillment may be left to chance.

Art 1311

This principle stresses the Principle of Relativity.

                Contracts are generally effective only between the parties, their assigns and their heirs.

Exceptions:

1. Where the obligation arising from the contract are not transmissible by their nature, by stipulation, or by provision of law.
2. Where there is stipulation pour atrui (a stipulation in favor of a third party)
3. Where a third person induces another to violate his contract
4. Where, in some cases, third persons may be adversely affected by a contract where they did not participate.
5. Where the law authorizes the creditor to sue on a contract entered into by his debtor.

Art 1312

                A real right binds the property over which it is exercised.

                Exception to the general rule that a contract binds only the parties.

Art 1313

                Right of defrauded creditor.

Art 1314

Requisites before a third person in this article can be held for damages

1. Existence of a valid contract
2. Knowledge on the part of the third person of the existence of the contract
3. Interference by the third person without legal justification or excuse

Art 1315-1316

Perfection of contracts

Art 1317

Requisites for a Person to Contract in the Name of Another

a.        He must be duly authorized (expressly or impliedly)

2. Or he must have by law a right to represent him
3. Or the contract must be subsequently ratified

Art 1318

Requisites of Contracts

1. Consent (Art 1319-46)
2. Object (Art 1347-1349)
3. Cause (Art 1350-55)

Art 1319

Definition of Consent

                -Art 1319,first paragraph

Requisite of Consent

1. There must be two or more parties
2. The parties must be capable or incapacitated
3. There must be no vitiation of consent
4. There must be no conflict between what was expressly declared and what was really intended
5. The intent must be declared properly

Requisites for the meeting of minds

1. An offer that must be certain
2. And an acceptance must be unqualified and absolute

• Concurrence of offer and acceptance (Art 1319-26)
• Legal capacity of contracting parties (Art 1327-29)
• Characteristics of Consent (Art 1330-46)

Art 1320

Forms of Acceptance

Art 1322

                Acceptance of an Offer made thru an agent

Art 1323

Other instances when the offer becomes ineffective

a.              When the offeree expressly or impliedly rejects the offer

b.              When the offer is accepted with qualification or condition

c.               When before acceptance is communicated, the subject matter becomes illegal or impossible

d.              When the period of time given to the offeree within which he must signify his acceptance has already lapsed

e.              When the offer is rejected in due tome

Art 1324

Option Contract

Option- it is a contract granting a person the privilege to buy or not to buy certain objects at anytime within the agreed period at a fixed price

Perfection of Option

                When there is a meeting of minds on the option

Art 1325-1326

                If the advertisement contains all the specific particular needed in a contract, it is a definite offer.

                If important details are left out, the advertisement is not a definite offer, but a mere invitation to make an offer.

Art 1327 in relation to Art 1329

                Who cannot give consent.

Art 1328

                Voidable contracts by reason of incapacity

Art 1330

                This article enumerates causes or vices of consent.

Art 1331 in relation to Art 1333

Mistake

                It is a false belief about something.

Requisites for mistake to vitiate consent

1. Object of the contract
2. The condition which principally proved or induced one of the parties
3. Identify or qualifications, but only if such was the principal cause of the contract.
4. The error must be excusable
5. The error must be a mistake of fact

Kinds of Mistake

1. Mistake as to the object
1. Mistake as the identity of the thing
2. Mistake as to the substance of the thing
3. Mistake as to the conditions of the thing
4. Mistake as to the quantity of the thing

2. Mistake as to person
1. Mistake must be either with regards to the identify or with regard to the qualification of one of the contracting parties
2. Such identity or qualification must have been the principal consideration for the celebration of the contract

Art 1332

                Burden of proof in case of mistake

Art 1333

                Effect of knowledge of risk

Art 1334

Mistake of Law

                Is that which arises from an ignorance of some provision of law, or from an erroneous interpretation of its meaning, or from an erroneous conclusion as to the legal effect of the agreement, on the part of one of the parties.

Requisites:

1. There must be mutual error
2. The error must refer to the legal effect of the agreement
3. The real purpose of the parties is frustrated

Art 1335-1336

                Violation refer to physical coercion

                Intimidation refers to moral coercion

Requisites for violence to vitiate consent

1. Employment of serious or irresistible force
2. It must have been the reason why the contract was entered into

Requisites for intimidation to vitiate consent

1. Reasonable and well-grounded fear
2. Of an imminent and grave evil
3. Upon his person, property, or upon the person of property of his spouse, descendents or ascendants
4. It must have been the reason why the contract was entered into
5. The threat must be an unjust act, an actionable wrong

Art 1337

Requisites for undue influence to vitiate consent

1. Improper advantage
2. Power over the will of another
3. Deprivation of the latter’s will of a reasonable freedom of choice

Art 1338-1341

Kinds of Fraud

1. Fraud in the celebration of the contract

1.                Dolo Causante or causal fraud (Art 1338)

2.                Dolo Incidente of incidental fraud

2. Fraud in the performance of the obligations stipulated in the contract

Requisites of Dolo Causante

1. The fraud must be material and serious
2. The fraud must have been employed by one of the contracting parties, because if both committed fraud, the contract would remain valid
3. There must be a deliberate intent to deceive to induce
4. The other party must have relied on the untrue statement, and must himself not be guilty of negligence in ascertaining the truth

Art 1342-1344

                Speaks about misrepresentation

Art 1345-1346

Simulation

Simulation of a Contract defined            

It is the process of intentionally deceiving others by producing the appearance of a contract that really does not exist (absolute simulation)

Or which is different from the true agreement relative simulation.

Kinds

a.        Absolute; Effect; the contract is void

b.        Relative; Effect; the parties are bound to the real or true agreement except-

a.        If the contract should prejudice third persons

b.        Or if the purpose is contrary to law, morals, public order, policy or good customs

Requisites

a.         An outward declaration of will difference from the will of the parties

b.         The false appearance must have been intended by mutual agreement

c.         The purpose is to deceive third persons

Art 1347-1349

Objects (Subject Matter) of a contract

-          A thing or a service

Requisites

1. The thing or service must be within the commerce of man
2. Must be transmissible
3. Must not be contrary to law, morals, good customs, public order, or public policy
4. Must not be impossible
5. Must be determinate as to its kind or determinate without the need of a new contract or agreement

CAUSE OF CONTRACTS

Art 1350

“Cause” defined

                -It is the essential and impelling reason why a party assumes an obligation

Art 1351

Motive – is the purely personal or private reason which a party has in entering into a contract

 Motive vs. Cause

Motive

1. May vary although he enters into the same kind of contract
2. May be unknown to the other
3. The presence of motive

Cause

1. Always the same
2. Always known
3. Cannot cure the absence of cause

Art 1352-1355

Requisites for cause

1. It must be present
2. It must be true
3. It must be lawful

CHAPTER 3

FORM OF CONTRACTS

Art 1356

Meaning of form of contracts

                -Refers to the manner in which a contract is executed or manifested

Rules regarding from of contracts (Art 1356)

Art 1357-1358

Principles regarding formalities for the efficacy of a contract

1. Art 1357 and Art 1358 do not require the execution of a contract either in a public or private instrument in order to validate enforce it but only to ensure its efficacy, so after its existence has been admitted, the party bound may be compelled to execute the necessary document
2. Even where the contract has not been reduced to the required form, it is still valid and binding as far as the parties are concerned
3. From the moment one of the contracting parties invokes the provisions of Art 1357 and 1358by means of a proper action, the effect is to place the existence of the contract in issue, which must be resolved by the ordinary rules of evidence
4. Art 1357 does not require that the action to compel the execution of the necessary document must precede the action upon the contract
5. However, although the provisions of Art 1357 in connection with those of Art 1358, do not operate against the validity of the contract nor the validity of the acts voluntarily performed by the parties for the fulfillment thereof, yet from the moments when any of the contracting parties invokes said provisions, it is evident that under them the execution of the required document must precede the determination of the other obligations derived from the contract

CHAPTER 4

REFORMATION OF INSTRUMENT

Reformation – is that remedy by means of which a written instrument is amended or rectified so as to express or conform to the real agreement or intention of the parties when by reason of mistake, fraud, or inequitable contract, or accident the instrument fails to express such agreement or intention.

Requisites for reformation

1. There is a meeting of minds of the parties to the contract
2. The written instrument does not express the true agreement or intention of the parties
3. The failure to express the true intentions is due to mistake, fraud, inequitable conduct or accident
4. The facts upon which relief by way of reformation of the instrument is sought are put in issue by the pleadings
5. There is clear and convincing evidence of the mistake, fraud, inequitable conduct, or accident

Reformation vs. Annulment

                In reformation, there has been a meeting of the minds of the parties, hence, a contract exists while in annulment, there has been none, the consent of one of the parties being vitiated by mistake, etc.

Art 1360-69

Art 1360

                Rule in case of conflict

Art 1366

                Instances when reformation is not allowed

CHAPTER 5

INTERPRETATION OF A CONTRACT

Art 1370

Definition of interpretation of contract

                -Is the determination of the meaning of the terms or words used by the parties in their contract

Art 1371-79 (provisions)

Kinds of defective contracts

1. Rescissible (Art 1380-89)
2. Voidable (Art 1390-1402)
3. Unenforceable (Art 1403-1408)
4. Void or Inexistent (Art 1409-1422)

Art 1381 in relation to Art 1382

Meaning of rescissible contracts

                -Those validly agreed upon because all the essential elements exists but in some cases established by law, the remedy of rescission is granted in the interest of equity

Requisites of rescission

1. The contracts must be validly agreed upon
2. There must be lesion or pecuniary prejudice to one of the parties or to a third person
3. The rescission must be based upon a case especially provided by law
4. There must be no other legal remedy to obtain reparation of the damages
5. The party asking for rescission must be able to return what he is obliged to restore by reason of the contract
6. The object of the contract must not legally             
7. The object of the contract must not legally be in the possession of third persons who did not act in bad faith
8. The period for filing the action of rescission must have not prescribed

Meaning of Rescission

                -Remedy granted by law to the contracting parties and sometimes even to third persons in order to secure reparation of damages caused by them by a valid contract, by means of the restoration of things to their condition in which they were prior to the celebration of the said contract.

Art 1385

                Effects of rescission

Art 1324

                Prescription

VOIDABLE CONTRACTS

Definition

                -Are those which possess all the essential requisites of a valid contract but one of the parties is incapable of giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence, or fraud

Characteristics

1. Their defect consist in the vitiation of consent of one of the contracting parties
2. They are binding until they are annulled by competent court
3. They are susceptible of convalidation by ratification or by prescription

Voidable vs. Rescissible Contracts

Voidable

1. Defect is intrinsic
2. Contract is voidable even if there is no damage or prejudice
3. Annulability of the contract is based on law
4. Susceptible of ratification
5. The causes of annulment

The causes of rescission

Rescissible

1. Defect is extrinsic
2. Contract is not rescissible id there is no damage or prejudice
3. Rescissibility of the contract is based on equity
4. Not susceptible of ratification
5. Are different form

Art 1390

                Voidable contracts

Art 1391

                Prescription

Art 1392-96

Concept of Ratification

                -By virtue of which efficacy is given to a contract which suffers from a vice of curable nullity

Requisites for ratification

1. The contract should be tainted with a vice which is susceptible 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 vice or defect of the contract
4. The cause of the nullity or defect should have already disappeared

Art 1397 in relation to Art 1391

                -Who and when may an action for annulment of contract be instituted

Art 1398-99

Effects of annulment

Art 1400-02

- Effect pf failure to make restitution

-Where loss is due to fault of plaintiff

-Where loss is due to fault of defendant

-Where loss is due to fortuitous event

CHAPTER 8

UNENFORCEABLE CONTRACTS

Meaning of unenforceable contracts

                -Those that san not be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law.

Kinds:

1. Those entered into in the name of another by one without or acting in excess of authority
2. Those that do not comply with the statute of fraud
3. Those where both parties are incapacitated of giving consent

Unauthorized contracts

                -Those entered into in the name of another person by one who has been given no authority or legal representation on who has acted beyond his powers.

Characteristics of Unenforceable Contracts

1. They can not be enforced by a proper action in court
2. They are susceptible of ratification
3. They can not be assailed by third persons

Unenforceable vs. Rescissible

1. An unenforceable contract cannot be enforced by a proper action in court, while a rescissible contract can be enforced, unless it is rescinded
2. The causes for the unenforceable character of the former are different from the causes fro the rescissible character of the latter
3. The former is susceptible of ratification, while the latter is not
4. The former cannot be assailed by third persons, while the latter may be assailed by third persons who are prejudiced

Unenforceable vs. Voidable

1. An unenforceable contract cannot be enforced by a proper action in court, while a voidable contract can be enforced, unless it is annulled
2. The causes for the unenforceable character of the former are different from the causes for the voidable character of the latter

STATUTE OF FRAUDS

Purpose

                -Not only to prevent fraud but also to guard against the mistakes of honest men by requiring that certain agreement specified must be in writing.

Application

1. Not applicable in actions which are neither for damages because of a violation of a contract, nor for the specific performance thereof
2. Applicable only to executory contracts and not to contracts which are totally or partially performed
3. Not applicable where the contract is admittedly expressly, or impliedly by the failure to deny specifically its existence, no further evidence thereof being required in such case.
4. Applicable only to the agreements enumerated therein
5. Not applicable where a writing does not express the true agreement of the parties
6. It does not declare the contracts infringing it are void but merely unenforceable
7. The defense of the statute of frauds may be waived
8. The defense of the statute of frauds is personal to the parties and cannot be enforced by strangers to the contract

Effect of Non-Compliance

                -The contract or agreement is unenforceable by action

Ratification of Unenforceable Contracts

Either by: a. the failure of object to the presentation of oral existence to prove the same

3. The acceptance of benefits under them

Art 1404-1408 (provisions)

CHAPTER 9

VOID OR INEXISTENT CONTRACTS

Void Contracts

                -Those, which of certain defects generally produce no effect at all

Inexistent Contracts

                -Refer to agreements which lack one or some or all the elements or do not comply with the formalities which are essential for the existence of a contract

Characteristics of a Void or Inexistent Contracts

1. Generally, it produces no effect
2. It cannot be ratified
3. The right to set up the defense of legality cannot be waived
4. The action or defense for the declaration of its inexistence does not prescribe
5. The defense of illegality is not available to third persons whose interests are not directly affected
6. It cannot give rise to a valid contract

Art 1410

                -Imprescriptibility of void or inexistent contract

Art 1411-1412

Where both parties are in pari delicto

1. The parties shall have no action against each other
2. Both shall be prosecuted
3. The things or the price of the contract, as the effects of the crime shall be confiscated in favor of the government

Where only one party is guilty

                -The rule in paragraph 1 of Art 1411 applies only to the guilty party or the more guilty party

Exceptions to the principle of pari delicto

                Art 1413-1419