Magbalon III

Contracts Art. 1305 1422

Cases
Art. 1305 A contract is a meeting of the minds.
Great Pacific Life Assurance Company vs. C. A:
A different insurance package was given to the respondent in lieu of the original
one since the beneficiary in the said insurance is a minor, the insurance company
without giving notice to the other party gave an insurance package for minors
called the Juvenile Triple Action, it was given without assent.
Is there a perfected contract between the parties?
As held in De Lim vs. Sun Life Assurance Company of Canada a contract of
insurance, like other contracts, must be assented to by both parties either in
person or by their agent, x x x, The contract, to be binding from the date of
application, must have been a completed contract, one that leaves nothing to be
done, nothing to be completed, nothing to be passed upon or determined, before it
shall take effect. There can be no contract of insurance unless the minds of the
parties have met in agreement.
Art. 1306 Freedom of contracts.
Republic vs. PLDT
Republic is praying for a judgment commanding PLDT to execute a contract with
the former, for the use of its facilities and also prays for an injunction to restrain
the severance of the existing telephone connections and restore those severed.
Can Republic compel PLDT to enter in to a contract with one another?
Yes. Although it is true that parties cannot be coerced to enter into a contract
where no agreement is had between them as to the principal terms and conditions
of the contract underlying the principle of the freedom to stipulate in every
contract as long as it is lawful and not contrary to public policy, public morals and
good customs, however, it must not be forgotten that the Republic in the exercise
of the sovereign power of eminent domain, require the telephone company to
permit interconnection of the government telephone system and that of the PLDT.
Rules under the power of Eminent Domain must be observed, there must be just
compensation and it must be for public use, as it is present in the present
controversy.
Art. 1306 Freedom of contracts; parties may not therefore establish clauses of
agreement and at the same time determine their legal effects.
Tidewater Oil Co. vs. Dioniso
Plaintiffs are the owners of a gasoline station which they leased to defendant
company for a period of 15 years, simultaneously, they also entered into another

agreement called the Associated Dealers Sales Contract which enables the
former to sell the latters petroleum products through the pumps in the leased
property, which on a later date the parties mutually terminated. Subsequently,
plaintiff filed an action to rescind the contract on the ground that defendant
company failed to comply with the conditions of the contract for the reason that it
lacks consideration and also upon termination of the dealership contract, the lease
contract was likewise terminated because the lease contract did not have sufficient
consideration to stand on, hence it was ordered rescinded.
Is the contract of lease also terminated?
No. Although parties may have the freedom to stipulate on every contract, they
may not therefore establish clauses or agreements and at the same time determine
their legal effect. When they mutually terminated the dealership contract, there
was nothing to show that the lease contract was intended to be also terminated.
The real reason why the Dionisios wants to rescind the contract is because their
monthly profit in the lease is not consummate to their investment, they feel that
the rentals should be increased. However, it is not upon the court to decide, it is
left upon the goodwill of the parties. As it was held in Askay vs. Cosalan The
fact that the bargain was a hard one or that the result s thereof are not as they
were expected to be is not sufficient ground for cancellation of the contract
entered into when each of the parties was in a position to form an independent
judgment.
Art. 1306 Freedom of contracts; it must not be immoral.
De Los Reyes vs. Alojado
It was agreed that the defendant who was indebted to the petitioners, cannot leave
the house and should remain a servant of the latter until the debt has been fully
paid.
Truly, there was an obligation for Alojado to pay the De Los Reyes. However, the
reason alleged by the plaintiff as bases for the loan is untenable to wit, that the
defendant was obliged to render remuneration whatever and to remain therein so
long as she had not paid her debt, inasmuch as this condition is contrary to law
and morality.
Ibarra vs. Aveyro
It is against public morals to impose on the part of the debtor to pay 5.00 per day
as penalty in case of non-payment. (Consider that this case is decided a long long
long time ago and 5 pesos is still a large amount then.)
Art. 1306 Freedom of contracts; contrary to public order.
Zulueta vs. Mariano
True, the contract between the parties provided for extra-judicial rescission. This
has legal effect, however, where the other party does not oppose it. Where it is
objected to, a judicial determination the issue is still necessary. Hence, a

stipulation cannot insist on extra-judicial rescission although there is objection

since it will be against public order.
Art. 1306 Freedom of contracts; against public policy.
Emeterio Cui vs. Arellano University
A stipulation which essentially states that a student cannot claim his transfer
credentials until the same does not reimburse all the scholarship grants given to
him, if that student wishes to transfer to another university.
The stipulation in question is contrary to public policy, and, hence null and void.
Scholarships are awarded in recognition of merit not to attract and to keep
brilliant students in school for their propaganda value. By entering into a contract
of waiver with appellant, the defendant school understood scholarships award as a
business scheme designed to increase the business potential of an institution. Thus
conceived it is not only inconsistent with sound policy but also good morals.
Art. 1307 Innominate contracts
Santos vs. Acuna
Parties entered into an agreement which contain stipulation similar to lease, but
they provided that it should not be so regarded as such between them
Is it valid?
Lease is essentially a consensual contract and its existence depends upon
agreement of the parties. And there is no law prohibiting stipulations that
contracts, although similar to lease should not be regarded as such between them.
Note that under the New Civil Code, innominate contracts are recognized. Hence,
it is valid.
Dizon vs. Gaborro
The true intention of the parties is that the respondent Gaborro would assume and
pay the indebtedness of petitioner Dizon to DBP and PNB, and in consideration
therefor, respondent Gaborro was given the possession, the enjoyment and the use
of the lands until petitioner can reimburse fully the respondent the amounts paid
by the latter to DBP and PNB.
Is the contract valid?
The contract herein is one of those innominate contracts under Art. 1307, whereby
the petitioner and respondent agreed to give and to do certain rights and
obligations respecting the lands and the mortgage debts of petitioner which would
be acceptable to the bank, but partaking of the nature of the antichresis insofar as
the principal parties are concerned. Hence, valid.
Art. 1308 1310 Mutuality of contracts
PNB vs. Lui She

Petitioner avers that the lease contract should have been annulled because it lacks
mutuality. The contract reflected The lessee may at any time withdraw from this
agreement. It is claimed that the stipulation is contrary to Art. 1308 which
essentially provides that a contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.
Is the stipulation offends the principle of mutuality of contracts?
It was held in Taylor vs. Uy Tieng Pao Art. 1308 of the Civil Code in our opinion
creates no impediment to the insertion in a contract for personal service of a
resolutory condition permitting the cancellation of the contract by one of the
parties. Such a stipulation, as can readily seen, does not make either the validity
or the fulfillment of the contract dependent upon the will of the party to whom is
conceded the privilege of cancellation; for where the contracting parties have
agreed that such option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the subject of the
agreement. Indeed, the cancellation of a contract in accordance with conditions
agreed upon beforehand is fulfillment. Also in the case of Melancio vs. Dy Tiao
Lay a provision in a lease contract that the lessee, at any time before he erected
any building on the land, might rescind the lease, can hardly be regarded as
violation of the Civil Code.
This case cannot be the same in the case of Singson Encarnacion vs. Baldomar,
where there was a want of mutuality. Since in that case, the lessees argues that
they could occupy the premises as long as they paid the rent. The owner of the
premises cannot discontinue the lease contract, leaving it at the will of the lessees.
In contrast to this case, the right of the lessee to continue the lease or to terminate
it is so circumscribed byt the term of the contract that it cannot be said that the
continuance of the lease depends upon his will.

Marcia A. Garcia, et al. vs. Rita Legarda Inc.

Petitioners entered into a contract with the respondent and that the stipulation in
their contract reads In case of default in the payment of installments by the
vendee, he hall have (1) a month of grace (2) should said month of grace expire
without the vendee paying his arrears, he shall be given another 90 days to pay all
the amounts he should have paid and then the vendor has the right to declare this
contract cancelled and of no effect. Petitioners assail that the said stipulation is in
violation of the mutuality of contracts, since the respondent accepted partial
payments of the arrears by the petitioner, it must consider the acceptance as
waiver of the stipulation.
Is the stipulation in violation of the principle of mutuality of contract?
No, the above stipulation merely gives the vendor the right to declare this
contract cancelled and no effect upon fulfillment of the conditions therein set. It
does not leave the validity or the compliance of the contract entirely to the will of

one of the contracting parties. As it was held in Taylor vs. Uy Tieng Pao, that a
contract giving to one party the right to cancel the same if a resolutory condition
therein agreed upon similar to the one under consideration is not fulfilled, is
valid, for the reason being that when the contract is cancelled, the agreement of
the parties is in reality being fulfilled. Obviously all that said party had to do to
prevent the other from exercising the power to cancel the contract was for him to
comply with his part of the contract.
Art. 1311 Relativity of contracts
Manila Port Services vs. C.A
That main issue in this case is whether or not the Nortwest Insurance & Surety Co.
as subrogee of J.C.A Lumber and General Merchandise herein referred to as
consignee is bound by the provisions of the Management Contract between the
Manila Port Service hereinafter referred to as the arrastre operator - and the
Bureau of Customs. Although admittedly the Consignee herein and the Northwest
Insurance are not parties to the Management Contract, the arrastre operator
maintains that the same is binding upon them, because the consignee had been
notified and had acted with prior knowledge of the provisions of the said contract.
Are they bound?
A contract between two parties can not bind another, not a party thereto, merely
because he is aware of such contract and has acted with knowledge thereof. Even
if the non-parties of the contract benefitted from the same.
Art. 1311 Stipulations POUR AUTRUI
Uy Tam vs. Leonard
There was a bond executed to secure the performance of a contract. Among the
conditions of the bond is shall promptly make all payments to all persons
supplying them labor or materials in the prosecution of the work provided for in
said contract. Defendants as the obligor and City of Manila as the obligee, this
action is brought by the labor and material men.
Can the labor and material men sue upon the bond?
No, it is clear that the only obligee is the City of Manila, and that it was not the
intention of the sureties to be bound in favor of any other party. If it were intended
to protect he materialmen under the bond, the proper language would have been
used for that purpose. A stipulation pour autrui must be clearly expressed. If a
third person claims an enforcible interest in the contract, the question must be
settled by determining whether the contracting parties desired to tender him such
an interest. Did they deliberately insert terms in their agreement with the avowed
purpose of conferring a favor upon such third person? In resolving this question, of
course, the ordinary rules of construction and interpretation of writings must be
observed.
Bonifacio Bros. vs. Mora

Bonifacio Bros. repaired the car of Mora. The car of Mora is insured and under the
insurance policy, Mora is authorized to let the car be repaired as long as the price
for the reparation does not exceed the amount in the insurance policy. Now,
Bonifacio Bros. directly sued the insurance company to pay for their services.
Can the claim of Bonifacio Bros. prosper?
No, it is fundamental that contracts take effect only between the parties thereto,
except in some specific instances provided by law where the contract contains
some stipulation in favor of a third person. This is known as stipulation pour autrui.
In this case, the insurance contract does not contain any words or caluses to
disclose an intent to give any benefit to any repairmen in case of repair of the car
in question. Under this doctrine, a third person is allowed to avail himself of a
benefit granted to him by the terms of the contract, provided that the contracting
parties have clearly and deliberately conferred a favor upon such person.
Kauffman vs. National Bank
The defendant bank for a valuable consideration paid by the PFPC, agreed to cause
a sum of money to be paid by its representative in New York to the plaintiff, who
was the president of the fiber company. Upon receiving the message, the banks
representative in New York cabled to the defendant the advisability of withholding
this money from Kauffman, in view of his reluctance to accept certain bills of the
fiber company. Agreeing to this suggestion, the defendant advised its
representative in New York to withhold payment to Kauffman. In view of these
facts, Kaufmann instituted this action to recover the amount due.
The right of plaintiff to maintain this action is undeniable, because the banks
promise to cause a definite sum of money to be paid to him in New York is a
stipulation pour autrui. The plaintiff clearly signified his acceptance of this
stipulation by demanding payment. Although the defendant had already directed
its New York representative to withhold payment when this demand was made, the
rights of the plaintiff cannot be considered to be prejudiced by this fact. The word
revoked as used in Art. 1311 of the Civil Code, must plpppbe understood to imply
revocation by the mutual consent of the contracting parties, or at least by the
direction of the party to whom the promise was made, in this case, the fiber
company.
Art. 1314 Violation induced by another.
Daywalt vs. Corporacion PP Agustinos Recoletos
Whatever may be the character of the liability which a stranger may incur by
advising or assisting one of the parties to evade performance, there is one
proposition upon which all must agree. This is, that the stranger cannot become
more extensively liable in damage for the non-performance of the contract that the
party in who behalf he intermeddles.
Art. 1315 Perfection of contracts.
De Murciano vs. Auditor General

AFP occupied a parcel of land belonging to De Murciano. To indemnify the latter,

AFP offered more or less 15k to the former. The Office of the Chief of Engineers
forwarded to her a quit claim agreement where she was to be paid 15k. The latter
signed and returned it to the OCE. However, before it could be signed by proper
authorities, the Chief of Staff refused to sign it on the ground that the woman was
entitled to only 7k.
Is there already a perfected contract?
It could not be denied that it was the AFP who offered 15k, therefore the offer was
binding and effective on the Armed Forces. When the offer was accepted and
signed the quit claim agreement and was returned to the offeror. The receipt of it
was the perfection of the contract. Once a contract is perfected, it is binding on
both parties and its validity and compliance cannot be left to the will of one of
them (Art. 1308). The absence of a writing does not preclude the binding effects of
the contract duly perfected by a meeting of the minds, the contract no being of the
class called formal or solemn in which the writing is essential to their binding
effect. Nor may contracts deliberately entered into be overturned by reason of
mistake of one of the parties to which the other in no way has contributed (De
Gonzales Mondragon vs. Santos/ Tanda vs. Andal).
Art. 1319 Elements of consent
Zayco vs. Serra
In a contract entered by and between Zayco and Serra, Zayco was given an option
to buy Serras properties up to a certain date. One of the condition imposed was
that in case the purchase of the properties is made and Zayco cannot pay the
whole price in cash, then he will be given a period of not excieeding three years
within which to make full payment, provided that Zayco gives a security or bond to
the satisfaction of Serra. Later on, Zayco sent Serra a letter of acceptance.
However, Zayco placed 100k in Serras disposal and this is not in accordance with
the offer, telling that it will be the first part of the offer and subsequent payment is
assured since Zayco was granted a big amount of loan by a bank. Now, Serra wrote
a letter to Zayco cancelling the contract. This action was filed to compel Serra to
execute the deed of sale.
Can Serra revoke the contract?
Yes. It must be noted that although there was acceptance on the part of Zayco, it
could not in itself convert the offer of the sale made by Serra. In order for the
acceptance to have this effect, it must be plain and unconditional, and it will not be
so if it involves any new proposal, for in that case it could not mean conformity
with the offer, whichis what gives rise to the generation of the contract. The letter
of Zayco lacks these requisites.
Montinola vs. Victoria Milling
There is a contest for the most efficient production of sugar among those affiliated
planters. Plaintiff, one of the prinicipal planters, participated in the contest but was

found to have violated the rules and therefore was excluded from the contest. Now,
he questions the right of the defendant to disqualify him.
The bases if a right to a reward is in the nature of a contract and rests on one side
upon a valid offer and on the other side upon an acceptance of such offer, including
its terms and conditions. In competitive contests for reward, the acceptance must
be in strict conformity with the offer and a qualified acceptance does not create a
contract. The offeror may make his offer subject to any conditions he may see fit,
and all conditions so imposed will be material elements of the offer and contract.
The management of the central was in effect the referee of the contest and, if so, it
had the power to enforce the rules, and to disqualify the plaintiff for having
violated them.
Yuvieno vs. Dacuycuy
There was an offer on the part of the petitioner was made, that the land in which
the defendant is occupying is for sale and preference is given to those occupants
who wants to buy the property. Dacuycuy wrote back to the petitioners telling the
latter that they proceed to Tacloban because he agree to buy the property, so they
can negotiate the details.
Is there a perfected contract?
No, the court emphasized the word negotiate. Since the word negotiate belies
the claim of certainty to buy the properties. Even if the respondent assail that the
word negotiate pertains to accidental elements of the contract it is untenable. If
indeed the details being left by them for further negotiations were merely
accidental or formal ones, what need was there to say in the telegram that they
had still to negotiate such details, when, being unessential per their contention,
they could have just easily clarified and agreed upon petitioner would reach
Tacloban?
Valencia vs. RFC
RFC advertised to the general public an invitation to bid for the construction of a
building. Petitioner submitted his offer. RFC awarded to petitioner the plumbing
installations only. Petitioner then advised RFC that the plumbing installations be
awarded to the contractor of the main building. RFC now seek to recover sum of
money that was earlier given to the petitioner.
1. Petitioners offer was for the construction of respondents building with its
electrical and plumbing installations, whereas respondent awarded to him
only the plumbing installations. Hence, no meeting of the minds.
2. Petitioners offer was good only to a certain date because it was
accompanied by a bond that expired on such date. And acceptance of the
offer was made after the expiration of the bond.
3. The acceptance by respondent was made subject to the giving of a
performance bond and inasmuch as this condition was not fulfilled, no
contract exists between the parties.

First, each one of the items listed in petitioners offer was complete in itself.
Meaning, it was distinct and separate and independent form the other items.
Secondly, petitioners bond was accompanied by a bond. Although the bond itself
stated that it expired, it does not mean the bid lapsed on the same date. The bond
merely guarantees the performance of the principal obligation of petitioner herein.
This principal obligation may stand without said bond, which is merely accessory
thereto. Lastly, petitioner insists that the giving of a performance bond was a
condition precedent but such condition presupposes the existence of the contract.
Although, the latter was essential to the birth of some of the rights stipulated in
favor of petitioner herein, those of respondent were not conditioned upon the
giving of said performance bond.
Art. 1324 Withdrawal of the offer.
Mendoza vs. Comple
Defendant agreed to sell to the plaintiff a parcel of land. Upon their mutual
agreement, the plaintiff were given a certain date within which to raise such
amount. The parties likewise agreed that the final deed of conveyance will be
executed by the defendant as soon as the plaintiff shall be ready with the cash.
Before the expiration of the time given to the plaintiff, defendant called of the deal.
Hence, this petition.
The complaint contained no allegation that the plaintiffs had agreed to buy to the
land. The negotiations merely amounted to an undertaking by defendant that if
plaintiff could raise such amount before the expiration of time given, he will sell it
to the latter. The New Civil Code provides that such promise is binding upon the
promisor if the promise is supported by a consideration distinct from the price. As
there was no distinct consideration, the defendant was not bound to stand by her
promise even if accepted, before withdrawal.

Sanchez vs. Rigos

Plaintiff Sanchez and defendant Rigos executed an instrument, entitled Option to
Purchase where Rigos agreed, promised and committed to sell to Sanchez a
parcel of land within two (2) years from said date with the understanding that said
option will be deemed terminated if Sanchez fail to exercise his right to buy the
property. Several tender of payment by Sanchez was rejected by Rigos, hence, the
former deposited said amount in court and commenced against the latter the
present action, for specific performance and damages. Respondent defended that
the contract is a unilateral promise to sell, and the same being unsupported by any
valuable consideration.
Is the contract a unilateral promise to sell or a perfected contract of sale?
This is already a contract of sale. It was held in Atkins, Kroll and Co vs. Cua
Hian Tek, where there is a unilateral promise to sell, treating such promise as an
option which, although not binding as a contract in itself for lack of separate
consideration, nevertheless generated a bilateral contract of purchase and sale

upon acceptance. In other words, since there may be no valid contract without a
cause or consideration, the promisor is not bound by his promise and may
accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if accepted results in a
perfected contract of sale.
Laudicio vs. Arias
The defendant Arias wrote a letter to the plaintiff giving him an option to lease a
building to a third person, and transmitting to him for that purpose a tentative
form of contract. On a later date, plaintiff sent a letter to defendant advising him
that all his propositions as amended and supplemented, were accepted. This letter
received by the defendant at 2:55 pm that day. On the same day, in the morning, at
11:25 defendant had already a written letter to the plaintiff, withdrawing the offer
to lease the building.
Is there already a perfected contract?
None. It must be noted that the parties agree that the circumstances under which
that offer was, were such that the offer could be withdrawn at any time before
acceptance. Under the Civil Code, an acceptance by letter does not have any effect
until it comes to the knowledge of the offeror. Consequently, when Mr. Arias wrote
Mr. Laudico, withdrawing the offer, he had the right to do so, inasmuch as he had
not yet received notice of the acceptance. And when the notice of acceptance was
received by Mr. Arias, it no longer had any effect, as the offer was not then in
existence, the same already having been withdrawn. There was no meeting of the
minds. Though both the offer and the acceptance existed, they did not meet to give
birth to a contract.
Art. 1327 Capacity to give consent
Braganza, et al. vs. De villa Abrille
Rosario de Braganza and her sons Rodolfo and Guillermo was required to pay
solidarily to De Villa Abrille. The petitioners received from Abrille a loan, since
there was no payment from the former, the latter instituted a claim for collection.
It is not denied that at the time the loan was granted, Rodolfo and Guillermo were
still minors.
Are the minors liable?
This case must be distinguished from the case of Mercado vs. Espiritu, because the
document signed therein by the minor specially stated he was of age, here there
was none. In other words in the Mercado case, the minor was guilty of active
misrepresentation. In contrast to this case that there was only a passive or
constructive misrepresentation. Hence, without any active misrepresentation on
the part of Rodolfo and Guillermo, they are not bound by their signatures reflected
on the promissory note in evidence to their loan.
Carlito vs. Jaojoco

Nine days after the execution of a document of sale of several parcels of land, the
vendor was declared mentally incapacitated, and later died.
Is the contract valid?
Yes. The fact of the vendor having been declared mentally incapacitated after the
execution of the document of sale does not prove conclusively that she was
incapacitated when the contract was executed, and it not having been priven that
the vendor was metally incapacitated at the time of the execution of the contract of
sale, which it was the obligation of the plaintiff to prive, the mental capacity of the
vendor must be presumed.
Art. 1331 Consent through mistake
Damasug vs. Modelo
Plaintiff who did not know how to read and write signed by a cross between her
Christian name and surname, a document which was presented to her as an
acknowledgement of an indebtedness. However, the document turned out to be a
sale of parcel of lands owned by the plaintiff. This action is for the annulment of
said document and recovery of the property.
The consent given by the plaintiff in the document is null and void as it was given
by mistake. It goes to the very substance of the thing which was the subject matter
of the contract, for, had the maker thereof truly understood the contents of said
document, she would neither have accepted nor authenticated it by her mark. It is
undeniable that she was deceived in order to obtain her consent. Hence, action will
prosper.
Art. 1332 Illiterate party
Bunyi vs. Reyes
There was a Venta con pacto de retro, the parcel of lands in question was with a
right to repurchase within two years. After two years lapsed there was no
repurchase that happened, petitioner now registered the land in his favor. Now, the
other party contends under Art. 1332 that the pacto de retro sale was not
explained to them fully. Hence, this petition to recover said lands.
The petition cannot prosper. Art. 1332, which was designed for the protection of
illiterates and of a party to a contract who sits at a disadvantage on account of his
ignorance, mental weakness or other handicaps. In this case, the respondent did
not in any way establish their illiteracy. Art. 1332 can only be invoked, whereby the
other party is an illiterate.
Art. 1335 Violence or Intimidation
Valles vs. Villa
When a person is under intimidation or inflicted with violence to obtain his
consent, he acts only as a mere instrument of the offender, he acts against his will.
He loses the personality of the actor. Contract is voidable.

Lagunsad vs. Sotto

It is necessary to distinguish between real duress and the motive which present
when one gives his consent reluctantly. A contract is valid even though one of the
parties entered into it against his own wish and desires, or against his bitter
judgment.
Alarcon vs. Kasilag
The plaintiff testified that one Marco, a foreman, approached her after the
cadastral hearing and offered to purchase the land in question, but when she
refused the latter told her that she better dispose her land because it would be
expropriate by the military authorities and she would then suffer more
inconvenience. She averred that because of that fear, she entered the agreement
with Marco. Hence, this petition.
The plaintiff could not have entertained upon Marcos representations, a
reasonable and well-grounded fear of serious injury, for if Marco represented to
her that such property would be expropriated, there will be consummerate
compensation. Furthermore, Marco was a mere foreman and it was not reasonable
for her to suppose simply that because she refused to sell her land. This case
cannot be legally classified as an imminent, serious and wrongful injury.
Jalbuena vs. Ledesma
A judge said You sign this document, you either sign this document or I will send
your husband to jail
Can this be considered as an intimidation recognized under the Civil Code?
In this instance the signing of an undertaking appears to have been insisted upon
by the judge in the presence and at the instance of the opposing party, and to have
been expressly made the condition of non-imprisonment, amid circumstances of
procedure quite unusual in courts of justice, in a tribunal convened under military
auspices and exercising extraordinary powers. So that there would be reason to
say that the consent of the surety was obtained by coercion, even if the judge had
jurisdiction over the case.
Berg vs. National City Bank of New York
Officials of the Bank intimated to him that unless the account is settled, the Bank
would bring an action against him or against his brother.
Do these threats constitute duress under the law?
It is not. It is a practice followed not only by banks but even by individuals to
demand payment of their accounts with a threat that upon failure to do so an
action would be instituted in Court. Such threat is proper within the realm of the
law as means to enforce collection. It cannot also constitute duress even if the
claim proves to be unfounded so long as the creditor believes that it was his right
to do so. In other words, as long as he was in good faith.

Martinez vs. Hongkong and Shanghai Bank

Solicitation, importunity, argument and persuasion are not undue influence and a
contract is not to be set aside merely because one party used these means to
obtain the consent of the other. The line between due and undue influence when
drawn, must be with all recognition of the liberty due every true owner to obey the
voice of justice, the dictates of friendship, or gratitude and of benevolence, as well
as the claims of kindred, and, when not hindered by personal incapacity or
particular regulations, to dispose of his own property according to his own free
will.
Art. 1341 Expression of opinion
Songco vs. Sellper
An opinion is not a statement of fact but merely of a conclusion of the person
stating it. Hence, although exaggerated or untruthful it will not constitute fraud.
This, the refusal of a seller to warrant his estimate of the yield in piculs of a piece
of sugar land is a warning to the buyer that the estimate was a mere opinion and
he relies on it at his risk.
Art. 1343 Misrepresentation in good faith is not fraudulent but may constitute
error.
Asiain vs. Jalandoni
Petitioner is the owner of Hacienda Maria, he told Jalandoni that he was willing to
sell a portion of the hacienda. With a wave of his hand, Asiain indicated to
Jalandoni the said portion affirming that it contained between 25 to 30 hectares
and that the case then planted would produce 2,000 piculs of sugar. Jalandoni
secured from Asiain the certificate of title, and later found out that the land was
only about 18 hectares and produced only about 800 piculs of sugar.
What is then the proper remedy for both parties?
This was not a contract of hazard. It was a sale in gross of land in which there was
a mutual mistake as to the quantity of the land sold and as to the amount of the
standing crop. The mistake is such that, at the option of the purchaser, it is
rescindable. Without such mistake the agreement would not have been made and
since this is true, the agreement is inoperative and void. It is not deception or of
fraud, but is more nearly akin to a bilateral mistake for which relief should be
granted. Specific performance of the contract can therefore not be allowed at the
instance of the vendor.
The ultimate result is to put the parties back tin exactly their respective positions
before they become involved in negotiations and before accomplishment of the
agreement. It conforms to the facts and the principle of equity.
WoodHouse vs. Halili
In order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente), inducement to the making of the contract.

We conclude that while the representation that plaintiff had the exclusive
franchise did not vitiate defendants consent to the contract, it was used by plaintiff
to get from defendant a share of 30% of the net profits. This is the dolo incidente,
because it was used to get the other partys consent to a big share in the profits,
an incidental matter in the agreement. Hence, only damages can be awarded.
Art. 1345 Definition, Concept and Requisites of Simulation
Rodriguez vs. Rodriguez
Plaintiff- appellant sold to her daughter several fishponds and the latter sold the
same property back to the appellant and her husband, step-father of the daughter,
the late Domingo Rodriguez, for the purpose of converting the property from
paraphernal to conjugal. Plainitiff-appellant not assails said contracts as simulated
or fictitious and therefore inexistent and null and void.
Is the contract null and void?
No. A characteristic of a simulated contract is that it is intended to produce no
legal effect or in any way alter the juridical situation of the parties. Thus, where a
person, in order to place his properties beyond the reach of his creditors simulates
the transfer of it to another, he does not really intend to divest himself of his title
and control of the property, hence, the deed of transfer is but a sham. However, in
this case, the transfer were done for the purpose of converting the property from
the paraphernal to conjugal thereby vesting a half interest in Rodriguez, and
evading the prohibition against donation from one spouse to another.
Pangadil vs. CFI
In their complaint filed in the trial court, they averred that petitioners were made
to sign the document on the misrepresentation that it was merely to ratify an oral
contract of mortgage executed by her father during the latters lifetime and not to
confirm an oral sale of land in question.
Is the contract simulated, therefore, null and void?
No. Assuming that the execution of the deed of ratification was attended by fraud,
such circumstance would only make the contract voidable or annullable. Further,
the document cannot be deemed absolutely simulated for they intended to be
bound by it, although it was to ratify a contract of oral mortgage instead of an oral
sale of land. In short, it is not a contract wherein the parties do not intend to be
bound at all which would thereby make it absolutely simulated and, therefore,
void.
Art. 1350 Cause, Definition and Concept of Contracts.
Rodriguez vs. Rodriguez
in onerous contracts the cause is understood to be for each contracting party, the
promise or prestation of thing or service by another. Since in each conveyance the
buyer became obligated pay a definite price in money, such undertaking
constituted in themselves actual causa or consideration for the conveyance of the

fishponds. That the prices were not paid does not make the sales inexistent for
want of cause. As ruled in Enriquez vs.Diaz, the consideration (causa) need not
pass from one party to another at the time the contract is entered into, x x x, the
consideration need not be paid at the time of the promise. The one promise is a
consideration for the other.
Art. 1351 Motives
Basic Books vs. E. Lopez, et al.
Lopez was an agent of the plaintiff, consigning books at his disposal profiting on a
commission basis. Despite repeated demands, Lopez was not able to account for
the value of the books. In order to secure payment, Lopez and one Kintanar
entered into an agreement with the plaintiff, wherein they bound themselves
jointly to pay the obligation on installments. However, there was no payment made.
Hence, plaintiff instituted a complaint to recover the value of the books. Lopez
confessed judgment but Kintanar denied liability, he averred that the contract he
entered was void because it was executed for the purpose of stifling Lopez
prosecution for estafa.
Is the contract on the part of Kintanar void?
No. While it may be inferred from Kintanars letter to the Basic Books, that his
motive in assuming obligation under the agreement was to help save Lopez from
the criminal case, it is not sufficient to declare the contract void. Art. 1351 of the
Civil Code provides that the particular motives of the parties in entering into a
contract are different from the cause thereof.
cause is the essential reason which moves the contracting parties to enter into it.
In other words, the cause is the immediate, direct and proximate reason which
justifies the creation of an obligation through the will of the contracting parties.
Applying this definition, , the cause of the agreement would be the existing account
of Lopez with the appellee.
Liguez vs. C.A
Lopez, a man of mature years donated properties in favor of Liguez, a young girl of
minor age. The donation is now being questioned, for having an illicit causa or
consideration.
Is the donation void?
Yes. Under Art. 1274, liberality of the donor is deemed causa only in those
contracts that are of pure beneficence, without any intent of producing any
satisfaction for the donor. In this case, the conveyance is not made out of pure
beneficence. Lopez was not moved exclusively by the desire to benefit Liguez, but
also to secure her cohabiting with him. Thus considered, the conveyance was
clearly predicated upon an illicit cause.
Appellant seeks to differentiate between the alleged liberality of Lopez, as causa
for the donation in her favor, and his desire with cohabiting with appellant, as
motives that impelled him to make the donation. There is an exception to the

general rule, those contracts that are conditioned upon the attainment of the
motives of either party. Motives may be regarded as cause when it predetermines
the purpose of the contract. In this case, Lopez would not have conveyed the
property in question had he known that appellant would refuse to cohabit with
him; so that the cohabitation was an implied condition to the donation, and being
unlawful, necessarily tainted the donation itself.
Art. 1356 Form of contracts
Dauden-Hernaez vs. De los Angeles
Dauden-Hernaez is a motion fil actress seeking compensation from Hollywood Far
East Production and its president for her services as lead actress in their film. The
latter refused to pay the former on the ground that there was no written
agreement between them and the complaint was defective on its face for violating
Art. 1356 and 1358.
Will the action prosper?
Yes. It is recognized that a contract need not be in writing to be binding. This is the
general rule under the New Civil Code and the exception is the formal or solemn
contracts which is required to be in writing to be enforceable. To add, although the
Statute of Frauds provide that all other contracts where the amount involved
exceed five hundred pesos must appear in writing, nowhere in the law states that
the absence of written form in this case will make the agreement invalid. It is
adduced to be in writing for the purpose of enforceability against third persons.
Shaffer vs. Palma
A complaint was dismissed on the ground that that the agreement alleged in
complaint involves the amount of P118, 000 cannot be enforced because it is not
in writing.
Is the dismissal of the complaint valid?
No. Whether the agreement is in writing or not is a question of evidence.
Nevertheless, even grating that the agreement is not in writing, this circumstance
does not militate against the validity or enforceability of said agreement, because
contracts are binding upon the parties in whatever form they may have been
entered into unless the law requires otherwise. It has been held that the writing
required under Art. 1358 is mere for convenience and so the agreement alleged in
the complaint in the present case can be enforced even if it may not be in writing.
To add, nowhere in Art. 1358 shows that such requirement is necessary for the
validity and enforceability of the contract.

Art. 1359 Reformation of Instruments

Veluz vs. Veluz

In this case, the agreement of the parties was that the land of the plaintiff Ernesto
Veluz was to be mortgaged, but the defendants caused the be prepared a deed of
absolute sale and assured said plaintiff that he had nothing to fear and worry about
the document because he could redeem the property in any time. The complaint
alleges that the instrument does not express the true intention of parties.
Can this instrument be reformed?
Yes. Reformation of instrument must not be confused with the action for annulment
of contract. In reformation, there is a valid existing contract, however, reflects not
the true intention of parties. The equity of reformation is ordinarily limited to
written agreements, and its purpose is to establish and perpetuate the true
agreement. To add, the action for reformation of instrument prescribes in 10 years,
Art. 1361 Mistake as a ground for reformation
Bank of the Phil. Islands vs. Fidelity and Surety Co.
There was a mistake in an instrument which reflected the words Laguna Coconut
Oil Co. instead of Bank of The Philippine Islands
Can this be reformed?
No. The Plaintiff bank has not established a mutual mistake by proof of the clearest
and most satisfactory character constituting more than a preponderance of the
evidence. To justify reformation of a written instrument upon the ground of
mistake, the concurrence of three things are necessary: First, that the mistake
should be a fact; second, that the mistake should be proved by clear and
convincing evidence; and lastly, that the mistake should be common to both parties
to the instrument.
Art. 1364 Mistake of a clerk
Ong Chua vs. Carr, et al.
Certain lots belonged to Henry Teck and his wife. Teck sold the lots to plaintiff with
the right of repurchase within 4 years. Plaintiff sold the lots to defendant.
However, defendant did not have any sufficient money to pay the whole purchase
price to the plaintiff. With the help of a lawyer, the defendant made it appear that
the sale was absolute, so he can borrow a loan from a loan association. Plaintiff
did not understand English and was ignorant of the fraud instituted by the
defendant. Subsequently, Teck sought to repurchase the property in question from
plaintiff, who thereupon demanded the reconveyance of the property from the
defendant. The latter refused, claiming that he had an absolute title to the property
and it was the first time that the plaintiff learned that the deed in question contains
no reference to Tecks right of repurchase.
Can this be reformed?

Yes. Reformation will be given where there is a mistake on one side and fraud or
unfair dealing on the other.
Manila Engineering Co. vs. Cranston and Heacock
Plaintiff wrote the defendant in which the peso sign was used. The letter was made
the basis of a contract entered between the two. On a later date, plaintiff rendered
a statement for the amount which it then claimed in dollars and for the first time
learned that the letter was written in pesos. It appears in the original draft the
letter was written in dollars and the mistake had been made in the copying of the
letter by a clerk in the office.
Can this be reformed?
Yes. It conclusively appears from the facts that it was intended that the dollar sign
was to be used, and the defendant knew or in the ordinary course of business
should have known that a mistake was made. Hence, the contract will be reformed.
Art. 1381 Contracts that are rescissible
Serra vs. Rodriguez
Sps. Loring filed a complaint for recovery against Sps. Ordonez based on a
promissory note. Properties of the latter were under levy since their assets is not
sufficient to pay their debts. On a later date, the wife (Ordonez) alone by herself
without the consent of her husband, executed a chattel mortgaged in favor of the
herein plaintiff as security for a loan. Subsequently, the herein plaintiff filed a
third-party claim over the attached property.
What is the remedy of Sps. Loring?
Rescission. The chattel mortgage may be rescinded on the ground that it refers to
things under litigation and entered into by the defendant debtor without the
knowledge and approval of the litigants or of competent authority or that the same
was executed in fraud of creditors.
Grace Park Engineering vs. Dimaporo
Dimaporo is contending that although that there may be rescission of their
contract with the appellee, there is no need to restore the machineries that was
given to him by the other party on the ground that under their agreement, the
obligation did not end with the shipment of such machineries, it must further have
the capability to produce a specific number of cassava flour and since because this
machineries were never installed, it was not known whether the same could
produce such number of cassava flour.
Can there be restitution?
Yes. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can
return whatever may be obliged to restore.

Art. 1397 Who can bring action to annul?

Dev. Bank of the Phil. vs. C.A
The general rule is that the action for the annulment of contracts can only be
maintained by those who are bound either principally or subsidiarily by virtue
thereof. However there is an exception, as held in Teves vs. Peoples Homesite, a
person who is not obliged principally or subsidiarily in a contract may exercise an
action for nullity of the contract if he is prejudiced in his rights with respect to one
of the contracting parties, and can show the detriment which could positively
result to him from the contract in which he had no intervention. Same ruling
applied in the case of Yturalde vs. Vagilidad, De Santos vs. City of Manila and
Banez vs. C.A
Art. 1398 Restitution by incapacitated party
Braganza vs. Abrille
Upon the other hand, these minors may not be entirely absolved from monetary
responsibility. Under the Civil Code, although the agreement is unenforceable
because of non-age, they shall make restitution to the extent that they may have
profited by money received.
Art. 1400 Loss by the defendant
Damasug vs. Modelo
Plaintiff who did not know how to read and write, signed a document by merely
putting a cross in his name, said document was presented to her to acknowledge a
debt but it turned out that it was reciting a sale of two parcel of land and a carabao
by plaintiff in favor of the defendant. This action is for the annulment of the
document and recovery of the property. The court ruled the contract null and void
because of mistake and ordered mutual restitution by the parties.
With respect to the carabao that died while in possession of the defendant. He is
liable for the price of the carabao plus interest, under Art. 1400.
Art. 1403 Unenforceable Contracts
Frias vs. Esquivel
The late Alvaro Esquivel Sr. died intestate, leaving his properties to his sons,
namely Ricardo and Alvaro and Reynaldo, who were both minors. There was a
deed of conveyance executed by Perpetua P. Zaragoza their mother in behalf of the
children, however, Perpetua is already married for the second time. In view of this,
she already lost her parental authority over the minor children.
Is the deed of conveyance unenforceable?
Yes. In as much as Zaragoza was not appointed as judicial guardian, she has no
authority to convey the properties to third persons. The aforesaid deed of
conveyance in so far the minor children are concerned, is unenforceable. Under
Art. 1403 and 1317, unless there is ratification, the contract that has been entered

in the name of another will be deemed unenforceable. In this case, there was no
showing that there was ratification whatsoever. With regard to Ricardo Esquivel
their son that is already of age, the deed of conveyance is void for there was lack of
authority on the part of his mother.
Eusebio vs. Proceso, et al.
The intervenors charge that there is no written instrument submitted in evidence
to support the finding that Gonzales sold his rights under his application, and that
the finding is contrary to the rule that no evidence is admissible to prove a sale of
realty other than by a written instrument.
This objection is untenable because the Statute of Frauds does not apply when the
case is neither for a violation of a contract nor for the performance thereof
(Pascual vs. Realty Investment).
Inigo vs. Estate of Maloto
The issue is that no written document was executed to record the deed of sale or
for that matter, the payment of the purchase price of the house and land. These are
the considerations which impelled the court to declare that the contract is
unenforceable under the Statute of Frauds.
As a rule, a verbal contract for the sale of a real property is unenforceable unless
ratified. For it offends the Statute of Frauds. However, Statute of Frauds only
applies to executory contracts not to contracts partially or totally performed. In
this case, the contract was already consummated for there was already a price
paid for the land and the plaintiff already performed acts of ownership towards the
land. It is immaterial whether the receipt for the sale was in writing or not.
Because oral evidence of the alleged consummated sale of land is not forbidden
by the Statute of Frauds and may not be excluded in court.
*Note that the statute likewise has no application when it is claimed that the true
agreement is not expressed by the contract. The remedy is either reformation or
annulment.
Paredes vs. Espino
Whether or not a mere letter embodying all the essential terms of a contract satisfy
the requirements of the Statute of Frauds, making the contract enforceable.
The Statute of Frauds does not require that the contract itself be in writing. A
written note or memorandum, embodying the essentials of the contract and signed
by the party charged, or his agent, suffices to make the verbal agreement
enforceable. In this case where the deal was closed by letter and telegram,
which embodied all the essential terms of a contract and they satisfy the
requirement of the Statute of Frauds.
Defendant argues that the authenticity of the letters has not been established. That
is not necessary for the purpose of showing prima facie that the contract is
enforceable. As held in Shaffer vs. Palma, whether the argument is in writing or
not, is a question of evidence, and the authenticity of the writing need not be

established until the trial is held. The fact that the contract is backed by letter and
telegram, the same being a sufficient memorandum, his cause of action is thereby
established.
Art. 1409 Void or inexistent contracts
Omico Mining and Industrial Corporation vs. Vallejos
A judge entered into an employment contract under the plaintiff corporation, the
former being the head of the legal department of the latter. Now he sues the latter
for unpaid salary. Will the action prosper?
No. The judge should have known or ought to know, that when he was elevated to
the Bench as a judge, his right to practice law as an attorney was suspended and
continued to be suspended as long as he occupied the judicial position. It is evident
that the aforesaid contract is void because a contract, whose cause, object of
purpose is contrary to law, morals, good customs, public order or public policy is
considered inexistent and void ab initio.
Art. 1410 Action or defense imprescriptible
Garanciang vs. Garanciang
The plaintiffs were made to sign, thru misrepresentation, fraud and deceit some
papers purportedly to be an application for a loan which turned out to be a deed of
sale of lands without consideration.
The trial court erred in dismissing the case relying on Art. 391 of the Civil Code,
which provides that an action for annulment on the ground of fraud prescribes in 4
years, computed from the discovery of fraud. However, the complaint alleges not
only fraud in the execution of the deed of sale sought to be annulled, but total
absence of cause or consideration. Hence, it is not merely voidable but void. And
an action to set aside a contract that is fictitious, or absolutely void does not
prescribe.
Art. 1412/1413 Criminal/ Unlawful contracts
Inco, et al. vs. Enriquez
Petitioner and respondent entered into a contract with each other, the latter were
allowed to continue occupying the area possessed by them as long as they paid to
petitioner the sum agreed upon between them. In exchange, respondent and his
wife renounced whatever rights they had to buy the portion of the lot occupied by
them in order that petitioner might acquire the entire lot, which was being resold
by the Government. Transfer title was given to the petitioner, now he assails the
validity of the lease contract on the grounds that it lacks written consent and
approval by authorities and that it was entered into by him without the consent of
his wife.
There is no problem with regard any administrative violation. But even
disregarding that matter, the Court of Appeals correctly applied the in pari delicto
rule, that the petitioner and his wife cannot invoke furtherance of the public policy

to in order to escape from it. They would not obtain the title of the lots if not for
the spouses who agreed to give up their own claims over the portion they
occupied. It was equally obvious that the sole consideration for the withdrawal of
the Enriquezes was Incos promise to allow them to remain in possession at a
nominal rate.
Bough vs. Cantiveros
The defendants induced the plaintiff to sell her lands fictitiously to them so that the
latters land will be safe from any contest particularly from her husband. Obviously,
the inducement was made fraudulently.
The party asking to be relieved from the agreement which she was induced to
enter into by means of fraud, was thus in delicto but not in pari delicto with the
other party. The deed was procured by misrepresentation and fraud sufficient to
vitiate the transaction.
Art. 1413 Recovery of usurious interest
Angel Jose Warehousing Co. vs. Chelda Enterprises
Whether the illegal terms as to the payment of interest likewise renders a nullity
the legal terms as to payments of the principal debt. Art. 1420 of the Civil Code
provides: In case of a divisible contract, if the illegal terms can be separated from
the legal ones, the latter may be enforced.
In simple loan with stipulation of usurious interest the prestation of the debtor to
pay the principal debt, which is the cause of the contract, is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest, hence being
separable, and the latter only should be deemed void, since it is the only one that is
illegal.
*** Exceptions to the rule of in pari delicto
Perez vs. Herranz
Plaintiff and defendant bought a steamer worth 58,000. 48, 00 was paid by the
latter, while 10, 00 only was paid by the former. However, the bill of sale was made
in favor of the plaintiff since that he was a Filipino, the defendant being a Spaniard
and not a qualified to hold a steamer in his name. Such an arrangement, involving
a false affidavit or statement, was contrary to the coastwise laws of the country.
As a rule, in criminal and illegal contracts, the parties should be left as they are by
the court, each having no action against the other. But in this case, even without
referring to the illegal act, a proper cause of action could be made out. Plaintiff
could present a prima facie case in his favor by presenting the deed of sale; the
defendant could allege that it had been agreed that co-ownership was to exist
between them, and both allegations can be given without referring to the illegal
affidavit of purpose. Thus, inasmuch as co-ownership was duly proved, plaintiff and
defendant were declared co-owners in proportion to their respective contributions
to the price.

Angeles vs. Court of Appeal, et al.

Whether or not the doctrine of in pari delicto is applicable to sale of homestead.
As it was held in Catalina de los Cantos vs. Roman Catholic Church of
Midsayap, the principle of in pari delicto is not applicable to a homestead which
has been illegally sold, in violation of the homestead law. Reason for the rule is that
the policy of the law is to give land to a family for home and cultivation and the law
allows the homesteader to reacquire the land even if it has been sold, hence the
right may not be waived.
Liguez vs. Lopez
Nullity of contracts due to illegal consideration or subject matter, when executed
(and not merely executory) does produce the effect of barring any action by a
guilty party to recover what it has already given under the contract.
PNB vs. Lui She
There was connivance between a Filipino and an alien, whereby the former is
given not only a lease of, but also an option to buy the land. Both are in pari
delicto. Both of them are now deceased.
Not because they are in pari delicto they will be left where they are without relief.
The original parties who were guilty of violation of the Constitution have died and
have since been substituted by their administrators to whom it would be unjust to
impute their guilt. For another, Art.1416 of the Civil Code provides an exception to
the principle of in pari delicto: 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 enhanced, recover what he has paid or
delivered.
Mortel vs. Aspiras
Defendant being a lawyer married the plaintiff despite being married to another
woman. Hence, a disbarment proceeding was instituted against him.
In a disbarment proceeding, it is immaterial that the complaint in in pari delicto
because this is not a proceeding to grant relief to the complainant, but one to
purge the law profession of unworthy members, to protect the public and the
courts.