Problem Gigi offered to construct
the house of Chito for a very
reasonable price of P1 Million, giving
the latter 10 days within which to
accept or reject the offer. On the fifth
day, before Chito could make up his
mind, Gigi withdrew the offer.
What is the effect of the withdrawal of
Gigis offer? (2005 Bar Problem)
Answer The withdrawal of Gigis
offer will cause the offer to cease in
law. Hence, even if subsequently
accepted, there could be no
concurrence of the offer and the
acceptance. In the absence of
concurrence of offer and acceptance,
there can be no consent. (Laudico vs.
Arias Rodriguez, G.R. No.16530, March
31, 1922). Without the consent, there
is no perfected contract for the
construction of the house of Chito.
(Salonga vs. Farrales, Art. 1319 407
G.R. No. L-47088, July 10, 1981).
Article 1318 of the Civil Code provides
that there can be no contract unless
the following requisites concur : (1)
consent of the parties; (2) object
certain which is the subject matter of
the contract; and (3) cause of the
obligation Gigi will not be liable to pay
Chito any damages for withdrawing
the offer before the lapse of the period
granted. In this case, no consideration
was given by Chito for the option
given. Thus, there is no perfected
contract of option for lack of cause of
obligation. Gigi cannot be held to have
breached the contract. Thus, he
cannot be held liable for damages
(Suggested Answers to the 2005 Bar
Examination Questions, Philippine
Association of Law Schools)
Problem In an offer to sell, parties
failed to agree on the size of the land
to be sold. Is there a meeting of the
minds of the parties that would perfect
a contract?
Answer There is no consent that
would perfect a contract as there is no
agreement on the exact area to be
sold. Contracts that are consensual in
nature are perfected upon mere
meeting of the minds. A contract is
produced once there is concurrence
between the offer and the acceptance
upon the subject matter,
consideration, and terms of payment.
The offer must be certain. To convert
the offer into a contract, the
acceptance must be absolute and
must not qualify the terms of the offer.
It must be plain, unequivocal,
unconditional, and without variance of
any sort from the proposal, constitutes
a counter-offer and is a rejection of the
original offer. Hence, when something
is required is desired which is not
exactly what is proposed in the offer,
such acceptance is not sufficient to
generate consent becauseany
modification or variation from the
terms of the offer.
Problem A gasoline manufacturing
company (TPMC) obatined a loan from
PNB and executed a real estate
mortgage over its parcel of land in
Paranque City to secure its loan. When
the loan matured, PNB sent collection
letters to TPMC. In reply, TPMC
proposed to pay its obligations by way
of a dacion en pago conveying its TCT
No. 122533.Instead of accepting the
offer, PNB filed a petition for
extrajudicial foreclosure of the REM.
TPMC filed a complaint for annulment
of extrajudicial foreclosure sale
alleging that its debt has already been
extinguished by its offer of dacion en
pago. PNB contended that the
proposal of TPMC to pay by way of
dacion en pago did not extinguish its
obligation as it was not accepted by
PNB. Hence, the extrajudicial
foreclosure sale was proper. Was PNB
correct?
Answer Yes, TPMC has no clear
right to an injunctive relief because its
proposal to pay by way of dacion en
pago did not extinguish its obligation.
Undeniably, TPMCs proposal to pay by
way of dacion en pago was not
accepted by PNB. Dacion en pago is a
special mode of payment whereby the
debtor offers another thing to the
creditor who accepts it as equivalent
of payment of an outstanding
obligation. The undertaking is really
one of sale, that is, the creditor is
really buying the thing or property of
the debtor , payment for which is to be
charged against the debtors debt. As
such, the essential elements of a
contract of sale, namely, consent,
object certain and cause or
consideration must be present. It is
only when the
ESSENTIAL REQUISITES OF
CONTRACTS Art. 1320 Consent 410
CONTRACTS thing offered as an
equivalent is accepted by the creditor
that novation takes place, thereby,
totally extinguishing the debt.Thus,
the unaccepted proposal neither
novates the parties mortgage
contract nor suspends its execution as
there was no meeting of the minds
between the parties on whether the
loan will be extinguished by way of
dacion en pago (Technogas Philippines
Mfg. Corp. vs. Philippine National
Bank, G. R. No. 161004, April 14,
2008).
Problem A, who resides in Manila,
wrote to his friend B, who is residing in
Cotabato City, stating in the letter that
he (A) is donating to him (B) one new
car worth P25,000. Upon receipt of the
letter, B, called A by long distance
telephone telling A that he is
accepting the donation. The same day
B wrote and mailed a letter to A
accepting the donation. Immediately
after mailing the letter, B died of a
heart failure. Who is entitled to the car
now, A or the heirs of B? Reasons.
(1962 Bar Problem).
Answer A is entitled to the car. The
reason is that the donation in the
instant case cannot produce any effect
whatsoever. According to Art. 748 of
the Civil Code, if the value of the
personal property donated exceeds
P5,000, the donation and the
acceptance shall be in writing;
otherwise, the donation is void. True,
the acceptance by B was actually
written and mailed. But immediately
after mailing the letter of acceptance,
B died. The effect is to bring into play
the provision of Art. 1323 of the Civil
Code which is certainly applicable
here, considering the provision of Art.
732. According to Art. 1323, an offer
becomes ineffective upon the death,
civil interdiction, insanity, or
insolvency of either party before
acceptance is conveyed. Analyzing the
provision, it is clear that the offer of A
has become ineffective and that the
contract of donation, as a
consequence, has never been
perfected.
Problem A donated a piece of land
to B in a donation inter vivos. B
accepted the donation in a separate
instrument but A suddenly died in an
accident before the acceptance could
be communicated to him. Is the
donation valid? Reasons. (1971 Bar
Problem)
Answer Even assuming that both to raise the necessary funds. It was
the donation and the acceptance are further agreed that if B could not
contained in a public instrument, produce the money on or before said
which the law requires (Art. 749, CC), date, no liability would attach to him.
the donation is not valid for the Before May 6, 1975, A backed out of
following reasons: (1) Under Art. 749 the agreement. Is A obliged to sell
of the Civil Code which enunciates the the property to B? Explain. (1975
different formalities required in the Bar Problem)
execution of donations inter vivos, the
Answer Assuming that the offer of
law declares that if the acceptance is
A to sell the land to B is merely a
made in a separate public instrument,
unilateral offer to sell, and that there
the donor shall be notified thereof in
is still no bilateral agreement in the
authentic form, and this step shall be
sense that B had already agreed to
noted in both instruments. It is
buy the land, A is not obliged to sell
obvious that in the instant case the
the property to B. In such case, it is
requirement of notification of the
clear that the general rule stated in
donor in authentic form (constancia
Art. 1324 and the particular rule
autentica) has not been complied with.
stated in Art. 1479, par. 2, of the Civil
It is of course axiomatic under the law
Code are applicable. As a matter of
on donations that all of the formalities
fact, even if B has formally accepted
prescribed in Art. 749 of the Code are
the option given to him by A, such
essential for validity. (2) Art. 734 of the
acceptance would be of no moment
Civil Code declares that a donation is
since the option is not supported by
perfected from the moment the donor
any consideration distinct from the
knows of the acceptance by the
purchase price. A can always change
donee. It is also obvious that in the
his mind at any time. The option does
instant case A never came to know of
not bind him for lack of a cause or
the acceptance by B because he
consideration. It would have been
suddenly died in an accident before
different if B had accepted the offer
such acceptance could be
to sell within the period of the option
communicated to him. Consequently,
before said offer was withdrawn by
the contract of donation was never
A. In such a case, a contract of sale
perfected. (3) And finally, Art. 1323 of
would have been generated right then
the Civil Code is decisive.This article
and there. As it turned out, A
(which is certainly applicable here
withdrew his offer in time. (See
considering. ESSENTIAL REQUISITES
Sanchez vs. Rigor, 45 SCRA 368)
OF CONTRACTS Arts. 1321-1323
(Note: In Sanchez vs. Rigos, supra, the
Consent 412 CONTRACTS the provision
Supreme Court finally resolved a
of Art. 732 of the Code) declares that
question which arose out of the use of
an offer becomes ineffective upon the
the word Accepted in modifying the
death, civil interdiction, insanity or
phrase unilateral promise to buy or to
insolvency of either party before
sell in Art. 1479, par. 2, of the Civil
acceptance is conveyed).
Code. Accepted refers to the option,
Problem A agreed to sell to B a not to the offer, to buy or to sell; in
parcel of land for P5,000.00. B was other words, it refers to the
given up to May 6, 1975 within which acceptance by either prospective
vendee or vendor of the option of, let
us say, ninety days within which he
shall decide whether or not he shall
buy or sell the thing. Thus, if A offers
to sell a lot to B for P200,000, and
gives the latter an option of ninety
days within which to decide whether
or not he shall buy the property, and
the latter accepts the option, two
possible situations may arise: (1) In
accepting the option, B pays to A option. R sued Q to compel him to
an option money of, let us say,
P5,000 which is distinct from the
purchase price. In such case, there is
already a perfected preparatory
contract of option. A is bound by his
offer. B shall now decide within the
period of the option whether or not he
shall buy the property. If he decides to
buy, he shall then pay to B the price
of P200,000; if he decides otherwise,
no contract of sale will ever be
perfected.
(2) In accepting the option, B does
not pay any option money to A. In subject property to R. For that
such case, there is no perfected
preparatory contract of option for lack
of a consideration. The result is a mere
offer to sell, acceptance or which will
be sufficient to generate a perfected
contract of sale. But suppose that
meanwhile, A has changed his mind?
The lot is no longer for sale. B, on
the other hand, has decided to buy the
property. What will now happen?
Under this situation, the one who is fi
rst to notify the other of his decision
emerges the victor. If A is the fi rst
to notify B of his change of mind, no
contract of sale will ever be perfected;
if B is the fi rst to notify A of his for P150,000.00 is established. True
acceptance of the offer, a contract of
sale has already been perfected.)
Problem Q, the owner of a house
and lot in Quezon City, gave an option
to R to purchase said property for
P100,000.00 within ninety days from
May 1, 1979. R gave Q one
(P1.00) peso as option money. Before
the expiration of the ninety-day
period, R went to Q to exercise his
option to pay the purchase price but
Q refused because somebody
wanted to buy his property for
P150,000.00 and because there was
no sufficient consideration for the
accept payment and execute a deed of
sale in his favor.
Decide the case. (1980 Bar Problem)
Answer Q should be compelled
to accept the purchase price of
P100,000.00 and to execute a deed of
sale of the subject property in favor of
R. The reason is that there is already
a perfected contract of sale.
Undoubtedly, in the instant case, there
is a unilateral offer of Q to sell the
purpose, the latter is given an option
of ninety days from May 1, 1979 within
which to exercise the option. The
consideration for the option is P1.00.
According to the Civil Code, since
there is a consideration for the option,
Q is now bound by his promise to
sell the property to R so long as the
latter will exercise the option within
the agreed period of ninety days. R
exercised his option. Therefore, there
is already a perfected contract of sale.
True, Q will suffer some sort of lesion
or prejudice if what he says about
another desiring to buy the property
also, the consideration of P1.00 for the
option is grossly inadequate. The Civil
Code, however, declares that except in
cases specifi ed by law, lesion or
inadequacy of cause shall not
invalidate a contract, unless there has
been fraud, mistake or undue
influence. Here, there is no fraud,
mistake or undue influence which
would be a possible basis for
invalidating either the preparatory
contract of option or the principal
contract of sale.
As a matter of fact, even assuming
that there is no consideration for the
option, the end result would still be
the same. Since R accepted the
offer before it could be withdrawn or
revoked by Q, there is already a
perfected contract of sale. (Note: The
second paragraph of the above
answer, which gives the raison detre
for what is stated in the first
paragraph, is based on Arts. 1324 and
1479, par. 2, of the Civil Code. The
third paragraph, which disposes of the
contentions or defenses of the
defendant, is based on Art. 1355 of
the Civil Code. The fourth paragraph,
which is a sort of obiter, is based on
Sanchez vs. Rigos, 45 SCRA 368.)
Problem K and Co. published in
the newspaper an Invitation to Bid
inviting proposals to supply labor and
materials for a construction project
described in the invitation. L, M
and N submitted bids. When the
bids were opened, it appeared that L
submitted the lowest bid. However,
K and Co. awarded the contract to
N, the highest bidder, on the ground
that he was the most experienced and
responsible bidder. L brought an
action against K and Co. to compel
the award of the contract to him and
to recover damages.
Is Ls position meritorious? (1980
Bar Problem)
Answer Ls position is not
meritorious. According to the Civil
Code, advertisements for bidders are
simply invitations to make proposals,
and the advertiser is not bound to
accept the highest or lowest bidder
unless the contrary appears. It is clear
that the general rule applies in the
instant case. In its advertisement, K
and Co. did not state that it will award
the contract to the lowest bidder.
Therefore, in awarding the contract to
N, the defendant company acted in
accordance with its rights.
Problem Is a person of advanced
years or age or by reason of physical
infirmities incapacitated to enter into a
contract?
Answer A person is not
incapacitated to enter into a contract
merely because of advanced years or
by reason of physical infirmities,
unless such age and infirmities impair
his mental faculties to the extent that
he is unable to properly, intelligently
and fairly understand the provisions of
said contract (Dr. Jose and Aida Yason
and Faustino Arciaga, et. al., G.R. No.
145017, Jan. 28, 2005).
Problem C, an old and ignorant
woman, was helped by V in obtaining
a loan of P3,000.00 from X Rural Bank
secured by a mortgage on her house
and lot. On the day she signed the
promissory note and the mortgage
covering the loan, she also signed
several documents. One of these
documents signed by her was
promissory note of V for a loan of
P3,000.00 also secured by a mortgage
on her house and lot. Several years
later, she received advice from the
sheriff that her property shall be sold
at public auction to satisfy the two
obligations. Immediately she filed suit
for annulment of her participation as
co-maker in the obligation contracted
by V as well as of the mortgage in
relation to said obligation of V on the
ground of fraud and mistake. Upon
filing of the complaint, she deposited
P3,383.00 in court as payment of her
personal obligation including interests.
(a) Can be held liable for the obligation
of V? Why?
(b) Was there a valid and effective
consignation considering that there
was no previous tender of payment
made by C to the Bank? Why?
Answer (a) C cannot be held liable
for the obligation of V. It is crystal
clear that Cs participation in Vs
obligation both as co-maker and as
mortgagor is voidable not on the
ground of fraud because the Bank was
not a participant in the fraud
committed by V, but on the ground of
mistake. There was substantial
mistake on the part of both C and the
Bank mutually committed by them as
a consequence of the fraud employed
by V. (See Rural Bank of Caloocan City
vs. CA, 104 SCRA 151.)
(b) Despite the fact that there was no
previous tender of payment made
directly to the Bank, nevertheless, the
consignation was valid and effective.
The deposit was attached to the
record of the case and the Bank had
not made any claim thereto.
Therefore, C was right in thinking that
it was useless and futile for her to
make a previous offer and tender of
payment directly to the Bank. Under
the foregoing circumstances, the
consignation was valid, if not under
the strict provisions of the law, under
the more liberal consideration of
equity. (Ibid.)
Problem Spouses Robert and Yollie
wanted to sell their house. They found
a prospective buyer, Nina. Yollie
negotiated with Nina for the sale of
the property. They agreed on a fair
price of P2 Million. Nina sent Yollie a
letter confirming her intention to buy
the property. Later, another couple,
Marius and Ellen, offered a similar
house at a lower price of P1.5 Million.
But Nina insisted on buying the house
of Robert and Yollie for sentimental
reasons. Nina prepared a deed of sale
to be signed by the couple and a
managers check for P2 Million. After
receiving the P2 Million, Robert signed
the deed of sale. However, Yollie was
not able to sign it because she was
saying she changed her mind. Yollie
filed suit for nullification of the deed of
sale and for moral and exemplary
damages against Nina. Does Nina
have any cause of action against
Robert and Yollie? (2006 Bar Problem)
Answer Considering that the
contract has already been perfected
and taken out of the operation of the
statute of frauds, Nina can compel
Robert and Yollie to observe the form
required by law in order for the
property to be registered in the name
of Nina which can be fi led together
with the action for the recovery of
house.(Art. 1357, NCC). In the
alternative, she can recover the
amount of P2 Million that she paid.
Otherwise, it would result in solution
indebiti or unjust enrichment.
Problem (a) What is a contract of
adhesion?
(b) Are contracts of adhesion void or
prohibited?
Answer In the case of
Development Bank of the Philippines
vs. Perez, G.R. No. 14854, Nov. 11,
2004, the Court held that: (a) A
contract of adhesion is so-called
because its terms are prepared by
only one party while the other party
merely affixes his signature signifying
his adhesion thereto.
(b) A contract of adhesion is just as
binding as ordinary contracts. It is true
that we have, on occasion, struck
down such contracts as void when the
weaker party is imposed upon in
dealing with the dominant bargaining
party and is reduced to the.
Nevertheless, contracts of adhesion
are not invalid per se; they are not
entirely prohibited. The one who
adheres to the contract is in reality
free to reject it entirely; if he adheres,
he gives his consent. In the case of
Sps. Francisco and Ruby Reyes vs. BPI
Family Savings Bank, Inc., et al., G. R.
Nos. 149840-41, March 31,2006,
where the petitioner spouses
undertook to secure the P15M loan of
Transbuilders Resources &
Development Corporation to BPI-FSB
and other credit accommodations of
whatever nature obtained by the
Borrower/Mortgagor under the Real
Estate Mortgage they executed in
favor of BPI-FSB, the Supreme Court
held that while the stipulation proved
to be onerous to the petitioners,
neither the law nor the courts will
extricate a party from an unwise or
undesirable contract entered into with
all the required formalities and with
full awareness of its consequences.
Petitioners voluntarily executed the
REM on their property in favor of BPI-
FSB to secure the loan. They cannot
now be allowed to repudiate their
obligation to the bank after
Transbuilders default. While
petitioners liability was written in fi ne
print and in a contract written by BPI-
FSB, it has been the consistent holding
of the Court that contracts of adhesion
footing are not invalid per se. On
numerous occasions, the Supreme
Court has upheld the binding effects of
such contracts.
Problem What is the cardinal rule
applicable in a case where the terms
of a contract are clear and leave no
doubt upon the intention of the
contracting parties?
Answer It is a cardinal rule that if
the terms of a contract are clear and
leave no doubt as to the intention of
the contracting parties, the literal
meaning of its stipulation shall control.
In the case of Philippine National
Construction Corporation vs. The Hon.
CA, et al., G.R. No. 159417, Jan.25,
2007, the Court held that the contract
between parties is the formal
expression of the parties rights, duties
and obligations. It is the best evidence
of the intention of the parties. Thus,
when the terms of an agreement have
been reduced to writing, it is
considered as containing all the terms
agreed upon and there can be,
between the parties and their
successors in interest, no evidence of
such terms other than the contents of
the written agreement. It is further
required that the various stipulations
of a contract shall be interpreted
together, attributing to the doubtful
ones that which may result from all of
them taken jointly (Bobie Rose V. Frias
vs. Flora San Diego-Sison, G.R.
No.155223, April 3, 2007).
Problem Mrs. S borrowed
P20,000.00 from PG. She and her 19-
year old son, Mario, signed the
promissory note for the loan, which
note did not say anything about the
capacity of the signers. Mrs. S made
partial payments little by little. After
seven (7) years, she died leaving a
balance of P10,000.00 on the note. PG
demanded payment from Mario who
refused to pay. When sued for the
amount, Mario raised the defense: that
he signed the note when he was still a
minor. Should the defense be
sustained? Why?
Answer No. 1 The defense should
be sustained. Mario cannot be bound
by his signature in the promissory
note. It must be observed that the
promissory note does not say anything
about the capacity of the signers. In
other words, there is no active fraud or
misrepresentation; there is merely
silence or constructive fraud or
misrepresentation. It would have been
different if the note says that Mario is
of age. The principle of estoppel would
then apply. Mario would not be allowed
to invoke the defense of minority. The
promissory note would then have all
the effects of a perfectly valid note.
Hence, as far as Marios share in the
obligation is concerned, the
promissory note is voidable because of
minority or non-age. He cannot,
however, be absolved entirely from
monetary responsibility. Under the
Civil Code, even if his written contract
is voidable because of minority he
shall make restitution to the extent
that he may have been benefited by
the money received by him (Art. 1399,
Civil Code). True, more than four years
have already elapsed from the time
that Mario had attained the age of 21.
Apparently, his right to interpose the
defense has already prescribed. It has
been held, however, that where
minority is used as a defense and no
positive relief is prayed for, the four-
year period (Art. 1391, Civil Code)
does not apply. Here, Mario is merely
interposing his minority as an excuse
from liability. (Braganza vs. Villa
Abrille, 105 Phil. 456.)
Answer No. 2 The defense should
not be sustained. It must be noted that
the action for annulment was
instituted by PG against Mario when
the latter was already 26 years old.
Therefore, the right of Mario to invoke
his minority as a defense has already
prescribed. According to the Civil
Code, actions for annulment of
voidable contracts shall prescribe after
four years. In the case of contracts
which are voidable by reason of
minority or incapacity, the four-year
period shall be counted from the time
the guardianship ceases (Art. 1391,
Civil Code). The same rule should also
be applied to the defense. In the
instant case, since more than four
years already elapsed from the time
Mario had attained the age of 21,
therefore, he can no longer interpose
his minority as a defense. It would
have been different if four years had
not yet elapsed from the time Mario
had attained the age of 21. Since
there was no active fraud or
misrepresentation on his part at the
time of execution of the promissory
note, it is clear that the contract is
voidable as far as he is concerned. In
such case, the defense of minority
should then be sustained. (Braganza
vs. Villa Abrille, 105 Phil. 456.)
Problem X, of age, entered into a
contract with Y, a minor. X knew and
the contract specifi cally stated the
age of Y. May X successfully demand
annulment of the contract? Reason.
(1971 Bar Problem)
Answer X cannot successfully
demand annulment of the contract.
True, said contract is voidable because
of the fact that at the time of the
celebration of the contract, Y, the
other contracting party, was a minor,
and such minority was known to X
(Arts. 1327, No. 1, 1390 CC). However,
the law is categorical with regard to
who may institute the action for
annulment of the contract. In addition
to the requirement that the action may
be instituted only by the party who
has an interest in the contract in the
sense that he is obliged thereby either
principally or subsidiarily, Art. 1397 of
the Civil Code further requires that in
case of contracts voidable by reason
of incapacity of one of the contracting
parties, the party who has capacity
cannot allege the incapacity of the
party with whom he contracted.
Because of this additional requisite, it
is clear that Y and not X can institute
the action for annulment.
Problem. Pedro sold a piece of land
to his nephew Quintin, a minor. One
month later, Pedro died. Pedros heirs
then brought an action to annul the
sale on the ground that Quintin was a
minor and therefore without legal
capacity to contract. If you are the
judge, would you annul the sale?
(1974 Bar Problem)
Answer If I am the judge, I will not
annul the sale. The Civil Code in Art.
1397 is explicit. Persons who are
capable cannot allege the incapacity
of those with whom they contracted.
True, Pedro who sold the land to the
minor Quintin is already dead, and it is
his heirs who are now assailing the
validity of the sale. However, under
the principle of relativity of contracts
recognized in Art. 1311 of the Civil
Code, the contract takes effect not
only between the contracting parties,
but also between their assigns and
heirs.
(Note: Another way of answering the
above problem would be to state the
two requisites which must concur in
order that a voidable contract may be
annulled. These requisites are: (a) that
the plaintiff must have an interest in
the contract; and (b) that the victim or
the incapacitated party must be the
person who must assert the same. The
second requisite is lacking in the Answer Yes, an oral sale of land
instant case.) where the land has not been delivered
but the buyer has paid ten percent
Problem A and B entered into a
(10%) of the purchase price may be
verbal contract whereby A agreed to
judicially enforced. Well-settled is the
sell to B his only parcel of land for
rule that the Statute of Frauds by
P20,000.00 and B agreed to buy at
virtue of which oral contracts are
the aforementioned price. B went to
unenforceable by court action is
the bank, withdrew the necessary
applicable only to those contracts
amount, and returned to A for the
which are executory and not to those
consummation of the contract. A,
which have been consummated either
however, had changed his mind and
totally or partially. The reason is
refused to go through with the sale. Is
obvious. In effect, there is already a
the agreement valid? Will an action by
ratification of the contract because of
B against A for specific
acceptance of benefits. As a matter of
performance prosper? Reason. (1982
fact, this reason is now embodied in
Bar problem)
the New Civil Code. According to Art.
Answer It must be observed that 1405 of said Code, contracts infringing
there are two questions which are the Statute of Frauds are ratified by
asked. They are: (1) Is the agreement the failure to object to the
valid? The answer is yes. It is a time presentation of oral evidence to prove
honored rule that even a verbal the same, or by the acceptance of
agreement to sell land is valid so long benefits under them.
as there is already an agreement with
Problem O verbally leased his
respect to the object and the purchase
house and lot to L for two years at a
price. (2) Will an action by B against
monthly rental of P250.00 a month.
A for specific performance prosper?
After the first year, O demanded a
The answer is no, unless it is ratified.
rental of P500.00 claiming that due to
The reason is obvious. The agreement,
the energy crisis, with the sudden
being an agreement of sale of real
increase in the price of oil, which no
property, is covered by the Statute of
one expected, there was also a
Frauds. It cannot, therefore, be
general increase in prices. O proved
enforced by a court action because it
an inflation rate of 100%. When L
is not evidenced by any note or
refused to vacate the house, O
memorandum or writing properly
brought an action for ejectment. O
subscribed by the party charged.
denied that they had agreed to a lease
(Note: The above answer is based on
for two years.
No. 2 of Art. 1403 of the Civil Code and
on decided cases.) Question No. 1 Can the lessee
testify on a verbal contract of lease?
Problem Can an oral sale of land
Reason. (1981 Bar problem)
be judicially enforced as between the
contracting parties, if the land has not Answer Yes, the lessee L may
been delivered but the buyer has paid testify on the verbal contract of lease.
ten percent (10%) of the purchase Well-settled is the rule that the Statute
price? (1974 Bar problem) of Frauds by virtue of which oral
contracts (such as the contract in the
instant case) are unenforceable by
court action is applicable only to those
contracts which have not been
consummated, either totally or
partially. The reason for this is obvious.
In effect, there is already a ratification
of the contract by acceptance of
benefits.Here L has been paying to
O a monthly rental of P250.00 for
one year. The case is, therefore,
withdrawn from the coverage of the
Statute of Frauds.
(Note: The above answer is based on
Arts. 1403, No. 2 and 1405 of the Civil
Code, and on decided cases.)
Question No. 2 Assuming that O
admits the two-year contract, is he
justified in increasing the rental? Why?
(1981 Bar problem)
Answer Yes, O is justified in
increasing the monthly rental. Since it
is admitted that the contract of lease
is for a definite term or period of two
years, it is crystal clear that the case
is withdrawn from the coverage of the
new rental law. Now during the
hearing of the case, O was able to
prove an infl ation rate of 100%.
Therefore, an increase is justified.
(Note: The above answer is based on
Batas Pambansa Blg. 25.)
Problem (a) Cite an example of a
contract which is contrary to morals.
(b) Can the nullity of the stipulation on
the usurious interest affect (i) the
lenders rights to recover the principal
loan; (ii) the terms of the real estate
mortgage?
Answer (a) Stipulations authorizing
iniquitous or unconscionable interests
are contrary to morals, if not against
the law. Under Art. 1409 of the New
Civil Code, these contracts are
inexistent and void from the very
beginning. They cannot be ratified nor
the right to set up their illegality as a
defense be waived.
(b) The nullity of the stipulation on the
usurious interest does not, however,
affect the lenders right to recover the
principal loan. Nor would it affect the
terms of the real estate mortgage
(REM). The right to foreclose the
mortgage remains with the creditors
and said right can be exercised upon
the failure of the debtors to pay the
debt due. The debt due is to be
considered without the stipulation of
the excessive interest. A legal interest
of 12% per annum will be added in
place of the excessive interest
formerly imposed. But in a situation
where the total amount of
indebtedness during the foreclosure
proceedings is pegged in an amount
which included interest which is
excessive, iniquitous and exorbitant,
the foreclosure proceedings cannot be
given effect and will be considered
invalid.. If the foreclosure proceedings
were considered valid, this would
result in an inequitable situation
wherein the borrowers will have their
land foreclosed for failure to pay an
over-inflated loan only a small part of
which they were obligated to pay.
(Heirs of Zoilo Espiritu and Primitiva
Espiritu vs. Sps. Maximo Landrito and
Paz Landrito, etc., G.R.No. 169617,
April 3, 2007).
Problem On Jan. 15, 1958, D
borrowed P10,000 from C. as evidence
of the indebtedness, D executed a
promissory note promising to pay the
entire obligation on Jan. 15, 1959, at
24% interest per annum. As security
for the payment of the obligation, he
also executed a real estate mortgage
on a house and lot registered in his
name in favor of C. This mortgage was
duly registered. When the note
matured, D paid the entire obligation
plus interest amounting to P2,400.
Considering that the contract is
usurious, if D institutes an action
against C for the recovery of the
usurious interest which he has paid,
how much can he recover? Reason.
Answer D can recover the entire
interest of P2,400 which he has paid
plus 6% interest thereon from the date
of payment. This is in accordance with
Sec. 6 of the Usury Law and Art. 1413
of the New Civil Code. It must be
observed that under Sec. 6 of the
Usury Law, the debtor may recover the
whole interest paid. Under the New
Civil Code , in Art. 1413, interest paid
in excess of the interest allowed by
the usury laws may be recovered by
the debtor, with interest thereon from
the date of payment. When the Code
speaks of interest paid in excess of
the interest allowed by usury laws, it
means the whole usurious interest.
The two provisions, therefore, are
almost identical. The only change
effected by Art. 1413, NCC, is not to
provide for the recovery of the interest
paid in excess of that allowed by law,
which the Usury Law already provided
for, but to add that the same can be
recovered with interest thereon from
the date of payment. (Angel Jose
Warehousing Co. vs. Chelda
Enterprises, 23 SCRA 119.)
(Note: Prior to January 1, 1983 and
under the Treasury Laws, no person
shall receive a rate of interest,
including commissions, premiums,
fines and penalties, higher than 12%
per annum or the maximum rate
prescribed by the Monetary Board for
a loan secured by a mortgage upon
real estate the title to which is duly
registered. Therefore, the 18% interest
rate plus the additional interest and
penalty charges of 18% and 8%,
respectively, are highly usurious.
[Development Bank of the Philippines
vs. Perez, G.R. No. 148541, Nov. 11,
2004.] Under Central Bank (CB)
Circular No. 905, which became
effective on Jan. 1, 1983, whereby the
Monetary Board is authorized to fix
interest rates, the ceiling rates under
the Usury law [Act No. 2655, as
amended by P.D. No. 116] have been
abolished. It should be noted that
Circular No. 905 did not repeal nor in
any way amend the Usury Law but
simply suspended the latters
effectivity. The legislation of usury is
wholly the creature of legislation. A CB
Circular cannot repeal a law. Only a
law can repeal another law. Thus,
retroactive application of a CB Circular
cannot, and should not, be presumed.
(Development Bank of the Philippines
vs. Perez, G.R. No. 148541, Nov. 11,
2004.)
In declaring void the stipulations
authorizing excessive interest and
charges, the SC declared that although
the Usury Law was suspended by CB
Circular No. 905 and consequently the
parties are given wide latitude to
agree on any interest rate, nothing in
the said Circular grants lenders carte
blanche authority to raise interest
rates to levels which will either
enslave their borrowers or lead to a
hemorrhaging of their assets. (Heirs of
Zoilo Espiritu and Primitiva Espiritu vs.
Sps. Maximo Landrito and Paz
Landrito, etc., G.R. No. 169617, April 3,
2007).
Problem A partnership borrowed
P20,000.00 from A at clearly
usurious interest. Can the creditor
recover anything from the debtor? According to Art. 1420 of the Civil
Explain. Code, in case of a divisible contract, if
the illegal terms can be separated
Answer Yes, the creditor can recover
from the legal ones, the latter may be
from the debtor the following: the
enforced. It is clear that what is illegal
principal, legal interest on the
is the prestation to pay the stipulated
principal from the date of demand
interest. Hence, being separable, the
(Art. 2209, CC), legal interest on the
latter only should be deemed void.
legal interests from the time of judicial
demand (Art. 2212, CC), and (Note: It must be noted that in Angel
attorneys fees, if proper, under Art. Jose vs. Chelda, it was held that
2208 of the Civil Code. attorneys fees cannot be awarded.
The principal reason is that, at the
That the creditor can recover the
time when the decision was
principal from the debtor is now well
promulgated, there was yet no definite
settled. (Angel Jose vs. Chelda
ruling on the point of law involved.
Enterprises, 23 SCRA 119; Briones vs.
Now, it is already well-settled that the
Cammayo, 41 SCRA 404.) In a usurious
creditor may recover the principal.
contract of loan, there are always two
Consequently, plaintiff creditor may
stipulations. They are: first, the
recover the principal plus legal interest
principal stipulation whereby the
under Arts. 2209 and 2212 of the Civil
debtor undertakes to pay the principal;
Code. Hence, attorneys fees may also
and second, and the accessory
be awarded.)
stipulation whereby the debtor
undertakes to pay a usurious interest.
These two stipulations are divisible.