JURISPRUDENCE ON THE PRINCIPLE OF MUTUALITY OF CONTRACTS

The principle of mutuality of contracts is embodied under Article 1308, as

follows:

Article 1308. The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them. (1256a)

The Supreme Court has often used this principle in striking down
contracts which make the fulfillment of an obligation dependent upon the sole
will of only one of the contracting parties. The Court held:

“x x x Article 1308 of the Civil Code expresses what is known in law as

the principle of mutuality of contracts. It provides that "the contract must
bind both the contracting parties; its validity or compliance cannot be left
to the will of one of them." This binding effect of a contract on both parties
is based on the principle that the obligations arising from contracts have
the force of law between the contracting parties, and there must be
mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract while
leaving the other free therefrom. The ultimate purpose is to render void a
contract containing a condition which makes its fulfillment dependent
solely upon the uncontrolled will of one of the contracting parties.”1

The Supreme Court held in Lao Lim v. CA 2 , that the provision in the
compromise agreement between the parties in said case which allows the lessee
to stay on the premises “as long as he needs it” is void for being purely
potestative.

Contrary to the ruling of respondent court, the disputed stipulation "for as

long as the defendant needed the premises and can meet and pay said
increases" is a purely potestative condition because it leaves the
effectivity and enjoyment of leasehold rights to the sole and exclusive
will of the lessee.

The continuance, effectivity and fulfillment of a contract of lease cannot

be made to depend exclusively upon the free and uncontrolled choice of
the lessee between continuing the payment of the rentals or not,
completely depriving the owner of any say in the matter. Mutuality

1 Allied Banking Corp. v. Court of Appeals, G.R. No. 124290, January 16, 1998.
2 Lao Lim v. CA, 191 SCRA 150, 154, 155.
 does not obtain in such a contract of lease and no equality exists
between the lessor and the lessee since the life of the contract is dictated
solely by the lessee.

The compromise agreement should be understood as bearing that

import which is most adequate to render it effectual. Where the
instrument is susceptible of two interpretations, one which will make it
invalid and illegal and another which will make it valid and legal, the
latter interpretation should be adopted.

In Sps. Florendo vs. CA 3 the Supreme Court held that the unilateral
determination of increased interest rates by respondent bank is obviously
violative of the principle of mutuality of contracts ordained in Article 1308 of the
Civil Code.

In order that obligations arising from contracts may have the

force of law between the parties, there must be mutuality between the
parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita
Legarda, Inc., 21 SCRA 555). Hence, even assuming that the . . . loan
agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will
during the term of the loan, that license would have been null and void
for being violative of the principle of mutuality essential in contracts. It
would have invested the loan agreement with the character of a
contract of adhesion, where the parties do not bargain on equal footing,
the weaker party's (the debtor) participation being reduced to the
alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co.,
95 Phil. 85). Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse and imposition”

3 G.R. No. 101771. December 17, 1996, 333 PHIL 535-548.