TITLE MELQUIADES D. AZCUNA, JR. v COURT OF APPEALS, Barcelona, et al.

CASE 5 CAUSE OF Action filed by Azcuna to contest the CA's decision affirming the MTC's award of 3k per day as damages in favor
ACTION of private respondent Barcelona in a previously decided ejectment case against the former

SOURCE OF
OBLIGATIO Damages arising from the ejectment case in favor of Barcelona
N
Barcelona family (lessor , won ejectment case)
PARTIES
Azcuna (lessee, lost the ejectment case, ordered to pay damages)
PRINCIPLE Autonomy / Freedom of Contracts

1. Azcuna leased three units of the building owned by Barcelona's family under a contract of lease.
FACTS 2. The contract expired without an agreed renewal thereof and there was also a consequent failure to
surrender the units on the part of Azcuna despite the demands.
3. This led to Barcelona filing an action of ejectment against Azcuna before the MTC. Judgment of MTC was
SOURCE OF then affirmed in its entirety by the RTC ordering Azcuna to vacate the premises and to pay, among others, 3k
ISSUE per day, by way of damages for his faikure to turn over peacefully the three commercial spaces until such time
the defendant and all persons claiming rights under him vacate the premises.
4. Azcuna now comes to court not to contest the ouster nor the amount of all the other payments adjudged
against him, but only to take particular exception to the affirmation of the CA to award Barcelona 3k per day
damages.

ISSUE ISSUE W/N the 3k per day stipulation of the contract between the parties are violative of the autonomy of contracts

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

NO.
1. The MTC, in making the "3k per day award" was merely enforcing what was stipulated by the parties in the
contract of lease.
2. The stipulation provides that "In case the lessee's failure or inability to do so, the lessor has the right to
charge the lessee 1k per day as damages..." This is clearly an agreement for liquidated damages.
3.The freedom of the contracting parties to make stipulations in their contract provided they are not contrary
RULING to law, morals, good customs, public order, or public policy is so settled and the Court finds noting immoral or
RULING illegal with the subject penalty clause which does not appear to have been forced upon or fraudulently foisted
on the petitioner.
4. Azcuna cannot now turn his back on his word with a plea that on him was inflicted a penalty shocking to the
conscience and impressed with inequity with the end in view to evade further liability for the liquidated
damages.
5. The petition is DENIED.

1. A party to the contract, after entering into an agreement, cannot turn his back on his word with a plea that
DOCTRINE
he was inflicted with the stipulations therein.
2. The freedom of the contracting parties to make stipulations in their contract are valid and binding so long as
they are not contrary to law, morals, good customs, public order or public policy.
CASE 6 TITLE MARIA A. GARCIA, et al. v RITA LEGARDA, INC

1. Garcia was engaged with Legarda, Inc in 3 contracts to purchase 3 parcels of land payable through
installment.
2. Legarda, Inc. cancelled the contracts on the ground of Garcia's failure to make the installment payments.
3. Garcia, filed an action against Legarda, Inc., denying that they were in arrears under the 3 contracts, prayed
for the declaration of the contracts to be existing and subsisting.
SOURCE 4. Bolster their claim, Garcia posits that Legarda Inc.'s cancellation of the 3 contracts was unlawful and arbitrary
 
OF ISSUE and in violation of Art 1308 of the CC which states that "The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
5. Legarda, Inc. contended that their cancellation was based on the stipulation in the 3 contracts, giving the
petitioner a 1 month grace period in case of non-payment and an additional of 90 days should he still be not
able to pay after the 1 month grace period. In the event that Garcia is unable to pay despite the 1month grace
period and the 90 days in addition to such, Legarda, Inc. shall have the right to declare the contract cancelled.

ISSUE ISSUE W/N such stipulation is violative of the mutuality of contracts defined under Art 1308 of the CC
Art 1308
LAW The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them.

NO.
1. The provision emphasizes the principle that the contract must bind both the parties. This, of course, is based
on the principle that obligations arising from contracts have the force of law between the contracting parties
and that there must be a consequent mutuality between the parties.
2. Art 1308's purpose is to render void a contract containing a condition which makes its fulfillment based solely
on the exclusive uncontrolled will of one of the contracting parties.
3. The stipulation in the contract merely gives the vendor, Legarda, Inc. the right to declare the contract
cancelled.
RULING
4. A contract expressly giving to one part, the right to cancel the same if a resolutory condition therein agreed
RULING upon is not fulfilled, is valid, the reason being that when the contract is thus cancelled, the agreement of the
parties is in reality being fulfilled.
5. 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. And in this case, after the maturity of any particular
installment and its non-payment, the contract gave him not only a month grace but an additional period of 90
days.
6. The appeled judgment is declared in accordance with law and is hereby affirmed.

1. Obligations arising from contracts have the force of law between the contracting parties and there must be a
DOCTRIN mutuality between them based on their essenital equality to which is repugnant to have one party bound by the
E contract leaving the other free therefrom.
2. Stipulations allowing a party to rescind the contract do not militate against the mutuality of contracts.
 TITLE PHIL. NATL BANK v CA and AMBROSIO PADILLA
CASE 7 CAUSE OF Action instituted by Padilla praying for the reversal of the decision of the RTC which dismissed his complaint to
ACTION "annul interest increases"

1. Padilla applied for and was granted by PNB a credit line of about 300M, secured by a REM, for a term of 2
years with 18% per annum interest.
2. Padilla executed in favor of PNB a Credit Agreement, two PNs in the amount of 900k each, and a REM
Contract.
3. The PNs, uniformly authorized by PNB to increase the stipulated 18% per annum "within the limits allowed
by law at any time depending on whatever policy PNB may adopt in the future; provided that the interest rte
on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board.
4. The REM likewise provided that "The rate of interest charged on the obligation secured shall be subject
during the life of this contract to such an increaes within the rate allowed by law.
SOURCE OF
FACTS 5. After the lapse of 2 years, PNB informed Padilla that his credit line will soon expire and if he intended to
ISSUE
renew such for another year, the present policy of the Bank requires at least 30% reduction of principal before
the line can be renewed. Padilla complied with the requested amount of reduction as asked for by PNB for the
renewal of another 2 years under the same agreement AND that there be an increase of the interest rate of
mortgage loan from 18% to 21%.
6. PNB, over the objection of Padilla, and without authority from the Monetary Board, within a period of 4
months, increased the 18% interest rate on Padilla's loan obligation three times which was already at 48%.
7. This led to Padilla's institution of an action praying that the unilateral increases of interest rates be declared
not valid and binding.
8. The trial court rendered a judgment dismissing the complaint because the rates were properly made. Such
decision was reveresed by the CA, hence the present review instituted by PNB.

W/N PNB may unilaterally change or increase the interest rate stipulated therein at will and as often as it
ISSUE ISSUE
pleased
Art 1308
LAW The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them.

NO.
1.It violated the mutuality of contracts ordained in Art 1308 of the CC.
2.In order that obligations arising from contracts may have the force of law between the parties, there must be
a mutuality between them based on their essential equality.
3.A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties is void.
4. Even assuming that the agreement between the herein parties gave PNB the license (although in fact there
was none) to increase the interest rate at will during the term of the loan is violative of the mutuality essential
in contracts. 5. 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 (debtor) participation being reduced to the
alternative "to take it or to leave it".
RULING 6. Further, PD 116 authorizes the Monetary Board to prescribe the maximum rate/s of interest for loans or
RULING
renewals thereof and to change such rate whenever warranted by prevailing economic and social conditions, it
expressly provides that "such changes shall not be made oftenser that once every twelve months.
7. Those increases were null and void, for if the Monetary Board itself was not authorized to make such
changes oftener than once a year, even less so may a bank which is subordinate to the Board.
8. While Padilla did agree in the Deed of the REM that the interest rate may be increased during the life of the
contract "to such increase within the rate allowed by law" or "within the limits allowed by law", no law was
ever passed increasing the interest rates on loans or renewals thereof up to 48%, and no documents were
executed and delivered by the debtor, Padilla, to effectuate the increase.
9. The Board Resolutions relied to by the Bank providing the increased interest rates, although have the effect
of law, are not laws nor resolutions of the Monetary Board.
10. In sum, Padilla never agreed in writing to pay the interest increases fixed by PNB beyond the interest
agreed upon, hence, he is not bound to pay a higher rate than that.

A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will
DOCTRINE
of one of the contracting parties is void.
 TITLE UY TAM and UY YET v THOMAS LEONARD, et al
CASE 8 CAUSE OF This is an action by a 3rd person upon a bond executed between the individual defendants as obligors and the
ACTION City of Manila as obligee.
1. The bond was executed in connection with and to secure the performance of a contract entered into by Hosty
and Brown, the principals of the bond, for furnishing crushed rock to the the City of Manila for one year.
2 The contractual bond read as follows:
"Know all men by these presents, that we, Hosty and Brown, of the City of Manial and Thomas Leonard, all of the
city of Manila, as sureties are held and bound unto the City of Manila in the penal sum of 28,500P, to the
payment of which sum well and trully to be made, we bind ourselves, our heirs, executors, and administrators, in
the amount for which each has severally qualified as shown in the several affidavits hereto attached.
SOURCE 3. The condition of this obligation is such, that whereas the above Hosty and Brown entered into a contract with
 
OF ISSUE the City of Manila, represented by the Municipal Board, for furnishing crushed rock for a period of one year.
4. Uy Tam and Uy Yet furnished the contractors with certain materials for use in the performance of said
contract, having previously notified Leonard of the acceptance of the conditions of the bond relating to laborers
and material-men. The city of Manila refused to any intention to favor material-men and laborers.
5. The plaintiff claims that the clause referring to the materialmen, etc., is a stipulation pour autrui.

ISSUE ISSUE W/N the plaintiff is conditioned payment for all lanor and material, construed as stipulation
Art 1311 (1)
Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of
law. The heir is not liable beyond the value of the property he received from the defendant.
RULING LAW
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deiliberatey conferred a favor upon a third
person.
1.Under the 1st par of this article, the cardinal ruleof contract is laid that only parties thereto and their privies
acquire rights and assume obligations thereunder; while the 2nd par permits a 3rd person to avail himself of the
benefit extended to him by its term.
2. The 2nd par corresponds almost always to the juridical conception of a gift, it being necessary in such case to
apply the rules relating to gifts in so far as the form of acceptance is concerned. This is true where the stipulation
is for the sole benefit of the 3rd person.
3. But where, for instance, a transfer of property is coupled with the purchaser's promise to pay debt owing from
the seller to a 3rd person, it can scarecely be said that the stipulation is in the nature of a gift, and yet such
stipulation is in favor of a third person.
4. So, stipulations in favor of a 3rd person may be divided into 2 classes:
a. those where the stipulation is intended for the sole benefit of such person, and
  RULING b. those where an obligation is due fro the promisee to the 3rd person which the former seeks to discharge by
means of such stipulation.
5. The person who has made the stipulation cannot revoke it if the 3rd party has declared that the wished to take
advantage of it. Further, the general rule is that contracts do not affect 3rd parties but there are exceptions to
such.
6. One exception is the stipulation pour atrui. In such, there must exist on the part of the original parties to the
contract a clear intent to benefit the 3rd party.
7. Here, the clause in a contractor's bond reading solely to a municipality an conditioned to pay for all labor and
material cannot be construed as a stipulation pour atrui available to materialmen.
8. The absence of apt words describing the materialmen as obligees on the bond negatives a clear intent of the
parties to stipulate in their favor.To hold that the parties intended to make the materialmen obligees in the bond
involves a disregard for its actual language.

9. To reach to such a conclusion, it is necessary to surmount 2 rules of construction peculiarly applicable to the
instrument:
a. a stipulation pour autrui must be clear and express;
b. a contract of surety is not to be presumed and must be express.
    10. If these be disposed of, it then becomes necessary to insert actual words in the bond, naming the
materialmen, etc., as obligees, and giving them the right to sue thereon in the judicial district of Manila, and the
conclusion must finally be reached that the sureties and the city officials are not acting in collusion that there
was an intention to confer the benefit of the bond upon the materialmen.
11. Costs against Uy Yet and Uy Tem."

  DOCTRINE Stipulations pour autrui, to be effective and binding upon the parties, must be made clearly and deliberately.
CASE 9 TITLE MELECIO COQUIA, MARIA EPANUEVA and MANILA YELLOW TAXICAB CO., v FIELDMEN'S INSURANCE CO.

1. Fieldmen Insurance issued, in favor of Manila Yellow Taxicab, a common carrier accident insurance policy. It
was stipulated in said policy that the insurance company is to indemnofy the herein insursed of sums which the
insured will become legally liable to pay in respect of: death or bodily injusty to any fare-paying passenger,
including the driver, conductor, and/or inspector who is riding in the vehiclee insured at the time of the accident
or injury.
2. While the policy was in force, a taxicab of the insured, driven by Carlito Coquia, son of herein petitioners, met a
vehicular accident which led to his death.
SOURCE 3.The Insured filed a claim to which Fieldmen Insurance replied with a counter-offer. Such was again counter-
FACTS
OF ISSUE offered by the Insured but Fieldmen did not accept such. henc, the parents of the deceased, herein petitioners,
filed against Fieldmen to collect the proceeds of the policy.
4. In its answer, Fieldmen admitted the existence of the policy bu t pleaded lack of cause of action on the part of
the plaintiffs. Hence the present appeal by Fieldmen which contends that the plaintiffs have no cause of action
because they did not have any contractual relation with the Company.

ISSUE ISSUE W/N the subject policy belong to the class of contracts pour atrui
Art 1311 (2)
If a contract should contain sime stipulationin favor of a third person, he may demand its fulfillment provided he
LAW communciated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third
person.

YES.
1. Although in general, only the parties to a contract may bring an action based thereon, this rule is subject to
exceptions, one of which is found in the 2nd par of Art 1311.
2. This article is but a restatement of a well-known principle concrning contracts pour atrui, the enforcement of
which may be demanded by a third person whise benefit it was made, although not a aprty ti tge contract, before
RULING the stipulation in his favor has been revoked by the contracting parties.
3. Pursuant to the stipulations in the policy, Fieldmen will indemnify any authorized driver who is driving the
RULING
motor vehicle of the incures and, in the event of deat of said driver, Fieldmen shall likewise, "indemnify his
personal representatives." In fact, the heris of claimants, it being the true intention of the policy to protect the
liabilities of the insured towards third persons.
4. Thus, the policy is a typical contracts pour atrui., this character being manifest by the fact that the deceased
driver paid 50% of the corresponding premiums, which were deducted from his weekly commisions.
5. Under these conditions, it is clear that the Coquias, parents of the deceased, have direct cause of action against
Fieldmen.

DOCTRIN Stipulation pour atrui, conferring benefit to a 3rd person not party to the contract, is an exception to the general
E rule that 3rd persons are not affected by contracts where they are not party thereto.