HO 22 - Civil Law - Obligations and Contracts PDF

2024 BAR REVIEW CIVIL LAW
Handout No. 22
OBLIGATIONS & CONTRACTS
OBLIGATIONS
In determining the divisibility of an obligation, the following factors may be considered: (1) the
will or intention of the parties, which may be expressed or presumed; (2) the objective or
purpose of the stipulated prestation; (3) the nature of the thing; and (4) provisions of law
affecting the prestation.
Here, the controlling factor is the intention of the parties as reflected in the MOA and the
om
Amendment. Though the MOA and Amendment involved numerous properties that EGI
undertook to transfer in favor of UCPB, it is clear that the parties intended for all the 485 listed
properties to be transferred in exchange for the total extinguishment of EGI’s loan obligation in
.c
ma EV
the amount of P915,838,822.50. The MOA and Amendment did not indicate that the parties
intended that their corresponding obligations or prestations are susceptible of partial
performance. Thus, the obligation to transfer the listed properties in favor of UCPB is an
il
@g -R
indivisible obligation. United Coconut Planters Bank, Inc. vs. E. Ganzon, Inc., G.R. No. 244247,
November 10, 2021
jr 47
In any case, the 1997 financial crisis that ensued in Asia did not constitute a valid justification
to renege on one’s obligations and it is not among the fortuitous events contemplated under
an 01
Article 1174 of the New Civil Code.
Petitioners’ plea to be absolved of liability on account of the Asian financial crisis in 1997,
ld 4-
deserves scant consideration. Upon the petitioners rest the burden of proving that its financial
distress which it claim to have suffered was the proximate cause of its inability to comply with its
obligations. The loan agreement was entered into on November 19, 1997, or well after the start
r o 02
of the Asian economic crisis. Petitioners ought to be aware of the economic environment at that
time, yet it chose to contract said obligations from LBP. It was a business judgment that entailed
certain risks. In any case, the 1997 financial crisis that ensued in Asia did not constitute a valid
2
justification to renege on one’s obligations and it is not among the fortuitous events
contemplated under Article 1174 of the New Civil Code. Duty Paid Import Co., Inc. vs. Land Bank
of the Philippines, 927 SCRA 574, G.R. No. 238258 December 10, 2019
mr
In positive obligations, like an obligation to give, the obligor or debtor incurs in delay from the
time the obligee or creditor demands from him the fulfillment of the obligation.
Default or mora, which is a kind of voluntary breach of an obligation, signifies the idea of delay
in the fulfillment of an obligation with respect to time. In positive obligations, like an obligation
to give, the obligor or debtor incurs in delay from the time the obligee or creditor demands from
him the fulfillment of the obligation. Demand may be judicial — if the creditor files a complaint
against the debtor for the fulfillment of the obligation — or extrajudicial — if the creditor
Legal Edge Bar Review 0942 – 949 91 76

legaledge8@gmail.com
0917 – 894 53 56
Page 1 of 56
Handout No. 22
demands from the debtor the fulfillment of the obligation either orally or in writing. Whether the
demand is judicial or extrajudicial, if the obligor or debtor fails to fulfill or perform his obligations,
like payment of a loan, as in this case, he is in mora solvendi, and, thus, liable for damages. Pineda
vs. Zuñiga Vda. de Vega, 901 SCRA 545, G.R. No. 233774 April 10, 2019
om
While delay on the part of respondent was not triggered by an extrajudicial demand because
petitioner had failed to so establish receipt of her demand letter, this delay was triggered when
.c
ma EV
petitioner judicially demanded the payment of respondent’s loan from petitioner.
While delay on the part of respondent was not triggered by an extrajudicial demand because
il
@g -R
petitioner had failed to so establish receipt of her demand letter, this delay was triggered when
petitioner judicially demanded the payment of respondent’s loan from petitioner. While the CA
was correct in observing that default generally begins from the moment the creditor demands
jr 47
the performance of the obligation, and without such demand, judicial or extrajudicial, the effects
of default will not arise, it failed to acknowledge that when petitioner filed her complaint dated
June 10, 2005, such filing constituted the judicial demand upon respondent to pay the latter’s
an 01
principal obligation and the interest thereon. Respondent, having thus incurred in delay of the
complaint), is liable for damages pursuant to Article 1170 of the Civil Code. Pineda vs. Zuñiga
Vda. de Vega, 901 SCRA 545, G.R. No. 233774 April 10, 2019
ld 4-
Under Article 1170 of the New Civil Code, those who in the performance of their obligations are
r o 02
guilty of fraud are liable for damages.
Under Article 1170 of the New Civil Code, those who in the performance of their obligations are
2
guilty of fraud are liable for damages. The fraud referred to in this Article is the deliberate and
intentional evasion of the normal fulfillment of obligation. Clearly, this provision is applicable in
the case at bar. It is beyond quibble that Wincorp foisted insidious machinations upon Ng Wee
in order to inveigle the latter into investing a significant amount of his wealth into a mere empty
shell of a corporation. And instead of guarding the investments of its clients, Wincorp executed
mr
Side Agreements that virtually exonerated Power Merge of liability to them; Side Agreements
that the investors could not have been aware of, let alone authorize. Virata vs. Ng Wee, 830
SCRA 271, G.R. No. 220926, G.R. No. 221058, G.R. No. 221109, G.R. No. 221135, G.R. No. 221218
July 5, 2017

0917 – 894 53 56
Page 2 of 56
Handout No. 22
Under Article 1173 of the Civil Code, where it is not stipulated in the law or the contract, the
diligence required to comply with one’s obligations is commonly referred to as paterfamilias;
or, more specifically, as bonos paterfamilias or “a good father of a family.”
Negligence is the absence of reasonable care and caution that an ordinarily prudent person
would have used in a given situation. Under Article 1173 of the Civil Code, where it is not
stipulated in the law or the contract, the diligence required to comply with one’s obligations is
commonly referred to as paterfamilias; or, more specifically, as bonos paterfamilias or “a good
om
father of a family.” A good father of a family means a person of ordinary or average diligence. To
determine the prudence and diligence that must be required of all persons, we must use as basis
the abstract average standard corresponding to a normal orderly person. Anyone who uses
.c
ma EV
diligence below this standard is guilty of negligence. Philippine Steel Coating Corp. vs. Quiñones,
823 SCRA 629, G.R. No. 194533 April 19, 2017
il
@g -R
The rate of interest should be modified. When the obligation is breached, and it consists in the
payment of a sum of money, as in this case, the interest due should be that which may have
jr 47
been stipulated in writing. In the absence of stipulation, the rate of interest shall be twelve
percent (12%), later reduced to six percent (6%) per annum to be computed from default, i.e.,
from judicial or extrajudicial demand, subject to the provisions of Article 1169 of the Civil Code.
an 01
The rate of interest should be modified. When the obligation is breached, and it consists in the
payment of a sum of money, as in this case, the interest due should be that which may have been
ld 4-
stipulated in writing. In the absence of stipulation, the rate of interest shall be 12%, later reduced
to 6%, per annum to be computed from default, i.e., from judicial or extrajudicial demand,
subject to the provisions of Article 1169 of the Civil Code. Here, the records would show that
r o 02
Young Builders made the demand on September 11, 2001. Also, the rate of legal interest for a
judgment awarding a sum of money shall be 6% per annum from the time such judgment
becomes final and executory until its satisfaction, this interim period being deemed to be by then
2
an equivalent to a forbearance of credit. Kabisig Real Wealth Dev., Inc. vs. Young Builders
Corporation, 816 SCRA 30, G.R. No. 212375 January 25, 2017
Substantial breaches of contract are fundamental violations as would defeat the very object of
mr
the parties in making the agreement. The happening of a resolutory condition is a substantial
breach that may give either party thereto the option to bring an action to rescind the contract
and/or seek damages.
Article 1191 of the Civil Code provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

0917 – 894 53 56
Page 3 of 56
Handout No. 22
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period. XXX Dioscoro Poliño Bacala, Substitute Judicial
om
Guardian of Incompetent Aquilino O. Poliño vs. Heirs of Spouses Juan Poliño and
Corazon Rom, G.R. No. 200608, February 10, 2021
.c
ma EV
As a general rule, the power to rescind an obligation must be invoked judicially and cannot be
exercised solely on a party’s own judgment that the other has committed a breach of the
il
@g -R
obligation. As an exception, an injured party need not resort to court action in order to rescind
a contract when the contract itself provides that it may be revoked or cancelled upon violation
of its terms and conditions.
jr 47
The exception appears to hold in this case, as the Agreement clearly directed as follows: “That
the parties to this Agreement likewise agree and stipulate that they will abide with the terms and
an 01
conditions therein set forth and that in case of breach thereof then the Deed of Sale shall be
rendered non-effective and nugatory.” Dioscoro Poliño Bacala, Substitute Judicial Guardian of
Incompetent Aquilino O. Poliño vs. Heirs of Spouses Juan Poliño and Corazon Rom, namely:
ld 4-
Ruben R. Poliño, Brendo R. Poliño, Carlito R. Poliño, and Bandy R. Poliño, represented by Ruben
R. Poliño, G.R. No. 200608, February 10, 2021
r o 02
A “potestative condition” is a condition the fulfillment of which depends exclusively upon the
will of the debtor, in which case, the conditional obligation is void. Case law distinguishes
2
between a potestative condition imposed on the birth of the obligation and a potestative
condition imposed on the obligation’s fulfillment. In the latter scenario, only the condition is
voided, leaving unaffected the obligation itself.
The tenth clause of the Second MOA, reads: “The FIRST PARTY hereby undertakes to exert best
mr
effort to fully pay its obligation.” The RTC ruled that the phrase “to exert best effort to fully pay
its obligation” is a potestative condition, which is void under Article 1308 of the New Civil Code
since the reimbursement of the plaintiffs’ investment was left to the will of OJDTC and Oscar.
OJDTC and Oscar maintained the same argument. We reject their contention. A “potestative
condition” is a condition the fulfillment of which depends exclusively upon the will of the debtor,
in which case, the conditional obligation is void. Case law distinguishes between a potestative
condition imposed on the birth of the obligation and a potestative condition imposed on the
obligation’s fulfillment. In the latter scenario, only the condition is voided, leaving unaffected the

0917 – 894 53 56
Page 4 of 56
Handout No. 22
obligation itself. Roberto L. Yupangco and Regina y De Ocampo Vs. O.J. Development and
Trading Corporation, Oscar Jesena and Marioca Realty, Inc., G.R. No. 242074, November 10,
2021; Gemudiano, Jr. vs. Naess Shipping Philippines, Inc., G.R. No. 223825, January 20, 2020;
Romero vs. Court of Appeals, 320 Phil. 269 (1995)
Only the condition providing for payment on a “best effort” basis is treated as void, the
om
obligation to return petitioners’ money is unaffected. Simply put, the obligation of OJDTC and
Oscar to pay petitioners is considered as unconditional.
.c
ma EV
In this case, the condition found in the Second MOA, that is, the full payment of the obligation
through the best efforts of OJDTC and Oscar is a pure potestative condition, dependent on the
sole will or discretion of OJDTC and Oscar. However, the said condition is imposed not on the
il
@g -R
inception or birth of the contract/obligation as the Second MOA was already perfected and even
partially executed (OJDTC and Oscar provided for partial payment in the same document).
Rather, the condition is imposed on the performance or fulfillment of OJDTC and Oscar’s
jr 47
obligation to reimburse or pay their outstanding obligation with petitioner. Hence, conformably
with jurisprudence, only the condition providing for payment on a “best effort” basis is treated
as void, the obligation to return petitioners’ money is unaffected. Simply put, the obligation of
an 01
OJDTC and Oscar to pay petitioners is considered as unconditional. Roberto L. Yupangco and
Regina y De Ocampo vs. O.J. Development and Trading Corporation, Oscar Jesena and Marioca
Realty, Inc., G.R. No. 242074, November 10, 2021; Gemudiano, Jr. vs. Naess Shipping
ld 4-
Philippines, Inc., G.R. No. 223825, January 20, 2020

r o 02
A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater

liability on the part of an obligor in case of breach of an obligation. It functions to strengthen
the coercive force of the obligation and to provide, in effect for what could be the liquidated
2
damages resulting from such a breach. The obligor would then be bound to pay the stipulated
indemnity without the necessity of proof on the existence and on the measure of damages
caused by the breach.
Although a court is not at liberty to ignore the freedom of the parties to agree on such terms and
mr
conditions as they see fit that contravene neither law nor morals, good customs, public order or
public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is
iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied
with. In exercising this power to determine what is iniquitous and unconscionable, courts must
consider the circumstances of each case since what may be iniquitous and unconscionable in one
may be totally just and equitable in another. PNTC Colleges, Inc. vs. Time Realty, Inc., G.R. No.
219698, September 27, 2021

0917 – 894 53 56
Page 5 of 56
Handout No. 22
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other.
This provision refers to rescission applicable to reciprocal obligations. It is invoked when there is
noncompliance by one (1) of the contracting parties in case of reciprocal obligations. “Reciprocal
om
obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously such that the performance of one is conditioned
.c
ma EV
upon the simultaneous fulfillment of the other.” Camp John Hay Development Corporation vs.
Charter Chemical and Coating Corporation, 912 SCRA 360, G.R. No. 198849 August 7, 2019
il
@g -R
Rescission under Article 1191 will be ordered when a party to a contract fails to comply with his
or her obligation.
jr 47
Rescission under Article 1191 will be ordered when a party to a contract fails to comply with his
or her obligation. Rescission “is a principal action that is immediately available to the party at the
an 01
time that the reciprocal [obligation] was breached.” Camp John Hay Development Corporation
vs. Charter Chemical and Coating Corporation, 912 SCRA 360, G.R. No. 198849 August 7, 2019
ld 4-
Resolution grants the injured party the option to pursue, as principal actions, either a rescission
or specific performance of the obligation, with payment of damages in either case.
r o 02
“Resolution grants the injured party the option to pursue, as principal actions, either a rescission
or specific performance of the obligation, with payment of damages in either case.” Rescission
2
of the contract is sanctioned here. Under the contract, petitioner and respondent have reciprocal
obligations. Respondent, for its part, was bound to render painting services for petitioner’s
property. This was completed by respondent in 2003, after which it was belatedly issued a
clearance in 2005. Meanwhile, in accordance with the Contractor’s Agreement, petitioner paid
part of the contract price with the remaining balance to be paid through offsetting of two (2)
mr
Camp John Hay Suites units. However, despite incessant demands from respondent, petitioner
failed to deliver these units because their construction had yet to be completed. The law, then,
gives respondent the right to seek rescission because petitioner could not comply with what is
incumbent upon it. Petitioner, however, claims that the fixing of the period under Article 1197 is
the proper remedy, not rescission under Article 1191. Camp John Hay Development Corporation
vs. Charter Chemical and Coating Corporation, 912 SCRA 360, G.R. No. 198849 August 7, 2019

0917 – 894 53 56
Page 6 of 56
Handout No. 22
Article 1197 applies “when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended.”
Article 1197 applies “when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended[.]” This provision allows the courts
to fix the duration “because the fulfillment of the obligation itself cannot be demanded until after
the court has fixed the period for compliance therewith and such period has arrived.” Camp John
Hay Development Corporation vs. Charter Chemical and Coating Corporation, 912 SCRA 360,
om
G.R. No. 198849 August 7, 2019
.c
ma EV
The discretion to fix an obligation’s period is addressed to the Supreme Court’s (SC’s) judgment
and is tempered by equitable considerations.
il
@g -R
The power of this Court to fix a period is discretionary. The surrounding facts of each case must
be taken into consideration in deciding whether the fixing of a period is sanctioned. The
discretion to fix an obligation’s period is addressed to this Court’s judgment and is tempered by
jr 47
equitable considerations. In Central Philippine University v. Court of Appeals, 246 SCRA 511
(1995), this Court refused to fix a period because of the years that had already been allowed for
the party to comply with the condition of the obligation. Doing so, it held, would be a mere
an 01
technicality and formality, and would only cause further delay. Camp John Hay Development
Corporation vs. Charter Chemical and Coating Corporation, 912 SCRA 360, G.R. No. 198849
August 7, 2019
ld 4-
When the obligor cannot comply with its obligation, the obligee may exercise its right to rescind
r o 02
the obligation, and the Supreme Court (SC) will order the rescission in the absence of any just
cause to fix the period.
2
To tolerate petitioner’s excuses would only cause more delay and burden to respondent.
Petitioner failed to forward any just cause to convince this Court to set a period. It merely
reasoned force majeure and mutual delays with Bases Conversion and Development Authority
without offering any explanation for its alleged difficulty in building the units. To belatedly fix the
period for petitioner’s compliance would mean refusing immediate payment to respondent.
mr
Petitioner’s noncompliance with its obligation to deliver the two (2) units as payment to
respondent can no longer be excused. The law and jurisprudence are clear. When the obligor
cannot comply with its obligation, the obligee may exercise its right to rescind the obligation, and
this Court will order the rescission in the absence of any just cause to fix the period. Here, lacking
any reasonable explanation and just cause for the fixing of the period for petitioner’s
noncompliance, the rescission of the obligation is justified. Camp John Hay Development
August 7, 2019

0917 – 894 53 56
Page 7 of 56
Handout No. 22
Mutual restitution is required in cases involving rescission under Article 1191. “Where a
contract is rescinded, it is the duty of the court to require both parties to surrender that which
they have respectively received and to place each other as far as practicable in his original
situation; the rescission has the effect of abrogating the contract in all parts.”
Rescission of the obligation under Article 1191 is a declaration that a contract is void at its
om
inception. Its effect is to restore the parties to their original position, insofar as practicable. Fong
v. Dueñas, 757 SCRA 412 (2015), is illustrative: Rescission has the effect of “unmaking a contract,
or its undoing from the beginning, and not merely its termination.” Hence, rescission creates the
.c
ma EV
obligation to return the object of the contract It can be carried out only when the one who
demands rescission can return whatever he may be obliged to restore. To rescind is to declare a
contract void at its inception and to put an end to it as though it never was. It is not merely to
il
@g -R
terminate it and release the parties from further obligations to each other, but to abrogate it
from the beginning and restore the parties to their relative positions as if no contract has been
made. Mutual restitution is required in cases involving rescission under Article 1191. “Where a
jr 47
contract is rescinded, it is the duty of the court to require both parties to surrender that which
they have respectively received and to place each other as far as practicable in his original
situation[;] the rescission has the effect of abrogating the contract in all parts.” Camp John Hay
an 01
Development Corporation vs. Charter Chemical and Coating Corporation, 912 SCRA 360, G.R.
No. 198849 August 7, 2019
ld 4-
What mutual rescission entails is “the return of the benefits that each party may have received
as a result of the contract.”
r o 02
Although rescission repeals the contract from its inception, it does not disregard all the
consequences that the contract has created. What mutual rescission entails is “the return of the
2
benefits that each party may have received as a result of the contract.” Here, it is clear that only
petitioner benefited from the contract. Respondent has already performed the painting works in
2003, and it was accepted by petitioner as satisfactory. Since this service cannot be undone and
petitioner has already enjoyed the value of the painting services over the years, respondent is
entitled to the payment of the painting services with interest in accordance with Articles 1191
mr
and 2210 of the Civil Code. The interest shall be computed from the date of extrajudicial demand
by respondent on August 3, 2007 in accordance with Article 1169 of the Civil Code and this Court’s
ruling in Nacar v. Gallery Frames, 703 SCRA 439 (2013). Camp John Hay Development
August 7, 2019

0917 – 894 53 56
Page 8 of 56
Handout No. 22
An obligation dependent upon a suspensive condition cannot be demanded until after the
condition takes place because it is only after the fulfillment of the condition that the obligation
arises.
Respondent-spouses’ obligation to pay the balance of the purchase price arises only when the
court’s approval of the sale of the minor owners’ shares shall have been successfully secured, in
accordance with Article 1181 of the New Civil Code. Judicial approval is a condition the operative
om
act of which sets into motion the period of compliance by respondent-spouses of their own
obligation, i.e., to pay the balance of the purchase price. Accordingly, an obligation dependent
upon a suspensive condition cannot be demanded until after the condition takes place because
.c
ma EV
it is only after the fulfillment of the condition that the obligation arises. Petitioner cannot invoke
the nonfulfillment of the condition in the contract to sell when she and her then co-owners
themselves are guilty of preventing the fulfillment of such condition. When it has become evident
il
@g -R
that the condition would no longer be fulfilled, it was incumbent upon petitioner to inform
respondent--spouses of such circumstance because the choice whether to waive the condition
or continue with the agreement clearly belongs to the latter. Petitioner’s claim that respondent-
jr 47
spouses should have known that the condition would no longer be necessary because the latter
knew that the minor owners had already reached the age of majority and that they should have
been more proactive in following up the status of the contract to sell, deserves scant
an 01
consideration. While petitioner may have been right in the aforementioned instances, the same
will not negate her obligation to inform respondent-spouses of the nonfulfillment of the
condition especially in view of the fact that it was her fault that the condition became irrelevant
ld 4-
and unnecessary. Villamil vs. Erguiza, 867 SCRA 125, G.R. No. 195999 June 20, 2018
r o 02
Under Article 1207 of the Civil Code, there is solidary liability when “the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.”
2
Solidary liability under Philippine law is not to be inferred lightly but must be clearly expressed.
Under Article 1207 of the Civil Code, there is solidary liability when “the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.” The Compromise
Agreement provided: 25. Affiliates and Successors. This Agreement and the rights, obligations,
and covenants contained herein shall inure to the benefit of and be binding upon The Plaintiffs
mr
and Settling Defendants and their respective subsidiaries, affiliates, controlled and related
entities, successors, and assigns. Clearly, the Compromise Agreement did not impose solidary
liability on the parties’ subsidiaries, affiliates, controlled, and related entities, successors, and
assigns but merely allowed them to benefit from its effects. Thus, respondent Judge Omelio
gravely abused his discretion in holding that the petitioners’ subsidiaries and affiliates were
solidarily liable under the Compromise Agreement. Chiquita Brands, Inc. vs. Omelio, 826 SCRA
223, G.R. No. 189102 June 7, 2017

0917 – 894 53 56
Page 9 of 56
Handout No. 22
As defined in Article 1208, a joint obligation is one where there is a concurrence of several
creditors, or of several debtors, or of several creditors and debtors, by virtue of which each of
the creditors has a right to demand, and each of the debtors is bound to render compliance
with his proportionate part of the prestation which constitutes the object of the obligation.
As defined in Article 1208, a joint obligation is one where there is a concurrence of several
creditors, or of several debtors, or of several creditors and debtors, by virtue of which each of
the creditors has a right to demand, and each of the debtors is bound to render compliance with
om
his proportionate part of the prestation which constitutes the object of the obligation. Each
debtor answers only for a part of the whole liability and to each obligee belongs only a part of
the correlative rights as it is only in solidary obligations that payment made to any one of the
.c
ma EV
solidary creditors extinguishes the entire obligation. This means that Francisco, Ma. Consuelo
and Consuelo are each entitled to equal shares in the P3,000,000 agreed upon in the Amended
Compromise Agreement and that payment to Consuelo and Ma. Consuelo will not have the effect
il
@g -R
of discharging the obligation with respect to Francisco. Ibañez vs. Harper, 817 SCRA 565, G.R.
No. 194272 February 15, 2017
jr 47
Article 1186 of the Civil Code is categorical that a “condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfilment.”
an 01
We uphold the Court of Appeals’ finding that the failure to execute the share purchase
agreement was brought about by NDC’s delay in reviewing the financial accounts submitted by
ld 4-
Galleon’s stockholders. The Memorandum of Agreement was executed on August 10, 1981,
giving the parties no more than sixty days or up to October 9, 1981, to prepare and sign the share
purchase agreement. However, it was only on April 26, 1982, or more than eight months after
r o 02
the Memorandum of Agreement was signed, did NDC’s General Director submit his
recommendation on Galleon’s outstanding account. Even then, there was no clear intention to
execute a share purchase agreement as compliance with the Memorandum of Agreement. Article
2
1186 of the Civil Code is categorical that a “condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment.” Considering NDC’s delay, the execution of the share purchase
agreement should be considered fulfilled with NDC as the new owner of 100% of Galleon’s shares
of stocks. Development Bank of the Philippines vs. Sta. Ines Melale Forest Products Corporation,
816 SCRA 425, G.R. No. 193068, G.R. No. 193099 February 1, 2017
mr
Article 1198(4) of the Civil Code, which states that the debtor loses the right to make use of the
period when a condition is violated, making the obligation immediately demandable.
The due execution of the share purchase agreement is further bolstered by Article 1198(4) of the
Civil Code, which states that the debtor loses the right to make use of the period when a condition
is violated, making the obligation immediately demandable: Article 1198. The debtor shall lose

0917 – 894 53 56
Page 10 of 56
Handout No. 22
every right to make use of the period: (1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not
furnish to the creditor the guaranties or securities which he has promised; (3) When by his own
acts he has impaired said guaranties or securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4)
When the debtor violates any undertaking, in consideration of which the creditor agreed to the
period; (5) When the debtor attempts to abscond. Development Bank of the Philippines vs. Sta.
Ines Melale Forest Products Corporation, 816 SCRA 425, G.R. No. 193068, G.R. No. 193099
om
February 1, 2017
.c
ma EV
Compensation is a mode of extinguishing obligations of two persons who, in their own right,
are creditors and debtors of each other. Legal compensation requires the concurrence of several
conditions: (1) each one of the obligors is bound principally and a principal creditor of the other;
il
@g -R
(2) both debts consist in a sum of money, or if the things due are consumable, they are of the
same kind, and also of the same quality if the latter has been stated; (3) the two debts are due;
(4) the debts are liquidated and demandable; and (5) over neither of them is there any retention
jr 47
or controversy, commenced by third persons and communicated in due time to the debtor. A
debt is considered LIQUIDATED when the amount and time of payment is fixed, and its exact
amount is known. The exact amount of the debt may be expressed already in definite figures
an 01
or determinable through a simple arithmetical operation. Compensation cannot extend to

unliquidated, disputed claims arising from breach of contract. Meanwhile, a debt is
DEMANDABLE when it is enforceable in court, there being no apparent defenses inherent in it.
ld 4-
For instance, debts which are subject to suspensive conditions or those barred by prescription
are not considered demandable.
r o 02
In this case, Dolmar’s claim is neither liquidated nor demandable because, first, it is disputed by
Linear. From the parties’ early correspondence all the way to this Court, Linear has consistently
maintained that it has no liability for the amount being demanded by Dolmar. That Dolmar had
2
to present several witnesses to establish the alleged defects highlights the contentious nature of
its claim. Second, the amount of Php 6,379,935.00 was self-determined by Dolmar and not
binding on Linear. This amount was based solely on cost estimates prepared by R.S. Caparros for
Dolmar, and not on actual expenses incurred. The claimed amount is not supported by receipts
or other evidence of expense. The cash vouchers presented in evidence merely reflect an amount
mr
of over Php 700,000.00 supposedly paid by Dolmar to Mr. Elpidio D. Agapito. Even then, it has
yet to be conclusively established whether these payments pertain to the allegedly defective
works of Linear, and whether Linear should reimburse these amounts. Linear asserts apparent
defenses inherent in Dolmar’s claim, that it has completed the Marilao Project, and the period to
question defects in the construction has already prescribed. These defenses, if proved, would bar
recovery by Dolmar. Moreover, since the vouchers only evince payments of around Php
700,000.00, the records do not show that Dolmar has already spent Php 6,379,935.00 at the time
it withheld the retention money. Hence, assuming that there was indeed a debt, the same was

0917 – 894 53 56
Page 11 of 56
Handout No. 22
not yet due. This negates the third requisite of legal compensation. Clearly, the amount of Php
6,379,935.00 is merely a claim and not a demandable debt that may be the subject of legal
compensation. Dolmar cannot take the law into its own hands and withhold the retention money
based on a unilateral declaration and determination of damages. Dolmar’s entitlement to and
the amount of recoverable rectification costs must be judicially ascertained and proved. Linear
Construction Corporation vs. Dolmar Property Ventures, Inc., G.R. No. 212327, November 17,
om
2021; Lao vs. Special Plans, Inc., G.R. No. 164791, June 29, 2010; Montemayor vs. Millora, 636
Phil. 28 (2011); Silahis Marketing Corp. vs. Intermediate Appellate Court, 259 Phil. 489 (1989)
.c
ma EV
When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a
judgment is rendered liquidating such claim, it can be compensated against the plaintiffs claim
il
@g -R
from the moment it is liquidated by judgment.
This is pursuant to the principle of judicial compensation, as articulated in Article 1283 of the Civil
jr 47
Code: “If one of the parties to a suit over an obligation has a claim for damages against the other,
the former may set it off by proving his right to said damages and the amount thereof.” While
legal compensation takes effect ipso jure upon the concurrence of all its requisites, judicial
an 01
compensation only takes place upon final judgment. Here, Dolmar pleaded the rectification costs
as a compulsory counterclaim. If We were to rule on Dolmar’s unliquidated claim, the same may
be liquidated by final judgment, and judicial compensation may ensue. However, several factors
ld 4-
proscribe Us from ruling on the merits of Dolmar’s claim. First, the main issue brought before Us
is the applicability of legal compensation, and not judicial compensation. Second, the claim for
rectification costs was merely pleaded by way of compulsory counterclaim in the context of the
r o 02
theorized legal compensation. Ruling on the merits of Dolmar’s claim, as an independent cause
of action, would be akin to resolving a permissive counterclaim; the Marilao Project is an entirely
different transaction from the Sta. Maria Project and gives rise to issues that are unrelated to
2
Linear’s principal claim. Doing so would ignore the varying procedural rules governing
compulsory vis-a-vis permissive counterclaims, including those on the requirements for an
initiatory pleading, payment of docket fees, necessity for an anscwer, and order of triaI. In fact,
several issues on the Marilao Project have yet to be fully threshed out due to the position of
Linear and the RTC that the Marilao Project is irrelevant to this case. Third, and of equal
mr
importance, to rule on Dolmar’s claim would be to validate or legalize Dolmar’s improper act of
unilaterally withholding the retention money. We have refused to countenance such
unwarranted shortcuts, as they amount to a mockery of Our judicial processes. Linear
Construction Corporation vs. Dolmar Property Ventures, Inc., G.R. No. 212327, November 17,
2021; Spouses Mendiola vs. Court of Appeals, 691 Phil. 244 (2012); Cruz-Agana vs. Santiago-
Lagman, 495 Phil. 188 (2005); Villanueva-Ong vs. Enrile, 821 Phil. 538 (2017); Philippine
National Bank vs. Court of Appeals, 328 Phil. 486 (1996)

0917 – 894 53 56
Page 12 of 56
Handout No. 22
CSTC’s indebtedness cannot be considered as due and liquidated.
There is no dispute that the Bank and CSTC are both creditors and debtors of each other.
Moreover, the debts consist in or involve a sum of money, particularly CSTC’s loan and its deposit
with the Bank. Notably, the Bank argues that CSTC’s debts became due given that it defaulted in
its loan obligations even without need of demand pursuant to the Promissory Note. Neither CSTC
nor Kho categorically refuted that CSTC indeed defaulted. XXX [T]he flaw in the Bank’s argument
is its failure to specify the date when CSTC actually defaulted in its obligation or particularly
om
pinpoint which installment it failed to pay. The Bank merely revealed that CSTC owed it the
amount of P3,823,000.00 without presenting a detailed computation or proof thereof except for
the Promissory Note. Although CSTC and Kho did not question the computation made by the
.c
ma EV
Bank, the fact remains that the actual date of default was not disclosed and verified with
corroborating preponderant proof.69 The Bank only stated that CSTC has not been paying its
monthly obligations prior to February 4, 2004 which is not particular enough, even if the
il
@g -R
Promissory Note indicates that CSTC’s obligation will immediately become due after default and
without need of notice. XXX In this case, the time of default and the amount due were not specific
and particular. Without this information, a simple arithmetic computation cannot possibly be
jr 47
done without risking errors especially with regard to the application of interest and penalties.
Similarly, despite CSTC’s failure to contest the Bank’s computation, its debt still cannot be
considered as liquidated. Further confirmation is necessary in order to treat CSTC’s debt as due,
an 01
demandable and liquidated, which the Bank unfortunately did not bother to elaborate on. Banco
De Oro Unibank, Inc. vs. Edgardo C. Ypil, Sr., G.R. No. 212024, October 12, 2020; Lao vs. Special
Plans, Inc., 636 Phil. 28,37 (2010)
ld 4-
Novation is a mode of extinguishing an obligation. The Civil Code provides that one of the ways
r o 02
to novate an obligation is by changing its object, cause, or principal conditions. A necessary

element of novation is the cancellation of the old obligation by the new one, which may be
effected expressly or impliedly. It is never presumed and must be proven as a fact.
2
There is an express novation if the new obligation unequivocally declares that it extinguishes or
substitutes the old obligation; on the other hand, there is an implied novation if the old and the
new obligations are on every point incompatible with each other. The test of incompatibility is
whether the two contracts can stand together, each one having an independent existence. “The
mr
incompatibility must take place in any of the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise, the change would be merely
modificatory in nature and insufficient to extinguish the original obligation.” Tony N. Chua,
Jimmy N. Chua, and Ernest T. Jeng vs. Secretary of Justice and BDO Unibank, Inc., G.R. No.
214960, June 15, 2022; Valdes vs. La Colina Development Corporation, G.R. No. 208140, July 12,
2021; Spouses Angeles vs. Traders Royal Bank, G.R. No. 235604, May 3, 2021; Asian
Construction and Development Corporation vs. MERO Structures, Inc., G.R. No. 221147,

0917 – 894 53 56
Page 13 of 56
Handout No. 22
September 29, 2021; CCC Insurance Corporation vs. Kawasaki Steel Corporation, 761 Phil. 1
(2015); Quinto vs. People, 365 Phil. 259 (1999)
Novation is one of the means to extinguish an obligation where a subsequent obligation
om
extinguishes or modifies the first.
It is a relative extinguishment whereby a new obligation is created in lieu of the old. But in order
.c
ma EV
that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other. Under Article 1291 of the Civil Code, novation is done by: (1)
il
@g -R
changing the object or principal conditions; (2) substituting the person of the debtor; or (3)
subrogating a third person in the rights of the creditor. Ma. Julieta B. Bendecio and Merlyn
Mascariñas vs. Virginia B. Bautista, G.R. No. 242087, December 7, 2021; Bank of the Philippine
jr 47
Islands vs. Domingo, 757 Phil. 23 (2015); De Cortes vs. Venturanza, 170 Phil. 55 (1977); Ever
Electrical Manufacturing, Inc. vs. Philippine Bank of Communications, 792 Phil. 311 (2016)
an 01
On the second type of novation, by substituting the person of the debtor, law and jurisprudence
recognize two forms: (1) expromision and (2) delegacion.
ld 4-
In expromision, the initiative for the change does not come from the debtor and may even be
made without his knowledge, since it consists in a third person assuming the obligation. As such,
r o 02
it only requires the consent of the third person and the creditor. In delegacion, the debtor offers
and the creditor accepts a third person who consents to the substitution and assumes the
obligation. Hence, the intervention and the consent of these three persons are necessary. But in
2
either mode of substitution, the consent of the creditor is indispensable. After all, substitution of
one debtor for another may delay or prevent the fulfillment of the obligation by reason of the
financial inability or insolvency of the new debtor. It is only just, therefore, that the creditor
expressly accepts the novation that extinguishes the obligation of the original debtor. Ma. Julieta
B. Bendecio and Merlyn Mascariñas vs. Virginia B. Bautista, G.R. No. 242087, December 7,
mr
2021; Spouses Jorge vs. Metropolitan Bank and Trust Co., G.R. No. 224339 (Resolution), June
20, 2019; Asian Construction and Development Corporation vs. Mero Structures, Inc.,
substituted by Novum Structures Llc, Inc., First Centennial Clark Corp., and National
Development Company, G.R. No. 221147, September 29, 2021; Arco Pulp and Paper Co., Inc.
and Candida A. Santos vs. Dan T. Lim, 737 Phil. 133 (2014); Garcia vs. Llamas, 462 Phil. 779
(2003)

0917 – 894 53 56
Page 14 of 56
Handout No. 22
The Court also emphasizes that the issue of novation involves a question of fact, as its resolution
necessitates the factual determination of the requisites of a valid novation.
Petitioners are essentially asking the Court to resolve a question of fact. This Court is not a trier
of facts. When a case is elevated to this Court via a petition for review on certiorari under Rule
45 of the Rules of Court, only questions of law may be resolved. While there are exceptions to
this rule, none of which are present in the instant case. Here, the Court affirms and adopts the
SOJ’s and CA’s factual finding that the new schedule of payments did not novate the trust receipt
om
agreement. As the CA has determined that there is no written contract between the parties
stating in unequivocal terms that they were novating the original obligation, it is necessary and
proper to determine whether the new schedule of payments is incompatible with the original
.c
ma EV
obligation under the trust receipts.
In this regard, there is no reason Us to disturb the conclusion that the new schedule of payments
il
@g -R
is not incompatible with the original obligation. The new agreement expressly recognized the old
obligation; the former did not completely obliterate the latter. The object-payment of the
amount owed under the trust receipts-is retained, continues to exist, and is in fact extended by
jr 47
the new schedule of payments by prolonging the period for payment of the amount owed;
petitioners are still liable under the trust receipts, but were given time to pay under the schedule
of payments. This means that there is no incompatibility in the objects, causes, and principal
an 01
conditions of the two agreements, despite the points of incompatibility petitioners posit. In other
words, the new schedule of payments is merely modificatory and supplementary to the original
obligation. The CA is correct in stating that the new agreement precisely revives the unpaid
ld 4-
original obligation whose term already expired. Tony N. Chua, Jimmy N. Chua, and Ernest T. Jeng
vs. Secretary of Justice and BDO Unibank, Inc., G.R. No. 214960, June 15, 2022
r o 02
Novation is never presumed.

2
The mere fact that the creditor receives a guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no agreement that the first debtor shall be
released from responsibility, does not constitute novation. This will, at best, result merely in the
addition of debtors, with the creditor still being able to enforce the obligation against the original
debtor. Indeed, just because Bautista accepted Mascariñas’ promissory note does not necessarily
mr
mean that Bendecio’s obligation was already extinguished· In the absence of clear and
unmistakable consent on the part of Bautista, her acceptance of Mascariñas’ note does equate
to the release of Bendecio from her obligation. Ma. Julieta B. Bendecio and Merlyn Mascariñas
vs. Virginia B. Bautista, G.R. No. 242087, December 7, 2021; Ever Electrical Manufacturing, Inc.
vs. Philippine Bank of Communications, 792 Phil. 311 (2016); Mercantile Insurance Co., Inc. vs.
Court of Appeals, 273 Phil. 415 (1991); Odiamar vs. Valencia, 788 Phil. 451 (2016)

0917 – 894 53 56
Page 15 of 56
Handout No. 22
While this Court is aware of the fact that the petitioners attempted to tender payment to the
respondent sometime in 2010, this Court finds that such tender of payment is insufficient to
suspend the accrual of interest on their loan obligation, considering that the petitioners failed
to make a valid consignation.
As held in Spouses Bonrostro vs. Spouses Luna:
Tender of payment “is the manifestation by the debtor of a desire to comply with
om
or pay an obligation. If refused without just cause, the tender of payment will
discharge the debtor of the obligation to pay but only after a valid consignation
of the sum due shall have been made with the proper court.” “Consignation is
.c
ma EV
the deposit of the [proper amount with a judicial authority] in accordance with
rules prescribed by law, after the tender of payment has been refused or because
of circumstances which render direct payment to the creditor impossible or
il
@g -R
inadvisable.”
Tender of payment, without more, produces no effect. [T]o have the effect of payment and the
jr 47
consequent extinguishment of the obligation to pay, the law requires the companion acts of
tender of payment and consignation.
an 01
As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino explained as
follows:
When a tender of payment is made in such a form that the creditor could have
ld 4-
immediately realized payment if he had accepted the tender, followed by a

prompt attempt of the debtor to deposit the means of payment in court by way
of consignation, the accrual of interest on the obligation will be suspended from
r o 02
the date of such tender. But when the tender of payment is not accompanied by
the means of payment, and the debtor did not take anv immediate step to make
a consignation, then interest is not suspended from the time of such tender.
2
Spouses Sergio D. Domasian and Nenita F. Domasian vs. Manuel T. Demdam,

G.R. No. 212349, November 17, 2021; Spouses Bonrostro vs. Spouses Luna, 715
Phil. 1 (2013)
mr
Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of obligation.
In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes
in one sense of the nature 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 debtor’s debt. As such, the essential
elements of a contract of sale, namely, consent, object certain, and cause or consideration must

0917 – 894 53 56
Page 16 of 56
Handout No. 22
be present. In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the performance
of an obligation is considered as the object of the contract of sale, while the debt is considered
as the purchase price.
Here, petitioner cannot correctly argue that his agreement with respondents-spouses
constituted dation in payment or dacion en pago. First, the March 1999 Dacion en Pago
submitted by petitioner apparently pertains to another debt that was not proven to have
om
transpired. This Dacion en Pago constituted petitioner Dacquel as the buyer of the subject lot
and the respondents-spouses Sotelo as the vendors, whereby Dacquel allegedly owed to the
Sotelos the remaining amount of P500,000.00 out of the purported P1,450,000.00 purchase
.c
ma EV
price. These stipulations were not at all shown to actually exist, or to be the same, or at least
connected to the parties’ original transaction. While petitioner claims that this dation in payment
stemmed from the P140,000.00 he had loaned to respondents-spouses, no reference to the said
il
@g -R
established debt was made in petitioner’s Dacion en Pago. If anything, the existence of the Dacion
en Pago relied on the truth of the September 1, 1994 Deed of Sale, which, unfortunately for
petitioner, turned out to be not a sale but only an equitable mortgage. Petitioner failed to adduce
jr 47
acceptable evidence that this sale actually transpired, more so as respondents-spouses
consistently denied that they sold the subject property to petitioner. Second, even if the truth of
this second transaction would be sustained, both parties still must be shown to have mutually
an 01
agreed to the dation in payment. Records, however, fail to disclose any such consent on the part
of respondents-spouses. Instead of an agreement, the said Dacion en Pago appears to be a mere
unilateral affidavit executed by petitioner. That both petitioner and respondents-spouses left this
ld 4-
document unsigned and unnotarized does not help the present appeal. No witnesses even
attested to the alleged Dacion En Pago. This Dacion En Pago rests on claims that are too self-
serving to be considered, and bare allegations have no probative value in court. Arturo A.
r o 02
Dacquel vs. Spouses Ernesto Sotelo and Flora Dacquel Sotelo, G.R. No. 203946, August 4, 2021
2
Novation may be total or extinctive, when there is an absolute extinguishment of the old
obligation, or partial, when there is merely a modification of the old obligation.
Novation may be total or extinctive, when there is an absolute extinguishment of the old
obligation, or partial, when there is merely a modification of the old obligation. Noted civilist
mr
Justice Eduardo P. Caguioa elucidates: x x x Novation has been defined as the substitution or
alteration of an obligation by a subsequent one that cancels or modifies the preceding one. Unlike
other modes of extinction of obligations, novation is a juridical act of dual function, in that at the
time it extinguishes an obligation, it creates a new one in lieu of the old. x x x This is not to say
however, that in every case of novation the old obligation is necessarily extinguished. Our Civil
Code now admits of the so-called imperfect or modificatory novation where the original
obligation is not extinguished but modified or changed in some of the principal conditions of the
obligation. Thus, [A]rticle 1291 provides that obligations may be modified. Rizal Commercial

0917 – 894 53 56
Page 17 of 56
Handout No. 22
Banking Corporation vs. Plast-Print Industries, Inc., 904 SCRA 508, G.R. No. 199308 June 19,
2019
Under Article 1245 of the Civil Code, there is dation in payment when property is alienated to
the creditor in satisfaction of a debt in money and is governed by the law of sales.
It can be gathered from the last paragraph of the DAS wherein the Real Estate Mortgage (REM)
om
which Vicentico executed was “cancell[ed] and considered null and void and no effect” that a
dation in payment might have been intended by the parties therein. Under Article 1245 of the
Civil Code, there is dation in payment when property is alienated to the creditor in satisfaction
.c
ma EV
of a debt in money and is governed by the law of sales. Vito vs. Moises-Palma, 899 SCRA 122,
G.R. No. 224466 March 27, 2019
il
@g -R
Article 1235 of the Civil Code provides that when the creditor accepts performance, knowing its
incompleteness and irregularity without protest or objection, the obligation is deemed
jr 47
complied with.
To stress, respondent HSBC-SRP continuously sent out monthly Installment Due Reminders to
an 01
petitioner Rosalina despite its demand letter dated September 25, 1995 to pay the full amount
of the loan obligation within 3 days from receipt of the letter. It, likewise, continuously accepted
petitioner Rosalina’s subsequent monthly amortization payments until June 1996; thus, making
ld 4-
their default immaterial. Moreover, there was no more demand for the payment of the full
obligation afterwards. Consequently, petitioners were made to believe that respondent HSBC-
SRP was applying their payments to their monthly loan obligations as it had done before. It is
r o 02
now estopped from enforcing its right to foreclose by reason of its acceptance of the delayed
payments. Also, Article 1235 of the Civil Code provides that when the creditor accepts
performance, knowing its incompleteness and irregularity without protest or objection, the
2
obligation is deemed complied with. Respondent HSBC-SRP accepted Rosalina’s payment of her
housing loan account for almost one year without any objection. Loquellano vs. Hongkong and
Shanghai Banking Corporation, Ltd., 888 SCRA 709, G.R. No. 200553 December 10, 2018
mr
Novation is a mode of extinguishing an obligation by changing its objects or principal

obligations, by substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations,

by substituting a new debtor in place of the old one, or by subrogating a third person to the rights
of the creditor. In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new

0917 – 894 53 56
Page 18 of 56
Handout No. 22
obligations be on every point incompatible with each other. Thus, “[n]ovation must be stated in
clear and unequivocal terms to extinguish an obligation. It cannot be presumed and may be
implied only if the old and new contracts are incompatible on every point.” Celones vs.
Metropolitan Bank and Trust Company, 886 SCRA 414, G.R. No. 215691 November 21, 2018
om
Article 1293 of the Civil Code defines novation as “consists in substituting a new debtor in the
place of the original one, which may be made even without the knowledge or against the will
.c
ma EV
of the latter, but not without the consent of the creditor.”
The Court likewise agrees with the CA that no novation took place in the present case. Novation
il
@g -R
is a mode of extinguishing an obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights
of the creditor. Article 1293 of the Civil Code defines novation as “consists in substituting a new
jr 47
debtor in the place of the original one, [which] may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor.” However, while the
consent of the creditor need not be expressed but may be inferred from the creditor’s clear and
an 01
unmistakable acts, to change the person of the debtor, the former debtor must be expressly
released from the obligation, and the third person or new debtor must assume the former’s place
in the contractual relation. Paradigm Development Corporation of the Philippines vs. Bank of
ld 4-
the Philippine Islands, 826 SCRA 267, G.R. No. 191174 June 7, 2017
r o 02
Such mere change in account name alone does not meet the required degree of certainty to
establish novation absent any other circumstance to bolster said conclusion.
2
Contrary to PDCP’s claim, the CA’s rejection of its claim of novation is not based on the absence
of the mortgagor’s conformity to the Deed of Assumption. The CA’s rejection is based on the fact
that the non-execution of the Deed of Assumption by Sengkon, STI and FEBTC rendered the
existence of novation doubtful because of lack of clear proof that Sengkon is being expressly
released from its obligation; that STI was already assuming Sengkon’s former place in the
mr
contractual relation; and that FEBTC is giving its conformity to this arrangement. While FEBTC
indeed approved Sengkon’s request for the “change in account name” from Sengkon to STI, such
mere change in account name alone does not meet the required degree of certainty to establish
novation absent any other circumstance to bolster said conclusion. Paradigm Development
Corporation of the Philippines vs. Bank of the Philippine Islands, 826 SCRA 267, G.R. No. 191174
June 7, 2017

0917 – 894 53 56
Page 19 of 56
Handout No. 22
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment. It generally requires a prior
tender of payment.
“Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses accept payment. [I]t generally requires a prior
tender of payment.” Under Article 1256 of the Civil Code, consignation alone is sufficient even
without a prior tender of payment: a) when the creditor is absent or unknown or does not appear
om
at the place of payment; b) when be is incapacitated to receive the payment at the time it is due;
c) when, without just cause, he refuses to give a receipt; d) when two or more persons claim the
same right to collect; and e) when the title of the obligation has been lost. Philippine National
.c
ma EV
Bank vs. Chan, 820 SCRA 161, G.R. No. 206037 March 13, 2017
il
@g -R
Requirements for a Valid Consignation
For consignation to be valid, the debtor must comply with the following requirements under the
jr 47
law: 1) there was a debt due; 2) valid prior tender of payment, unless the consignation was made
because of some legal cause provided in Article 1256; 3) previous notice of the consignation has
been given to the persons interested in the performance of the obligation; 4) the amount or thing
an 01
due was placed at the disposal of the court; and 5) after the consignation had been made, the
persons interested were notified thereof. “Failure in any of these requirements is enough ground
to render a consignation ineffective.” Philippine National Bank vs. Chan, 820 SCRA 161, G.R. No.
ld 4-
206037 March 13, 2017

r o 02
Although it is true that consignment has a retroactive effect, such payment is deemed to have
been made only at the time of the deposit of the thing in court or when it was placed at the
disposal of the judicial authority.
2
Note that PNB’s deposit of the subject monthly rentals in a non-drawing savings account is not
the consignation contemplated by law, precisely because it does not place the same at the
disposal of the court. Consignation is necessarily judicial; it is not allowed in venues other than
the courts. Consequently, PNB’s obligation to pay rent for the period of January 16, 2005 up to
mr
March 23, 2006 remained subsisting, as the deposit of the rentals cannot be considered to have
the effect of payment. It is important to point out that PNB’s obligation to pay the subject
monthly rentals had already fallen due and demandable before PNB consigned the rental
proceeds with the MeTC on May 31, 2006. Although it is true that consignment has a retroactive
effect, such payment is deemed to have been made only at the time of the deposit of the thing
in court or when it was placed at the disposal of the judicial authority. Based on these premises,
PNB’s payment of the monthly rentals can only be considered to have been made not earlier than

0917 – 894 53 56
Page 20 of 56
Handout No. 22
May 31, 2006. Philippine National Bank vs. Chan, 820 SCRA 161, G.R. No. 206037 March 13,
2017
Even if she asseverates that Encomienda’s payment of her household bills was without her
knowledge or against her will, she cannot deny the fact that the same still inured to her benefit
and Encomienda must therefore be consequently reimbursed for it.
om
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the
.c
ma EV
payment has been beneficial to the debtor. Clearly, Jalandoni greatly benefited from the
purportedly unauthorized payments. Thus, even if she asseverates that Encomienda’s payment
of her household bills was without her knowledge or against her will, she cannot deny the fact
il
@g -R
that the same still inured to her benefit and Encomienda must therefore be consequently
reimbursed for it. Also, when Jalandoni learned about the payments, she did nothing to express
her objection to or repudiation of the same, within a reasonable time. Even when she claimed
jr 47
that she was prepared with her own money, she still accepted the financial assistance and
actually made use of it. While she asserts to have been upset because of Encomienda’s
supposedly intrusive actions, she failed to protest and, in fact, repeatedly accepted money from
an 01
her and further allowed her to pay her driver, security guard, househelp, and bills for her cellular
phone, cable television, pager, gasoline, food, and other utilities. She cannot, therefore, deny the
benefits she reaped from said acts now that the time for restitution has come. The debtor who
ld 4-
knows that another has paid his obligation for him and who does not repudiate it at any time,
must corollarily pay the amount advanced by such third person. Osmeña-Jalandoni vs.
Encomienda, 819 SCRA 43, G.R. No. 205578 March 1, 2017
r o 02
2
Since the proceeds of the Development Bank of the Philippines (DBP) Loan redounded to
Petitioners’ benefit, they must bear the liability arising from its nonpayment, and comply with
the obligations imposed by the Deed of Undertaking executed in connection therewith.
Petitioners’ payment of the interest on the DBP Loan, the insurance premiums corresponding to
mr
the Pingol Property, and other incidental fees solely on their account, without seeking
reimbursement from the alleged Joint Venturers, establishes Petitioners’ direct interest in the
DBP Loan, and negates the claim that they are mere accommodation borrowers. Since the
proceeds of the DBP Loan redounded to Petitioners’ benefit, they must bear the liability arising
from its nonpayment, and comply with the obligations imposed by the Deed of Undertaking
executed in connection therewith. Tapayan vs. Martinez, 816 SCRA 178, G.R. No. 207786
January 30, 2017

0917 – 894 53 56
Page 21 of 56
Handout No. 22
To evade responsibility, Comglasco explained that by virtue of Article 1267, it was released
from the lease contract; Comglasco’s position fails to impress because Article 1267 applies only
to obligations to do and not to obligations to give.
To evade responsibility, Comglasco explained that by virtue of Article 1267, it was released from
the lease contract. It cited the existing global and regional economic crisis for its inability to
comply with its obligation. Comglasco’s position fails to impress because Article 1267 applies only
to obligations to do and not to obligations to give. Thus, in Philippine National Construction
om
Corporation v. Court of Appeals, 272 SCRA 183 (1997), the Court expounded: Petitioner cannot,
however, successfully take refuge in the said article, since it is applicable only to obligations “to
do,” and not to obligations “to give.” An obligation “to do” includes all kinds of work or service;
.c
ma EV
while an obligation “to give” is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. The obligation to pay rentals or deliver the thing
il
@g -R
in a contract of lease falls within the prestation “to give”; x x x The principle of rebus sic stantibus
neither fits in with the facts of the case. Under this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist, the contract also ceases
jr 47
to exist. x x x This article, which enunciates the doctrine of unforeseen events, is not, however,
an absolute application of the principle of rebus sic stantibus, which would endanger the security
of contractual relations. The parties to the contract must be presumed to have assumed the risks
an 01
of unfavorable developments. It is therefore only in absolutely exceptional changes of

circumstances that equity demands assistance for the debtor. Iloilo Jar Corporation vs.
Comglasco Corporation, 815 SCRA 1, G.R. No. 219509 January 18, 2017
ld 4-
Considering that Comglasco’s obligation of paying rent is not an obligation to do, it could not
r o 02
rightfully invoke Article 1267 of the Civil Code. Even so, its position is still without merit as
financial struggles due to an economic crisis is not enough reason for the courts to grant
reprieve from contractual obligations.
2
Considering that Comglasco’s obligation of paying rent is not an obligation to do, it could not
rightfully invoke Article 1267 of the Civil Code. Even so, its position is still without merit as
financial struggles due to an economic crisis is not enough reason for the courts to grant reprieve
from contractual obligations. In COMGLASCO Corporation/Aguila Glass v. Santos Car Check
mr
Center Corporation, 754 SCRA 481 (2015), the Court ruled that the economic crisis which may
have caused therein petitioner’s financial problems is not an absolute exceptional change of
circumstances that equity demands assistance for the debtor. It is noteworthy that Comglasco
was also the petitioner in the above mentioned case, where it also involved Article 1267 to pre-
terminate the lease contract. Thus, the Regional Trial Court (RTC) was correct in ordering
Comglasco to pay the unpaid rentals because the affirmative defense raised by it was insufficient
to free it from its obligations under the lease contract. In addition, Iloilo Jar is entitled to
attorney’s fees because it incurred expenses to protect its interest. The trial court, however,

0917 – 894 53 56
Page 22 of 56
Handout No. 22
erred in awarding exemplary damages and litigation expenses. Iloilo Jar Corporation vs.
Comglasco Corporation, 815 SCRA 1, G.R. No. 219509 January 18, 2017
Dation in payment extinguishes the obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved, unless the parties by agreement —
express or implied, or by their silence — consider the thing as equivalent to the obligation, in
which case the obligation is totally extinguished.
om
The assignment was for the express purpose of “securing the payment of the Line/Loan, interest
and charges thereon.” Nowhere in the deed can it be reasonably deduced that the collaterals
.c
ma EV
assigned by Milflores Cooperative were intended to substitute the payment of sum of money
under the loan. It was an accessory obligation to secure the principal loan obligation. The
assignment, being intended to be a mere security rather than a satisfaction of indebtedness, is
il
@g -R
not a dation in payment under Article 1245 and did not extinguish the loan obligation. “Dation in
payment extinguishes the obligation to the extent of the value of the thing delivered, either as
agreed upon by the parties or as may be proved, unless the parties by agreement — express or
jr 47
implied, or by their silence — consider the thing as equivalent to the obligation, in which case
the obligation is totally extinguished.” As stated in the second condition of the Deed of
Assignment, the “Assignment shall in no way release the ASSIGNOR from liability to pay the
an 01
Line/Loan and other obligations, except only up to the extent of any amount actually collected
and paid to ASSIGNEE by virtue of or under this Assignment.” Clearly, the assignment was not
intended to substitute the payment of sums of money. It is the delivery of cash proceeds, not the
ld 4-
execution of the Deed of Assignment, that is considered as payment. Absent any proof of delivery
of such proceeds to Land Bank, the Spouses Villaluz’s claim of payment is without basis. Villaluz
vs. Land Bank of the Philippines, 814 SCRA 466, G.R. No. 192602 January 18, 2017
r o 02
CONTRACTS
2
Article 1305 of New Civil Code (NCC) provides that a contract is “a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to
render some service.” The essential requisites are: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and (3) cause of the obligation which
mr
is established. In the present case, all the elements of a valid contract are present.
In the case at bar, the Deed of Sale validly transferred the ownership over TCT No. T-59 from
Socorro to Lorna in consideration of P10,000.00. Arguing the absence of consent on her part,
Socorro claims that the Deed of Sale is null and void since her signature thereon was obtained
through fraud, or under the guise of a contract of loan. However, the evidence on record belies
her theory. Socorro P. Cabilao vs. Ma. Lorna Q. Tampan, G.R. No. 209702, March 23, 2022

0917 – 894 53 56
Page 23 of 56
Handout No. 22
Article 1332 of the Civil Code provides for an instance where a presumption of fraud or mistake
might arise in the matter of giving consent to a contract. It states: “Article 1332. When one of
the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former.”
In case one of the parties to a contract is unable to read and fraud is alleged, the person enforcing
the contract must show that the terms thereof have been fully explained to the former. Where a
om
party is unable to read, and he expressly pleads in his reply that he signed the voucher in question
“without knowing (its) contents which have not been explained to him,” this plea is tantamount
to one of mistake or fraud in the execution of the voucher or receipt in question and the burden
.c
ma EV
is shifted to the other party to show that the former fully understood the contents of the
document; and if he fails to prove this, the presumption of mistake (if not fraud) stands
unrebutted and controlling. When one of the contracting parties is unable to read or is otherwise
il
@g -R
illiterate, and fraud is alleged, a presumption that there is fraud or mistake in obtaining consent
of that party arises. Article 1332 offers protection to contracting parties that are unfortunate and
disadvantaged to be illiterate and unable to read. It contemplates a situation where “a contract
jr 47
is entered into but the consent of one of the contracting parties is vitiated by mistake or fraud
committed by the other.” This provision also modifies the principle that a party is presumed to
know the contents and import of a document to which he affixed his signature. Initially, for the
an 01
protection afforded by Article 1332 to be operative, the contracting party who alleges that there
is any defect or vitiated consent must establish the same by full, clear and convincing evidence.
The party must show that his personal circumstances warrant the application of Article 1332; he
ld 4-
must show, by clear and convincing evidence, that he is unable to read at the time of execution
of the contract. It is only then that the presumption in Article 1332 will arise and the burden will
shift to the other contracting party to rebut it. To rebut the presumption, the other contracting
r o 02
party must show, by clear and convincing evidence, that the terms and contents of the contract
were explained to the contracting party who is unable to read. Naturally, the burden to show
that the other party fully understood the contract is on the party that seeks to enforce the
2
contract. In the case at bench, the Court finds that Fausta was able to establish that she was
unable to read at the time of the execution of the Deed due to her illiteracy. She stated in her
testimony taken on January 19, 2000 that she was an illiterate person. XXX In addition, Lourdes’s
testimony corroborated that of Fausta’s. She testified that Fausta was illiterate at the time of the
execution of the Deed. XXX Furthermore, Eugenio and Valentino, in their testimonies, admitted
mr
that they knew that Fausta was illiterate at the time of the execution of the Deed. XXX Based on
the foregoing, the testimonies of Fausta and Lourdes as bolstered by the admissions of Eugenio
and Valentino preponderantly established that Fausta was illiterate at the time of the execution
of the Deed. She was unable to read and write. Therefore, the presumption of fraud or mistake
mentioned in Article 1332 of the Civil Code becomes operative for the benefit of Fausta. To rebut
this presumption, the Spouses De Vera must show, by clear and convincing evidence, that the
contents of the Deed were sufficiently explained to Fausta at that time. In this regard, they have
failed. Spouses Eugenio De Vera and Rosalia Padilla vs. Fausta Catungal, G.R. No. 211687,

0917 – 894 53 56
Page 24 of 56
Handout No. 22
February 10, 2021; Mayor vs. Belen, 474 Phil. 630, 639 (2004); Repuela vs. Spouses Larawan,
802 Phil. 821, 836 (2016); Leonardo vs. Court of Appeals, 481 Phil. 520 (2004)
A contract has three distinct stages: preparation, perfection, and consummation. Preparation
or negotiation begins when the prospective contracting parties manifest their interest in the
contract and ends at the moment of their agreement. Perfection or birth of the contract occurs
when they agree upon the essential elements thereof. Consummation, the last stage, occurs
om
when the parties “fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof.”
.c
ma EV
Here, Cecilia manifested her intention to lease the hotel complex through a letter dated May 26,
2006, which was accepted by Quinto and Padilla. The parties agreed that the period of lease shall
be for 10 years beginning October 2006 with a monthly rental of P90,000.00 for both the hotel
il
@g -R
and store areas. To consummate the agreement, Cecilia admittedly deposited a down payment
of P500,000.00. Thereafter, she took over the hotel complex, through her assistant, as testified
to by Tagoc, the stay-in caretaker of PGRHJ. Cecilia also paid the rentals for the months of
jr 47
October, November, and December 2006, and January 2007 as evidenced by the disbursement
and check vouchers presented by Padilla. Under the circumstances, it is clear that there was a
perfected contract of lease between the parties. Rockland Construction Company, Inc. vs. Mid-
an 01
pasig Land Development Corporation, 567 Phil. 565 (2008)

ld 4-
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. XXX The parties to a contract are the real parties-in-interest
r o 02
in an action upon it. The basic principle of relativity of contracts is that contracts can only bind
the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware
of such contract and has acted with knowledge thereof.
2
It should be noted that Manlapaz was not privy to the contracts (Memorandum of Agreement
and 3rd contract) which VELI, FLPPI and HGC entered into as she only dealt with FLPPI, which did
not apprise her of the subsequent contracts involving VELI and HGC. XXX Contracts take effect
only between the parties, their assigns and heirs, except in case where the rights and obligations
mr
arising from the contract are not transmissible by their nature, or by stipulation or by provision
of law. XXX The parties to a contract are the real parties-in-interest in an action upon it. The basic
principle of relativity of contracts is that contracts can only bind the parties who entered into it,
and cannot favor or prejudice a third person, even if he is aware of such contract and has acted
with knowledge thereof. Indeed, “‘[w]here there is no privity of contract, there is likewise no
obligation or liability to speak about.”‘ HGC cannot expect Manlapaz to meddle in its dealings
with VELI and FLPPI as she has no business doing so, and, as she alleged, she was not made aware
of these developments in the first place. Notably, Manlapaz remitted all her installment

0917 – 894 53 56
Page 25 of 56
Handout No. 22
payments to FLPPI and eventually paid the purchase price for the disputed property in full. She
has been religiously paying the installments to FLPPI and completed the payments in November
1999. This is another indication that she did not have knowledge of the subsequent transactions
involving FLPPI, VELI and HGC, as she solely transacted with FLPPI. Home Guaranty Corporation
vs. Elvira S. Manlapaz, G.R. No. 202820, January 13, 2021; Vda. De Rojales vs. Dime, 780 Phil.
698, 708 (2016); Spouses Oco vs. Limbaring, 516 Phil. 691, 704 (2006); Asian Terminals, Inc. vs.
Padoson Stainless Steel Corp., G.R. No. 211876, June 25, 2018; Spouses Borromeo vs. Court of
Appeals, 573 Phil. 400, 412 (2008); Philippine National Bank vs. Dee, 727 Phil. 473, 480 (2014);
om
Heirs of Spouses Suyam vs. Heirs of Julaton, G.R. No. 209081, June 19, 2019; Spouses Tanglao
vs. Spouses Parungao, 561 Phil. 254, 262 (2007)
.c
ma EV
As a rule, the principle of mutuality of contracts applies to interest rates.
il
@g -R
Article 1308 of the Civil Code states: “The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.” The principle of mutuality of contracts
is premised on the condition that there must be an essential equality between the parties so that
jr 47
obligations arising from contracts may have the force of law between them. If a condition in the
contract depends solely on the will of one of the contracting parties, it is void. This principle
applies to interest rates. Monetary interest is always agreed upon by the parties and they are
an 01
free to stipulate on the rates that will apply to their loans. However, if there is no true parity
between the parties, courts may equitably reduce iniquitous or unconscionable interest charges.
In Vitug vs. Abuda:
ld 4-
Parties are free to stipulate interest rates in their loan contracts in view of the
suspension of the implementation of the Usury Law ceiling on interest effective
r o 02
January 1, 1983.
The freedom to stipulate interest rates is granted under the assumption that we
2
have a perfectly competitive market for loans where a borrower has many options
from whom to borrow. It assumes that parties are on equal footing during
bargaining and that neither of the parties has a relatively greater bargaining power
to command a higher or lower interest rate. It assumes that the parties are equally
in control of the interest rate and equally have options to accept or deny the other
mr
party’s proposals. In other words, the freedom is granted based on the premise
that parties arrive at interest rates that they are willing but are not compelled to
take either by force of another person or by force of circumstances.
However, the premise is not always true. There are imperfections in the loan
market. One party may have more bargaining power than the other. A borrower
may be in need of funds more than a lender is in need of lending them. In that

0917 – 894 53 56
Page 26 of 56
Handout No. 22
case, the lender has more commanding power to set the price of borrowing than
the borrower has the freedom to negotiate for a lower interest rate.
Hence, there are instances when the state must step in to correct market
imperfections resulting from unequal bargaining positions of the parties.
Article 1306 of the Civil Code limits the freedom to contract to promote public
morals, safety, and welfare[.] XXX
om
In stipulating interest rates, parties must ensure that the rates are neither
iniquitous nor unconscionable. Iniquitous or unconscionable interest rates are
.c
ma EV
illegal and, therefore, void for being against public morals. The lifting of the ceiling
on interest rates may not be read as “grant[ing] lenders carte blanche [authority]
to raise interest rates to levels which will either enslave their borrowers or lead to
il
@g -R
a hemorrhaging of their assets.”
Voluntariness of stipulations on interest rates is not sufficient to make the interest

jr 47
rates valid. In Castro vs. Tan:
The imposition of an unconscionable rate of interest on a money

an 01
debt, even if knowingly and voluntarily assumed, is immoral and

unjust. It is tantamount to a repugnant spoliation and an iniquitous
deprivation of property, repulsive to the common sense of man. It
ld 4-
has no support in law, in principles of justice, or in the human

conscience nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be sustained
r o 02
within the sphere of public or private morals.
Thus, even if the parties voluntarily agree to an interest rate, courts are given the
2
discretionary power to equitably reduce it if it is later found to be iniquitous or

unconscionable. Courts approximate what the prevailing market rate would have
been under the circumstances had the parties had equal bargaining power.
Philippine National Bank vs. AIC Construction Corporation, Spouses Rodolfo C.
Bacani and Ma. Aurora C. Bacani, G.R. No. 228904, October 13, 2021
mr
A contract enjoys the presumption that it is supported by an existing and lawful cause or
consideration.
This presumption is disputable and may be overthrown by preponderance of evidence to the

contrary. Preponderance of evidence is the weight, credit, and value of the aggregate evidence
on either side and is usually considered to be synonymous with the term “greater weight of

0917 – 894 53 56
Page 27 of 56
Handout No. 22
evidence” or “greater weight of credible evidence.” Dioscoro Poliño Bacala, Substitute Judicial
Guardian of Incompetent Aquilino O. Poliño vs. Heirs of Spouses Juan Poliño and Corazon Rom,
namely: Ruben R. Poliño, Brendo R. Poliño, Carlito R. Poliño, and Bandy R. Poliño, represented
by Ruben R. Poliño, G.R. No. 200608, February 10, 2021
om
The subject compromise agreement, being a contract that has the force of law, is also governed
.c
ma EV
by the requisites and principles of contracts under Title II of the Civil Code, particularly Articles
1312, 1315 and 1385, of the Civil Code.
il
@g -R
Compromise agreement was a contract that created real rights as it was a contract for division of
property. The third persons, the Pastors, who came into possession of the object of the contract
are thus, bound by the contract or compromise agreement. Furthermore, rescission, or in this
jr 47
case, revocation or cancellation of the compromise agreement, cannot take place because the
objects of the contract are already in the legal possession of the Pastors who did not act in bad
faith. At the time the compromise agreement was revoked by Lino and Palichang, the Pastors
an 01
were already legal co-owners of the property by virtue of a valid sale. As such, their respective
shares in the disputed property may not be validly included in the revocation of the compromise
agreement without their knowledge and consent. Although it is clear that the Pastors are not
ld 4-
parties to the compromise agreement, their objection to its revocation can be treated as an
adverse claim over the disputed property. Lino Domilos vs. Spouses John and Dorothea Pastor,
and Joseph L. Pastor, G.R. No. 207887, March 14, 2022; Logarta vs. Mangahis, 789 Phil. 244
r o 02
(2016)
2
There is no contract unless the following requisites concur: (1) consent of the contracting
parties; (2) an object certain which is the subject of the contract; and (3) the cause of the
obligation which is established.
The Fernandos’ cause of action against Northwest stemmed from a breach of contract of
mr
carriage. A contract is a meeting of minds between two persons whereby one agrees to give
something or render some service to another for a consideration. There is no contract unless the
following requisites concur: (1) consent of the contracting parties; (2) an object certain which is
the subject of the contract; and (3) the cause of the obligation which is established. Fernando vs.
Northwest Airlines, Inc., 817 SCRA 233, G.R. No. 212038, G.R. No. 212043 February 8, 2017

0917 – 894 53 56
Page 28 of 56
Handout No. 22
Contracts are binding between the parties, whether oral or written. The law is explicit that
contracts shall be obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present.
In case of loans between friends and relatives, the absence of acknowledgment receipts or
promissory notes is more natural and real. In a similar case, the Court upheld the CA’s
pronouncement that the existence of a contract of loan cannot be denied merely because it was
not reduced in writing. Surely, there can be a verbal loan. Contracts are binding between the
om
parties, whether oral or written. The law is explicit that contracts shall be obligatory in whatever
form they may have been entered into, provided all the essential requisites for their validity are
present. A simple loan or mutuum exists when a person receives a loan of money or any other
.c
ma EV
fungible thing and acquires its ownership. He is bound to pay to the creditor the equal amount
of the same kind and quality. Jalandoni posits that the more logical reason behind the
disbursements would be what Encomienda candidly told the trial court, that her acts were plainly
il
@g -R
an “unselfish display of Christian help” and done out of “genuine concern for Georgia’s children.”
However, the “display of Christian help” is not inconsistent with the existence of a loan.
Encomienda immediately offered a helping hand when a friend asked for it. But this does not
jr 47
mean that she had already waived her right to collect in the future. Indeed, when Encomienda
felt that Jalandoni was beginning to avoid her, that was when she realized that she had to protect
her right to demand payment. The fact that Encomienda kept the receipts even for the smallest
an 01
amounts she had advanced, repeatedly sent demand letters, and immediately filed the instant
case when Jalandoni stubbornly refused to heed her demands sufficiently disproves the latter’s
belief that all the sums of money she received were merely given out of charity. Osmeña-
ld 4-
Jalandoni vs. Encomienda, 819 SCRA 43, G.R. No. 205578 March 1, 2017
r o 02
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed.
2
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed. When Juan
died on August 26, 2006, the continuing offer contemplated under Article 124 of the Family Code
became ineffective and could not have materialized into a binding contract. It must be
remembered that Juliana even died earlier on August 17, 2006 and there is no evidence that she
mr
consented to the sale of the subject property by Juan in favor of petitioners. The fact that Juan
and Juliana were separated from bed and board (a mensa et thoro) at the time of the supposed
sale of the subject property by Juan to petitioners did not exempt the disposition from the
requirement of obtaining the other spouse’s consent under Article 116 of the Family Code. Juan
was not without any recourse, he should have gotten the required authority from the court.
Anastacio, Sr. vs. Heirs of the Late Spouses Juan F. Coloma and Juliana Parazo, 947 SCRA 223,
G.R. No. 224572 August 27, 2020

0917 – 894 53 56
Page 29 of 56
Handout No. 22
In corporations, consent is manifested through a board resolution since powers are exercised
through its board of directors; As a general rule, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation.
In corporations, consent is manifested through a board resolution since powers are exercised
through its board of directors. The mandate of Section 23 of the Corporation Code is clear that
unless otherwise provided in the Code, “the corporate powers of all corporations shall be
exercised, all business conducted and all property of such corporations controlled and held by
om
the board of directors or trustees. . .” Further, as a juridical entity, a corporation may act through
its board of directors, which exercises almost all corporate powers, lays down all corporate
business policies and is responsible for the efficiency of management. As a general rule, in the
.c
ma EV
absence of authority from the board of directors, no person, not even its officers, can validly bind
a corporation. This is so because a corporation is a juridical person, separate and distinct from its
stockholders and members, having powers, attributes and properties expressly authorized by law
il
@g -R
or incident to its existence. Philippine Stock Exchange, Inc. vs. Litonjua, 812 SCRA 121, G.R. No.
204014 December 5, 2016
jr 47
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract.
an 01
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain, and the acceptance,
ld 4-
whether express or implied, must be absolute. An acceptance is considered absolute and

unqualified when it is identical in all respects with that of the offer so as to produce consent or a
meeting of the minds. Talampas, Jr. vs Moldex Realty, Inc., 758 SCRA 666, G.R. No. 170134 June
r o 02
17, 2015
2
The first requisite, consent, is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.
The first requisite, consent, is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. In the case at bar, when SMLI
mr
submitted the first Unsolicited Proposal to BCDA on December 14, 2009, the submission
constituted an offer to undertake the development of the subject property. BCDA then entered
into negotiations with SMLI until the BCDA finally accepted the terms of the final unsolicited
proposal. Their agreement was thereafter reduced into writing through the issuance of the
Certification of Successful Negotiations where the meeting of the parties’ minds was reflected in
this wise: NOW, THEREFORE, for and in consideration of the foregoing, BCDA and SMLI have,
after successful negotiations pursuant to Stage II of Annex C x x x, reached an agreement on the
purpose, terms and conditions on the JV development of the subject property, which shall

0917 – 894 53 56
Page 30 of 56
Handout No. 22
become the terms for the Competitive Challenge pursuant to Annex C of the JV Guidelines x x x.
SM Land, Inc. vs. Bases Conversion and Development Authority, 753 SCRA 613, G.R. No. 203655
March 18, 2015
The main characteristic of an absolute simulation is that the apparent contract is not really
desired or intended to produce a legal effect or alter the parties’ juridical situation.
om
The CA’s conclusion that the Deed of Sale was an absolute simulation contradicts the evidence
presented. Apropos, Articles 1345 and 1346 of the Civil Code provide:
.c
ma EV
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement.
il
@g -R
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to law, morals,
jr 47
good customs, public order or public policy binds the parties to their real agreement.
XXX The main characteristic of an absolute simulation is that the apparent contract is not really
an 01
desired or intended to produce a legal effect or alter the parties’ juridical situation. However, a
reading of Faustino’s testimony clearly shows that he fully intended to be bound by the Deed of
Sale. XXX Indeed, Faustino conceded that there was such a Deed of Sale, but only that he and his
ld 4-
wife were induced by his mother to draw up the document and sign it. According to Faustino, his
mother even asked him to assure his brother that the house in question will eventually be the
latter’s property. These circumstances support the true nature of the document. Faustino’s
r o 02
excuses are therefore flimsy and specious. Felix Chingkoe and Rosita Chingkoe vs. Faustino
Chingkoe and Gloria Chingkoe, G.R. No. 244076, March 16, 2022
2
Object certain refers to the subject matter of the contract. It is the thing to be delivered or the
service to be performed.
Object certain refers to the subject matter of the contract. It is the thing to be delivered or the
mr
service to be performed. Here, when the BCDA Board issued, on August 6, 2010, the Certification
of Successful Negotiations, it not only accepted SMLI’s Unsolicited Proposal and declared SMLI
eligible to enter into the proposed JV activity. It also “agreed to subject [SMLI]’s Original Proposal
to Competitive Challenge pursuant to Annex C [of the NEDA JV Guidelines], which competitive
challenge process shall be immediately implemented following the [TOR] Volumes 1 and 2.”
Moreover, said Certification provides that “the BCDA shall, thus, commence the activities for the
solicitation for comparative proposals x x x starting on August 10, 2010, on which date [SMLI]

0917 – 894 53 56
Page 31 of 56
Handout No. 22
shall post the required Proposal Security x x x.” SM Land, Inc. vs. Bases Conversion and
Development Authority, 753 SCRA 613, G.R. No. 203655 March 18, 2015
Cause is the essential reason which moves the parties to enter into the contract. It is the
immediate, direct and proximate reason which justifies the creation of an obligation through
om
the will of the contracting parties.
Cause, on the other hand, is the essential reason which moves the parties to enter into the
.c
ma EV
contract. It is the immediate, direct and proximate reason which justifies the creation of an
obligation through the will of the contracting parties. Complementing this is Article 1350 of the
New Civil Code which provides that “[i]n onerous contracts the cause is understood to be, for
il
@g -R
each contracting party, the prestation or promise of a thing or service by the other.” As such, the
cause of the agreement in the case at hand is their interest in the sale or acquisition and
development of the property and their undertaking to perform their respective obligations,
jr 47
among others, as reflected in the Certificate of Successful Negotiations and in the Terms of
Reference (TOR) issued by BCDA. SM Land, Inc. vs. Bases Conversion and Development
Authority, 753 SCRA 613, G.R. No. 203655 March 18, 2015
an 01
Obligations arising from contracts have the force of law between the parties and should be
ld 4-
complied with in good faith.
It is basic that obligations arising from contracts have the force of law between the parties and
r o 02
should be complied with in good faith. The stipulations are binding between the contracting
parties unless they are contrary to law, morals, good customs, public order or public policy.
Corollarily, Spouses Villanueva, who freely signed the real estate mortgage contract, cannot now
2
be allowed to renege on their obligation. The validity or compliance of a contract cannot be left
to the will of one of the parties. Finally, the sheriff complied with the procedures under Act No.
3135 for the extrajudicial foreclosure of the mortgaged property. The RTC and CA both held that
Spouses Villanueva were notified of the auction sale and that the posting and publication
requirements were duly complied with. Verily, these involve factual issues and are beyond the
mr
ambit of this Court’s jurisdiction in a petition for review on certiorari. It is not this Court’s task to
go over the proofs presented below to ascertain if they were appreciated and weighed correctly,
most especially when the trial court and the appellate court speak as one in their findings and
conclusions. The Commoner Lending Corporation vs. Villanueva, 947 SCRA 429, G.R. No. 235260
August 27, 2020

0917 – 894 53 56
Page 32 of 56
Handout No. 22
Article 1159 of the Civil Code expressly provides that “[o]bligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith.”
As correctly held by both the RTC and the CA, Article 1159 of the Civil Code expressly provides
that “[o]bligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.” The RTC as well as the CA found nothing which would
justify or excuse petitioners from noncompliance with their obligations under the contract they
have entered into. Thus, it becomes apparent that petitioners are merely attempting to evade
om
or, at least, delay the inevitable performance of their obligation to pay under the Surety
Agreement and the subject promissory notes which were executed in respondent’s favor. United
Alloy Philippines Corporation vs. United Coconut Planters Bank, 816 SCRA 70, G.R. No. 175949
.c
ma EV
January 30, 2017
il
@g -R
Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith; When the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning of its stipulations
jr 47
governs.
In Prisma Construction & Development Corporation v. Menchavez, 614 SCRA 590 (2010), we
an 01
discussed the settled principles that: Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith. When the terms of a
contract are clear and leave no doubt as to the intention of the contracting parties, the literal
ld 4-
meaning of its stipulations governs. In such cases, courts have no authority to alter the contract
by construction or to make a new contract for the parties; a court’s duty is confined to the
interpretation of the contract the parties made for themselves without regard to its wisdom or
r o 02
folly, as the court cannot supply material stipulations or read into the contract words the contract
does not contain. It is only when the contract is vague and ambiguous that courts are permitted
to resort to the interpretation of its terms to determine the parties’ intent. Ramos vs. Philippine
2
National Bank, 662 SCRA 479, G.R. No. 178218 December 14, 2011
Obligations arising from contracts may have the force of law between the parties, there must
be a mutuality between the parties based on their essential equality; A contract containing a
mr
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one
of the contracting parties is void.
In order that obligations arising from contracts may have the force of law between the parties,
there must be a 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. There was no showing that either Solidbank or
Permanent coerced each other to enter into the loan agreements. The terms of the Omnibus Line

0917 – 894 53 56
Page 33 of 56
Handout No. 22
Agreement and the promissory notes were mutually and freely agreed upon by the parties. Solid
Bank Corporation vs. Permanent Homes, Incorporated, 625 SCRA 275, G.R. No. 171925 July 23,
2010
om
It is important to note that according to the autonomy characteristic of contracts, 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,
.c
ma EV
or public policy.
At the onset, it is important to note that according to the autonomy characteristic of
il
@g -R
contracts, 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. Country Bankers Insurance Corporation, 883 SCRA 404, G.R. No.
jr 47
194126 October 17, 2018
an 01
In an insurance contract, founded on the autonomy of contracts, the parties are generally not
prevented from imposing the terms and conditions that determine the contract’s obligatory
force.
ld 4-
Petitioner IPAMS and respondent Country Bankers in essence made a stipulation to the effect
that mere demand letters, affidavits, and statements of accounts are enough proof of actual
r o 02
damages — that more direct and concrete proofs of expenditures by the petitioner such as
official receipts have been dispensed with in order to prove actual losses. As to why the parties
agreed on the sufficiency of the listed requirements under the MOA goes into the motives of the
2
parties, which is not hard to understand, considering that the covered transactions, i.e., the
processing of applications of nurses in the U.S., are generally not subject to the issuance of official
receipts by the U.S. government and its agencies. Considering the foregoing, the question is
crystallized: Can the parties stipulate on the requirements that must be presented in order to
claim against a surety bond? And the answer is a definite YES, pursuant to the autonomy
mr
characteristic of contracts, they can. In an insurance contract, founded on the autonomy of

contracts, the parties are generally not prevented from imposing the terms and conditions that
determine the contract’s obligatory force. Industrial Personnel and Management Services, Inc.
vs. Country Bankers Insurance Corporation, 883 SCRA 404, G.R. No. 194126 October 17, 2018

0917 – 894 53 56
Page 34 of 56
Handout No. 22
The settled rule is that the contracting parties have the autonomy to establish such terms and
conditions as they deem fit, provided these are not contrary to law, morals, good customs,
public order, or public policy.
The settled rule is that the contracting parties have the autonomy to establish such terms and
conditions as they deem fit, provided these are not contrary to law, morals, good customs, public
order, or public policy. Once there is a meeting of the minds between the parties, the contract
om
constitutes the law between them. Thus, in resolving disputes involving contractual obligations,
the Court’s utmost duty is to interpret the contract and uphold the parties’ intention. Philippine
International Trading Corporation vs. Threshold Pacific Corporation, 881 SCRA 609, G.R. No.
.c
ma EV
209119 October 3, 2018
il
@g -R
Article 1306 of the Civil Code provides for autonomy of contracts where the parties are free to
stipulate on such terms and conditions except for those which go against law, morals, and
public policy.
jr 47
We have consistently affirmed that commercial relationships covered by our arbitration laws are
purely private and contractual in nature. Article 1306 of the Civil Code provides for autonomy of
an 01
contracts where the parties are free to stipulate on such terms and conditions except for those
which go against law, morals, and public policy. In our jurisdiction, commercial arbitration is a
purely private system of adjudication facilitated by private citizens which we have consistently
ld 4-
recognized as valid, binding, and enforceable. Strickland vs. Ernst & Young LLP, 876 SCRA 27,
G.R. No. 193782 August 1, 2018
r o 02
Article 1306 of the Civil Code expressly provides that “[t]the contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem convenient.”
2
Our law on contracts recognizes the validity of contractual choice of law provisions. Where such
provisions exist, Philippine tribunals, acting as the forum court, generally defer to the parties’
articulated choice. This is consistent with the fundamental principle of autonomy of contracts.
Article 1306 of the Civil Code expressly provides that “[t]he contracting parties may establish
mr
such stipulations, clauses, terms and conditions as they may deem convenient.” Nevertheless,
while a Philippine tribunal (acting as the forum court) is called upon to respect the parties’ choice
of governing law, such respect must not be so permissive as to lose sight of considerations of law,
morals, good customs, public order, or public policy that underlie the contract central to the
controversy. Saudi Arabian Airlines (Saudia) vs. Rebesencio, 746 SCRA 140, G.R. No. 198587
January 14, 2015

0917 – 894 53 56
Page 35 of 56
Handout No. 22
Article 1311 of the Civil Code states that “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.”
Article 1311 of the Civil Code states that “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.” Since Winner is not a
party to the contract between Roxaco and Vicente, it is not entitled to any of the benefits under
om
the contract, including the payment made by Roxaco. Accordingly, Vicente did not receive the
money from Roxaco in trust or on commission, or for administration, or under any obligation
involving the duty to make delivery of or to return to Winner. Vicente received for his own
.c
ma EV
account the payment from Roxaco. Vicente’s obligation to pay Winner P35,400.00 is separate
and distinct from Vicente’s contract with Roxaco. Vicente vs. People, 975 SCRA 422, G.R. No.
246700 March 3, 2021
il
@g -R
The basic principle of relativity of contracts is that contracts can only bind the parties who
jr 47
entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract
and has acted with knowledge thereof.
an 01
The basic principle of relativity of contracts is that contracts can only bind the parties who
entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract
and has acted with knowledge thereof. Indeed, “[w]here there is no privity of contract, there is
ld 4-
likewise no obligation or liability to speak about.” Guided by this doctrine, Padoson, cannot shift
the burden of paying the storage fees to BOC since the latter has never been privy to the contract
of service between Padoson and ATI. To rule otherwise would create an absurd situation wherein
r o 02
a private party may free itself from liability arising from a contract of service, by merely invoking
that the BOC has constructive possession over its shipment by the issuance of a Hold Order. Asian
Terminals, Inc. vs. Padoson Stainless Steel Corporation, 868 SCRA 56, G.R. No. 211876 June 25,
2
2018
The basic principle of relativity of contracts is that, as a general rule, contracts take effect only
between the parties, their assigns and heirs.
mr
The basic principle of relativity of contracts is that, as a general rule, contracts take effect only
between the parties, their assigns and heirs. The sound reason for the exclusion of nonparties to
an agreement is the absence of a vinculum or juridical tie which is the efficient cause for the
establishment of an obligation. Needless to state, Ng Wee does not fall under any of the classes
that are deemed privy as far as the Side Agreements are concerned. At most, he only authorized
Wincorp, through the SPAs, to “agree, deliver, sign, [and] execute loan documents” relative to
the borrowing of Power Merge. This authority does not extend to excusing Power Merge from

0917 – 894 53 56
Page 36 of 56
Handout No. 22
paying its obligations under the Promissory Notes that it issued for the benefit of the investors.
Thus, even if we were to assume that the execution of the Side Agreements was with the
imprimatur of the Wincorp board of directors, Power Merge would still have been able to
determine, based on a cursory reading of the SPAs, that Wincorp’s acquiescence to the Side
Agreements is an ultra vires act insofar as its principals, Ng Wee included, are concerned. Virata
om
vs. Ng Wee, 830 SCRA 271, G.R. No. 220926, G.R. No. 221058, G.R. No. 221109, G.R. No. 221135,
G.R. No. 221218 July 5, 2017
.c
ma EV
Whatever rights and obligations arising from said contract between National Power
Corporation (NPC) and San Miguel Protective Security Agency (SMPSA) did not affect Power
il
@g -R
Sector Assets and Liabilities Management Corporation (PSALM) under the basic principle of
relativity of contracts by which contracts take effect only between the parties, their assigns and
heirs.
jr 47
It is further worth pointing out that the security contract between NPC and SMPSA, which was
entered into in 2004 for a duration from September 1, 2004 to September 1, 2006, did not relate
an 01
to or include PSALM. Hence, whatever rights and obligations arising from said contract between
NPC and SMPSA did not affect PSALM under the basic principle of relativity of contracts by which
contracts take effect only between the parties, their assigns and heirs. Accordingly, in the
ld 4-
absence of privity of contract between SMPSA and PSALM, the latter had no obligation towards
or liability in favor of the former to speak about. Specifically, PSALM, for lack of privity, came
under no legal obligation to continue the security contract entered into between NPC and
r o 02
SMPSA. Power Sector Assets and Liabilities Management Corporation (PSALM) vs. Court of
Appeals (21st Division), 817 SCRA 551, G.R. No. 194226 February 15, 2017
2
The principle of relativity of contracts dictates that contractual agreements can only bind the
parties who entered into them, and cannot favor or prejudice third persons, even if he is aware
of such contract and has acted with knowledge thereof.
mr
The principle of relativity of contracts dictates that contractual agreements can only bind the
parties who entered into them, and cannot favor or prejudice third persons, even if he is aware
of such contract and has acted with knowledge thereof. The doctrine finds statutory basis under
Art. 1311 of the New Civil Code. Pontigon vs. Heirs of Meliton Sanchez, 812 SCRA 274, G.R. No.
221513 December 5, 2016

0917 – 894 53 56
Page 37 of 56
Handout No. 22
It is elementary that there can be no contract in the absence of the mutual assent of the parties.
When the assent of either party is wanting, the act of the non-assenting party has no efficacy
for his act is as if it was done under duress or by an incapacitated person.
om
The principle of mutuality of contracts is embodied in Article 1308 of the Civil Code, to wit: Article
1308. The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them. The significance of Article 1308 cannot be doubted. It is elementary
.c
ma EV
that there can be no contract in the absence of the mutual assent of the parties. When the assent
of either party is wanting, the act of the non--assenting party has no efficacy for his act is as if it
was done under duress or by an incapacitated person. Naturally, any modification made in the
il
@g -R
contract must still be with or upon the consent of the contracting parties. There must still be a
meeting of the minds of all the parties on the modification, especially when the modification
relates to an important or material aspect of the agreement. In loan contracts, the rate of interest
jr 47
is always important or material because it can make or break the capital ventures. Villa Crista
Monte Realty & Development Corporation vs. Equitable PCI Bank (now known as Banco de Oro
Unibank, Inc.), 886 SCRA 330, G.R. No. 208336 November 21, 2018
an 01
The principle of mutuality of contracts is found in Article 1308 of the New Civil Code, which
ld 4-
states that contracts must bind both contracting parties, and its validity or compliance cannot
be left to the will of one of them.
r o 02
The principle of mutuality of contracts is found in Article 1308 of the New Civil Code, which states
that contracts must bind both contracting parties, and its validity or compliance cannot be left to
the will of one of them. The binding effect of any agreement between parties to a contract is
2
premised on two settled principles: (1) that any obligation arising from contract has the force of
law between the parties; and (2) that there must be mutuality between the parties based on their
essential equality. As such, any contract which appears to be heavily weighed in favor of one of
the parties so as to lead to an unconscionable result is void. Likewise, any stipulation regarding
the validity or compliance of the contract that is potestative or is left solely to the will of one of
mr
the parties is invalid. This holds true not only as to the original terms of the contract but also to
its modifications. Consequently, any change in a contract must be made with the consent of the
contracting parties, and must be mutually agreed upon. Otherwise, it has no binding effect.
Security Bank Corporation vs. Mercado , 868 SCRA 323, G.R. No. 192934 June 27, 2018

0917 – 894 53 56
Page 38 of 56
Handout No. 22
There is no mutuality of contracts when the determination or imposition of interest rates is at

the sole discretion of a party to the contract. Further, escalation clauses in contracts are void
when they allow the creditor to unilaterally adjust the interest rates without the consent of the
debtor.
There is no mutuality of contracts when the determination or imposition of interest rates is at

the sole discretion of a party to the contract. Further, escalation clauses in contracts are void
when they allow the creditor to unilaterally adjust the interest rates without the consent of the
om
debtor. Limso vs. Philippine National Bank, 782 SCRA 137, G.R. No. 158622, G.R. No. 169441,
G.R. No. 172958, G.R. No. 173194, G.R. No. 196958, G.R. No. 197120, G.R. No. 205463 January
27, 2016
.c
ma EV
The principle of mutuality of contracts dictates that a contract must be rendered void when the
il
@g -R
execution of its terms is skewed in favor of one (1) party.
When there is no mutuality between the parties to a contract, it means that the parties were not
jr 47
on equal footing when the terms of the contract were negotiated. Thus, the principle of mutuality
of contracts dictates that a contract must be rendered void when the execution of its terms is
skewed in favor of one party. Limso vs. Philippine National Bank, 782 SCRA 137, G.R. No. 158622,
an 01
G.R. No. 169441, G.R. No. 172958, G.R. No. 173194, G.R. No. 196958, G.R. No. 197120, G.R. No.
205463 January 27, 2016
ld 4-
Perfection of real contracts.

r o 02
Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of
the object of the obligation. Civil Code, Article 1316
2
When the law requires that a contract be in some form to be valid, such requirement is absolute
and indispensable; its nonobservance renders the contract void and of no effect.
Generally, contracts are obligatory in whatever form they may have been entered into, provided
mr
all the essential requisites for their validity are present. However, when the law requires that a
contract be in some form to be valid, such requirement is absolute and indispensable; its
nonobservance renders the contract void and of no effect. One such law is Article 749 of the Civil
Code of the Philippines which requires that: Art. 749. In order that the donation of an immovable
may be valid, it must be made in a public document, specifying therein the property donated and
the value of the charges which the donee must satisfy. The acceptance may be made in the same
deed of donation or in a separate public document, but it shall not take effect unless it is done
during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor

0917 – 894 53 56
Page 39 of 56
Handout No. 22
shall be notified thereof in an authentic form, and this step shall be noted in both instruments.
Thus, donation of real property, which is a solemn contract, is void without the formalities
specified in the foregoing provision. Article 749 of the Civil Code requires that donation of real
property must be made in a public instrument to be valid. Heirs of Jose Mariano and Helen S.
Mariano vs. City of Naga, 858 SCRA 179, G.R. No. 197743 March 12, 2018
om
The general rule is that a contract may be oral or written.
.c
ma EV
A contract may be entered into in whatever form except where the law requires a document or
other special form as in the contracts enumerated in Article 1388 of the Civil Code. The general
il
@g -R
rule, therefore, is that a contract may be oral or written. Tong Brothers Co. vs. Intermediate
Appellate Court, 156 SCRA 726, No. L-73918 December 21, 1987
jr 47
Fact that previous contracts were all oral does not necessarily mean that all subsequent
contracts of similar or allied nature should also be oral and procedure be the same.
an 01
The fact that the parties’ previous contracts for the repair of the private respondent’s vessels
were all oral and that the procedure consisted merely in the vessels being drydocked at the
ld 4-
petitioner’s shipyard and after repair the petitioner would just send the bill to the private
respondent, does not necessarily result in a conclusive presumption that all subsequent contracts
between the parties of similar or allied nature should also be oral and the procedure be the same.
r o 02
Tong Brothers Co. vs. Intermediate Appellate Court, 156 SCRA 726, No. L-73918 December 21,
1987
2
Reformation of an instrument is a remedy in equity where a valid existing contract is allowed

by law to be revised to express the true intentions of the contracting parties.Reformation of an
instrument is a remedy in equity where a valid existing contract is allowed by law to be revised
to express the true intentions of the contracting parties. The rationale is that it would be unjust
mr
to enforce a written instrument which does not truly reflect the real agreement of the parties. In
reforming an instrument, no new contract is created for the parties, rather, the reformed
instrument establishes the real agreement between the parties as intended, but for some reason,
was not embodied in the original instrument. Makati Tuscany Condominium Corporation vs.
Multi-Ready Development Corporation, 861 SCRA 448, G.R. No. 185530 April 18, 2018

0917 – 894 53 56
Page 40 of 56
Handout No. 22
Reformation of an instrument is a remedy in equity where a written instrument already

executed is allowed by law to be reformed or construed to express or conform to the real
intention of the parties.
Reformation of an instrument is a remedy in equity where a written instrument already executed
om
is allowed by law to be reformed or construed to express or conform to the real intention of the
parties. The rationale of the doctrine is that it would be unjust and inequitable to allow the
enforcement of a written instrument that does not express or reflect the real intention of the
.c
ma EV
parties. In the November 15, 2006 Decision, the CA denied petitioner spouses’ Complaint for
declaration of nullity of contract of sale on the ground that what was required was the
reformation of the instruments, pursuant to Article 1365 of the Civil Code. In ruling that the
il
@g -R
Deeds of Absolute Sale were actually mortgages, the CA, in effect, had reformed the instruments
based on the true intention of the parties. Thus, the filing of a separate complaint for reformation
of instrument is no longer necessary because it would only be redundant and a waste of time.
jr 47
Rosario vs. Alvar, 839 SCRA 138, G.R. No. 212731 September 6, 2017
an 01
Reformation is a remedy in equity, whereby a written instrument is made or construed so as to

express or conform to the real intention of the parties, where some error or mistake has been
committed.
ld 4-
An action for reform a contract is grounded on Article 1359 of the New Civil Code which provides:
ARTICLE 1359. When, there having been a meeting of the minds of the parties to a contract, their
r o 02
true intention is not expressed in the instrument purporting to embody the agreement, by reason
of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation
of the instrument to the end that such true intention may be expressed. x x x x Reformation is a
2
remedy in equity, whereby a written instrument is made or construed so as to express or conform

to the real intention of the parties, where some error or mistake has been committed. In granting
reformation, the remedy in equity is not making a new contract for the parties, but establishing
and perpetuating the real contract between the parties which, under the technical rules of law,
could not be enforced but for such reformation. In order that an action for reformation of
mr
instrument may prosper, the following requisites must concur: (1) there must have been a
meeting of the minds of the parties to the contract; (2) the instrument does not express the true
intention of the parties; and (3) the failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident. B.F. Corporation vs. Form-Eze
Systems, Inc., 813 SCRA 155, G.R. No. 192948 December 7, 2016

0917 – 894 53 56
Page 41 of 56
Handout No. 22
The requisites for reformation of the mortgage contract and promissory note are present where
there has been no meeting of minds of the parties upon said documents but the documents do
not express the parties’ true agreement on interest rates, which failure was due to the lender’s
inequitable conduct.
Petitioner negotiated for the renewal of his loan. As required by respondent bank, he paid the
interests due. Respondent bank then could not claim that there was no attempt on his part to
comply with his obligation. Yet, respondent bank hastily filed a petition to foreclose the mortgage
om
to gain the upperhand in taking petitioner’s four (4) parcels of land at bargain prices. Obviously,
respondent bank acted in bad faith. In sum, we find that the requisites for reformation of the
mortgage contract and promissory note are present in this case. There has been meeting of
.c
ma EV
minds of the parties upon these documents. However, these documents do not express the
parties’ true agreement on interest rates. And the failure of these documents to express their
agreement on interest rates was due to respondent bank’s inequitable conduct. Floirendo, Jr. vs.
il
@g -R
Metropolitan Bank and Trust Company, 532 SCRA 43, G.R. No. 148325 September 3, 2007
jr 47
Courts are duty-bound to exercise caution in the interpretation and resolution of contracts lest
the lenders devour the borrowers like vultures do with their prey.
an 01
This Court has recognized the reality that “[a]ll persons in need of money are liable to enter into
contractual relationships whatever the condition if only to alleviate their financial burden albeit
temporarily. Hence, courts are duty-bound to exercise caution in the interpretation and
ld 4-
resolution of contracts lest the lenders devour the borrowers like vultures do with their prey.”
While the lease agreement is clear in its terms, the factual milieu of this case militates against
upholding its validity. With the possibility of a pactum commissorium, Eupena’s ownership over
r o 02
the subject land becomes invalid. The lease agreement, upon which the unlawful detainer
complaint is based, is void. Eupena, thus, failed to prove the first element of an unlawful detainer
— i.e., that possession by Bobier was by a valid lease contract. Eupena vs. Bobier, 942 SCRA 62,
2
G.R. No. 211078 July 8, 2020
Article 1370 of the Civil Code on the interpretation of contracts mandates that the literal
meaning of the stipulations shall prevail if the contract’s terms are clear and leave no doubt as
mr
to the intention of the contracting parties. If, however, the words of the contract are contrary
to the evident intention of the parties, the intention of the parties shall be controlling.
Article 1370 of the Civil Code on the interpretation of contracts mandates that the literal meaning
of the stipulations shall prevail if the contract’s terms are clear and leave no doubt as to the
intention of the contracting parties. If, however, the words of the contract are contrary to the
evident intention of the parties, the intention of the parties shall be controlling. Thus: Art. 1370.
If the terms of a contract are clear and leave no doubt upon the intention of the contracting

0917 – 894 53 56
Page 42 of 56
Handout No. 22
parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to
the evident intention of the parties, the latter shall prevail over the former. Dupasquier vs.
Ascendas (Philippines) Corporation, 910 SCRA 180, G.R. No. 211044 July 24, 2019
om
In interpreting a contract, the primary function of the court is to determine whether its
wordings are clear and unambiguous. If so, the court is bound to apply the literal meaning of
the contract because the manifest intention of the parties is apparent. If the wordings,
.c
ma EV
however, are ambiguous and may lead to different interpretations, the court should determine
the actual intention of the contracting parties.
il
@g -R
In interpreting a contract, the primary function of the court is to determine whether its wordings
are clear and unambiguous. If so, the court is bound to apply the literal meaning of the contract
because the manifest intention of the parties is apparent. If the wordings, however, are
jr 47
ambiguous and may lead to different interpretations, the court should determine the actual
intention of the contracting parties. In the present case, while there is no doubt that the parties
intended that disputes be referred to arbitration, the parties, nonetheless, are in conflict as to
an 01
whether the Arbitration Clause is time-limited. Dupasquier vs. Ascendas (Philippines)

Corporation, 910 SCRA 180, G.R. No. 211044 July 24, 2019
ld 4-
Law and jurisprudence consistently hold that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
r o 02
control.
The Court does not agree with the contention of the petitioners that the condition pertaining to
2
the construction of the access road was complied with because the unpaved 16-m portion was
still reserved to be completed. The stipulation in the Deed of Donation is clear that the entire 36-
m property must be used for actual construction of the access road, and non-usage of even a
portion would constitute contravention of the Deed of Donation, especially in this case when a
substantial portion of the property ultimately remained unused for the stated purpose and object
mr
of the donation. Law and jurisprudence consistently hold that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control. Municipality of Dasmariñas vs. Campos, 909 SCRA 514, G.R. No.
232675 July 17, 2019

0917 – 894 53 56
Page 43 of 56
Handout No. 22
According to Article 1370 of the Civil Code, if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control.
According to Article 1370 of the Civil Code, if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
As previously held by the Court, pursuant to the aforesaid Civil Code provision, “the first and
om
fundamental duty of the courts is the application of the contract according to its express terms,
interpretation being resorted to only when such literal application is impossible.” The literal,
express, and plain meaning of the word termination is end of existence or conclusion. The
.c
ma EV
expiration of an agreement leads to the end of its existence and effectivity; an agreement has
reached its conclusion upon expiration. Upon close reading of the Franchise Agreements, there
is no provision therein which expressly limits, restricts, or confines the term termination to the
il
@g -R
cancellation of the agreements by the acts of the parties prior to their expiry date. There is no
provision in the Franchise Agreements which shows the parties’ alleged intent to exclude the
expiration of the agreements from the coverage of the word termination. Makati Water, Inc. vs.
jr 47
Agua Vida Systems, Inc., 906 SCRA 93, G.R. No. 205604 June 26, 2019
an 01
Under Article 1374 of the Civil Code, the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken
jointly.
ld 4-
Under Article 1374 of the Civil Code, the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken
r o 02
jointly. The Court has previously held that in construing an instrument with several provisions, a
construction must be adopted as will give effect to all. Under Article 1374 of the Civil Code,
contracts cannot be construed by parts, but clauses must be interpreted in relation to one
2
another to give effect to the whole. The legal effect of a contract is not determined alone by any
particular provision disconnected from all others, but from the whole read together. Makati
Water, Inc. vs. Agua Vida Systems, Inc., 906 SCRA 93, G.R. No. 205604 June 26, 2019
mr
Under the Civil Code, there are four (4) defective contracts, namely: (1) rescissible contracts; (2)
voidable contracts; (3) unenforceable contracts; and (4) void or inexistent contracts.
Under the Civil Code, there are four defective contracts, namely: (1) rescissible contracts; (2)
voidable contracts; (3) unenforceable contracts; and (4) void or inexistent contracts. However, it
has been opined that, strictly speaking, only the voidable and unenforceable contracts are
defective contracts and are the only ones susceptible of ratification unlike the rescissible ones
which suffer from no defect and the void or inexistent contracts which do not exist and are

0917 – 894 53 56
Page 44 of 56
Handout No. 22
absolute nullity. Thus, the four may be more appropriately categorized as species or forms of the
inefficacy of contracts. G. Holdings, Inc. vs. Cagayan Electric Power and Light Company, Inc.
(CEPALCO), 841 SCRA 234, G.R. No. 226213 September 27, 2017
Rescission has been defined as a remedy to make ineffective a contract validly entered into and
which is obligatory under normal conditions by reason of external causes resulting in a
om
pecuniary prejudice to one of the contracting parties or their creditors.
Rescission has been defined as a remedy to make ineffective a contract validly entered into and
.c
ma EV
which is obligatory under normal conditions by reason of external causes resulting in a pecuniary
prejudice to one of the contracting parties or their creditors. Rescission, which is a specie or form
of the inefficacy of contracts and operates by law and not through the will of the parties, requires
il
@g -R
the following: (1) a contract initially valid, and (2) a lesion or pecuniary prejudice to someone.
Under Article 1381 of the Civil Code, the following contracts are rescissible: (1) those which are
entered into by guardians whenever the wards whom they represent suffer lesion by more than
jr 47
one-fourth of the value of the things which are the object thereof; (2) those agreed upon in
representation of absentees, if the latter suffer the lesion stated in the preceding number; (3)
those undertaken in fraud of creditors when the latter cannot, in any manner, collect the claims
an 01
due them; (4) those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority; and (5) all other contracts specially declared by law to be subject to rescission. G.
ld 4-
Holdings, Inc. vs. Cagayan Electric Power and Light Company, Inc. (CEPALCO), 841 SCRA 234,
G.R. No. 226213 September 27, 2017
r o 02
Contract of sale in question not voidable under statute of frauds but rescissible under Articles
1380 to 1381(3).
2
The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto
could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that
private respondents are strangers to that agreement and therefore have no personality to seek
its annulment. The respondent court correctly held that the Contract of Sale was not voidable
mr
but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property to the petitioner without recognizing their
right of first priority under the Contract of Lease. Guzman, Bocaling & Co. vs. Bonnevie, 206 SCRA
668, G.R. No. 86150 March 2, 1992

0917 – 894 53 56
Page 45 of 56
Handout No. 22
Petitioner not deemed purchaser in good faith.
A purchaser in good faith and for value is one who buys the property of another without notice
that some other person has a right to or interest in such property and pays a full and fair price
for the same at the time of such purchase or before he has notice of the claim or interest of some
other person in the property. Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably
om
claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies
and such knowledge should have cautioned it to look deeper into the agreement to determine if
it involved stipulations that would prejudice its own interests. Guzman, Bocaling & Co. vs.
.c
ma EV
Bonnevie, 206 SCRA 668, G.R. No. 86150 March 2, 1992
il
@g -R
Under Article 1390 of the Civil Code, contracts where consent is vitiated by fraud is voidable.
Under Article 1390 of the Civil Code, contracts where consent is vitiated by fraud is voidable.
jr 47
Pursuant to Article 1391 of the same Code, the action for annulment of contracts where consent
is vitiated by fraud shall be brought within four years from the time of discovery of the same.
Applied in this case, the four-year period shall be reckoned from May 17, 1994, the time
an 01
petitioners gained knowledge of the fraudulent deed of the respondent. As correctly found by
the CA: A careful scrutiny of the records reveal[s] that at the time Cesario, Ciriaco and Domingo
Oberes executed the Affidavits of Waiver in favor of Gaudencio on May 17, 1994, they admitted
ld 4-
to have already obtained knowledge or information that [respondent] Adriano was claiming full
ownership over the subject land because he allegedly purchased the same from Gaudencio way
back February 21, 1973. During such time, Adriano’s vehement refusal to sign the affidavit of
r o 02
waiver and his insistence that he already purchased the property was already an indication of his
commission of fraud. Oberes vs. Oberes, 924 SCRA 542, G.R. No. 211422 October 16, 2019
2
Article 1390 of the Civil Code stipulates that a contract is voidable or annullable even if there is
no damage to the contracting parties where “consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.”
mr
For there to be a valid contract, all the three (3) elements of consent, subject matter, and price
must be present. Consent wrongfully obtained is defective. The party to a contract whose
consent was vitiated is entitled to have the contract rescinded. Accordingly, Article 1390 of the
Civil Code stipulates that a contract is voidable or annullable even if there is no damage to the
contracting parties where “consent is vitiated by mistake, violence, intimidation, undue influence
or fraud.” Poole-Blunden vs. Union Bank of the Philippines, 847 SCRA 146, G.R. No. 205838
November 29, 2017

0917 – 894 53 56
Page 46 of 56
Handout No. 22
Under Article 1344 of the Civil Code, the fraud must be serious to annul or avoid a contract and
render it voidable. This fraud or deception must be so material that had it not been present,
the defrauded party would not have entered into the contract.
Under Article 1344 of the Civil Code, the fraud must be serious to annul or avoid a contract and
render it voidable. This fraud or deception must be so material that had it not been present, the
defrauded party would not have entered into the contract. In the present case, even if FEBTC
represented that it will not register one of the REMs, PDCP cannot disown the REMs it executed
om
after FEBTC reneged on its alleged promise. As earlier stated, with or without the registration of
the REMs, as between the parties thereto, the same is valid and PDCP is already bound thereby.
The signature of PDCP’s President coupled with its act of surrendering the titles to the four
.c
ma EV
properties to FEBTC is proof that no fraud existed in the execution of the contract. Arguably at
most, FEBTC’s act of registering the mortgage only amounted to dolo incidente which is not the
kind of fraud that avoids a contract. Paradigm Development Corporation of the Philippines vs.
il
@g -R
Bank of the Philippine Islands, 826 SCRA 267, G.R. No. 191174 June 7, 2017
jr 47
Under the law, a voidable contract retains the binding effect of a valid one unless otherwise
annulled.
an 01
Under the law, a voidable contract retains the binding effect of a valid one unless otherwise
annulled. And as prescribed, the action for annulment shall be brought within four (4) years, in
cases of intimidation, violence or undue influence, from the time the defect of the consent
ld 4-
ceases. Unfortunately for respondents, the prescriptive period for annulment had long since
expired before they filed their Complaint. They cannot be permitted to circumvent the law by
belatedly attacking, collaterally and as an afterthought at that, the validity of the erstwhile
r o 02
voidable instrument in the present action for declaration of nullity of title. The validity of the
Extrajudicial Settlement cannot then be gainsaid. Ratified by their inaction, the document of
conveyance, as well as the consequences of its registration, would then bind the respondents.
2
This still holds true notwithstanding the glaring irregularities in the Petition for Approval. Obvious
to the eye and intellect as the errors may be, they are of no moment since the Extrajudicial
Settlement, a private writing and unpublished as it were, nevertheless remains to be binding
upon any person who participated thereon or had notice thereof. Pontigon vs. Heirs of Meliton
Sanchez, 812 SCRA 274, G.R. No. 221513 December 5, 2016
mr
Under Article 1390 of the Civil Code, contracts where the consent of a party was vitiated by
mistake, violence, intimidation, undue influence or fraud, are voidable or annullable.
Under Article 1390 of the Civil Code, contracts where the consent of a party was vitiated by
mistake, violence, intimidation, undue influence or fraud, are voidable or annullable. The
petitioner’s threat of nonpayment of the respondents’ salaries clearly amounted to intimidation.

0917 – 894 53 56
Page 47 of 56
Handout No. 22
Under this situation, and the suspect timing when these contracts were executed, we rule that
these employment contracts were voidable and were effectively questioned when the
respondents filed their illegal dismissal complaint. FVR Skills and Services Exponents, Inc.
(SKILLEX) vs. Seva, 739 SCRA 271, G.R. No. 200857 October 22, 2014
Once the formal requirement for the contract is absolute and indispensable, any procurement
contract that does not adhere to the requirement can only be deemed invalid and
om
unenforceable.
It is also true that a contract that has all the essential requisites for its validity is binding between
.c
ma EV
the parties regardless of its form. But when the law requires that a contract be in some form in
order that it may be valid or be enforceable, or demands that a contract he proved in a certain
way, the requirement of a particular form or manner is absolute and indispensable. Once the
il
@g -R
formal requirement for the contract is absolute and indispensable, any procurement contract
that does not adhere to the requirement can only be deemed invalid and unenforceable. As such,
every letter-quotation signed by an unauthorized purchaser in behalf of a government agency in
jr 47
a manner contrary to the loan agreement with the foreign lender and contrary to the local
procurement law can only be a mere scrap of paper that cannot by any means be accorded any
validity or enforceability. Re: Contracts with Artes International, Inc., 876 SCRA 392, A.M. No.
an 01
12-6-18-SC August 7, 2018

ld 4-
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is
r o 02
revoked by the other contracting party.
“It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name
2
of another without being authorized by the latter, or unless he has by law a right to represent
him. A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked
by the other contracting party.” Considering that the sale was executed by an agent whose
mr
authority, be it actual or apparent, had been revoked, the transaction is unenforceable pursuant
to Article 1317 and 1403(1) of the Civil Code which read: Article 1317. No one may contract in
the name of another without being authorized by the latter, or unless he has by law a right to
represent him. A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is
revoked by the other contracting party. (1259a) ART. 1403. The following contracts are
unenforceable, unless they are ratified: (1) Those entered into the name of another person by

0917 – 894 53 56
Page 48 of 56
Handout No. 22
one who has been given no authority or legal representation, or who has acted beyond his
powers; x x x. Bitte vs. Jonas, 777 SCRA 489, G.R. No. 212256 December 9, 2015
One can sell only what one owns or is authorized to sell, and the buyer can acquire no more
right than what the seller can transfer legally.
Considering that the deed of absolute sale was executed at a time when Spouses Bitte were
om
deemed notified of the termination of the agency, the sale must be treated as having been
entered into by Andrea in her personal capacity. One can sell only what one owns or is authorized
to sell, and the buyer can acquire no more right than what the seller can transfer legally.
.c
ma EV
Accordingly, Spouses Bitte acquired no better title than what Andrea had over the property,
which was nil. In sum, the deed of absolute sale executed by Andrea in favor of Spouses Bitte is
unenforceable against Rosa Elsa because of their notice of the revocation of the agency. Bitte vs.
il
@g -R
Jonas, 777 SCRA 489, G.R. No. 212256 December 9, 2015
jr 47
Absent such signature, petitioner and/or its sister company could not have accepted the offer
made by Montecalvo, Sr. to sell those “certain portions adjoining the logging road of
[petitioner] or the entirety of the said land.”
an 01
In the present case, the Court finds that the trial court overlooked the fact that the November
28, 1984 Agreement was not signed by Valeriano Bueno, the representative of petitioner’s sister
ld 4-
company–prospective vendee. Absent such signature, petitioner and/or its sister company could
not have accepted the offer made by Montecalvo, Sr. to sell those “certain portions adjoining the
logging road of [petitioner] or the entirety of the said land.” The agreement was thus not
r o 02
perfected and therefore created or transmitted no rights. Looc Bay Timber Industries, Inc. vs.
Intestate Estates of Victor Montecalvo, 556 SCRA 758, G.R. No. 174925 June 30, 2008
2
Any transaction entered by the wife without the court or the husband’s authority is
unenforceable.
While the husband is the recognized administrator of the conjugal property under the Civil Code,
mr
there are instances when the wife may assume administrative powers or ask for the separation
of property. In the above-mentioned instances, the wife must be authorized either by the court
or by the husband. Where the husband is absent and incapable of administering the conjugal
property, the wife must be expressly authorized by the husband or seek judicial authority to
assume powers of administration. Thus, any transaction entered by the wife without the court
or the husband’s authority is unenforceable in accordance with Article 1317 of the Civil Code.
That is the status to be accorded Contract to Sell No. 2491-V, it having been executed by

0917 – 894 53 56
Page 49 of 56
Handout No. 22
petitioner Marcelina without her husband’s conformity. Fabrigas vs. San Francisco del Monte,
Inc., 476 SCRA 247, G.R. No. 152346 November 25, 2005
Unenforceable contracts are susceptible to ratification.
Being an unenforceable contract, Contract to Sell No. 2491-V is susceptible to ratification. As

found by the courts below, after being informed of the execution of the contract, the husband,
om
petitioner Isaias Fabrigas, continued remitting payments for the satisfaction of the obligation
under Contract to Sell No. 2491-V. These acts constitute ratification of the contract. Such
ratification cleanses the contract from all its defects from the moment it was constituted. The
.c
ma EV
factual findings of the courts below are beyond review at this stage. Fabrigas vs. San Francisco
del Monte, Inc., 476 SCRA 247, G.R. No. 152346 November 25, 2005
il
@g -R
Interpreting Article 1529 of the old Civil Code, the Supreme Court has ruled that the nullity of
the unenforceable contract is of a permanent nature and it will exist as long as the
jr 47
unenforceable contract is not duly ratified.
While it is true that the Court of Appeals upheld the validity the Deed of Sale, it nevertheless
an 01
correctly ruled that the sale by Maria Baltazar of her children’s share was invalid. From its
execution up to the time that an action for reconveyance was instituted below by the private
respondents and to the present, the Deed of Sale of August 26, 1948, remained unenforceable
ld 4-
as to private respondents Procerfina, Ramon, Prosperidad, and Rosa. Article 1529 of the old Civil
Code, which was the prevailing law in 1948 and thus governed the questioned Deed of Sale,
clearly provided that a contract is unenforceable when there is an absence of authority on the
r o 02
part of one of the contracting parties. Interpreting Article 1529 of the old Civil Code, the Court
has ruled that the nullity of the unenforceable contract is of a permanent nature and it will exist
as long the unenforceable contract is not duly ratified. The mere lapse of time cannot give efficacy
2
to such a contract. The defect is such that it cannot be cured except by the subsequent ratification
of the unenforceable contract by the person in whose name the contract was executed. In the
instant case, there is no showing of any express or implied ratification of the assailed Deed of
Sale by the private respondents Procerfina, Ramon, Prosperidad, and Rosa. Thus, the said Deed
of Sale must remain unenforceable as to them. Villanueva-Mijares vs. Court of Appeals, 330
mr
SCRA 349, G.R. No. 108921 April 12, 2000
Void contracts cannot be ratified and the right to set up the defense of illegality cannot be
waived.
Under Article 1409 of the Civil Code, the following contracts are inexistent and void from the
beginning: (1) those whose cause, object or purpose is contrary to law, morals, good customs,

0917 – 894 53 56
Page 50 of 56
Handout No. 22
public order or public policy; (2) those which are absolutely simulated or fictitious; (3) those
whose cause or object did not exist at the time of the transaction; (4) those whose object is
outside the commerce of men; (5) those which contemplate an impossible service; (6) those
where the intention of the parties relative to the principal object of the contract cannot be
ascertained; and (7) those expressly prohibited or declared void by law. These contracts cannot
om
be ratified and the right to set up the defense of illegality cannot be waived. Further, the action
or defense for the declaration of the inexistence of a contract does not prescribe. G. Holdings,
Inc. vs. Cagayan Electric Power and Light Company, Inc. (CEPALCO), 841 SCRA 234, G.R. No.
.c
ma EV
226213 September 27, 2017
il
@g -R
“Rescission” and “Nullity,” Distinguished
Rescission and nullity can be distinguished in the following manner: (a) by reason of the basis —
jr 47
rescission is based on prejudice, while nullity is based on a vice or defect of one of the essential
elements of a contract; (2) by reason of purpose — rescission is a reparation of damages, while
nullity is a sanction; (3) by reason of effects — rescission affects private interest while nullity
an 01
affects public interest; (4) by reason of nature of action — rescission is subsidiary while nullity is
a principal action; (5) by reason of the party who can bring action — rescission can be brought by
a third person while nullity can only be brought by a party; and (6) by reason of susceptibility to
ld 4-
ratification — rescissible contracts need not be ratified while void contracts cannot be ratified.
They can likewise be distinguished as follows: (1) as to defect: In rescissible contracts, there is
damage or injury either to one of the contracting parties or to third persons; while in void or
r o 02
inexistent contracts, one or some of the essential requisites of a valid contract are lacking in fact
or in law; (2) As to effect: The first are considered valid and enforceable until they are rescinded
by a competent court; while the latter do not, as a general rule, produce any legal effect; (3) As
2
to prescriptibility of action or defense: In the first, the action for rescission may prescribe; while
in the latter, the action for declaration of nullity or inexistence or the defense of nullity or
inexistence does not prescribe; (4) As to susceptibility of ratification: The first are not susceptible
of ratification, but are susceptible of convalidation; while the latter are not susceptible of
ratification; (5) As to who may assail contracts: The first may be assailed not only by a contracting
mr
party but even by a third person who is prejudiced or damaged by the contract; while the latter
may be assailed not only by a contracting party but even by a third party whose interest is directly
affected; (6) As to how contracts may be assailed: the first may be assailed directly, and not
collaterally; while the latter may be assailed directly or collaterally. G. Holdings, Inc. vs. Cagayan
Electric Power and Light Company, Inc. (CEPALCO), 841 SCRA 234, G.R. No. 226213 September
27, 2017

0917 – 894 53 56
Page 51 of 56
Handout No. 22
The defense of illegality of contracts is not available to third persons whose interests are not
directly affected.
In the present case, petitioner questions the validity of the Deed of Absolute Sale dated February
26, 2003 and seeks its nullification, “on the ground of fraud x x x [and] Lot 2 Psd 214 777 [being]
a road lot.” While a fraudulent contract is not expressly provided in Article 1409 of the Civil Code
as one of those which are inexistent and void from the beginning, “[t]hose whose object is outside
the commerce of men” are part of the enumeration therein. Since the issue concerns the nullity
om
of the contract being questioned, the applicable provision of the Civil Code is not Article 1397,
but Article 1421 - “The defense of illegality of contracts is not available to third persons whose
interests are not directly affected.” XXX While the operative phrase in Article 1397 is “obliged
.c
ma EV
principally or subsidiarily” and its precursor, Article 1302, ‘‘principally or subsidiarily obligated,”
and in Article 1421 “interests not directly affected”, there is no cogent reason to depart from the
Court’s pronouncements in House International Building Tenants regarding “interest” as
il
@g -R
referring to “material interest” and not mere “incidental interest” in relation to the definition of
a real party in interest under Section 2, Rule 3 of the Rules, who can assail the illegality of the
contract under Article 1421. Also, the “indispensable” burden in Ibañez “to show the detriment
jr 47
which positively would result to [the third person/party] from the contract in which he[/she] had
no intervention” has to be hurdled. XXX In Ibañez, the Court found the absence of prejudice
because of the failure to show a preferred right on the part of the third person while in Compania
an 01
General de Tabacos, the nullity of the contract would not have created any preferential right in
favor of the third person since the subject property therein would just be reverted back to the
State and the seller would be obliged to return the purchase price to the State. In House
ld 4-
International Building Tenants, the third party tenants’ association had no material interest, or
interest in issue, in assailing the conditional sale because it was not a tenant, whose right was
directly prejudiced thereby. XXX The Court notes that all the RTC found regarding the damage
r o 02
suffered by petitioner and Sta. Lucia Realty “[b]ecause of all the [questioned] acts committed by
respondents in relation [to] the rights of [petitioner and Sta. Lucia Realty, their] good name and
reputation were damaged.” Clearly, such damage or prejudice does not even approximate the
2
material interest required of a real party in interest. Neither can it be considered “an interest
directly affected” by the Deed of Absolute Sale sought to be nullified. And, it is definitely not the
interest in issue in a contract nullification suit. XXX If the questioned Deed of Absolute Sale were
nullified, the same effect as in Compania General de Tabacos would result. Subject Lot 2, which
is alleged as road lot, would revert back to the State and Lourdes would return the purchase price
mr
which she received from the Republic through the DPWH. No preferential right over Lot 2 would
inure in petitioner’s favor. Similarly, no direct prejudice would befall upon petitioner with its
nullification since similar to Ibañez it would not have any preferred right over Lot 2. If at all, the
interest of petitioner that might have been affected by the questioned Deed of Absolute Sale
would be merely incidental, not material, given the absence of any direct, positive prejudice on
its part. The supposed interest of petitioner in Lot 2 is simply not in issue in resolving whether
the questioned Deed is void. Using the parameters which the Court used in determining the
nature of the interest of, and prejudice to the third party in Compania General de Tabacos,

0917 – 894 53 56
Page 52 of 56
Handout No. 22
Ibanez, and House International Building Tenants, the interest of petitioner in the nullification of
the Deed of Absolute Sale in question is merely incidental and petitioner has not mustered the
indispensable burden of proof of the prejudice that it would positively suffer if the said Deed is
not nullified. Thus, it failed in proving that its interests are directly affected by the questioned
Deed of Absolute Sale. That being the case, petitioner is not a real party in interest to challenge
its validity. Rapid City Realty and Development Corporation vs. Lourdes Estudillo Paez-Cline
alias Lourdes Paez-Villa, et al., G.R. No. 217148, December 7, 2021; Ibañez vs. Hongkong and
Shanghai Banking Corporation, 22 Phil. 572 (1912)
om
For a deed of sale or any contract to be valid, Article 1318 of the Civil Code provides that three
.c
ma EV
(3) requisites must concur, namely: (1) the consent of the contracting parties; (2) the object;
and (3) the consideration. All these elements must be present to constitute a valid contract. The
absence of one (1) renders the contract void.
il
@g -R
For a deed of sale or any contract to be valid, Article 1318 of the Civil Code provides that three
requisites must concur, namely: (1) the consent of the contracting parties; (2) the object; and (3)
jr 47
the consideration. All these elements must be present to constitute a valid contract. The absence
of one renders the contract void. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. A
an 01
contract of sale is consensual, as such it is perfected by mere consent. For consent to be valid,
the following requisites must concur: (a) it should be intelligent, or with an exact notion of the
matter to which it refers; (b) it should be free; and (c) it should be spontaneous. Intelligence in
ld 4-
consent is vitiated by error; freedom by violence, intimidation or undue influence; and

spontaneity by fraud. Oberes vs. Oberes, 924 SCRA 542, G.R. No. 211422 October 16, 2019
r o 02
The fact that petitioner Gaudencio was illiterate does not prove that he did not enter into the
sale transaction.
2
In asserting the invalidity of the deed of sale, petitioners staunchly maintain that petitioner
Gaudencio did not sign the same. To prove such claim, petitioners aver that he was unschooled
and did not know how to read, write, and sign his name. However, the fact that petitioner
Gaudencio was illiterate does not prove that he did not enter into the sale transaction. It does
mr
not escape this Court’s notice that petitioners never denied nor put in issue the authenticity of
the signatures appearing in the questioned deed of sale of petitioner Gaudencio’s wife, who
signified her consent to the sale of the disputed lot; and of Ben Cañada, the barangay captain and
Policarpio Labajo, his father-in-law who stood as witnesses thereto. Neither was there evidence
presented showing that petitioner Gaudencio was tricked or coerced into signing the deed of
sale. These show that petitioner Gaudencio intended to enter into the contract of sale. Oberes
vs. Oberes, 924 SCRA 542, G.R. No. 211422 October 16, 2019

0917 – 894 53 56
Page 53 of 56
Handout No. 22
The declaration of nullity of a contract which is void ab initio operated to restore things to the
state and condition in which they were found before the execution thereof.
Jurisprudence teaches that “the declaration of nullity of a contract which is void ab initio
operated to restore things to the state and condition in which they were found before the
execution thereof.” As such, the trial court and the CA ordered the return of the certificates of
title to the name of the Spouses Gaddi. Moreover, to prevent unjust enrichment, the Gaddis
should return the amount of P400,000.00 with legal interest to Arakor, although the total amount
om
should be deducted from the estate of Fernando, Sr. as there is an assumption that he received
the consideration as the remaining living owner of the properties at the time. There was no
sufficient proof offered to show that Efren also received part of the money, amidst the Gaddis’
.c
ma EV
allegation that he procured a loan from Atty. Legaspi. In other words, “the restitution of what
each party has given is a consequence of a void and inexistent contract.” Arakor Construction
and Development Corporation vs. Sta. Maria, 967 SCRA 592, G.R. No. 215006 January 11, 2021
il
@g -R
A fundamental characteristic of void or inexistent contracts is that the action for the declaration
jr 47
of their inexistence does not prescribe; nor may the right to set up the defense of their
inexistence or absolute nullity be waived or renounced.
an 01
The procedural faults committed by petitioners no longer deserve consideration. Their choice of
remedy is irrelevant given the spectre of patent illegality that surrounds the levy and sale of
petitioners’ property by the City of Makati to Laverne. A fundamental characteristic of void or
ld 4-
inexistent contracts is that the action for the declaration of their inexistence does not prescribe;
nor may the right to set up the defense of their inexistence or absolute nullity be waived or
renounced. Void contracts are equivalent to nothing and are absolutely wanting in civil effects;
r o 02
they cannot be validated either by ratification or prescription. Cruz vs. City of Makati, 880 SCRA
131, G.R. No. 210894 September 12, 2018
2
ESTOPPEL (CIVIL CODE, ARTS. 1431-1439)

As applied to jurisdictional challenges, estoppel by laches is the failure to timely raise a court’s
lack of jurisdiction, ultimately resulting in a binding judgment, not because said judgment is
valid as an adjudication, but because public policy looks with disfavor on the belated invocation
mr
of jurisdictional issues.
Estoppel by laches has been broadly defined as “failure or neglect for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence, could or should have
been done earlier.” As applied to jurisdictional challenges, it is the failure to timely raise a court’s
lack of jurisdiction, ultimately resulting in a binding judgment, not because said judgment is valid
as an adjudication, but because public policy looks with disfavor on the belated invocation of

0917 – 894 53 56
Page 54 of 56
Handout No. 22
jurisdictional issues. Notwithstanding the unequivocal dictum in Sibonghanoy, it must be

emphasized that the general rule remains to be that jurisdiction is not to be left to the will or
stipulation of the parties; it cannot be lost by estoppel. Such emphasis is called for because, as
the Court pointed out in Calimlim, et al. v. Hon. Ramirez, etc., et al., 118 SCRA 399 (1982), a
jurisprudential trend was starting to emerge where estoppel was applied to bar jurisdictional
om
challenges even in situations not contemplated by Sibonghanoy. Victoria Manufacturing
Corporation Employees Union vs. Victoria Manufacturing Corporation, 910 SCRA 376, G.R. No.
234446 July 24, 2019
.c
ma EV
Under Article 1431 of the Civil Code, “through estoppel an admission or representation is
il
@g -R
rendered conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon.”
jr 47
While Article 493 of the Civil Code may not squarely cover the situations wherein a co-owner,
without the consent of the other co-owners, alienate, assign or mortgage: (1) the entire co-
owned property; (2) a specific portion of the co-owned property; (3) an undivided portion less
an 01
than the part pertaining to the disposing co-owner; and (4) an undivided portion more than the
part pertaining to the disposing co-owner, the principle of estoppel bars the disposing co-owner
from disavowing the sale to the full extent of his undivided or pro indiviso share or part in the co-
ld 4-
ownership, subject to the outcome of the partition, which, using the terminology of Article 493,
limits the effect of the alienation or mortgage to the portion that may be allotted to him in the
division upon termination of the co-ownership. Under Article 1431 of the Civil Code, “[t]hrough
r o 02
estoppel an admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.” Bulatao vs. Estonactoc,
927 SCRA 535, G.R. No. 235020 December 10, 2019
2
Fundamental is the rule that the State cannot be estopped by the omission, mistake or error of
its officials or agents. Fundamental is the rule that the State cannot be estopped by the omission,
mistake or error of its officials or agents. Thus, neither the DoE’s June 10, 1998 letter to the
mr
Province of Palawan nor President Ramos’ A.O. No. 381, which acknowledged Palawan’s share in
the Camago-Malampaya project, will place the Republic in estoppel as they had been based on a
mistaken assumption of the LGU’s entitlement to said allocation. Erroneous application and
enforcement of the law by public officers do not preclude subsequent corrective application of
the statute. Republic vs. Provincial Government of Palawan, 888 SCRA 1, G.R. No. 170867
December 4, 2018

0917 – 894 53 56
Page 55 of 56
Handout No. 22
The Bureau of Internal Revenue (BIR) could not hide behind the doctrine of estoppel to cover its
failure to comply with its own procedures.
The Court of Tax Appeals’ reliance on the general rule enunciated in Commissioner of Internal
Revenue v. Kudos Metal Corporation, 620 SCRA 232 (2010), is proper. In that case, this Court
ruled that the Bureau of Internal Revenue could not hide behind the doctrine of estoppel to cover
its failure to comply with its own procedures. “[A] waiver of the statute of limitations [is] a
om
derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations
[and thus, it] must be carefully and strictly construed.” Commissioner of Internal Revenue vs.
Avon Products Manufacturing, Inc., 881 SCRA 451, G.R. Nos. 201398-99 October 3, 2018
.c
ma EV
No party should be precluded from making out his case according to its truth unless by force of
il
@g -R
some positive principle of law, and, consequently, estoppel in pais must be applied strictly and
should not be enforced unless substantiated in every particular.
jr 47
Moralde is estopped by his own actions. He cannot be allowed to “go back on his own acts and
representations to the prejudice of the [Civil Service Commission and the Province, both of which
have] relied upon them.” Estoppel is not to be lightly invoked. In Kalalo v. Luz, 34 SCRA 337 (1970),
an 01
this Court clarified: Estoppel. . . [is] harsh or odious, and not favored in law. When misapplied,
[it] becomes a most effective weapon to accomplish an injustice, inasmuch as it shuts a man’s
mouth from speaking the truth and debars the truth in a particular case. [It] cannot be sustained
ld 4-
by mere argument or doubtful inference; it must be clearly proved in all its essential elements by
clear, convincing and satisfactory evidence. No party should be precluded from making out his
case according to its truth unless by force of some positive principle of law, and, consequently,
r o 02
estoppel in pais must be applied strictly and should not be enforced unless substantiated in every
particular. Civil Service Commission vs. Moralde, 877 SCRA 473, G.R. No. 211077 August 15,
2018
2
For estoppel to exist, it is indispensable that there be a declaration, act or omission by the party
who is sought to be bound.
mr
Estoppel has its roots in equity. It is a response to the demands of moral right and natural justice.
For estoppel to exist, it is indispensable that there be a declaration, act or omission by the party
who is sought to be bound. It is equally a requisite that he, who would claim the benefits of such
a principle, must have altered his position, having been so intentionally and deliberately led to
comport himself; thus, by what was declared or what was done or failed to be done. Philippine
Stock Exchange, Inc. vs. Litonjua, 812 SCRA 121, G.R. No. 204014 December 5, 2016

0917 – 894 53 56
Page 56 of 56

HO 22 - Civil Law - Obligations and Contracts PDF

Uploaded by

Copyright:

Available Formats

You might also like

HO 22 - Civil Law - Obligations and Contracts PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

HO 22 - Civil Law - Obligations and Contracts PDF

Uploaded by

Copyright:

Available Formats

2024 BAR REVIEW CIVIL LAW

Article 1174 of the New Civil Code.

Legal Edge Bar Review 0942 – 949 91 76

guilty of fraud are liable for damages.

Legal Edge Bar Review 0942 – 949 91 76

Article 1191 of the Civil Code provides:

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Philippines, Inc., G.R. No. 223825, January 20, 2020

A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

or determinable through a simple arithmetical operation. Compensation cannot extend to

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

CSTC’s indebtedness cannot be considered as due and liquidated.

to novate an obligation is by changing its object, cause, or principal conditions. A necessary

Legal Edge Bar Review 0942 – 949 91 76

Novation is one of the means to extinguish an obligation where a subsequent obligation

Legal Edge Bar Review 0942 – 949 91 76

Novation is never presumed.

Legal Edge Bar Review 0942 – 949 91 76

As held in Spouses Bonrostro vs. Spouses Luna:

immediately realized payment if he had accepted the tender, followed by a

Spouses Sergio D. Domasian and Nenita F. Domasian vs. Manuel T. Demdam,

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Novation is a mode of extinguishing an obligation by changing its objects or principal

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations,

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

206037 March 13, 2017

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

of unfavorable developments. It is therefore only in absolutely exceptional changes of

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

pasig Land Development Corporation, 567 Phil. 565 (2008)

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Voluntariness of stipulations on interest rates is not sufficient to make the interest

The imposition of an unconscionable rate of interest on a money

debt, even if knowingly and voluntarily assumed, is immoral and

has no support in law, in principles of justice, or in the human

within the sphere of public or private morals.

discretionary power to equitably reduce it if it is later found to be iniquitous or

This presumption is disputable and may be overthrown by preponderance of evidence to the

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

whether express or implied, must be absolute. An acceptance is considered absolute and

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76