CONTRACTS

What is a contract
Validity
Governed by 1306 but not an absolute right
Terms and conditions of the contract cannot be contrary to law void
Contract of pledge debtor will be liable for deficiency void
Creditor cannot recover notwithstanding any stip to the contrary
Under 1484 (sale on installment basis), the contract will be void
Must not be contrary to public policy
Cui vs Arellano University
Return benefits if scholar will transfer to another school contrary to
public policy
Mutuality 1308
Contracts are binding bet parties
Respect terms and conditions of contract
If you do not comply 1191
-Specific performance w damages
-Rescission w damages
1311
Contracts may affect heirs, assignees
IF you are an heir and you inherit, there is an encumbrance do you
need to pay in order to remove the encumbrance? YES
Stipulation in favor of a third person
Card holder you are a third person because that is a contract bet the
card company and accredited establishment. Food, services,
accommodation = the card is a mode of settlement of an obligation
For as long as the card has not been cancelled or expired it must be
honored
May a third person be liable for damages if one of the parties of a
contract violate the contract? Art 1314
Interference of a third person
As a rule, a third person cannot be made liable for damages if one of
the parties of the contract violate the terms of the same because of
lack of privity. However, the rule is not absolute because when a third
person induces a party to a contract to violate the same, he shall be
liable. The liability however is not based on contract but based on tort.
How are contracts perfected?
It depends upon the nature of a contract.
Consensual mere consent
Ex. Contract of sale 1475

Real perfected by delivery of the object of the contract

Ex. Mutuum
If I came to you to borrow money but it was too early, you gave me a
check. The moment I go to the bank and the proceeds are delivered,
there is mutuum.
Naguiat vs CA G.R. No. 118375, October 3, 2003
BPI Investment Corporation v. Court of Appeals, G.R. No. 133632,
It remains a consensual agreement to lend money at a future time
while the proceeds are not yet delivered.
When is there consent?
Meeting of the minds bet the parties with respect to the object and the
cause or consideration.
There must be an absolute similarity between offer and acceptance
If there is a counter offer, there is no meeting of minds
Discount counter offer
Elements
Consent
How is it manifested?
Ex. Delivery of earnest money
May be proven by Evidence aliunde
Sale in a newspaper
Calabarzon 50 hectares , residential area,
Sent a letter: Asked for discount P500M
Negotitations made thru letters
You can prove consent thru the series of communications made
Cause
If the contract doesnt state the cause there is a presumption of
consideration
Even if the document does not state how much was paid, it is
presumed that it has been paid unless the contrary is proven
It is not usual to part with a thing without a valuable consideration
reason for the presumption
Object
Cannot stipulate on future inheritance 905, 1347
Your right over future inheritance is a mere inchoate right therefore it
cannot be renounced or waived
Ferrer vs. Diaz G.R. No. 165300, April 23, 2010 (waiver of future
inheritance)
Cannot renounce/waive which you do not own

1324 Option Contract

1479 must be taken together
Mr. A owns house and lot communicated w Mr. b, selling house and lot,
giving option to buy but must be paid before end of Dec. granted an
option
If you accept option there is an option contract
Separate and distinct from contract of sale
Consideration may be money, prop or something of value
Can it be in the form of an undertaking? Serra vs. CA G.R. No. 103338,
January 4, 1994
Contract of lease in Sorsogon, RCBC and Serra contract of lease over
property of Serra where RCBC will construct a bldg. to extend banking
services to Sorsogon. The lessee shall have the option to buy the
property during the duration of the contract of lease. Mr Serra refused
to sell
Serra claimed that he was not bound by the option because there is no
consideration distinct from the price
Action for specific performance was filed
He argued that in order that the contract of option be enforced, there
must be a consideration distinct from the price
To preserve the right, there must be a consideration distinct from the
price
The SC ruled there was a consideration
If ever the lessee will not exercise option to buy, the lessor will be the
owner of the bldg. built on the land
Consideration may be in the form of undertaking
Bible Baptist Church vs. CA, G.R. No. 126454, November 26, 2004
Undertaking must be expressly provided for in the contract
Vda. De Quirino vs. Palarca G.R. No. L-28269, August 15, 1969
Fraud, intimidation, threat
Vitiation of consent voidable
Equitable mortgage 1602
FORMS
Valid in whatever form
But if the law requires form, not essential for validity but only
enforceability
May be oral or in writing

If required in order that the contract to be valid absolute and

mandatory
Statute of Frauds, donation, partnership contributing real prop
PNB vs. Aznar G.R. No. 171805, May 30, 2011
Ex. BOD met yesterday. Since the business has been very good they
decided that it is time to pay back employees. They made a board
resolution granting bonuses for 10 months. They put it into writing but
was not signed. That is a written agreement which can be enforced
within 10 years. For as long as it was adopted unanimously, even if not
signed, it was construed as a written agreement. Valid in whatever
form
Can it be in the form of series of communications? Yes
Agreement on price, date of payment
Is there a written contract? Yes thru series of communications
Kinds of contracts
Rescissible
Voidable
Unenforceable
Void
Void as if it was not existing at all
No prescription
If marriage is void, no period required to declare it void
2 kinds of voidable
1 party incapable of giving consent = voidable
2 parties incapable = unenforceable
fraud voidable
but may be ratified
1396 cleanses the contract of the defect from the commencement.
Retroactive
valid until annulled
rescissible/unenforceable paglalaruan ng bar examiner
Void enumerate
Rescissible 1381
Minor and absentee
Guardian / parent
lesion

subj of litigation
in fraud of creditors
1191 must be a party to the contract; basis is breach that is material
or substantial
1381 may not be a party to a contract; basis is lesion
sale in fraud of creditors
Guzman, Bocaling and Co. vs. Bonnevie, G.R. No. 86150, March 2, 1992
Contract of lease over a bldg.
If lessor will decide to sell, the lessee must be notified so he may
exercise right of first refusal. However if lessee cannot avail, the lessor
may sell to another under terms and conditions as that offered to the
lessee
Lessor notified lessee must be paid before Nov 30, in cash
Lessee: I cannot avail of it but you can sell it in accordance with
contract. But must be same terms and conditions
Lessee filed an action to annul the contract; will not prosper because
he is not a primary party to the contract
Void cannot be. There is COC
Remedy: file an action for rescission
SC ruled: There was a sale in fraud of creditors the sale which was
under lesser terms and conditions
Why? Since when has the lessee been a creditor? The lessee must be
elevated to the status of a creditor, because the lessee acquired a
substantial interest over the property because of the right of first
refusal. The lessor sold it to another person for easier terms and
conditions in violation of the contract.
If ever lessor will decide to sell, lessee must be notified so he can
exercise the option to buy provided P30M will be paid in cash at the
end of December. Lessee agreed. However lessor sold it to another.
Lessee not option to buy, only right of first refusal
Lessor violated right of first refusal
The contention of the lessor is not correct. It is a lease contract with
right of first refusal.
Option to buy there should have been a consideration distinct from
the price; the price to be paid is fixed; period to pay is fixed
Right of first refusal no need for consideration distinct from the price;
the price to be paid is not yet fixed, determinable; period to pay not
yet fixed
Sale on installment basis there is mortgage.

If there is a law providing remedy, rescission is a mere subsidiary

action. Principal action is foreclosure.
Statute of Frauds
agent who exceeded scope of authority
Iglesia Filipina Independentie vs. Heirs of Taeza G.R. No. 179597,
February 3, 2014
- trustee of an implied trust 1456
10 year period counted from date of registration
sale of immovable but only oral agreement
not enforceable
act will not be performed until after the lapse of one year
act for debt default or miscarriage
covers only executory contracts
partly executed not governed by SOF
personal defense which can be waived if you do not invoke it
natural and civil
natural equity; cannot go to court;
civil contract/law; can go to court;
DBP vs. Adil G.R. No. L-48889, May 11, 1989
Natural converted to civil
Asked for extension to pay a prescribed obligation bec of
acknowledgment and request for reconstructing

SALES
What is a contract of sale?
1485
one binds himself to transfer ownership for money or its equivalent
equivalent of money may be a check
how do you transfer? Delivery
it is by delivery by which the vendee becomes the vendor not the
payment of the price or consideration
bought car, delivered today but payable after Chritmas. Am I the
owner? Yes
bought house and lot I have not paid you bec payment will be in Jan.
there is delivery, there is already ownership.

Check paid was dishonored but there is delivery there is ownership.

Car was lost while in the possession of the buyer but has not paid. Res
perit domino. Moment object is delivered, vendee is owner so he bears
the risk of loss.
Installment basis
Vendor is reserving right of ownership until full payment (installment
basis). Lawyers Cooperative Publishing Company vs Tabora, G.R. No. L21263, April 30, 1965
The buyer contended that seller is still owner because he was not yet
fully paid
SC ruled: When books were delivered, seller already became the owner
Reservation of title is only a mere security for the payment of the
balance. It does not defeat the fact that when the books were
delivered, buyer became owner.
kinds of delivery
actual
constructive
traditio brevi manu
longa manu
constitutum possessorium
*important part of the law on sales
can you donate/sell something that does not belong to you
donate no
sell yes 1459
it is not necessary that the vendor be the owner at the time of sale, but
at the time of delivery because it is at that time when delivery is
vested on the vendee
contract of sale/contract to sell
vest ownership moment of delivery/no ownership is passed
resolutory condition/suspensive condition(payment of the price, seller
will be obligated to sell)
consensual
can it be perfected thru telephone? Yes as long as there is COC
may be in any form
1483 may be oral, in writing but w/o prejudice to Statute of Frauds
1484
remedies in case of failure to pay

enforce
cancel
foreclose
not cumulative because they are exclusive
contract provides that buyer will still pay deficiency. There was
foreclosure. balance was not paid 500k deficiency
can you ask for the deficiency?
Complaint for sum of money will not prosper
If there is foreclosure, vendee cannot be required to pay the balance
Absolute prohibition under recto law
Magna Financial vs Colarina, G.R. No. 158635, December 9, 2005
In order to prevent unscrupulous sellers from foreclosing mortagage at
a very low price and then still recover deficiency
Prohibitory part of the law
Can the co-signer of a promissory note be made to pay ? no
-circumvention
A borrowed money from the bank mortgage on the car. If the car is sold
for less, can the bank recover deficiency? Yes under chattel mortgage
law. Will your answer be the same if the car was sold in installments?
No, under recto law
sale bet husband and wife
sale bet lawyer and judge
effect of delivery again?
Res perit domino
If you reject delivery, do it within reasonable time
Rights of unpaid seller
Hold
Stoppage in transitu
Rescission failure to pay consideration
Immovable paid on installment demand for rescission by notarial act
(notarized demand letter) if ordinary demand, extension may still be
asked 1592
Double Sales, Mirror doctrine
If there is a double sale covered by Torrens title, he sold it to B and C.
Who has a better right?
Whoever registers first

Not enough that there is good faith and it is for value, you must be a
registrant in good faith. Torrens system cannot be used as a system to
perpetrate fraud.
Mirror doctrine sale of property covered by Torrens system
You can rely on the face of the title
However, investigation should be made in the Register of Deeds if
there is something that might require you to investigate
You cannot close your eyes to things you can see.
Right to repurchase same amount paid to you before
1601 in relation to 1616 including expenses for preservation
Can you be required to pay other amounts? Yes
solid homes inc vs CA, G.R. No. 117501, July 8, 1997
last phrase of 1601
if there is right , but you do not exercise What is the right of vendee a
retro? Mere lapse will make vendee the owner. Consolidation of title
registration will operate as completion
LEASE
Can you assign the lease w/o lessors consent? No because it partakes
of the character of subjective novation. You are creating a new contract
between the lessor and new lessee.
Bangayan vs. CA, G.R. No. 123581, August 29, 1997
Contract of lease was assigned w/o consent of lessor. Contract cannot
be created without consent of the lessor.
What is the nature of the liability of sublessee to the lessor? 1652
Subsidiary
If there is a contract of lease, 20k monthly, sublease 10k monthly
You cannot be made to pay more than what you owe the sublessee
Wheelers Club Intl vs. Bonifacio, G.R. No. 139540, June 29, 2005
Lessee must be evicted thru a judgment before sublessee can be made
liable
1684
1654
Sps Mamaril vs. Boy Scouts et. al., G.R. No. 179382, January 14, 2013
Car, carpark. Is the lessor liable? You are not obligated to protect
properties of the lessee if you are the lessor
Valet parking - deposit

Durban Apartments Corporation vs. Pioneer Insurance and Surety

Corporation, G.R. No. 179419, January 12, 2011
hotel is liable for damages
If lease? Lessor cannot be held liable for damages. But if it is a guarded
parking area, it is the liability of the security agency.
Duties of lessee
Lessee must pay rentals , comply with terms and conditions of the
contract
If you do not you may be ejected
If there is expiration no need for demand
Duties of the lessor
Deliver the thing leased
Enjoyment of lease
1670 renewal of lease
requirements
Samelo vs. Manotok Services, G.R. No. 170509, June 27, 2012
Impliedly renewed contract of lease does not have the same duration
as the original
Right to purchase was not exercised. Contract was impliedly renewed.
If there is an impliedly renewed contract, terms and conditions are also
impliedly renewed except duration and right of repurchase. Those
impliedly renewed are only those which are germane to possession.
Those which are strange are not impliedly renewed.
Conchita vda. De Chua vs. IAC, G.R. No. 70909, January 5, 1994
You are still in possession, expired by Sept. but prior to expiration there
was already a demand , asking for increase of rental in August.
Negotiations no agreement.
No impliedly renewed contract. Contract must have already expired,
lessee remains in possession 15 days from expiration, no demand to
vacate premises.
Arevalo Gomez Corporation vs. CA, G.R. No. 70360, March 11, 1987
If there is demand to increase rental and you cannot agree = demand
to vacate the premises. So there is no impliedly renewed contract
When can you ask the court to fix a longer period of lease?
UMALE vs. ASB Realty and Devt Corp, G.R. No. 181126, June 15, 2011
You cannot ask the court to fix a longer period of lease if yo have
violated the terms and conditions of your lease.

A lessee cannot be a builder in good faith. But if appropriated entitled

to 50%. If lessor will not appropriate, must be removed or destroyed.