OBLIGATIONS AND
CONTRACTS Part 3
Atty. EDUARDO T.
REYES, III
Civil Law Review
College of Law
University of San
Agustin
(Prelim Lecture
Outline - Part 3)
TITLE II
CONTRACTS
CONTRACTS
CHAPTER 1
General Provisions
General Provisions
Article 1305. 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. (1254a)
- Read Teresita I.
Buenaventura v. Metropolitan Bank and Trust Company, G.R. No. 167082, August
03, 2016
- “A duly executed
contract is the law between the parties, and, as much, commands them to comply
fully and not selectively with its terms. A contract of adhesion, of itself,
does not exempt the parties from compliance with what was mutually agreed upon
by them”.
- In credit card
transactions, three contracts are entered into: 1. Contract of sale between the
business establishment and the cardholder; 2. Contract of Loan between credit
card holder and card issuer; and 3. Agreement of Accreditation between Business
establishment and the credit card issuer.
- Once a card-holder
uses his card, it constitutes as an offer or application for a loan. Until
then, there is no contract of loan yet because a contract of loan or mutuum is
a REAL CONTRACT that is perfected only upon delivery of the loaned amount.
Credit
Card Transactions
While it can be said
that, from the point of view of petitioner's business dealings with respondent,
the former is not obliged, each and eve1y time, to send a statement of account
to the latter containing a detailed list of all the credit card transactions
she made in the past which remain unsettled and outstanding as of the date of
issuance of the latest statement of account, as she is presumed to know these
from past statements of account received. The matter, however, is not so simple
from the viewpoint of someone who is not privy to their transactions, such as
the courts. This Court cannot completely blame the MeTC, RTC, and CA for their
failure to understand or realize the fact that a monthly credit card statement
of account does not always necessarily involve purchases or transactions made
immediately prior to the issuance of such statement; certainly, it may be that
the card holder did not at ~11 use the credit card for the month, and the statement
account sent to him or her refers to principal, interest, and penalty charges
incurred from past transactions which are too multiple or cumbersome to
enumerate but nonetheless remain unsettled by the card holder. This Court
cannot judge them for their lack of experience or practical understanding of
credit card arrangements, although it would have helped if they just endeavored
to derive such an understanding of the process. Thus, it would not hurt the
cause of justice to remand the case to the Me TC where petitioner would be
required to amend its Complaint and adduce additional evidence to prove its
case; that way, the lower court can better understand the nature of the claim,
and this time it may arrive at a just resolution of the case. This is to say that
while the Court believes that petitioner's claim rnay be well-founded, it is
not enough as to allow judgment in its favor on 1he basis of extant evidence.
It must prove the validity of its claim; this it may do by amending its
Complaint and adducing additional evidence of respondent's credit history and
proving the loan transactions between them. After all, credit card arrangements
are simple loan arrangements between the card issuer and the card holder. Simply
put, every credit card transaction involves three contracts, namely: (a) the
sales contract between the credit card holder and the merchant or the business
establishment which accepted the credit card; (b) the loan agreement between
the credit card issuer and the credit card holder; and lastly, ( c) the promise
to pay between the credit card issuer and the merchant or business
establishment. 22 WHEREFORE, the Petition is PARTIALLY GRANTED. The
September 28, 2011 Decision and July 4, 2012 Resolution of the Court of Appeals
in CA-G.R. SP No. 114345 are REVERSED and SET ASIDE. Civil Case No. 13956 is
reinstated, and the Metropolitan Trial Court of Pasig City, Branch 72 is
ORDERED to conduct further proceedings in accordance with the foregoing
disquisition of the Court and allow petitioner Bankard, Inc. (now RCBC Bankard
Services Corporation) to amend its Complaint and/or present additional evidence
to prove its case. SO ORDERED.
--BANKARD, INC.," Petitioner, -
versus - LUZ P. ALARTE, Respondent. FIRST DIVISION G.R. No. 202573 Present:
SERENO, C.J., Chairperson, LEONARDO-DE CASTRO, DEL CASTILLO, PERLAS-BERNABE,
and CAGUIOA, JJ. x----------------------------------------------=---
April 19, 2017
- To be discussed at
length in credit transactions.
Article 1306. 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. (1255a)
Comments:
1. “Freedom of contracts rule”.
2.When a contract incorporates a right to repurchase. It
CIRCUMSCRIBES the freedom of contracts rule. See CSCST v. Misterio[1]
Article 1307. Innominate contracts shall be regulated by
the stipulations of the parties, by the provisions of Titles I and II of this
Book, by the rules governing the most analogous nominate contracts, and by the
customs of the place. (n)
Article 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.
(1256a)
Article 1309. The determination of the performance may be
left to a third person, whose decision shall not be binding until it has been
made known to both contracting parties. (n)
Article 1310. The determination shall not be obligatory if
it is evidently inequitable. In such case, the courts shall decide what is
equitable under the circumstances. (n)
Article 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond the value
of the property he received from the decedent.
If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person. (1257a)
Comments:
1. FA mortgaged his Condo Bldg. to the GSIS. It was foreclosed
and sold to CENTERTOWN. But because Centertown is not authorized to engage in
real estate business, it organized TOWERS, a sister company and assigned rights
to TOWERS. The tenants’ association assailed the sale from CENTERTOWN in favour
of TOWERS on account of lack of authority of CENTERTOWN.
Ruling:
There is no relativity of contract between the tenants and
TOWERS. Hence, the tenants have no right to assail the sale which was a
contract only between CENTERTOWN and TOWERS.[2]
Article 1312. In contracts creating real rights, third
persons who come into possession of the object of the contract are bound
thereby, subject to the provisions of the Mortgage Law and the Land
Registration Laws. (n)
Article 1313. Creditors are protected in cases of contracts
intended to defraud them. (n)
Article 1314. Any third person who induces another to
violate his contract shall be liable for damages to the other contracting
party. (n)
Article 1315. Contracts are perfected by mere consent, and
from that moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. (1258)
Article 1316. Real contracts, such as deposit, pledge and commodatum,
are not perfected until the delivery of the object of the obligation. (n)
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)
CHAPTER 2
Essential Requisites of Contracts
Essential Requisites of Contracts
General Provisions
Article 1318. There is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
SECTION 1
Consent
Consent
Article 1319. 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 absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was made.
(1262a)
Comments:
1. Elements of CONSENT: a. Plurality of parties; b. capacity
of parties; c. will must be intelligent or conscious, spontaneous and free; d.
declaration or manifestation which may be express or implied; and e. Agreement
of the internal and the declared will.
2. If the parties in a contract of sale agree as to the subject
matter of the sale which is a tract of land, on the price which is 5 million,
but the seller was thinking that the payment should be in full while the
buyer’s understanding is payment should be by instalments, is the contract of
sale perfected by meeting of the minds?
Ans: While there may have been a valid cause or consideration (which is the
price of 5 Million), the parties’ consent is impaired because of failure to
agree on the MANNER OF PAYMENT.[3]
3. “Pursuant to Art. 1319, Consent is manifested by the meeting of the offer
and acceptance upon the THING and the CAUSE which are to constitute the
contract x x x”.
4. It should not be confused with NON-PAYMENT of the price. The remedy is
rescission of resolution pursuant to Art. 1191.
___________
Contract
of Lease; Provisions of a Contract are Presumed to be for the
Benefit
of Both Parties
In a contract of lease, one of the
parties binds himself to give to
another the enjoyment or use of a thing
for a price certain, and for a period which may be definite or indefinite. 19 Being a consensual contract, a lease is perfected
at the moment there is a meeting of the minds upon the thing and the cause or
consideration which are to constitute the contract. 20 Thereafter,
the lessor is obliged to deliver the
thing which is the object of the contract in such a condition as to render it
fit for the use intended, and the lessee is
obliged to use the thing leased as a
diligent father of a family, devoting it to the use stipulated or that which
may be inferred from the nature of the thing leased.21
x x x
In
a reciprocal contract like a lease, the period must be deemed to
have
been agreed upon for the benefit of both parties, absent language
showing
that the term was deliberately set for the benefit of the lessee or
lessor
alone. 37 The continuance, effectivity, and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and uncontrolled choice of
the lessee.38 Mutuality does not obtain in such a contract of lease and no
equality exists between the lessor and the lessee since the life of the contract
would be dictated solely by the lessee. 39
-
HILLTOP
MARKET FISH VENDORS' ASSOCIATION, INC., Petitioner, - versus - G.R. No. 188057
Present: CARPIO, J., Chairperson, PERALTA, MENDOZA, .LEONEN,* and MARTIRES, JJ.
HON. BRAULIO YARANON, City Mayor, Bagui~ City, HON. GALO WEYGAN, City Councilor
and Chairman Anti-Vice Coordinating Task Force, and the Promulgated: CITY
GOVERNMENT OF BAGUIO, 1 2 JUL 2017 x ____________ ~ _ ~~s~~~~~n-t~.
_____________ ~~
Article 1320. An acceptance may be express or implied. (n)
Article 1321. The person making the offer may fix the time,
place, and manner of acceptance, all of which must be complied with. (n)
Article 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him. (n)
Article 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of either party before acceptance
is conveyed. (n)
Article 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised. (n)
Article 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers, but mere invitations
to make an offer. (n)
Article 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (n)
Article 1327. The following cannot give consent to a
contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know
how to write. (1263a)
Article 1328. Contracts entered into during a lucid
interval are valid. Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable. (n)
Article 1329. The incapacity declared in article 1327 is
subject to the modifications determined by law, and is understood to be without
prejudice to special disqualifications established in the laws. (1264)
Article 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud is voidable. (1265a)
Article 1331. In order that mistake may invalidate consent,
it should refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or both
parties to enter into the contract.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or qualifications have
been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
(1266a)
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. (n)
Article 1333. There is no mistake if the party alleging it
knew the doubt, contingency or risk affecting the object of the contract. (n)
Article 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is frustrated, may vitiate consent.
(n)
Article 1335. There is violence when in order to wrest
consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent. (1267a)
Article 1336. Violence or intimidation shall annul the
obligation, although it may have been employed by a third person who did not
take part in the contract. (1268)
Article 1337. There is undue influence when a person takes
improper advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between the
parties, or the fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial distress. (n)
Article 1338. There is fraud when, through insidious words
or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to. (1269)
Comments:
1. Entrance into RIDICULOUS CONTRACTS. “When of age and
sane, they must take care of themselves. In their relations with others in the
business of life, wits, sense, intelligence, training, ability, and judgment
meet and clash and contest, sometimes with gain and advantage to all, sometimes
to a few only, with loss and injury to others x x x. One man cannot complain
because another is more able, or better trained, or has a better sense of judgment
than he has; and when the two meet on fair field, the inferior cannot murmur if
the battle goes against him. The law furnishes no protection to the inferior,
anymore than it protects the strong because he is strong”[4].
2. There must be a violation of law, an actionable wrong and not
just a mere disadvantage.
Article 1339. Failure to disclose facts, when there is a
duty to reveal them, as when the parties are bound by confidential relations,
constitutes fraud. (n)
Article 1340. The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are not in themselves
fraudulent. (n)
Article 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the other party has relied on the
former's special knowledge. (n)
Article 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created substantial mistake
and the same is mutual. (n)
Article 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
Article 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay
damages. (1270)
Article 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. (n)
Article 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, good
customs, public order or public policy binds the parties to their real
agreement. (n)
Comments: x x x
“If parties state a false cause in the contract to
conceal their real agreement, the contract is only relatively simulated and the
parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the
content or terms of the contract, the agreement is absolutely binding and the
enforceable between the parties and their successors-in-interest.
In
absolute simulation, there is a colorable contract but it has no substance as
the parties have no intention to be bound by it. “The main characteristic of an
absolute simulation is that the apparent contract is not really desired or
intended to produce legal effect or in any way alter the juridical situation of
the parties.”. As a result, an absolutely simulated or fictitious contract is
void, and the parties may recover from each other what they have given under
the contract”.
- Robert and Nenita De Leon v. Gilbert and Analyn De
la Llana, G.R. No. 212277, February 11, 2015
SECTION 2
Object of Contracts
Object of Contracts
Article 1347. All things which are not outside the commerce
of men, including future things, may be the object of a contract. All rights
which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except
in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the object of a
contract. (1271a)
Article 1348. Impossible things or services cannot be the
object of contracts. (1272)
Article 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is not determinate shall
not be an obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the parties.
(1273)
Comments:
1. Requisites of Object of Contracts: a. within the commerce of
man; b. thing or service must not be contrary to law, morals, good customs,
public policy or public order; c. the thing or service must be possible; and d.
The thing or service must be DETERMINATE or at least DETERMINABLE- See Quiros
v. Arjona[5]- the sale involved a rather vague
description “1 hectare of land part of the inheritance of seller located in a
certain barangay with boundaries”.
SECTION 3
Cause of Contracts
Cause of Contracts
Article 1350. In onerous contracts the cause is understood
to be, for each contracting party, the prestation or promise of a thing or
service by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality of the
benefactor. (1274)
Comment:
The cause of contracts is the impelling reason why
the parties entered into a contract. So, what happens when the cause for
entering into a contract by one party is impaired by the refusal or failure of
the other to honor such cause? Take the case of an Insurance contract whereby
the Insurance Company assumes the risk of compensating the insured once the
event contemplated of, happens. What if for his part, the insured fails to pay
the premium?
“Insurance Premium;
Effects of
Non-Payment;
Exception
Insurance is a
contract whereby one undertakes for a consideration to indemnify another
against loss,
damage or liability
arising from an unknown or contingent event.45 Just like any other contract, it
requires a cause or consideration. The consideration is the premium, which must
be paid at the time and in the way and manner specified in the policy.46 If not
so paid, the policy will lapse and be forfeited by its own terms.47 The law,
however, limits the parties' autonomy as to when payment of premium may be made
for the contract to take effect. The general rule in insurance laws is that
unless the premium is paid, the insurance policy is not valid and binding.48
Section 77 of the Insurance Code, applicable at the time of the issuance of the
policy, provides: Sec. 77. An insurer is entitled to payment of the premium as
soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an industrial
life policy whenever the grace period provision applies. In Ti bay v. Court of
Appeals, 49 we emphasized the importance of this rule. We explained that in an
insurance contract, both the insured and insurer undertake risks. On one hand,
there is the insured, a member of a group exposed to a particular peril, who
contributes premiums under the risk of receiving nothing in return in case the
contingency does not happen; on the other, there is the insurer, who undertakes
to pay the entire sum agreed upon in case the contingency happens. This
risk-distributing mechanism operates under a system where, by prompt payment of
the premiums, the insurer is able to meet its legal obligation to maintain a
legal reserve fund needed to meet its contingent obligations to the public. The
premium, therefore, is the elixir vitae or source of life of the insurance
business: ln the desire to safeguard the interest of the assured, it must not
be ignored that the contract of insurance is primarily a risk-distributing
device, a mechanism by which all members of a group exposed to a particular
risk 45 INSURANCE CODE, Sec. 2(1). 46 Philippine Phoenix Surety & Insurance
Company v. Woodworks, Inc., G.R. No. L-25317, August 6, 1979, 92 SCRA 419, 422.
47 Id. 48 American Home Assurance Companyv. Chua, G.~r30421, June 28, 1999, 309
SCRA250, 259. 49 G.R. No. 119655, May 24, 1996, 257 SCRA 126. 1 Decision 6 G.R.
No. 190702 contribute premiums to an insurer. From these contributory funds are
paid whatever losses occur due to exposure to the peril insured against. Each
party therefore takes a risk: the insurer, that of being compelled upon the
happening of the contingency to pay the entire sum agreed upon, and the
insured, that of parting with the amount required as premium. without receiving
anything therefor in case the contingency docs not happen. To ensure payment
for these losses, the law mandates all insurance companies to maintain a legal
reserve fund in favor of those claiming under their policies. It should be
understood that the integrity of this fund cannot be secured and maintained if
by judicial fiat partial offerings of premiums were to be construed as a legal
nexus between the applicant and the insurer despite an express agreement to the
contrary. For what could prevent the insurance applicant from deliberately or
willfully holding back full premium payment and wait for the risk insured
against to transpire and then conveniently pass on the balance of the premium
to be deducted from the proceeds of the insurance? x x x xxx And so it must be.
For it cannot be disputed that premium is the elixir vitae of the insurance
business because by law the insurer must maintain a legal reserve fund to meet
its contingent obligations to the public, hence, the imperative need for its
prompt payment and full satisfaction. It must be emphasized here that all
actuarial calculations and various tabulations of probabilities of losses under
the risks insured against are based on the sound hypothesis of prompt payment
of premiums. Upon this bedrock insurance firms are enabled to offer the
assurance of security to the public at favorable rates. x x x50 (Citations
omitted.) Here, there is no dispute that the check was delivered to and was
accepted by respondent's agent, Trans-Pacific, only on September 28, 1996. No
payment of premium had thus been made at the time of the loss of the vehicle on
September 27, 1996. While petitioner claims that Trans-Pacific was informed
that the check was ready for pick-up on September 27, 1996, the notice of the
availability of the check, by itself, does not produce the effect of payment of
the premium. Trans-Pacific could not be considered in delay in accepting the
check because when it informed petitioner that it will only be able to pick-up
the check the next day, petitioner did not protest to this, but instead allowed
Trans-Pacific to do so. Thus, at the time of loss, there was no payment of
premium yet to make the insurance policy effective. '" Id. at 140-141.-, L
Decision 7 G.R. No. 190702 There are, of course, exceptions to the rule that no
insurance contract takes effect unless premium is paid. In UCPB General
Insurance Co., Inc. v. Masagana Telamart, lnc.,51 we said: It can be seen at
once that Section 77 does not restate the portion of Section 72 expressly
permitting an agreement to extend the period to pay the premium. But are there
exceptions to Section 77? The answer is in the affirmative. The first exception
is provided by Section 77 itself, and that is, in case of a life or industrial
life policy whenever the grace period provision applies. The second is that
covered by Section 78 of the Insurance Code, which provides: SEC. 78. Any
acknowledgment in a policy or contract of insurance of the receipt of premium
is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until
premium is actually paid. A third exception was laid down in Makati Tuscany
Condominium Corporation vs. Court of Appeals, wherein we ruled that Section 77
may not apply if the parties have agreed to the payment in installments of the
premium and partial payment has been made at the time of loss. We said therein,
thus: We hold that the subject policies are valid even if the premiums were
paid on installments. The records clearly show that the petitioners and private
respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance
contract entered into in 1982 was renewed in 1983, then in 1984. In those three
years, the insurer accepted all the installment payments. Such acceptance of
payments speaks loudly of the insurer's intention to honor the policies it
issued to petitioner. Certainly, basic principles of equity and fairness would
not allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse that
the premiums were not prepaid in full. Not only that. In Tuscany, we also
quoted with approval the following pronouncement of the Court of Appeals in its
" G.R. No. 137172, Apdl 4, 2001, 356 SCRA 307., Decision 8 G.R. No. 190702
Resolution denying the motion for reconsideration of its decision: While the
import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, We are not prepared to rule that the
request to make installment payments duly approved by the insurer would prevent
the entire contract of insurance from going into effect despite payment and
acceptance of the initial premium or first installment. Section 78 of the
Insurance Code in effect allows waiver by the insurer of the condition of
prepayment by making an acknowledgment in the insurance policy of receipt of
premium as conclusive evidence of payment so far as to make the policy binding
despite the fact that premium is actually unpaid. Section 77 merely precludes
the parties from stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting credit extension,
and such an agreement is not contrary to morals, good customs, public order or
public policy (De Leon, The Insurance Code, p. 175). So is an understanding to
allow insured to pay premiums in installments not so prescribed. At the very
least, both parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted. By the approval of the aforequoted findings and
conclusion of the Court of Appeals, Tuscany has provided a fourth exception to
Section 77, namely, that the insurer may grant credit extension for the payment
of the premium. This simply means that if the insurer has granted the insured a
credit term for the payment of the premium and loss occurs before the
expiration of the tem1, recovery on the policy should be allowed even though
the premium is paid after the loss but within the credit term. xxx Finally in
the instant case, it would be unjust and inequitable if recovery on the policy
would not be permitted against Petitioner, which had consistently granted a 60-
to 90-day credit term for the payment of premiums despite its full awareness of
Section 77. Estoppel bars it from taking refuge under said Section, since
Respondent relied in good faith on such ~ractice. Estoppel then is the fifth exception
to Section 77. 5 (Citations omitted.) In UCPB General Insurance Co., Inc., we
summarized the exceptions as follows: (1) in case of life or industrial life
policy, whenever the grace period provision applies, as expressly provided by
Section 77 itself; (2) " Id. at316-318r Decision 9 G.R. No. 190702 where
the insurer acknowledged in the policy or contract of insurance itself the
receipt of premium, even if premium has not been actually paid, as expressly
provided by Section 78 itself; (3) where the parties agreed that premium
payment shall be in installments and partial payment has been made at the time
of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;s3 (4)
where the insurer granted the insured a credit term for the payment of the
premium, and loss occurs before the expiration of the term, as held in Makati
Tuscany Condominium Corp.; and (5) where the insurer is in estoppel as when it
has consistently granted a 60 to 90-day credit term for the payment of
premiums. The insurance policy in question does not fall under the first to
third exceptions laid out in UCPB General Insurance Co., Inc.: (1) the policy
is not a life or industrial life policy; (2) the policy does not contain an
acknowledgment of the receipt of premium but merely a statement of account on
its face;s 4 and (3) no payment of an installment was made at the time of loss
on September 27. Petitioner argues that his case falls under the fourth and
fifth exceptions because the parties intended the contract of insurance to be
immediately effective upon issuance, despite non-payment of the premium. This
waiver to a pre-payment in full of the premium places respondent in estoppel.
We do not agree with petitioner. The fourth and fifth exceptions to Section 77
operate under the facts obtaining in Makati Tuscany Condominium Corp. and UCPB
General Insurance Co., Inc. Both contemplate situations where the insurers have
consistently granted the insured a credit extension or term for the payment of
the premium. Here, however, petitioner failed to establish the· fact of a grant
by respondent of a credit term in his favor, or that the grant has been
consistent. While there was mention of a credit agreement between TransPacific
and respondent, such arrangement was not proven and was internal between agent
and principal.ss Under the principle of relativity of contracts, contracts bind
the parties who entered into it. It cannot favor or prejudice a third person,
even if he is aware of the contract and has acted with knowledge. s 6 We cannot
sustain petitioner's claim that the parties agreed that the insurance contract
is immediately effective upon issuance despite nonpayment of the premiums. Even
if there is a waiver of pre-payment of premiums, that in itself does not become
an exception to Section 77, unless the insured clearly gave a credit term or
extension. This is the clear import of 53 G.R. No. 95546, November 6, 1992, 215
SCRA 462. 54 Rollo, p. 46. 55 Id. at 42. . .~ " See Borromeo v. Court of
Appeo/... G. R. No. 169846, Ma"h 28, 2008, 5 50 SCRA 269, 281 Decision 10
G.R. No. 190702 the fourth exception in the UCPB General Insurance Co., Inc. To
rule otherwise would render nugatory the requirement in Section 77 that
"[n]otwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, x x x." Moreover, the policy itself
states: WHEREAS THE INSURED, by his corresponding proposal and declaration, and
which shall be the basis of this Contract and deemed incorporated herein, has
applied to the company for the insurance hereinafter contained, subject to the
payment of the Premium as consideration for such insurance. 57 (Emphasis
supplied.) The policy states that the insured's application for the insurance
is subject to the payment of the premium. There is no waiver of pre-payment, in
full or in installment, of the premiums under the policy. Consequently,
respondent cannot be placed in estoppel. Thus, we find that petitioner is not
entitled to the insurance proceeds because no insurance policy became effective
for lack of premium payment. The consequence of this declaration is that
petitioner is entitled to a return of the premium paid for the vehicle in the
amount of P55,620.60 under the principle of unjust enrichment. There is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience.58 Petitioner cannot claim
the full amount of P140,893.50, which includes the payment of premiums for the
two other vehicles. These two policies are not affected by our ruling on the
policy subject of this case because they were issued as separate and
independent contracts of insurance. 59 We, however, find that the award shall
earn legal interest of 6% from the time of extra judicial demand on July 7,
1997.60 WHEREFORE, the petition is DENIED. The assailed Decision of the CA
dated September 11, 2009 and the Resolution dated November 24, 2009 are
AFFIRMED with the MODIFICATION that respondent should return the amount of
P55,620.60 with the legal interest computed at the rate of 6% per annum
reckoned from July 7, 1997 until finality o
- JAIME
T. GAISANO, G.R. No. 190702 Petitioner, Present: - versus - BERSAMIN, J.,
Acting Chairperson, DEVELOPMENT INSURANCE AND SURETY CORPORATION, Respondent.
JARDELEZA, J.: DEL CASTILLO,*. REYES** ' JARDELEZA, and CAGUIOA, *** JJ. Pro
February 27, 2017
Article 1351. The particular motives of the parties in
entering into a contract are different from the cause thereof. (n)
Comments:
1. “With one’s motives, the law cannot deal in civil
actions of this character, while with the consideration the law is always concerned.[6]”
2. “Motive may differ from cause, but if the contract is
conditioned upon the attainment of an immoral motive it is void, for
here, motive may be regarded as cause when it PREDETERMINES the purposes of the
contract.[7]”
Article 1352. Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is unlawful if it is contrary to
law, morals, good customs, public order or public policy. (1275a)
Article 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that they were founded upon
another cause which is true and lawful. (1276)
Article 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful, unless the debtor proves
the contrary. (1277)
Article 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless there has been
fraud, mistake or undue influence. (n)
CHAPTER 3
Form of Contracts
Form of Contracts
Article 1356. Contracts shall be obligatory, in whatever
form they may have been entered into, provided all the essential requisites for
their validity are present. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a contract
be proved in a certain way, that requirement is absolute and indispensable. In
such cases, the right of the parties stated in the following article cannot be
exercised. (1278a)
Article 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated in the following article,
the contracting parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised simultaneously with
the action upon the contract. (1279a)
Article 1358. The following must appear in a public
document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over immovable
property; sales of real property or of an interest therein are governed by
articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which
has for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by articles, 1403, No. 2 and 1405.
(1280a)
Comments:
1. This is a directory and not a mandatory provision of law.
2.“Generally, a notarized document
carries the evidentiary weight conferred upon it with respect to its due execution,
and documents acknowledged before a notary public have in their favour the
presumption of regularity which may only be rebutted by clear and convincing
evidence. However, the presumptions that attach to notarized documents can be
affirmed only so long as it is beyond dispute that the notarization was
regular. A defective notarization will strip the document of its public
character and reduce it to a private document. Consequently, when there is a
defect in the notarization of a document, the clear and convincing evidentiary
standard normally attached to a duly-notarized document is dispensed with, and
the measure to test the validity of such document is preponderance of evidence”[8].
CHAPTER 4
Reformation of Instruments (n)
Reformation of Instruments (n)
Article 1359. When, there having been a meeting of the
minds of the parties to a contract, their 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.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.
Article 1360. The principles of the general law on the
reformation of instruments are hereby adopted insofar as they are not in
conflict with the provisions of this Code.
Article 1361. When a mutual mistake of the parties causes
the failure of the instrument to disclose their real agreement, said instrument
may be reformed.
Article 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the instrument does not show
their true intention, the former may ask for the reformation of the instrument.
Article 1363. When one party was mistaken and the other
knew or believed that the instrument did not state their real agreement, but
concealed that fact from the former, the instrument may be reformed.
Article 1364. When through the ignorance, lack of skill,
negligence or bad faith on the part of the person drafting the instrument or of
the clerk or typist, the instrument does not express the true intention of the
parties, the courts may order that the instrument be reformed.
Article 1365. If two parties agree upon the mortgage or
pledge of real or personal property, but the instrument states that the
property is sold absolutely or with a right of repurchase, reformation of the
instrument is proper.
Article 1366. There shall be no reformation in the
following cases:
(1) Simple donations inter vivos wherein no condition is
imposed;
(2) Wills;
(3) When the real agreement is void.
Article 1367. When one of the parties has brought an action
to enforce the instrument, he cannot subsequently ask for its reformation.
Article 1368. Reformation may be ordered at the instance of
either party or his successors in interest, if the mistake was mutual;
otherwise, upon petition of the injured party, or his heirs and assigns.
Article 1369. The procedure for the reformation of
instrument shall be governed by rules of court to be promulgated by the Supreme
Court.
“The
pronouncement in the November
15,
2006 Decision that the parties'
intention
was to execute an equitable
mortgage
is sufficient reformation of
such
instrument.
The
only issue left for us to determine is whether a reformation of the contract is
required before the subject lots may be foreclosed.
We
rule in the negative.
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.46 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
parties.47
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 1368 of the Civil
Code.49 In ruling that the 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
nolonger necessary because it would only be redundant and a waste of time.
Besides,
in the November 15, 2006 Decision, the CA already declared that absent any
proof that petitioner spouses Rosario had fully paid their obligation,
respondent
may seek the foreclosure of the subject lots.51
In
view of the foregoing, we find no error on the part of the CA in ruling that a
separate action for reformation of instrument is no longer necessary as the declaration
in the November 15, 2006 Decision that the parties' intention was to execute an
equitable mortgage is sufficient reformation of such instrument.
-
SPOUSES FIRMO S. ROSARIO AND AGNES ANNABELLE DEAN-ROSARIO v. PRISCILLA P. AL
VAR, G.R. No. 212731, 06 September 2017
CHAPTER 5
Interpretation of Contracts
Interpretation of Contracts
Article 1370. 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.
If the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former. (1281)
Article 1371. In order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. (1282)
Article 1372. However general the terms of a contract may
be, they shall not be understood to comprehend things that are distinct and cases
that are different from those upon which the parties intended to agree. (1283)
Article 1373. If some stipulation of any contract should
admit of several meanings, it shall be understood as bearing that import which
is most adequate to render it effectual. (1284)
Article 1374. 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. (1285)
Article 1375. Words which may have different significations
shall be understood in that which is most in keeping with the nature and object
of the contract. (1286)
Article 1376. The usage or custom of the place shall be
borne in mind in the interpretation of the ambiguities of a contract, and shall
fill the omission of stipulations which are ordinarily established. (1287)
Article 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.
(1288)
Article 1378. When it is absolutely impossible to settle
doubts by the rules established in the preceding articles, and the doubts refer
to incidental circumstances of a gratuitous contract, the least transmission of
rights and interests shall prevail. If the contract is onerous, the doubt shall
be settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract
in such a way that it cannot be known what may have been the intention or will
of the parties, the contract shall be null and void. (1289)
Article 1379. The principles of interpretation stated in
Rule 123 of the Rules of Court shall likewise be observed in the construction
of contracts. (n)
Interpretation
of Contracts
We reject this claim of Werr and find
that while this industry practice
may supplement the Agreement, Werr
cannot benefit from it.
At the outset, we do not agree with the
CA that industry practice be rejected because liquidated damages is provided in
the Agreement, autonomy of contracts prevails, and industry practice is
completely set aside. Contracting parties are free to stipulate as to the terms
and conditions of the contract for as long as they are not contrary to law,
morals, good customs, public order or public policy. 52 Corollary to this rule
is that laws are deemed written m every contract.
Deemed incorporated into every contract
are the general provisions on
obligations and interpretation of
contracts found in the Civil Code. The Civil
Code provides:
Art. 1234. If the obligation has been
substantially
performed in good faith, the obligor
may recover as
though there had been a strict and
complete fulfillment,
less damages suffered by the obligee.
Art. 1376. The usage or custom of the
place shall be borne
in mind in the interpretation of the
ambiguities of a
contract, and shall fill the omission
of stipulations which
are ordinarily established. In previous
cases, we applied
these provisions in construction agreements
to determine
whether the project owner is entitled
to liquidated
damages. We held that substantial completion
of the
project equates to achievement of 95%
project completion
which excuses the contractor from the
payment of liquidated
damages.
In Diesel Construction Co., Inc. v.
UPS! Property Holdings, Inc., 54 We applied Article 1234 of the Civil Code. In
determining what is considered substantial compliance, we used the CIAP
Document No. 102 as evidence of the construction industry practice that
substantial compliance is equivalent to 95% accomplishment rate. In that case,
the construction agreement requires the contractor "to pay the owner
liquidated damages in the amount equivalent to one-fifth (1/5) of one (1)
percent of the total Project cost for each calendar day of delay."55 We
declared that the contractor cannot be liable for liquidated damages because it
already accomplished 97 .56% of the project.56 We reiterated this in Transcept
Construction and Management Professionals, Inc. v. Aguilar57 where we ruled
that since the contractor 52 CIVIL CODE, Art. 1306. 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. 53 See Philippine Economic Zone Authority v. Green
Asia Construction & Development Corporation, accomplished 98.16% of the
project~ the project owner is not entitled to the 10% liquidated damages.
Considering the foregoing, it: was
error for the CA to immediately dismiss the application of industry practice on
the sole ground that there is I an existing agreement as to liquida~ed damages.
As expressly stated under Articles 1234 and 1376, and in ju~isprudence, the
construction industry's prevailing practice may supplement any ambiguities or
omissions in the I stipulations of the contract.
Notably, CIAP Document N0. 102, by
itself, was intended to have suppletory effect on private constru~tion
contracts. This is evident in CIAP Board Resolution No. 1-98,59 which states Sec.
9. Policy-Making BodY, - The [CIAP], through the CIAP Executive Office apd its
various Implementing Agencies, shall continuously monitor and study the operations
of the constructi~n industry, both domestic and overseas operations, to
idehtify its needs, problems and opportunities, in order to prbvide for the
pertinent policies and/or executive action ' and/or legislative agenda necessary
to implement pians, programs and measures required to support the s«stainable
development of the construction industry, such as but not limited to the following:
19.05 The promulgation! and adoption of Standard Conditions of Contract for the
public construction and private construction i sector which shall have suppletory
effect in cases where there is a conflict in the internal documents ~f a
construction contract or in the absence of the gene~al conditions of a
construction agreement[.]
As the standard conditions for contract
for private construction adopted and promulgated by the CIAP, CIAP Document No.
102 applies suppletorily to private construction contracts to remedy the
conflict in the internal documents of, or to fill in the omissions in, the
construction agreement.
-WERR
CORPORATION G.R. No. 187543 INTERNATIONAL, - versus -HIGHLANDS PRIME, INC.,
x-
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
HIGHLANDS
PRIME, INC., Petitioner, - versus - WERR CORPORATION INTERNATIONAL, Respondent.
G.R.
No. 187580, February 8, 2017
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