Contracts Finals.docx

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

c o n t r a c t s Articles 1330 – 1355 o

A R T I C L E 1330 What are the vices which may vitiate consent?  VICES OF THE WILL

[V]iolence  Article 1335-1336  Use of irresistible force -R E Q U I S I T E S-

vicios de la formacion de la voluntad -renders the contract voidableo [M]istake  Article 1331  Wrong conception of a thing and the lack of knowledge with respect to the thing -T W O K I N D S1. Mistake of fact  When one or both of the contracting parties believe that a fact exist when in fact IT DOES NOT

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2. Mistake of law  When one or both of the contracting parties arrive at an ERRONEOUS CONCLUSION regarding the interpretation of a question of law or the legal effects of a certain ACT or TRANSACTION

[I]ntimidation  COMPELLING by reasonable and well grounded fear of an imminent or grave evil upon his person, property or upon the person or property of his spouse, descendants or ascendants -R E Q U I S I T E S The evil must be. . . …imminent and grave …unjust …the determining cause for the party in entering into the contract

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One of the contracting parties is compelled to give consent by a reasonable and well grounded fear of an evil

 CHARACTER OF INTIMIDATION o o

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Force employed to WREST CONSENT must be serious or irresistible It must be the DETERMINING CAUSE for party [upon whom it is employed] in entering the contract

Actual and Serious Actor can carry out his threat Possible of realization

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

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OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

[U]ndue Influence  Article 1337  Taking IMPROPER ADVANTAGE of one’s power over the will of another depriving the latter of a reasonable

According to Manresa, Article1330 is a NEGATIVE ENUMERATION of the requisites of consent

WHAT ARE THE REQUISITES OF CONSENT? [R I F S] Requisites of Consent INTELLIGENT FREE

freedom of choice

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[F]raud  Article 1338  Insidious words or machinations employed by ONE of the contracting parties in order to induce the other to enter into a contract which without he would NOT have agreed to.

SPONTANEOUS REAL

VOIDABLE = first three requisites are absent V O I D ab initio or valid as far as the real agreement is concerned. = fourth requisite is absent

 VICES OF DELCARATION Vicios de la declaracion o

Simulation of contracts  Articles 1345 – 1346  ABSOLUTE o Contracting parties do not intend to be BOUND by the contract at all  RELATIVE o Parties CONCEAL their true agreement.

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Article 1330 Mistake Violence, Intimidation, Undue Influence Fraud Simulation of Contracts

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

A R T I C L E 1331

CONDITIONS of the thing [provided such condition, principally moved one or both contracting parties to enter into the contract.]

WHAT IS MISTAKE?  A wrong conception of a thing and the lack of knowledge with respect to the thing. WHAT ARE THE TWO KINDS OF MISTAKE?  MISTAKE OF FACT Mistake As To OBJECT IDENTITY of the thing [error in corpore]

Example: When a contract of sale is signed thinking it to be a contract of mortgage.

Mistake As To PERSON IDENTITY of a person effect: VOIDABLE CONTRACT

QUANTITY of the thing [error in quantitate]

[Name & Qualifications] 

Generally, mistake as to the identity or qualifications of one of the parties DOES NOT VITIATE CONSENT unless such identity or qualifications have been the principal cause of the contract

Mistake of Account 

Example:

-THESE MISTAKES USUALLY OCCUR IN OBLIGATIONS TO DO-

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 MISTAKE OF LAW General Rule

Mistake as to the substance of the thing which is the object of the contract.

Only mistake of fact which will vitiate the consent renders the contract voidable; a mistake of law DOES NOT RENDER THE CONTRACT VOIDABLE because ignorantia legis non excusat [Article 3] except on account of mutual error

Example: When a watch is bought thinking that it is solid gold, but it turns out to be gold plated.

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2. such identity or qualification must have been the principal consideration for the celebration of the contract

If the interest of a loan of P20,000 which is agreed to be with 10% interest is computed at P1,500 for one year, the interest is to be corrected from P1,500 to P1,000.

SUBSTANCE of the thing [error in substantia]

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1. the mistake must be with regard to the identity or qualification of the person

Example:

A believing that B is an accountant appointed to the latter as instructor to teach Accounting 1 & 2. If it turns out that B is a physician and not an accountant, the contract can be annulled.

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A mistake in computation or a mathematical error DOES NOT VITIATE CONSENT, the error committed will be CORRECTED

-REQUISITES-

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

A R T I C L E 1332

A R T I C L E 1335

 Intended for the protection of a party to a contract who is at a disadvantage due to his illiteracy, ignorance, mental weakness or handicap.

V I O L E N C E – use of irresistible force Requisites: 1. The force employed to wrest consent must be s e r i o u s or i r r e s i s t i b l e 2. It must be the DETERMINING CAUSE for the party upon whom it is employed in entering into contract.

F R A U D is present when there is –  Insidious words  Machinations [of one of the contracting parties, where the other is induced to enter into the contract, without which he would have not agreed to it ]

Example: C signs a contract of sale in favour of D because C is hitting him by the butt of an armalite rifle at the time of the perfection of the contract.

A R T I C L E 1333 There is NO MISTAKE if the party alleging it know the doubt, contingency, or risk affecting the object of the contract

I N T I M I D A T I O N – compelling by REASONABLE and WELL GROUNDED FEAR of an imminent or grave evil upon his person or property or upon the person or property of his spouse, descendants or ascendants

Example: B bought a watch which he knew was stolen by the seller. If the watch is recovered by the true owner, B cannot allege mistake in buying it.

Requisites: A R T I C L E 1334

1. One of the contracting parties is compelled to give consent by REASONABLE and WELL GROUNDED FEAR of an evil. 2. The evil must be… a. [I]mminent and grave b. [U]njust c. [D]etermining cause for the party to enter into contract

General Rule: mistake of law will NOT VITIATE CONSENT Exception: M U T U A L E R R O R Requisites: [LE M F] 1. Mistake must be with respect to the LEGAL EFFECT of the agreement 2. Mistake must be MUTUAL 3. The real purpose of the parties have been FRUSTRATED

Example: A signs a promissory note because an armalite rifle is pointed at him by one who threatens to kill him if he does not sign the said promissory note.

Example: B offered to sell to C a radio and refrigerator. C accepted them from B thinking that they are being donated to him. There is no meeting of the minds of the parties, so the agreement should be set aside. 4

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

CHARACTER OF INTIMIDATION    

A R T I C L E 1336

Actual Serious Possible of Realization Actor can carry out his threat

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 Example

DETERMINATION OF THE DEGREE OF INTIMIDATION – [A]ge, [S]ex, [C]ondition of the Person.

If B is compelled to sell and C is compelled to buy a ring by X who threatened to kill both of them unless the sale is executed, the contract may be annulled.

DINSTINGUISH CONSENT GIVEN THROUGH INTIMIDATION AND RELUCTANT CONSENT A R T I C L E 1337

 In the law, there is no difference

U N D U E I N F L U E N C E – taking improper advantage of one’s power OVER the will of another, depriving the latter of a reasonable freedom of choice. [if deprivation of his free agency is not proved – there is no undue influence which will invalidate the contract]

WHAT IS THE EFFECT OF JUST or LEGAL THREAT?  Does NOT VITIATE CONSENT  The contract would STILL be PERFECTLY VALID and not voidable

TEST

Example:

 Whether or not the influence exerted has overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather his own

Where it is established that a demand for the settlement of an obligation made by the creditor upon the debtor was accompanied by the threat that upon failure of the latter to do so, an action would be instituted against him in court.

Things to be considered: [C S F] Violence External [physical compulsion] Prevents the EXPRESSION of the will, substituting it with a material act DICTATED by another

      

Intimidation Internal [moral compulsion] INFLUENCES THE WILL inhibits in a way that the expression is apparently of a person who has freely given his consent Internal force OPERATING on the mind of the party intimidated

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Confidential Spiritual Family Other relations between parties Financial Distress Ignorance Mental weakness

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

A R T I C L E 1338

Dolo CAUSANTE Dolo INCIDENTE Fraud is SERIOUS in Not so serious CHARACTER CAUSE which induces Not so serious the party to enter in the contract What is the effect? What is the effect?  Contract is  Liability for VOIDABLE DAMAGES Requisites:

F R A U D is present when there is –  Insidious words Machinations [of one of the contracting parties, where the other is induced to enter into the contract, without which he would have not agreed to it]

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Article 1338 Fraud in the PERFECTION of the CONTRACT Fraud is employed in SECURING the CONSENT of the other party

1. INSIDIOUS WORDS a. . . . must be serious b. . . . must have induced the other party to ENTER in to contract – i. such fraud must be the PRINCIPAL or CAUSAL inducement or consideration FOR THE CONSENT OF THE OTHER PARTY 2. Fraud should HAVE NOT BEEN EMPLOYED by the contracting parties or third persons

F R A U D

Article 1170-1171 Fraud in the PERFORMANCE of the OBLIGATION Fraud employed by the obligor in the PERFORMANCE of a PRE-EXISTING OBLIGATION

WHAT IS DOLO CAUSANTE?  Casual Fraud  Deceptions or Misrepresentation of a SERIOUS CHARACTER employed by one party.  Without this the other party would have NOT ENTERED INTO THE AGREEMENT

TEST  There must be proof of concrete facts constituting the fraud or insidious words or machinations employed by one of the contracting partied. It is also an essential element that such

WHAT IS DOLO INCIDENTE?

INSIDIOUS WORDS or

 Incidental Fraud  Deceptions or Misrepresentation NOT of a SERIOUS CHARACTER.  Employed by one of the party and even without it THE PARTY WOULD STILL HAVE ENTERED INTO THE AGREEMENT

MACHINATIONS must be

PRIOR or

CONTEMPORANEOUS with the

B I R T H or

P E R F E C T I O N OF THE CONTRACT 6

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

Example:

A R T I C L E 1340

S offers to sell to B for P50,000 a ring allegedly a diamond ring. If B buys the ring relying on the presentation made by S that it is a diamond ring. When actually it is but an ordinary glass, there is fraud by insidious words or machinations.

The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent Example: When the purchaser proceeds to make investigations by himself, and the vendor does nothing to prevent such investigations from being as complete as the former might wish, the purchaser cannot later allege that the vendor made false representations to him

A R T I C L E 1339 FAILURE TO DISCLOSE FACTS, when there is duty to reveal them, as when the parties are bound by confidential relations, CONSTITUTES F R A U D

One who contracts for the purchase of real estate in reliance on the representations and statements of the vendor as to its character and value, but after he has visited and examined it for himself, and has had the means and opportunity of verifying such statements, cannot avoid the contract on the ground that such statements were false or exaggerated.

Where the defendant, who is a manager of a certain corporation as well as the owner of the ¾ of the shares of capital stock thereof, bought through an agent 800 shares of capital stocks from the plaintiff, without disclosing the fact that he had just negotiated the sale of valuable properties to the government thus enhancing the value of the capital stocks of the company, such nondisclosure of a fact, therefore the sale can be annulled.

A R T I C L E 1341 NO DUTY TO DISCLOSE FACTS = NO FRAUD

A mere expression of an opinion does not signify fraud, unless made by an expert and the other party relied on the former’s special knowledge.

This nondisclosure does not affect the formation of the contract or operate to discharge the parties from their agreement.

DEALER’s TALK  It is natural for dealers to appraise the kind, quality and value of their wares. Hence, the law allows considerable latitude to dealer’s talk; and experience teaches that is exceedingly risky to accept it as its face value. A man who relies upon affirmation on the ground of fraud [Songco v Sellner] provided, however that the other has had the means and opportunity of verifying such affirmations [Azarraga v Gay]

A applied for was issued a life insurance policy for P20,000. However, A did not disclose to the insurer that he had suffered from incipient pulmonary tubercolosis. The contract insurance is voidable on the ground of FRAUDULENT CONCEALMENT

See: Eguaras v Great Eastern Life Assurance Co.

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

A R T I C L E 1342

obligation both as co-maker and as mortgagor is voidable not on the ground of fraud because the Bank was not a participant in the fraud committed by V, but on the ground of mistake. There was substantial mistake on the part of both C and the Bank mutually committed by them as a consequence of the fraud employed by V [Rural Bank of Caloocan City v CA] b. Was there a valid and effective consignation considering that there was no previous tender of payment made by C to the Bank? Why?  Despite the fact that there was no previous tender of payment made directly to the Bank, nevertheless, the consignation was valid and effective. The deposit was attached to the record of the case and the Bank had not made any claim thereto. Therefore, C was right in thinking that it was useless and futile for her to make a previous offer and tender of payment directly to the Bank. Under the foregoing circumstances, the consignation was valid, if not under the strict provisions of the law, under the more liberal consideration of equity.

WHAT IS THE EFFECT OF MISREPRESENTATION BY THIRD PERSONS?  D O E S N O T V I T I A T E C O N S E N T, unless such misrepresentation has created SUBSTANTIAL MISTAKE and the same is MUTUAL

This will not be applicable if the third person makes the misrepresentation with the complicity or, at least, with the knowledge, but without any objection, of the contracting party who is favored. Neither is it applicable if the misrepresentation has created substantial mistake and the same is mutual.

Example: C, an old and ignorant woman, as helped by V in obtaining a loan of P3,000 from X Rural Bank secured by a mortgage on her house and lot. On the day she signed the promissory note and the mortgage covering the loan, she also signed several documents. One of these documents signed by her was promissory note of V for a loan of P3,000 also secured by a mortgage on her house and lot. Several years later, she received advice from the sheriff that her property shall be sold at public auction to satisfy the obligations. Immediately she filed suit for annulment of her participation as comaker in the obligation or contracted by V as well as of the mortgage in relation to the said obligation of V on the ground of fraud and mistake. Upon filing of the complaint, she deposited P 3,383 in court as payment of her personal obligation including interests a. Can C be held liable for the obligation of V? Why?  C cannot be held liable for the obligation of V. it is crystal clear that C’s participation in V’s 8

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

A R T I C L E 1343 – 1344

A R T I C L E 1345 – 1346

IS THERE FRAUD WHEN THE MISREPRESENTATION WAS MADE IN GOOD FAITH?

Vicios de la declaracion

 To constitute fraud, there must be deliberate intent to deceive the other party to the contract. Hence, if the misrepresentation is made in good faith, NO FRAUD IS COMMITTED WHAT WILL BE THE EFFECT?  The contract can be annulled on the ground of mistake WHEN CANNOT ANNULMENT BE INVOKED?  On minor or common acts of fraud  Presence of ordinary deviations from the truth SERIOUS CHARACTER OF FRAUD  Refers to the magnitude and importance of fraud in SECURING THE CONSENT of the other party. Example – Dolo CAUSANTE Thus is a ring which is an ordinary glass is sold by the seller to a buyer misrepresenting it as a diamond ring, the buyer is given the right to annul the sale plus damages. However, if both parties are guilty of fraud, neither party can set aside the contract which is considered valid [Valdez v Sibal] Dolo INCIDENTE Where the existence of a franchise was not the determining cause in the purchase of an electric light plant, the mere fact that the vendor did not disclose that he had given up such franchise does not constitute such fraud as would annul the sale [Tuason v Marquez]

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Relative Parties CONCEAL their true agreement by stating a false cause in the contract

When a debtor simulates the sale of his properties to a friend, in order to prevent their possible attachment by the creditors Contract is not really desired or intended to produce legal effects or in any way alter the judicial situation of the parties Effect? VOID CONTRACT

As when a person conceals a donation by simulating a sale of the property to the beneficiary for a fictitious consideration.

Still HAS LEGAL EFFECTS

BINDING & ENFORCEABLE between parties and their successors in interest. Still binds the contracting parties to their real agreement, WHEN IT DOES NOT PREJUDICE A 3RD person -andIs not intended for any purpose contrary to law, morals, good customs, public order, or public policy

The primary consideration in determining the true nature of a contract is the intention of the parties, such intention is determined from the express terms of their agreement as well as from their contemporaneous and subsequent acts 9

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Absolute Contracting paties DO NOT INTEND to be BOUND by the contract at all

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

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WHAT IS A CONTRACT OF ADHESION?

Special prohibitions established by law, such as  Poisonous substance  Drugs  Arms  Explosives  Contrabands o Intransmissble rights  Purely personal in character  Jus COMMUNAL consortium THINGS cannot  Patria be sold or leased potestas because they are outside of the  Honorary commerce of man and political in character 2. The object should be [R]eal or possible  EXISTENCE OF OBJECT o Should be in existence at the moment of the celebration of the contract  THINGS WHICH HAVE PERISHED o Cannot be the object of contracts because they are inexistent  Article 1 4 9 3 “If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be WITHOUT any effect.”  FUTURE THINGS [deemed to be conditional] o CONDITIONAL CONTRACT  If its efficacy depends upon the future existence of the thing o ALEATORY CONTRACT  If one of the contracting In case of parties should bear the doubt, it should be risk that the thing will resolved in never come into existence favour of

 A contract of adhesion is so-called because its terms are PREPARED by only one party  And the other party merely AFFIXES HIS SIGNATURE signifying his adhesion to it A contract of adhesion is just as binding as ordinary contracts. Contracts of adhesion are not invalid per se, they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely.

Section 2. – Object of Contract

O B J E C T – most fundamental and indispensable requisite of a contract.  The thing, right or service, which is the subject matter of the obligation which is created or established.  The “WHAT” the contract.

A R T I C L E 1347 – 1349

As a general rule, “All things or services may be the object of contracts” The following Requisites must concur [C R L D] 1. The object should be within the [C]ommerce of men (outside of commerce cannot be the object of contracts)  Susceptible of Appropriation and Transmissible from one person to another  -outside of the commerce – o Air or the sea, sacred things, res nullius, property belonging to the public domain 10

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the GREATEST RECIPROCITY OF INTEREST

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

 RULE WITH RESPECT TO FUTURE INHERITANCE o The exception is in Article 1 3 4 7 [2] “no contract may be entered into with respect to future inheritance”

IS THE PROHIBITION ENUNCIATED IN Article 1347 paragraph 2 ABSOLUTE?

 It is NOT ABSOLUTE IN CHARACTER  There are two exceptions: a. Under Article 130 of the Code, which allows the future spouses to GIVE or DONATE to each other in their marriage settlement their future property TO TAKE EFFECT UPON THE DEATH OF THE DONOR and to the extent laid down by the provisions of the Civil Code relating to testamentary succession; and b. Under Article 1080, “which allows a person to MAKE PARTITION of his estate by an act inter vivos, provided that the legitime of compulsory heirs is NOT prejudiced.”

-reasons

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There will be always a possibility that one of the parties may be tempted to INSTIGATE THE DEATH OF THE OTHER in order that the inheritance will become his. There is also the possibility that fraud and prejudice be committed

It has been held that – An agreement for the partition of the estate of a living person, made between those who, in case of death, would inherit the estate is NULL and VOID

CAN AN IMPOSSIBLE THING BE THE OBJECT OF CONTRACT?

Where a vendor undertook to convey to the vendee his participation in the property left by his deceased father, the part of the property belonging to his mother, who is still living, cannot at all be affected by conveyance, since his interest in the property of his mother at the time of the execution of the deed of sale was a future inheritance and could not be the subject matter of a valid contract

 According to Article 1348 “impossible things or object cannot be the object of contracts” o Mythical Bird or Animal o Trip to Uranus IMPOSSIBILITY CAN EITHER BE –  ABSOLUTE o Arises from the very nature or essence of the act or service itself o CONTRACT IS VOID  RELATIVE o Arises from the circumstances or qualifications of the obligor rendering him incapable of executing the act or service, allows the perfection of the contract, although the fulfilment thereof is hardly probable.

In the case where, after the death of the decedent anyone of the co-heirs may enter into a contract with respect to the inheritance EVEN BEFORE PARTITION HAS BEEN EFFECTED. This is so because, the principle announced in Article 777 that “the rights to succession are transmitted at the moment of the death of the decedent”

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

In a contract of partnership where one of the partners obligates himself to contribute to the common fund an amount which is beyond his means, the contract is NOT void, because the impossibility may disappear. When the impossibility is permanent, however, as in the case of a person who is unable to perform the service which he has contracted because of total blindness, the contract is VOID.

Let us assume that there is no specification of the quantity, although there is a specification of the class or genus to which the objects belongs, is the contract valid?  According to Article 1349 second sentence, the fact that the quantity is no 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. o This would occur in cases where the contract itself has established the basis upon which such quantity can be determined, such as the needs of a family , provisions needed for a factory , materials for particular work and others of a similar nature. o IN CASE OF FAILURE OF ANY OF THESE THE CONTRACT IS WITHOUT FORCE

3. The object should be [L]icit [not contrary to law, morals, good customs and public order]  Licitness of Object is an indispensable requisite  Article 1347 complements the provision of Article 1306. 4. The object should be [D]eterminate  Article 1349  Also an indispensable requisite, the object must be determinate or at least determinable  The object must be determinate as to its kind –

Section 3. – Cause of Contracts A R T I C L E 1350 – 1351

C A U S E – the “WHY” of the contract  The essential reason which moves the contracting parties to enter into the contract  The immediate , direct , most proximate reason which explains and justifies the creation of an obligation through the will of the contracting parties

Genus of the object should be expressed although there might be no determination of individual specie. [There need not be any specification of the qualities and circumstances of the thing which constitutes the object of the contract - refer to Article 1246 ]

ONEROUS contracts

In ONEROUS Contracts, a mere promise is sufficient causa or consideration. Remedy: rescission or specific performance The object of an onerous contracts is the same as to both parties, although the cause is different

REMUNETORY contracts

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The prestation or promise of a thing or service by the other Service or the benefit which is remunerated or compensated. Liberality or generosity of the benefactor

DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

Example:

WILL THERE BE AN INSTANCE WHERE THE MOTIVE IS REGARDED AS THE CAUSA?  Yes, when the contract is conditioned upon the attainment of the motive  Motive becomes Causa when it PREDETERMINES the purpose of the contract Examples: Where a married man of mature years donated a parcel of land to a girl of sixteen subject to the condition that the latter shall cohabit with him and such condition is accepted, it is clear that the donation is conditioned upon the attainment of the motive of the donor; in other words, it predetermines the purpose of the contract. Thus considered, the conveyance is clearly predicated upon an illegal causa. Consequently, it is void. Therefore, under Article 1412, NCC “there can be no recovery of what has already been delivered” [Liguez v CA]

Onerous Contract – In a contract of sale, the cause, as far as the vendor is concerned is the acquisition of the purchase price, while the cause as far as the vendee is concerned, is the acquisitions of the thing. [The cause of the obligation of the vendor is the obligation of the vendee, while the cause of the obligation of the vendee is the obligation of the vendor]

Remember: Objects of the Contract – are the thing which is sold and the price which is paid Example: If A sells an automobile to B for P20,000, delivery and payment to be made at some specified date, the cause of the contract, as far as A is concerned, is the promise of B to pay him P20,000, while the cause, as far as B is concerned, is the promise of A to deliver the automobile to him.

Where a mother sold two fishponds to a daughter and the latter, in turn resold the same fishponds to her and her stepfather, as a consequence of which said fishponds were converted into conjugal properties, it is clear that the motive or purpose is to circumvent the law against donations between spouses. The motive or the purpose is the illegal causa rendering the contract void. In pari delicto non oritur action now enunciated in Article 1412 NCC [Rodriguez v Rodriguez]

WHAT ARE THE OBJECTS OF THE CONTRACT?  The automobile  The purchase price of P20,000 CAUSE DIRECT and proximate reason of a contract OBJECTIVE or Juridical reason of a contract

MOTIVES INDIRECT and remote reason of a contract Psychological and PURELY PERSONAL reasons ALWAYS THE SAME DIFFERS for each contracting parties Its legality or illegality Its legality or illegality will affect the VALIDITY will N O T affect the of the contract VALIDITY of the contract

A Filipino leased a parcel of land to an alien for 99 years with an option to buy the property within 50 years, provided that the latter shall become a Filipino citizen, it is clear that the motive or purpose of the arrangement, which has resulted in the virtual transfer of ownership to the lesse is to circumvent the Constitutional prohibition of transfer of lands to aliens. This motive or purpose is the illegal causa rendering the contract void. However it will be Article 1416, NCC will apply. Because of public policy, the lessor will be allowed to recover the property [Phil. Banking Corp. v Lui She]

In case of a contract of sale, the cause as far as the vendor is concerned is always the acquisition of the purchase price . . . -Castan 13

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

CAUSE IN ONEROUS CONTRACTS

WHAT IS THE CONTRACTS?

 The cause is for each contracting party  Not necessary that the cause or consideration should pass from one party to the other at the time of the execution of the contract

REMUNERATORY

If A gives a certain property in accordance with the formalities prescribed by law to his lawyer friend, B, in remuneration for legal services which the latter had rendered to him freely in the past and such gift is duly accepted, the cause as far as A is concerned would be the legal service rendered by B, ALTHOUGH SUCH SERVICES DO NOT CONSTITUTE DEMANDABLE DEBT

The cause of the accessory contract is identical with that of the principal contract A MORTGAGE is an accessory contract, its cause is the very cause of the principal contract from which it receives life.

WHAT IS THE CAUSE IN CONTRACTS OF PURE BENEFICENCE?

A PROMISSORY NOTE where a party binds himself jointly and severally affix his signature to it for the payment of a debt

 Mere liberality of the benefactor Causa liberalitatis

Supreme Court: “the consideration which supports the promise of the accommodation maker is that parted with by the person taking the note and received by the person accommodated”

Thus, if A makes a pure donation of a certain property to be in accordance with the formalities prescribed by law, its cause is the “mere liberality” of the donor or benefactor.

CAN A MORAL OBLIGATION CONSTITUTE A SUFFICIENT CAUSE or CONSIDERATION TO SUPPORT AN ONEROUS CONTRACT?

A R T I C L E 1352 – 1355

 Moral Obligations arises wholly from ethical considerations NOT demandable IN LAW but in conscience [unconnected with any civil obligation]  IT CANNOT CONSTITUE A SUFFICIENT CAUSE or CONSIDERATION TO SUPPORT AN ONEROUS CONTRACT

WHAT ARE THE REQUISITES OF CAUSE? The cause should be –  In EXISTENCE at the time of the celebration of the contract.  LICIT or LAWFUL  TRUE

-e x c e p tWhere a moral obligation is based upon a previous civil obligation which has been barred by the statute of limitations at the time when the contract is entered into, IT CONSTITUTE A SUFFICIENT CAUSE or CONSIDERATION TO SUPPORT THE SAID CONTRACT

If the contract has no cause or even if it has, if the cause should be illicit or unlawful, the rule is that – IT SHALL NOT PRODUCE ANY EFFECT

The same is true if the cause stated in the contract is false except if founded upon another lawful cause 14

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 it is the service or benefit which is remunerated though such service or benefit DOES NOT CONSTITUTE A DEMANDABLE DEBT

WHAT IS THE RULE WITH RESPECT TO ACCESSORY CONTRACTS?

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

WHAT IS THE EFFECT OF LACK OF CLAUSE?

IF THERE IS A LESION or INADEQUACY OF CAUSE, SHALL THIS INVALIDATE THE CONTRACT?

 If the contract is not founded upon any cause, then it SHALL NOT PRODUCE ANY EFFECT WHATSOEVER.

 According to Article 1355, NCC, the lesion or inadequacy SHALL NOT INVALIDATE a contract, unless there is –  Fraud  Mistake  Undue Influence  If the lesion or inadequacy of the cause was due fraud, mistake or undue influence, such fact will render the contract VOIDABLE

If the purchase price in a contract of sale was never in fact paid by the purchaser or vendee to the vendor, the contract is inexistent for all purposes for lack of a cause or consideration. In cases of conveyances of property where the conveyance or transfer is simulated without any cause or consideration whatsoever whether the purpose of the grantor is to defraud his creditors or to avert the possible attachment of the property.

REMEDY: file an action for rescission

WHAT IS THE EFFECT OF UNLAWFUL CLAUSE?  It shall not produce any effect whatsoever, in other words it is void ab initio

The rule is not applicable – Where the purchaser or vendee failed to fully pay for the property, even if there is a stipulation in the contract of sale that full payment shall be made at the time of the celebration thereof.

or

Where the cause or consideration for the sale of a certain property is no other than the accumulated usurious interests which the vendor-debtor has not yet paid, the sale is void because of the illegality of the cause or consideration.

As a matter of fact, even where the contract itself expressly states that the consideration for the sale of a piece of land is only P1.00, it does not follow that the contract is void or inexistent for lack of cause or consideration.

It has also been held that a contract affecting the course of a criminal prosecution is invalid, because such a contract would manifestly contrary to public policy and the due administration of justice.

Reason: because there is consideration

Example:

CONTRACT MIGHT BE VOIDABLE due to inadequacy of consideration but not void or inexistent

[Velez v Ramas]

C, wife of A and daughter of B, while employed in a pawnshop owned by X, embezzled the amount of more than P2,000. In order to prevent criminal prosecution, A and B signed a document obligating themselves jointly and severally to pay X the amount embezzled including interest. Because of their failure to comply with their promise the latter filed this action against them.

IS IT NECESSARY THAT THE CAUSE SHOULD BE STATED IN THE CONTRACT TO BE CONSIDERED EXISTING?  If the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.

-HELDA contract based upon an unlawful object, is always void ab initio. 15

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DESIDERIO P. JURADO† MIGUELA ANCHETA LUNA

OBLIGATIONS and CONTRACTS 12th Revised Edition The Law On Obligations and Contracts Revised Edition

WHAT IS THE EFFECT OF FALSE CAUSE?  False cause in contracts shall render them VOID

It must also be noted that in applying the provision of Article 1352 regarding the effect of an unlawful clause, it is always necessary to consider the provisions of Articles 1411 and and 1412 of the Code. It must be observed that these provisions presuppose the existence of an illicit or illegal cause which is to determine the nullity of the contract. Accordingly, they cannot be applied to SIMULATED or FICTITIOUS TRANSFERS OF PROPERTY, where the motive of the grantor may either be to defraud his creditors or to avert the possible attachment of the property.

Example: The deed of sale expressly states that the purchase price has been paid when in fact it has NEVER been pain, it is evident that the contract of sale is invalid in accordance with the general rule announced in Article 1353 and confirmed by Article 1409, No. 2, which declares as inexistent those contracts which are ABSOLUTELY SIMULATED or FICTITIOUS

Remember: If a contract is simulated it does not necessarily follow that it is inexistent or void, provided that it can be established that it is –

When the motive of one of the contracting parties predetermines the purpose of the contract and such motive or purpose is ILLEGAL or IMMORAL, it is clear that such illegal or illicit motive or purpose becomes illegal causa thus rendering the contract void ab initio

 Reality  Founded upon another cause which is TRUE and LAWFUL

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