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172 CIVIL LAW REVIEWER rights of the person who has been subrogated in his place in virtue of the partial payment of the same credit, he shall be preferred over that of the person who has been partially subrogated." [70.2] the principal obligation is extinguished in consequence of a novation by changing the object or principal condi- tions or by substitution of the person of the debtor, ac- cessory obligations, as a rule, are also extinguished.» However, if there is a stipulation in favor of third per- sons, accessory obligations subsist insofar as they may benefit such third persons who have not given their consent to the novation.™ In novation by subrogation: As discussed in Section 69.5.1, the new creditor, as a rule, is also entitled to the exercise of the accessory rights, such as the right to the mortgage or pledge. Hence, such accessory obliga- tions are not extinguished upon the extinguishment of the principal obligation in consequence of subrogation. However, as discussed in Section 69.5.2, the parties may, by express agreement, modify the effects men- tioned in Section 69.5.1 in the case of conventional sub- rogation. Art. 1304, NCC. 8 Manresa 441. "Id, Part Two: CONTRACTS DEFINITION, CLASSIFICATION, AND DISTINCTIONS (71] Contract, In General: (71.1) Definition: A contract is a meeting of minds two persons whereby one binds himself, with r the other, to give something or to render some It may also be defined as “a juridical co manifested in legal form, by virtue of which on persons bind themselves in favor of another or< reciprocally, to the fulfillment of a prestation t do, or not to do.” [71.2] ions: In its d sense, the word “contract” (cum traho) simp] an agreement or convention. Although a cont convention, or agreement of wills, not every co is a contract. Convention is broad enough t any kind of agreement which may create, n extinguish patrimonial and even family rele contract, on the other hand, is limited to ag which produce patrimonial liabilities. [71.3] Implied Contract: (71.3.1] Contract can exist by implicatior Article 1305 of the NCC speaks of ' of the minds,” it does not. mean that: can exist only by express agree! contract can also exist by implication ‘Art. 1805, NCC. “Jardine Davies, Inc. v. CA, 333 SCRA 684, 692-694, citing 4 Sane 148-149. 5IV Tolentino, Civi/ Code of the Philippines, 1991 Ed., p. 6% ‘Jurado, Obligations & Contracts, 1987 Ed., p. 348. ‘IV Tolentino, Civil Code of the Philippines, 1991 Ed., p. 406. *Id., citing Arroyo v. Azur, 76 Phil. 493. 173 174 [71.4] [71.5] CIVIL LAW REVIEWER. [71.3.2] Implied contract, defined: An implied contract, in the proper sense, is a contract which arises where the intention of the parties is not expressed, but an agreement in fact, creating an obligation, is implied or presumed from their acts, or where there are circumstances which, according to the ordinary course of dealing and the common understanding of men, show a mutual intent to contract.’ i : An im- plied contract differs from a quasi-contract, as follows — [71.3.3] 1) An implied contract requires consent of the parties; whereas, a quasi-contract is not predicated on consent, being a unilateral act. 2) The basis of an implied contract is the will of the parties; whereas, the basis of a quasi-contract is law te the end that there be no unjust enrichment.* : A contract is an agree- ment which creates an obligation. Thus, under the Code contract is one of the sources of obligation.» There is therefore a distinction between the contract itself and its obligation in that the contract is the cause, whereas the obligation is the result. Meeting of the minds: The definition of contract under Article 1305 of the NCC lays stress on the meeting of the minds of the contracting parties. This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof.” As a rule, therefore, a contract "Swedish East Asia Co. y, Manila Port Service, 25 SCRA 639 (1968); see also Pacmae, Inc. y. Vulean Manufacturing Co., CV-57311, August 12, 1985. “Suggested Answer to Q No. 8, 1989 Bar, UP Law Center. "17 C.J.8. 537, Art. 1157/2), NCC. “Lustan v. CA, 266 SCRA 663, 670. CHAPTER ONE OBLIGATIONS & CONTRACTS is perfected by mere consent. It does not reqi special form, asa rule," and is binding from the that the essential requisites are present." T! meeting of the minds between the parties give a binding contract although they have not affix signatures Lo its written form.'* [72] Classification of Contracts: _ [72.1] According to degree of dependence: It is either [72.1.1] Principal: That which can exist indepe of other contracts. An example of wk contract of loan. [72.1.2] Accessory: That which cannot exist a valid principal contract. Under om the term accessory contract is syno with contracts of guaranty, such as ¢ proper, surety, pledge, mortgage, et contracts exist merely to secure the ful of a principal obligation. [72.1.3] Preparatory: That which is not an end but only a means for the execution of contract. A contract of agency is an € of a preparatory contract, as agency ¢ stop with the agency because the purp enter into other contracts."* [72.2],, According to manner of perfection: It is either - {72.2.1] Consensual: That which is perfected | consent. An example of which is a cor sale.’ (72.2.2] Real: That which is perfected not t consent but by the delivery of the obje: contract. Under the Civil Code, the fc “Art. 1315, NCC. “Art. 1356, NCC. “Art. 1318, NCC. "Gabelo vy. CA, 316 SCRA 386, 392. **Nielsen & Co., Int. v. Lepanta Consatidated Mining Co., G.R. No. December 28, 1968, Dalion v. CA, 182 SCRA 872. 178 CIVIL LAW REVIEWER into, provided all the essential requisites for their validity are present.” [72.7.2] Special or solemn: That which requires cer- tain formalities either for its validity or en- forceability. For example, a donation of real property, together with its acceptance, is re- quired to be embodied in a public instrument; otherwise, the donation is void.” [72.8] According to purpose: It is either — [72.8.1] To transfer ownership: Such as sale™ or bar- ter.” (72.8.2] ‘To convey the use: Such as commodatum”™ or lease.” (72.8.3] Togive security: Such as pledge* or mortgage.* (72.8.4) To render some service: Such as agency.™ [72.9] According to their subject-matter: {72.9.1] Things: Examples are sale, pledge or mort- gage. [72.9.2] Services: Such as lease of services or agency. [72.9.3] Rights: Provided they are not personal or intransmissible. (72.10] According to their defects: (72.10.1] Perfectly valid — That which is not suffering from any defect. [72.10.2] Rescissible (Art. 1380, NCC) {72.10.3] Voidable (Art. 1390, NCC) *Art. 1356, NCC. Art. 749, NCC. Art. 1458, NCC. *Art. 1638, NCC. *Art. 1935, NCC. * Art. 1643, NCC. “Art. 2093, NCC. *Art. 2124, NCC. “Art, 1868, NCC. CHAPTER ONE OBLIGATIONS & CONTRACTS [72.10.4] Unenforceable (Art. 1403, NCC) [72.10.5] Void or inexistent (Art. 1409, NCC) CHARACTERISTICS OF CONTRACTS [73] isti s; Every contract has fundamental characteristics — 1) The obligatory force or character of contracts; 2) The autonomy of contracts; 3) The mutuality of contracts; and 4) The relativity of contracts. [74] Principle of Obligatory Force of Contracts: [74.1] Statement of the principle: It is a fundamental ' ciple in contract law that “obligations arising , contracts have the force of law between the contra: parties and should be complied with in good fai This is known as the principle of the obligatory for contracts. [74.2] Consequence: From the moment the contract is fected, the parties are bound not only to the fulfill: of what has been expressly stipulated but also t consequences which, according to their nature, be in keeping with good faith, usage and law.” : the stipulations of the contract being the law bety the parties, courts have no alternative but to en! them as they were agreed upon and written.” The does not relieve a party from the effects of an unv foolish, or disastrous contract, entered into with al required formalities and with full awareness of ¥ he was doing. Courts have no power to relieve pai from their obligations voluntarily assumed, sin Art, 1159, NCC, *Pangilinan v, CA, 279 SCRA 590; ace also Art, 1315, NCC. Id, 180 [74.3] CIVIL LAW REVIEWER because their contracts turned out to be disastrous deals or unwise investments.” é iple: Before a contract may be considered oe it is necessary that — 1) Itis perfected; 2) Itis valid; and 8) It is enforceable. [75] Principle of Autonomy of Contracts: (75.1) [75.2] Statement of the principle: The contracting parties are accorded the liberality and freedom to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided the same are not contrary to law, morals, good customs, public order or public policy.” In the law on contracts, such fundamental principle is known as the autonomy of contracts,“ Freedom of contract protected: The right to enter into lawful contracts constitutes one of the liberties of the people of the state. If that right be struck down or arbitrarily interfered with, there is a substantial impairment of the liberty of the people under the constitution." Such freedom is protected by the following provisions in the Constitution: 1) No person shall be deprived of life, liberty or property without due process of law.* (due pro- cess clause) 2) No law shall be passed impairing obligation of contracts.“ (non-impairment clause) [75.2.1] Due process clause: The Constitution guaran- tees the free exercise of the right of property, and the freedom to contract is such right, of which the possessor cannot be deprived with- “Esguerra v. CA, 267 SCRA 380, 393-394, “Art, 1306, NCC. “Gomez v. CA, 340 SCRA 720 (2000). “People v. Pomar, 46 Phil. 440. “Sec. 1, Art. ITI, 1987 Phil. Constitution. “Sec. 10, Art. III, 1987 Phil, Constitution. CHAPTER ONE OBLIGATIONS & CONTRACTS out due process of law.“ But the | contract, associated with business ¢ may be subjected, in the interest of eral welfare under the police power, t tions varied in character and wide ré scope as long as due process is observ easily understandable why the regu practice of medicine; limitation of the labor; imposition of price control; reqi of separation pay for one month as 1 social security scheme cannot be imp unconstitutional.“ e Timber licenses, permits, and agreements are the principal inst by which the State regulates the tion and disposition of forest resc the end that public welfare is pr And it can hardly be gainsaid tl merely evidence a privilege gra the State to qualified entities, an vest in the latter a permanent ori ble right to the particular concess and the forest products therein. T] be validly amended, modified, n or rescinded by the Chief Executi' national interests so require. Thi are not deemed contracts within | view of the due process of law clat [75.2.2] Non-impairment clause: While non- ment of contracts is constitutionally | teed, the rule is not absolute, since i! be reconciled with the legitimate exe police power.“ As long as the contract “National Labor Union, Inc. v. The Court of Industrial Relations, L-46598, October 14, 1939. “Alalayan v. National Power Corp., G.R. No. L-24396, July 29, 1968, “Id. “Felipe Yamael, Jr. & Co., Inc. vy. Deputy Executive Secretary, 190 S 684 (1990), “Ortigas & Co, Limited Partnership v. Feati Bank and Trust Co., 202 CIVIL LAW REVIEWER [82.6] Option Contract: [82.5.1] Definition: An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option.” If the transaction is one of sale, an option may be defined as a contract granting a privilege to buy or sell within an agreed time and at a determined price, It is a separate and distinct contract from that which the parties may enter inte upon the consummation of the option. It must be supported by consideration. An option contract conforms with the second paragraph of Article 1479 of the Civil Code.” Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any litle to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms." (82.5.1.1] Distinguished from contract of sale: The option, however, is an Carceller v. CA, 302 SCRA 718, 724 (1999). Co v. CA, 312 SCRA 628, 534 (1999). ‘'Adelfa Properties, [ne, v. CA, 240 SCRA 565, 579 (1995). Se err rite eee eee ep remenge ene CHAPTER ONE OBLIGATIONS & CONTRACTS independent contract by and it is to be distinguishe the projected main agre (subject matter of the ¢ which is obviously yet to b cluded.’ The distinction be an “option” and a contract 1 is that an option is an una ed offer." The optionee hi right, but not the obligati buy. The option states the and conditions on which the er is willing to sell the prope the optionee elects to accept within the time limited. Ift tionee does so elect, he mus notice to the other party, ar accepted offer thereupon be a valid and binding contra sale). [fan acceptance is not within the time fixed, the ow no longer bound by his offe: the option is at an end, A con of sale, on the other hand, definitely the relative right obligations of both parties : time of its execution, The and the acceptance are c¢ rent, since the minds of thi tracting parties meet in the | of the agreement. [82.5.2] When option is binding: Where a per. given to the offeree within which to ¢ the offer and the same is founded up supported by a separate considerati: contract of “option” is deemed perfecter '@ Ang Yu Asuncion y. CA, 238 SCRA 602, 613 (199-4), ‘Sd, “Td. '*Adelfa Properties, Inc, v. CA, supra. “Ang Yu Asuncion v, CA, supra. CIVIL LAW REVIEWER CHAPTER ONE 205 OBLIGATIONS & CONTRACTS the contemplated contract is one of sale, an [82.5.3.1] Withdrawal] must not be arbitrary accepted unilateral promise which specifies or whimsical: The right to with- the thing to be sold and the price to be paid, draw, however, must not be exer- when coupled with a valuable consideration cised whimsically or arbitrarily; distinct and separate from the price, is otherwise, it could give rise to a what may properly be termed a perfected damage claim under Article 19 of contract of option, which is different from the Civil Code which ordains that the contemplated contract of sales” Since “every person must, in the exer- the option becomes a contract, the offeror cise of his rights and in the per- is bound by the agreement and may not formance of his duties, act with withdraw the offer during the period agreed Justice, give everyone his due, and upon. Thus, it will be a breach of that contract observe honesty and good faith.” (of option) to withdraw the offer during the While the law permits the offeror agreed period, The option, however, is an to withdraw the offer at any time independent contract by itself, and it is to before acceptance even before the be distinguished from the projected main period has expired, some writers agreement (subject matter of the option) hold the view, that the offeror can which is obviously yet to be concluded. If, in not exercise this right in an arbi- fact, the optioner-offeror withdraws the offer trary or capricious manner. This before its acceptance (exercise of the option) is upon the principle that an offer by the optionee-offeree, the latter may not implies an obligation on the part sue for specific performance on the proposed of the offeror to maintait an auich contract (“object” of the option) since it has length of time as to permit the of- failed to reach its own stage of perfection. The feree; to: decide whether to'accept or not, and therefore cannot ar- optioner-offeror, however, renders himself eee ; liable for sini for breach of the option." Biiracily roenke the fier wetout being liable for damages which [82.5.3] i : If the period is the offeree may suffer. A contrary not itself founded upon or supported by a view would remove the stability consideration, the option does not become a and security of business transac- contract. Thus, the offeror is still free and tions." has the right to withdraw the offer before [82,5.3.2] Acceptance prior to withdrawal its acceptance, or, if an acceptance has been of offer: While an option not sup- made, before the offeror’s coming to know of such fact, by communicating that withdrawal to the offeree."” ported by a consideration is not binding upon the promisor and he may, therefore, withdraw his offer, pending the notice of with- drawal, however, such option par- WAng Yu Asuncion v, CA, 238 SCRA 602 (1994), Id, ———— ; Pa fi Yu Asuncion v. CA, 238 SCRA 602 (1994), Ang Yu Asuncion v. CA, supra, citing Art. 1824, Civil Code and Atkins, Kroll ‘Ang i : 4 & Co. v, Cua, 102 Phil. 94; zee alsu Rural Bank of Parafiaque, Inc. v, Remolado, 135 awe Peery Soeenng Ope in Sanchez v. Rigos, supra, citing | Gasperi SCRA 409; Sanchez v. Rigos, 45 SCRA 368. ‘ ol & Ripert 180. {85.1] Concept, defined: Minority is defined as the state of a person who is under the age of legal majority and a minor is a person below 18 years of age since majority commences upon attaining the age of 18 years.** 212 CIVIL LAW REVIEWER CHAPTER ONE OBLIGATIONS & CONTRACTS contract because it is an indispensable condition for [85.2] Effect upon the contract: A contract enter the existence of consent.” There is no effective consent minor is not void, but merely voidable.~ T. in law without the capacity to give such consent. In the minor the right to annul the contract | other words, legal consent presupposes capacity." by him upon his attainment of the age oi [84.2] Effect of incapacity upon the contract: The contract best he: mmest being: the action for aril: is not void, If only one of the contracting parties is ne years es his attainment of the age o incapable of giving consent to a contract, the same is eo buig the action bins e = by th merely voidable.'* However, where both parties are idabl CORO PRSe CH PMUn: siea a sib incapable of giving consent to a contract, the same is voidable contract upon reaching the age o unenforceable.” [85.3] i j inor: ¢ a3 ¥ minors who entered into the contract hi Se passed the age of puberty and adolescenc Pi aE ene COnSen Oa Cone way that they could misrepresent and ¢ 1) Unemancipated minors; misrepresent themselves as having reach of majority, they cannot, upon reachin 2) Insane or demented persons; See tate contract ss the ral 3) Deaf-mutes who do not know how to write; inasmuch as they are already in estoppel - ee : ruling applies only if the minor was guil 4) Persons suffering from civil interdiction; and misrepresentation as when the document si . Baa minor specifically stated that he was of agi 5) Incompetents under guardianship, ihe amino wenn guilty marie of conetuctin [84.4] Presumption of capacity: The law presumes that every misrepresentation, or when the decum person is fully competent to enter into a contract by him did not contain such statement, h until satisfactory proof to the contrary is presented. annul the contract upon reaching the age of The burden of proof is on the individual asserting a Where the minor did not pretend to be of lack of capacity to contract, and this burden has been time when the contract was made and hism characterized as requiring for its satisfaction clear and well known to the other party, the contract | convincing evidence.» annulled.*! [85] Minority: [86] Insanity: [86.1] Concept, defined: Insanity is a manifestati guage or conduct, of disease or defect of the *“Armentia v. Patriarca, 125 Phil. 382; Art. 1390(1), NCC_ **Arts. 1390-1402, NCC, “Art. 1391, NCC. *"Fabie v. Yulo, 24 Phil. 240; Uy Soc Lim v. Tan Unchuan, Gregorio v. Cogio, 21 Phil, 619; Rosales v. Reyes, 25 Phil. 495; Caldero dl Santissimo Rosario, 28 Phil. 164; Joaquin v. Joaquin, 41 Phil, 869, Shanghai Bank y. Aldecoa & Co., 30 Phil. 255; Atacador y. Silayan, 67 ™Miercado v. Eapirita, 37 Phil, 215- **Braganze v. Villa-Abrille, 105 Phil. 466. 20d *\Bambalan v. Maramba, 51 Phil. 417 (1928). ‘Delos Reyes v. CA, 313 SCRA 632, 642 (1999), citing Salonga v. Farrales, 105 SCRA 359. ‘/d., citing IV Tolentino, Civil Cade of the Philippines, 445. Art. 139011), NCC. Art. 1403(3), NCC. Art. 1327, NCC; Art. 34, RPC. "TY ason y. Arciaga, 460 SCRA 456, 465 (2005). “Art, 234, FC, as amended by RA 6809. 214 [86.2] [86.3] [86.4] CIVIL LAW REVIEWER more or less permanently diseased or disordered condi- tion of the mentality, functional or organic, and char- acterized by perversion, inhibition, or disordered func- tion of the sensory or of the intellective faculties, or by implied or disorder volition.”* Effect of insanity upon the contract: A contract entered into by an insane or demented person is not void, but merely voidable.™* But if the contract is entered into during a period of Incid interval, the same is valid. Lucid interval is that intervals occurring in the mental life of an insane pergon during which he is completely restored to the use of his reason, or so far restored that he has sufficient intelligence, judgment, and will to enter into contractual relations, or perform other legal — without eo by reason of his disease.?” : Not every kind of insanity will annul consent. It is only that insanity which prevents a person from knowing the character of the act that he is performing as well as its legal effects which will be a ground for annulment. Thus, monomania, which is insanity on a certain point, does not necessarily annul a contract except when the contract refers to that point where the person concerned is insane,*!? Presumption of sanity: The law presumes that every person is of sound mind, in the absence of proof to the contrary.*" There is a presumption that every person of legal age possesses the necessary capacity to execute the contract,” but the presumption is prima facie and may be rebutted. This presumption of sanity is not, however, overthrown by the fact that nine days after the execution of the contract, the vendor was declared Engle v. Doe, 47 Phil. 760. Art. 1390(1), NCC. ™Art, 1328, NCC, “Black's Law Dictionary, 5th Ed., p.864, *4} Caguioa, Civil Code of the Philippines, 1967 Ed., 79-80. “Standard Oil Company of New York y, Arenas, 19 Phil. 363. Art, 800, par. 1, NCC. "Standard Oil of New York v. Arenas, supra. [87] 1 Caan nig amma CHAPTER ONE OBLIGATIONS & CONTRACTS mentally incapacitated by the court.” The burc proving such incapacity at the time of the execut the contract rests upon he who alleges it; ifno suff proof to this effect is presented, his capacity w presumed. If the contracting party, on the other is under guardianship by reason of insanity, th naturally a presumption of insanity. This presum of insanity is, however, only prima facie and m rebutted by evidence. Thus, it may be shown th executed the contract during lucid interval! : It is ¢ cessory sae Senne upon an accused who i tenced to a principal penalty not lower than rec! temporal which is a penalty ranging from 12 and one day to 20 years. Civil interdiction depriv offender during the time of his sentence of the foll rights: (1) parental authority, or guardianship, | as to the person or property of any ward; (2) m authority; (3) management of his property; and ( position of his property by any act or any conve inter vivos~ Thus, a person suffering from the ; sory penalty of civil interdiction may not validly into contracts involving disposition of his prope the same will take effect during his lifetime. [87.2] Effect of old-age and ph: ity: A person incapacitated to contract merely because of adv years or by reason of physical infirmities. Only such age or infirmities impair his mental fac to such extent as to prevent him from pro intelligently, and fairly protecting his property that he is considered incapacitated. [87.3] Effect ofilliteracy: An illiterate is not incapable of| consent to a contract. However, when an illi alleges mistake or fraud in the giving of his co (87.1] *°Carillo vy. Jaojoco, 46 Phil. 957. *'Dumaguin ¥. Reynolds, 92 Phil. 66. Art. 41, RPC. Art. 34, RPC. Loyola v. CA, 326 SCRA 235. [92.5.3] [92.5.4] 92.5.5) CIVIL LAW REVIEWER (92.5.2.1] Test: The true test as to whether a promise is within the statute has been said to lie in the answer to the question whether the prom- ise is an original or a collateral one. If the promise is an original or an independent one; that is, if the promisor becomes thereby pri- marily liable for the payment of the debt, the promise is not with- in the statute. But, on the other hand, if the promise is collateral to the agreement of another and the promisor becomes thereby merely a surety. the promise must. be in writing.” P ; id ‘ c lage: A marriage settlement is an example of an agreement in consideration of marriage which is required to be in writing under the Statute of Frauds. A donation propter nuptias, however, is no longer governed by the Statute of Frauds but by the formalities required in ordinary donations. See the previous discussions in Section 91.6 of this Chapter. Sale _of goods, chattels or things in_action at_price not less than P500:" The Statute covers both tangible and intangible personal property.“ It also covers the assignment of choses in action, hence, an assignment of a credit over P500 is governed by the Statute of Frauds." Lease of real property for more than_a year and sale of real property or an interest henain® CHAPTER ONE OBLIGATIONS & CONTRACTS [92.5.5.1] Lease of real property for! [92.6.5.2] year: The Statute of Fra covers renewals of the le; tract. Thus, an alleged ve surance of renewal of a lea admissible to qualify the { the written lease agreem der the parole evidence 1 unenforceable under the of Frauds.” Sale of real property or ar est therein: Sale is a con contract and is pertected | consent, which is manife a meeting of the minds a offer and acceptance the three elements: subject price and terms of payme: price.” It does not require matlity for its validity, e the sale of large cattle” an sale of a parcel of land ° an agent where the law 1 the authority of the age in writing in order for the be valid.* Under the Sti Frauds, however, an agi for the sale of real proj of an interest therein to forceable must be in writ subscribed by the party or by an agent thereof.” contract of sale of realty cz proven by means of witne: “Reiss v. Memije, 15 Phil. 350 (1910). "Fernandez vy. CA, 166 SCRA 677 (1998); Inter-Asia Servi) (Unternational) y. CA, 263 SCRA 408 (1996). *Clemeno, Jr. v. Lobregat, 488 SCRA 22, 35 (2004), See diseuscions in Soction 91.9. “See Art. 1874, NCC, ”Diwa v. Donato, 234 SCRA 608 (1994); Jovan Land, Ine. v. CA, | 167 (1997). Art. 1403, par. 2(c), NCC. Art. 1403, par. 2(d), NCC. “LV Tolentino, Civil Code of the Philippines, 1991 Ed., 623. "id., citing Yemuel v. Hoskins, 50 Phil, 132: Art. 1403, par. 2(e), NCC. [92.5.6] CIVIL LAW REVIEWER must necessarily be evidenced by a written instrument, duly sub- scribed by the party charged, or by his agent, or by secondary evi- dence of their contracts.” To ling the ease aeelioate the eens of ‘the Statute of Frauds, the representation must have been made by a stranger to the contract in which credit was extended, or, as otherwise stated, the represantation must relate to a third person’s credit.” Thus, representations as to the credit of the person making the representation are not within the Statute.* (92.6.1] (92.6.2) Express trust over immovable: An express trust concerning an immovable or any inter- est therein may not be proved by parol evi- dence.” Hence, it must be in writing to be en- forceable. An implied trust concerning real property, on the other hand, may he proved by oral evidence." Agreement on payment of interest: No inter- est shall be due unless it has been expressly stipulated in writing."* Hence, a verbal agree- ment on the payment of interest may not be enforced against the borrower against his will. However, if the borrower pays the inter- est voluntarily when there has been no stipu- Alba Vda. de Raz v. CA, 314 SCRA 36 (1999), Art, 1403, par. AD, NCO. Mass. Des Brisay y. Foss, 162 N.E. 4, 264 Mass. 102; Medbury v. Watson, 6 Metc. 246, 39 Am.D, 726; cited in 37 C.J.8. 552. Muss.-Sibley v. Hulbert, 15 Gray 509; cited in 37 C.1.S. 552. Art. 1443, NCC. “0 Lao v. Co Cho Chit, 220 SCRA 656. “Art. 1956, NCC. CHAPTER ONE OBLIGATIONS & CONTRACTS lation therefore, the payment is val creditor is authorized to retain the | [93] Contracts Which Require Form Only for Convenienc [93.1] Requirement of form in Article 1358 of C [93.2] [93.3] There are certain contracts which are requir a public document under Article 1358 of the € However, the provision of Article 1358 of Code on the necessity of a public document j convenience, not for validity or enforceabili compliance with formal requisites does not affect the validity of the contract or the cc rights and obligations of the parties.“ Thus appearance of the parties before the notary p notarized the deed does not necessarily n render the parties’ transaction void ab initio. Effect of non-recording of the instrument: Ar of the Civil Code which requires the embo certain contracts in a public instrument, i: convenience, and registration of the instrur adversely affects third parties. Formal requ ~ are, therefore, for the benefit of third part compliance therewith does not adversely z validity of the contract nor the contractual r obligations of the parties thereunder.” C —e blic 4 convenience: 1) Acts and contracts which have for th the creation, transmission, modificati tinguishment of real rights over in property; but sales of real property or terest therein are governed by the § Frauds; Art, 1960, in relation to Art. 1423, NCC. *“Dailon vy. CA, 182 SCRA 892; Caoili v. CA, 314 SCRA 345 (1999 Apacionado, $18 SCRA 688 (1999); Agasen v. CA, 325 SCRA 504 (2000), Santos, 863 SCRA 545, 558-559 (2001), *Agasen y. CA, supra, Londres y. CA, 394 SCRA 133. *Penalosa v. Santos, supra. "Pulo v. CA, 286 SCRA 698, 712-713 (1998). 264 CIVIL LAW REVIEWER holding the right of first refusal.” But in the case of Tanay Rec- reation Center and Development Corp. v. Fausto,” this rule was not followed because the property was sold by the mother {grant- or) to her daughter for a measly sum. In- stead, the Court ruled therein that the offer to the grantee should be under reasonable terms and conditions, taking into account the fair market value of the property at the time that it was sold to the daughter. {99.3.6.3] RFR, not covered by Statute of Frauds; The question as to wheth- er a right of first refusal may be proved by parole evidence has been answered in the affirmative by the Court in Rosencor Develop- ment Corporation v. Inquing.* It was held therein that a right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of the NCC presupposes the existence of a perfected, al- beit unwritten, contract of sale. A right of first refusal, however, is not by any means a perfected CHAPTER ONE OBLIGATIONS & CONTRACTS [99.3.6.4] contract of sale of real p! At best, it is a contractua nat of the sale of the real p involved, but of the right refusal over the property to be sold. It is thus evide the statute of frands does 1 template cases involving of first refusal. As such, a first refusal need not be wr he enforceable and may be by oral evidence.“ May not be unilateralls drawn if founded on ec ation: A party to a contre not unilaterally withdraw of first refusal that stand valuable consideration. Court had categorically rul it is not correct to say tha is no consideration for th of the right of first refusal grant is embodied in th contract of lease. Since tt ulation forms part of the lease contract, the consid for the lease includes the eration for the grant of th of first refusal. In enteri) the contract, the lessee is i stating that it consents t the premises and to pay tt agreed upon provided the also consents that, should the leased property, the lessee shall be given the 1 “Parafaque Kings Enterprises, Inc. y. CA, 268 SCRA 727 (1997). “Cited in Estate of Orlando Licnado and Wenifreda Lienado v. Lier SCRA 546, March 4, 2009. Polytechnic University of the Philippines v. Golden Horizon Realty € SCRA 478, March 15, 2010, citing Polytechnic University of the Philipping Bg SCRA 436, 443. 368 SCRA 691, 708 (2001). 286 CIVIL LAW REVIEWER (99.3.6.5] match the offered purchase price and to buy the property at that price." ; An option or an offer would require, among other things, a clear cer- tainty on both the object and the cause or consideration of the envi- sioned contract.” In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be de- pendent not only on the prantor’s eventual intention to enter into a binding juridical relation with another but also on terms, includ- ing the price, that obviously are yet to be later firmed up.* From the foregoing, it is thus clear that an option contract is entirely dif- ferent and distinct from a right of first refusal in that in the for- mer, the option granted to the offeree is for a fixed period and at a determined price. Lacking these two essential requisites, what is involved is only a right of first refusal.” Hence, in the case of PUP v. Golden Harvest Reaity Corporation,” it was held that the option to purchase clause in the lease contract subject matter of that case was a mere right of first refusal because no definite period "Jd., cyting Lucrative Realty and Development Corporation v. Bernabe, dr., G-R. No. 148514, 392 SCRA 679, November 26, 2002. Ang Yu Asuncion v. CA, G.R. No. 109125, 238 SCRA 602, December 2, 1994. *Id., cited in Polytechnic University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478, supra, — *”Tuazon y. Del Rosario, 637 SCRA 728, December 13, 2010. “Supra. wees cucanie uy 5 SUN Lan 28 CHAPTER ONE OBLIGATIONS & CONTRACTS within which the leased will be offered for sale t see and the price is mad to negotiation and de only at the time the opti is exercised. On the ott the case of Tuazon v. Del involves an option cont not a right of first refusa one of the parties was a fixed period to buy th property at a price certai [99.4] Contracts relating to things under litigation: ( relating to things under litigation are also re if they have been entered into by the defendan the knowledge and approval of the litigants competent judicial authority.” [99.5] Payments made in state of insolvency: Payme in a state of insolvency for obligations to whe ment the debtor could not be compelled at they were effected, are also rescissible. [99,6] Other contracts specially declared by law to be; rescission: 1) Rescission of a contract of partitio: ground of lesion;* 2) Rescission in case one of the obligors i rocal obligation should not comply wit incumbent upon him;* 8) Rescission of contract with damages i the creditor’s acts, the debtor canno choice in an alternative obligation.” "637 SCRA 728 (2010). Art. 1381(4), NCC, *Art, 1382, NCC. Art. 1098, NCC. Art. 1191, NCC. “Art. 1203, NCC. CIVIL LAW REVIEWER {105.2.2] (105.2.3] who made it in order to annul his contract.” * Misrepresentation made in good faith is not fraudulent, but may constitute error or mistake.” Mistake includes ignorance: Tolentino ex- plains that the concept of error in Article 1331 of the Civil Code must include both ignorance, which is the absence of know- ledge with respect to a thing, and mistake properly speaking, which is a wrong con- ception about said thing, or a belief in the existence of some circumstances, fact, or event, which in reality does not exist. In both cases, there is a lack of full and cor- rect knowledge about the thing. Mistal be wit! P i not law: [105.2.3.1} Rule: As a rule, mistake of law does not make a contract void- able, because ignorance of the law does not excuse any one from its compliance.” Thus, ordinarily, it is only a mistake of fact which will vitiate con- sent thus rendering the con- tract voidable. (105.2.3.2] Exception: Mutual error as to the legal effect of an agree- ment when the real purpose of the parties is frustrated may vitiate consent.’ But in order for mutual error of law may CHAPTER ONE OBLIGATIONS & CONTRACTS vitiate consent, the | requisites must be pr 1) The mistake mus respect to the leg of an agreement; 2) The mistake mus tual; and 3) The real purpos: parties must ha frustrated. (105.3] Fraud: [105.3.1] Kind of fraud which will annul. The kind of fraud that will vitia) tract refers to those insidious 1 machinations resorted to by on contracting parties to induce the enter into a contract which withe he would not have agreed to — t| must be the determining cause of tract, or must have caused the co be given.” The fraud referred to | fraud. Dolo causante or causal basically a deception employed party prior to or simultaneous to tract in order to secure the conse other.” 1105.3.1,1] Dolo Causanfe and D dente: Dolo causante fraud) refers to those i words or machination ed to by one of the cor parties to induce tt to enter into a contr: out them, he would | 2Alcusid vy. CA, 237 SCRA 419 (1994). Art. 1343, NCC. “Art. 1338, NCC; Rural Bank of Sta. Muria, Pangasinan v, CA, “Theis v. CA, 268 SCRA 167 (1997), citing IV Tolentino, Civil Code of the 255 (1999); Reyes y. CA, 218 SCRA 152 (1992); Periquet, Jr. v. IAC, 238 Philippines, 1991 Ed., p. 476. (1994). “Luna vy. Linatoc, 74 Phil. 15. 1*Samaon v, CA, 288 SCRA 387 (1994). ‘Art. 1334, NCC, 282 CIVIL LAW REVIEWER agreed to. Dolo incidente {incidental fraud), on the oth- er hand, refers to deceptions or misrepresentations which are not serious in character and without which the other party would still have entered into the contract. They are distinguished from each oth- er, as follows — 1) The first is serious in character, while the sec- ond is not. 2) The first is the cause which induces the other contracting party to enter into a contract with the one who employed it, while the second is not because even without it the other would still have entered into the contract; and 3) The first renders the con- tract voidable,’* while the second renders the person employing it only liable for damages,'* [105.3.2] Requisites of annulment. based on fraud: In order that the consent of a party to a contract may be vitiated by fraud, it is essential that the following requisites must concur — Art. 1338, NCC. CHAPTER ONE OBLIGATIONS & CONTRACTS 1) It must have been « one contracting part other; 2) Tt must have induce party to enter into th 3) It must have been se 4) It must have resulte: and injury to the pa annulment.'* [105.3.2.1] First requisite: which vitiates co have been employ the contracting 7 and should not employed by bot! otherwise, the con voidable,'* Also, must have been e a contracting part other and not by : son. Misrepresent third person does consent, unless representation hi substantial mistal same is mutual.'" e A contract ma: dated by subst take mutually by the contract as a conseque fraud and mis) tion committed party. Stated o contract may t re vurane, Uongarions anit Cintrucls, 1087 Bas Ane: TAlcasid v. CA, 237 SCRA 419 (1994); Constantino v. GA, 2 aoe os h . ‘Art, 1344, 1, NCC. Art 1344, por. 1, NCC. wiArt, 1342, NCC. “Art. 1344, par. 2, NCC. 
