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CONTRACTS • Example: Contract of lease over a parcel of land and allows

the lessee to build a building there. From the text of the

A. Definition contract, there is nothing there that provides ownership of
 Art. 1305 A contract is a meeting of minds between two building after termination of contract, so there is now
persons whereby one binds himself, with respect to the problem on who will be owner of building after.
other, to give something or to render some service. • Will you apply the principle that accessory follows
 A juridical convention manifested in legal form, by virtue principal?
of which one or more persons bind themselves in favor of • No. Article 415 of the Civil Code on Property places a
another or others, or reciprocally, to the fulfillment of a building as a real property itself independent of the land.
prestation to give, to do or not to do. (Sanchez Roman) • So we now have an element not agreed upon. So how
 Limited to that which produces patrimonial liabilities. should this be solved? Resolution should be in accordance
 Contracts are agreements enforceable through legal with law on property; there would be two owners now.
proceedings. An agreement is broader than a contract Owner of the land is not necessarily owner of building. The
because the former may not have all the elements of a basis is that under Article 415, building is treated as
contract. property separate and distinct from the land.
 Contract is just one of the sources of obligations. • The principle that accessory follows the principal is a
general principle and in case of conflict between specific
Binding effect of contract based on the following and general principle, the specific prevails under rules of
principles statutory construction. But there is still problem because
 Obligations arising from the contract have the force of law you are creating a forced ownership.
between the contracting parties, laws, then are merely • Other examples: mortgage, bond, and guaranty.
suppletory to the stipulation of the parties
 There must be mutuality between the parties based on B. Characteristics of a Contract
their essential equality, to which is repugnant to have one 1. Obligatory force
party bound by the contract leaving the other free  Art 1308 The contracts must bind both contracting
therefrom parties; its validity or compliance cannot be left to the will
 There is usually an offer then a counter-offer, followed by of one of them.
a counter-counter-offer, ad nauseam. What happens is  Constitutes the law as between the parties
haggling/bargaining/negotiating. (Labitag)  Just as nobody can be forced to enter into a contract, in
the same manner, once a contract is entered into, no party
Essential Elements can renounce it unilaterally without the consent of the
• Those, without which, there can be no contract; other, otherwise he is liable for damages.
necessary and indispensable; subdivided into common,  A contract is an agreement which gives rise to an
special and extraordinary. obligation. It must bind both parties in order that it can be
• If any essential element is absent, one can file an action enforced against either.
to declare the inexistence of contract; no contract.  Without this equality between parties, it cannot be said
• The following are the essential elements of a contract: that the contract has the force of law between them.
1. Consent
2. Object 2. Mutuality
3. Cause/consideration  Validity and performance cannot be left to the will of
only one of the parties.
 Defective consent - this is voidable; have it declared  The purpose is to render void a contract containing a
annulled. condition which makes fulfillment dependent exclusively
 Absence of consent - cause of action is declaration of upon the uncontrolled will of the one of the contracting
inexistence of contract. parties.

Natural Elements Art 1309 The determination of the performance may be left
• Exist as part of the contract even if the parties do to a third person, whose decision shall not be binding until it
not provide for them, because the law, as suppletory to has been made known to both contracting parties.
the contract, creates them.  Both contracting parties must be bound by the stipulations
• Derived from the nature of the contract, not expressly of the contract, even if in disparate proportions. (Labitag)
stated in the contract.  The decision of the third party may only bind the parties
• Examples: Warranties against hidden defects or eviction in once it has become known to them.
the contract of sale. Not stated in the contract but just  Example: Parties agreed on a compromise agreement
because it is not stated, it doesn't mean that you don't where one will send land to other and other agreed he will
have any right. They are deemed to exist in the contract. buy, but the problem is that they have not determined
• Parole Evidence Rules: Every agreement, terms of what the purchase price is, so they have to constitute a
condition, stipulation you agree is reduced into writing; if committee to determine the fair price  This should be
not expressly stated, they are deemed not agreed upon. part of the contract that determination would be left to a
Exception to this are: natural elements like warranty committee.
against eviction, hidden defects, and the law which are  Can contract be invalidated since determination is
deemed incorporated into the contract. left to committee?
 No, because of Art. 1309
Accidental Elements  Another example: Arbitration in a barangay where the
• Agreed upon by the parties and which cannot exist pangkat tagapagkasundo under lupong tagapamayapa will
without being stipulated. resolve disputes or arbitrate between parties.
• Unlike natural elements, the parole evidence rule applies
Art 1310 The determination shall not be obligatory if it is and the new president of AFPSLAI did not intend to rescind the
evidently inequitable. In such case, the courts shall decide contract and hence, the former remains entitled to her
what is equitable under the circumstances. commission.
 This article is a disqualification to Art. 1309.  PAPI Sales associate Crisostomo negotiated with AFPSLAI
and received commission for the initial MOA contracted,
Art. 1473. The fixing of the price can never be left to the involving educational plans.
discretion of one of the contracting parties. However, if the  When the MOA was amended, PAPI stopped her
price fixed by one of the parties is accepted by the other, the commission, alleging the termination of the first MOA and
sale is perfected. hence, Crisostomo’s lack of right to said commissions.
 CONTRACT OF ADHESION: A contract in which one party  Crisostomo demanded for continued payment of her 2%
has already prepared a form of a contract containing commission and proposed to resign for P5M or to resign
stipulations desired by him and he simply asks the other but continue receiving the commission as royalty until the
party to agree to them if he wants to enter into the contract with AFPSLAI exists.
contract.  PAPI denied her proposal, preventively suspended her and
subsequently terminated her services.
GSIS vs. CA  Crisostomo filed a suit for sum of money and damages
Summary: GSIS increased the purchase price stipulated in the (January 21, 1993) amounting to P183,867.34 as
Deed of Conditional Sale with the spouses involving one of its commission of AFPSLAI’s payment worth P9,193,367.20
house and lots in its village after the final construction costs. as of October 2, 1992.
Because the Deed did not subject the price to change, where  CONTENTIONS OF PAPI: (1) Crisostomo failed to complete
the marginal notation of such effect was only inserted, the 100 new paid plans; (2) Crisostomo’s right to commission
agreement was only to pay the original price, which obligation was subject to the existene of a contrace and the Amended
the spouses had already complied with and which necessitates MOA with AFPSLAI was a new contract with the old one
the execution of a Final Deed of Sale. rescinded; (3) Crisostomo was not entitled to commission
 GSIS conducted a lottery draw for the allocation of lots and but was given only because those entitled were
housing units. disqualified (as terminated and as an employee)
 Esperanza Leuterio won and was issued a Certificate of  RTC: Held in favor of Crisostomo
Acknowledgment to purchase the subject house and lot.  CA Upheld since (1) no cancellation of the first MOA that
 The parties entered into a Deed of Conditional Sale was only modified; (2) the requirement of 100 new paid
evidencing the conveyance of the subject property and all plans was amended by the Memorandum which reduced
improvements thereon to the Leuterio spouses for the the commission to 2%.
purchase price of Php 19,740 payable over a fifteen-year  CA: The second MOA was only a modification of the first
period. since the abandonment of contracts must be mutual
 GSIS's Board of Trustees increased the purchase price between the contracting parties. Crisostomo and the new
indicated in the Deeds of Conditional Sale covering houses president of AFPSLAI did not intend to rescind the contract
and lots therein. and hence, the former remains entitled to her commission.
 On the face of the Leuterio's Conditional Deed of Sale is
the marginal notation "subject to adjustment pending Supreme Court Ruling:
approval of the Board of Trustees."  The first moa not cancelled but only modified by the
 The Leuterio spouses alleged that this wasn't in the Deed second
when they signed it. The trial court found that the  Letter of new AFPSLAI President only signified the
appended words were inserted without the knowledge of suspension of the acceptance of new applications under
the spouses. the first MOA, until such time that a new agreement
mutually beneficial to both parties was entered into ~ Only
Supreme Court Ruling inconsistent provisions were rescinded or modified.
 Article 1473 of the Civil Code provides that "the fixing of  Abandonment must be (1) Actually intended; (2) Mutually
the price can never be left to the discretion of one of the assented to by both contracting parties ~ 1308
contracting parties."  Non-participation of Crisostomo in the negotiations is
 The purchase price mutually agreed upon is Php 19,740. immaterial because the commission was granted as an
The spouses Leuterio didn't give their consent for GSIS to incentive to the one who initiated and successfully
make a unilateral upward adjustment of the price negotiated the contract given that the agent remains
depending on the final cost of construction of the subject connected with PAPI and that the commission was non-
house and lot. transferable
 This conclusion is also confirmed by the petitioner GSIS in  Crisostomo was still with PAPI and hence entitled to the
the instant Petition for Review on Certiorari where it's commission even under the second MOA
alleged that "the respondent- spouses Leuterio were not  No moral damages for absence of bad faith in the breach
required to sign a new contract as provided in Resolution of contract
No. 996."  No exemplary damages due to absence of finding of moral,
temperate or compensatory damages
Professional Academic Plans, Inc. vs. Crisostomo
Summary: Sales associate Crisostomo negotiated with 3. Relativity
AFPSLAI and received commission for the initial MOA a. Contracts take effect only between parties, their
contracted, involving educational plans. When the MOA was assigns, and heirs
amended, PAPI stopped her commission, alleging the Art. 1311. Contracts take effect only between the parties,
termination of the first MOA and hence, Crisostomo’s lack of their assigns and heirs, except in case where the rights and
right to said commissions. However, the second MOA was only obligations arising from the contract are not transmissible by
a modification of the first since the abandonment of contracts their nature, or by stipulation or by provision of law. The heir
must be mutual between the contracting parties. Crisostomo
is not liable beyond the value of the property he received from b. No one may contract in the name of another
the decedent. Art. 1317. No one may contract in the name of another
If a contract should contain some stipulation in favor of a third without being authorized by the latter, or unless he has by law
person, he may demand its fulfillment provided he a right to represent him.
communicated his acceptance to the obligor before its A contract entered into in the name of another by one who has
revocation. A mere incidental benefit or interest of a person is no authority or legal representation, or who has acted beyond
not sufficient. The contracting parties must have clearly and his powers, shall be unenforceable, unless it is ratified,
deliberately conferred a favor upon a third person. expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting
Intransmissible contracts party.
 Purely personal e.g. partnership and agency • Where a contract is entered into in behalf of another who
 The very nature of obligation that requires special personal has not authorized it, such contract is not valid and binding
qualifications of the obligor against him, unless he ratifies the transaction and is
 The payment of money debts is not transmitted to the estopped to question its legality.
heirs, but to the estate • The mere lapse of time cannot give efficacy to such a
 The death of a partner dissolves a partnership and his heirs contract.
cannot automatically substitute the deceased partner • The ratification retroacts to the moment of its celebration.

DKC Holdings Corp. vs. CA Exceptions to relativity

(same case from pre-mid on the transmissibility of 1. Not transmissible by nature
obligations)  Purely personal obligations; obligations to do;
Summary: The son of land owner Encarnacion is bound to  Example singer imong papa lain sad kayu ug ikaw
recognize the contract of lease between his deceased mother mupuli
and DKC over his mother’s land even after the death of his 2. Stipulation or provision by law:
mother, and even after he had inherited the same as sole heir.  Contract of agency
Property right is transmissible and thus, under Art. 1311,  Your father is attorney in fact and father died, you
obligations arising from it binds heirs. cannot assume as an attorney in fact.
 DKC entered into a Contract of Lease with Option to Buy  Contract of partnership; needs consent of al partners;
with Encarnacion Bartolome, whereby DKC was given the you pool your resources together for business
option to lease or lease with purchase a land belonging to purposes -vs. corporation: if stockholder dies, his heir
Encarnacion, which option must be exercised within 2 replaces him. In partnership, his heirs cannot step into
years from the signing of the Contract. his shoes.
 DKC undertook to pay Php 3,000 a month for the 3. Parties agree on something but object is to benefit a third
reservation of its option. DKC regularly paid the monthly person (Stipulation pour atrui)
Php 3,000 until Encarnacion's death.
 Thereafter, DKC coursed its payment to Victor, the son and Stipulation pour atrui (stipulations in favor of third
sole heir of Encarnacion. persons)
 However, Victor refused to accept these payments.  Art 1311 If a contract should contain some
Meanwhile, Victor executed an Affidavit of Self- stipulation in favor of a third person, he may demand
Adjudication over all the properties of Encarnacion, its fulfillment provided he communicated his
including the subject lot. acceptance to the obligor before its revocation. A
 Thus, a new TCT was issued in the name of Victor. mere incidental benefit or interest of a person is not
 Later, DKC gave notice to Victor that it was exercising its sufficient. The contracting parties must have clearly
option to lease the property tendering the amount of Php and deliberately conferred a favor upon a third
15,000 as rent. person.
 Again, Victor refused to accept the payment and to  When there is a stipulation in favor of a third person,
surrender passion of the property. DKC thus opened a and only if he communicated his acceptance and
savings account in the name of Victor and deposited the contracting parties clearly and deliberately
therein the rental fee. conferred a favor upon that third person (the
provision does not contemplate tangential benefit to
Supreme Court Ruling another)
 The SC held that Victor is bound by the Contract of Lease  There must be no agency relationship between one of
with Option to Buy. the parties and the third person because then the third
 In this case, there is neither contractual stipulation nor person ceases to become a third person. (Labitag)
legal provision making the rights and obligation under the  Accion pauliana, suborgatoria, directa (no relativity of
contract intransmissible. More importantly, the nature of contract in these three)
the rights and obligations therein are, by their nature,  Test of beneficial stipulation: A mere incidental
transmissible. interest of a third person is not within the doctrine; it
 Where the service or act is of such a character that it may must be the purpose and intent of the stipulating
be performed by another, or where the contract, by its parties to benefit the third person.
terms, shows the performance by others was  General Rule: If not a party, cannot ask for
contemplated, death does not terminate the contract or enforcement.
excuse nonperformance.  Exception: This third person, even if not a party, has
 In this case, there is no personal act required from the late legal right to ask for enforcement. Before filing for
Encarnacion. Rather, the obligation of Encarnacion to enforcement, communicate acceptance to obligor.
deliver possession of the property may very well be  Required: Third person must communicate his
performed by Victor. acceptance. Form of acceptance may be implied or
express; not even required that it be in writing.
 Unlike in donation where acceptance should always be Florentino vs. Encarnacion
express, it can be implied in pour atrui. In donation, Summary: Stipulation in Deed of Extrajudicial Partition,
there are only two parties. In pour atrui, there is a favoring the Church cannot be revoked by the appellees
third party. In both, acceptance must be made known because, as a stipulation pour autrui, which confers benefit to
before its revocation or before the one conferring it a third person, the acceptance of the beneficiary, the Church,
becomes incapacitated. need not follow any form or be done in a fixed period as long
 See Florentino vs. Encarnacion. as it had been done before revocation. The Church had already
impliedly accepted it by its unquestioned enjoyment long
Requisites of stipulation pour autrui before the revocation of appellees. Hence, given that the
1. Stipulation in favor of third person is a part, not the stipulation has not been revoked on time, the contract is
whole of the contract binding on all parties.
2. Favorable stipulation not conditioned or compensated  The petitioners-appellants and the petitioners-appellees
by any kind of obligation whatever filed with CFI an application for the registration under Act
3. Neither of the contracting parties bear the legal 496 of a parcel of agricultural land located at Cabugao,
representation or authorization of the third party Ilocos Sur.
4. Benefit to the 3rd person was clearly and deliberately  The application alleged among other things that the
conferred to by parties applicants are the common and pro-indiviso in fee simple
5. Third person communicated his acceptance to the of the land, acquired by virtue of the Deed of Extrajudicial
obligor before the latter revokes the same Partition of the estate of their predecessor-in-interest,
aunt Dona Encarnacion Florentino; that they knew of no
4. Third person induces another to violate his contract under mortgage, lien, or encumbrance or third persons
1314 interested.
 Art 1314 Any third person who induces another to  Exhibit O-1 embodied in the deed of extrajudicial partition
violate his contract shall be held liable for damages to (Exhibit O), which states that with respect to the land
the other contracting party. situated in Barrio Lubong, Dacquel, Cabugao, Ilocos Sur,
 Example: Ang katabang na nilayas, nibalhin silingan the fruits thereof shall serve to defray the religious
kay mas dakog sweldo, giingnan sa lain maid na ali expenses of the church, was the source of contention in
dri nndot sweldo dri this case.
 In pour atrui, example the TPL insurance, your source  Florentino wanted to include Exhibit O-1 on the title but
of action is the contract between company and owner. the Encarnacions opposed and subsequently withdrew
 Here, the source is a quasi-delict, a source other than their application on their shares, which was opposed by
the contract. So this provision should not have been the former.
an exception. The framers committed a blatant error.  CFI Denied the request of Florentino (A) to consider as an
Because when we say that it is exception to relativity encumbrance the arrangement (stipulated in the Deed of
of contracts, then the source must be a contract. This Extrajudicial Partition), that the fruits of the land is for
provision is out of place payment of the expenses for religious functions specified,
 See So Ping Bun vs. Court of Appeals, Lagon vs. due to its non-registration in the Register of Deeds, the
CA absence of acceptance by the donee Church (considering
the arrangement as a donation, pure and simple), the non-
Requisites of Interference with Contractual grant of Angel and Salvador Encarnacion, Jr. (B) when
Relation by a Third Person: they did not sign the Deed; such payment was ordered
1. Existence of a valid contract deducted from the undivided shares of A only, excluding B
2. Knowledge by a third person of the existence of a who denied it.
contract  CFI Modified its answer: that as a donation, usufruct or
3. Interference by the third person in the ellemosynary gift, the arrangement can be revoked as
contractual relation without legal justification what B have done given that there had been no proof of
acceptance by the Church; also, A is not a real party in
 Lagon ruling: There would be no tortous interference interest and the Church should have been the right party
if the alleged interferer did not know of existence of to demand the arrangement.
 Wxample: case of movie stars where Viva induces Supreme Court Ruling
artists in Regal Films; or case of Pacquiao while he had  The said stipulation is a stipulation pour autrui.
contract with Bob Arum, he wanted to have contract  A stipulation pour autrui is a stipulation in favor of a third
with Golden Boy. Bob Arum threatened him for person conferring a clear and deliberate favor upon him,
violating contract and Golden Boy for inducing and which stipulation is merely a part of a contract entered
Pacquiao to violate his contract. into by the parties, neither of whom acted as agent of the
third person, and such third person may demand its
5. Instance where third person can set aside a contract: fulfillment provided that he communicates his acceptance
accion pauliana to the obligor before it is revoked.
 You may not be a party but you can question the  The evidence on record shows that the true intent of the
contract meant to defraud you if you are creditor parties is to confer a direct and material benefit upon the
 Note: Outside these exceptions, you as third person Church.
has no right to seek for any relief arising from the  While a stipulation in favor of a third person has no binding
contract. effect in itself before its acceptance by the party favored,
 Not even the court can interfere with contractual the law does not provide when the third person must make
relations. This is part of constitutional right to freedom his acceptance.
to contract.  As a rule, there is no time limit; such third person
has all the time until the stipulation is revoked.
 Here, we find that the Church accepted (implicitly) the  Renewal of the Contract (1974) due to the non-completion
stipulation in its favor before it is sought to be revoked by of the commercial buildings
some of the co-owners.  Death of Bai, 1982, where Jose Lagon bought two parcels
 HENCE, stipulation is binding on all parties of the Deed, of land from the Estate (thru an intestate court)
which is a contract, the law among the parties.  Administrator thus advised Lapuz to stop collecting rents
and Lapuz then discovered that Lagon became the new
So Ping Bun vs. CA owner and had been collecting the rents
Summary: Trendsetter interfered with the fulfillment of Tek  Filed suit for torts and damages by Menandro Lapuz who
Hua of its lease contract with DCCSI when it obtained a lease had induced the heirs of Bai to sell the property to him and
for its own, covering the warehouse of the property, because it had violated his leasehold rights
deprived Tek Hua of its property right. But since such act was  RTC ruled in favor of Lapuz where Contract of Lease was
justified by Trendsetter’s motive to benefit itself, damages authentic
cannot be granted to Tek Hua but the lease contract of  Contention of Lagon: (1) denied interfering with Lapuz’s
Trendsetter had been nullified. leasehold rights because, based on his personal
 Tek Hua Trading (Trading) entered into agreements with investigation, there were no lease claims or encumbrances
Dee C. Chua & Sons Inc. (DCCSI) for the lease of several when he purchased the lots, that he knew of no lease
premises which Trading used to store its textiles. contract; went to Atty. Fajardo who had notarized the
 The successor of Trading, Tek Hua Enterprising lease between Bai and Lapuz and was shown that the
(Enterprising), allowed So Ping Bun, the grandson of the copies of lease renewal were not signed; (2) denied
managing partner of Trading, to use the premises to store inducing the heirs who were in dire need of money to pay
his own textiles. Bai’s obligations
 Later, one of the members of Enterprising, asked So Ping
Bun via a letter to vacate the premises since he needed it Supreme Court Ruling
for his textile business.  There was no interference > Absence of the 2nd and 3rd
 So Ping Bun refused to vacate. Instead, So Ping Bun Elements of Tortuous Interference
entered into lease contracts with DCCSI over the same  Elements of Tortuous Interference: (1) existence of a valid
premises. contract; (2) knowledge on the part of the third person of
 Enterprising and Manuel Tiong filed an action to nullify the the existence of contract ~ need not be actual knowledge
contracts between So Ping Bun and DCCSI and also but mere awareness of the facts which, if followed by a
claimed damages against So Ping Bun for unlawful reasonable inquiry, will lead to a complete disclosure of the
interference in the lease contracts between DCCSI and contractual relations and rights of the parties in the
Enterprising. contract; and (3) interference of the third person is
without legal justification or excuse ~ defendant must
have acted with malice, or must have been driven by
Supreme Court Ruling purely impious reasons to injure the plaintiff ~ financial or
 The elements of tort interference are: a) existence of a profit motivation will not necessarily make a person an
valid contract; b) knowledge on the part of the third person officious interferer liable for damages as long as there is
of the existence of the contract; and c) interference of the no malice or bad faith involved
third person is without legal justification or excuse.  2nd Element of Knowledge of Contract; Personally
 The three elements of tort interference are present since investigated the property and found no suspicious
So Ping Bun prevailed upon DCCSI to lease the warehouse circumstance that would have made a cautious man probe
to his enterprise at the expense of Enterprising. deeper
 However, So Ping Bun still cannot be held liable for  1st Element of a valid contract is present; notarized lease
damages. Though he took interest in the property of contract that has the value of a prima facie evidence and
Enterprising and benefited from it, nothing on record which was declared valid by the trial court
imputes deliberate wrongful motives or malice on him.  3rd Element is not present because (A) there was no bad
 The business desire is there to make some gain to the faith on the part of Lagon; allegation of inducing the heirs
detriment of the contracting parties. Lack of malice, was not supported by evidence and disproved by the
however, precludes damages. records that show the voluntariness of the heirs’ acts; (B)
 But it does not relieve So Ping Bun of the legal liability for no ill motive; only motive was to advance his financial
entering into contracts and causing breach of existing interests, absent proof to the contrary
ones.  Case is damage without injury. Hence, Suit for damages
 Thus, the appellate court correctly confirmed the cannot prosper and petition is granted
permanent injunction and nullification of the contracts  Interference with Contractual Relations (Art. 1314) >
between DCCSI and Trendsetter, without awarding When a third party induces another to violate his contract
damages. ~ liable for damages to the other contracting party
 WHY: It violates the property rights of a party in a contract
Lagon vs. CA to reap the benefits that should result therefrom
Summary: In purchasing the property of Bai from her heirs,  Induction > where a person causes another to choose one
Lagon did not interfere the contract of lease of Lapuz with the course of conduct by persuasion or intimidation
late Bai because Lagaon did not know of the existence of the  Damnum Absque Injuria > Damage without Injury where
valid contract and had no malice in purchasing said property. Injury is the legal invasion of a legal right and Damage is
 Contract of Lease (1964) between Bai Tonina Sepi and the hurt, loss or harm which results from the injury.
Menandro Lapuz where the former leased her property to
the latter who would construct commercial buildings C. Parties
thereon and who would lease it to new tenants, the rentals 1. Auto-Contracts
of which would serve as payment of Lapuz to Sepi  It is necessary for the existence of a contract that two
distinct persons enter into it.
 No general prohibitions, only special prohibitions (see granted scholarship but prohibited to transfer schools, is
below) prohibited for being contrary to public policy, embodied in
 Auto-contracts are generally VALID - Existence of a Memorandum No. 38 that deems scholarships as recognitions
contract is not determined by the number of persons who of merit and not as business schemes, and good morals, where
intervene in it, but by the number of parties. Not by the such practice is not generally accepted.
number of individual wills, but by the number of  Cui was a law student of Arrellano University and a scholar
declarations of will. from first year up to fourth year 1st semester. During his
 As long as there are two distinct patrimonies, even last semester, he transferred to Abad Santos University
if they are represented by the same person. when his uncle assumed the deanship of the latter and left
Special Disqualifications:  Since he was a scholar, his tuition fees are returned to him
 Art 87, FC inter vivos donation between spouses, at the end of every semester.
Every donation or grant of gratuitous advantage, direct or  When he finished his law degree, he applied for permit to
indirect, between the spouses during the marriage shall be take the Bar exams, however, one of the requirements was
void, except moderate gifts which the spouses may give a complete transcript of records of his entire law school.
each other on the occasion of any family rejoicing. The  Cui went to Arellano University to get his transcript but he
prohibition shall also apply to persons living together as was refused unless he would return the cash equivalent of
husband and wife without a valid marriage. his scholarship grant. He paid, but under protest.
 Art 1490 husband and wife generally cannot sell  When he became a lawyer, he sued the university. It
property to each other, subject to exceptions, The turned out that before he was granted the scholarship, he
husband and the wife cannot sell property to each other, signed a waiver of his right to transfer to another school
except: (1) When a separation of property was agreed unless he refunds the school of the cash equivalent of the
upon in the marriage settlements; or (2) When there has scholarship grant.
been a judicial separation of property under article 191.
 Art 1491 special prohibition as to who cannot Supreme Court Ruling:
acquire by purchase, The following persons cannot  The contract of waiver between the plaintiff and
acquire by purchase, even at a public or judicial auction, respondent is contrary to public policy and, hence, null and
either in person or through the mediation of another: void.
1. The guardian, the property of the person or persons  In order to declare a contract void as against public policy,
who may be under his guardianship; a court must find that the contract as to consideration or
2. Agents, the property whose administration or sale the thing to be done, contravenes some established
may have been intrusted to them, unless the consent interest of society, or is inconsistent with sound policy and
of the principal has been given; good morals or tends clearly to undermine the security of
3. Executors and administrators, the property of the individual rights.
estate under administration;  The stipulation in question is contrary to public policy and,
4. Public officers and employees, the property of the hence, null and void.
State or of any subdivision thereof, or of any  Scholarships are awarded in recognition of merit not to
government-owned or controlled corporation, or keep outstanding students in school to bolster its prestige.
institution, the administration of which has been
intrusted to them; this provision shall apply to judges Pakistan International Airlines vs. Ople
and government experts who, in any manner Summary: PIA illegally dismissed Farrales and Mamasig
whatsoever, take part in the sale; because their termination was without clearance from MOLE.
5. Justices, judges, prosecuting attorneys, clerks of Despite the contractual agreement that reserved the right of
superior and inferior courts, and other officers and termination to PIA, labor is a matter of public policy and
employees connected with the administration of interests and hence, the Labor Code applies. The Labor Code
justice, the property and rights in litigation or levied prohibits the limitation of employment for the purpose of
upon an execution before the court within whose circumventing security of tenure and requires MOLE clearance
jurisdiction or territory they exercise their respective for termination. Hence, the termination was illegal because the
functions; this prohibition includes the act of acquiring provision in the contract is facultative, dependent solely upon
by assignment and shall apply to lawyers, with respect the will of PIA and thus preventing security of tenure of F,M,
to the property and rights which may be the object of and because the termination was made without clearance, thus
any litigation in which they may take part by virtue of presumed to be without cause.
their profession;  On 2 December 1978, petitioner PIA, a foreign corporation
6. Any others specially disqualified by law. licensed to do business in the Philippines, executed in
 Art 1782 Persons prohibited from giving each other Manila two (2) separate contracts of employment, with
any donation or advantage, cannot enter into private respondents Ethelynne B. Farrales and Ma. M.C.
universal partnership Mamasig.
 The employment was to last 3 years, subject to premature
2. Freedom to contract termination by PIA.
• The freedom to contract is a constitutionally guaranteed  A stipulation to the effect that the applicable law would be
right. Save in limited and exceptional situations provided the laws of Pakistan and the competent court would be the
by law itself, courts have no authority to prescribe the Court of Karachi, Pakistan was also made.
terms and conditions of a contract for the parties.  After one year and eight months of employment, the
• The contract is the law between contracting parties. premature termination clause was used against
Cui vs. Arellano University  They sought help from the Ministry of Labor and
Summary: Contract of Waiver between Emeterio, law Employment (MOLE) which ordered their reinstatement as
student/scholar, and Arellano University, where the former is well as the payment of backwages and benefits.
to apply them to the payment of interest (if owing) and
Supreme Court Ruling thereafter to the principal of his credit. (Art. 2132)
 Art. 278 of the Labor Code, as it then existed, forbade the
termination of the services of employees with at least one b. Contrary to morals
(1) year of service without prior clearance from the  Morals may be considered as meaning good customs; or
Department of Labor and Employment. those generally accepted principles of morality which have
 The principle of party autonomy in contracts is not an received some kind of practical and social confirmation.
absolute principle. The rule in Article 1306, of our Civil
Code is that the contracting parties may establish such c. Contrary to public order
stipulations as they may deem convenient, "provided they  Public order signifies the public weal.
are not contrary to law, morals, good customs, public  Public order here does not signify the material keeping of
order or public policy." order, it represents the public, social, and legal interst in
 Thus, counterbalancing the principle of autonomy of private law, that which is permanent and essential in
contracting parties is the equally general rule that institutions, which, even if favouring some individuals to
provisions of applicable law, especially provisions relating whom the right pertains, cannot be left to his own will.
to matters affected with public policy, are deemed written
into the contract. d. Contrary to public policy
 The governing principle is that parties may not contract  A contract is void for being contrary to public order if the
away applicable provisions of law especially peremptory courts find that the contract as to the consideration or the
provisions dealing with matters heavily impressed with thing to be done, contravenes some established interest of
public interest. society, or is inconsistent with sound policy and good
morals, or tends clearly to undermine the security of
What Parties May Not Stipulate individual rights.
a. Contrary to law
• The law which the terms of a contract must not contravene E. Classification
are those which expressly declare their obligatory 1. according to subject-matter
character, or which are prohibitive, or which express a. Things
fundamental principles of justice which cannot be b. Services
overlooked by the contracting parties., or which impose 2. according to name
essential requisites without which the contract cannot a. Nominate - have their own individuality (names) and
exist. are regulated by special provisions of law (e.g deposit,
• Statutes generally have no retroactive effect and only the mutuum, commodatum, pignus)
laws existing at the time of the execution of the contract b. Innominate - that which has no name or designation
are applicable to the transaction. in law
1. do ut des (I give, you give)
Laws a contract must not intervene: 2. do ut facias (I give, you do)
1. Expressly declare their obligatory character 3. facio ut facias (I do, you do)
2. Prohibitive 4. facio ut des (I do, you give)
3. Express fundamental principles of justice which cannot be 3. according to perfection
overlooked by the contracting parties a. By mere consent (consensual)
4. Impose essential requisites without which the contract  Art. 1315. Contracts are perfected by mere
cannot exist consent, and from that moment the parties are
bound not only to the fulfillment of what has been
pactum commisorium - automatic foreclosure expressly stipulated but also to all the
 Art. 2088. The creditor cannot appropriate the things consequences which, according to their nature,
given by way of pledge or mortgage, or dispose of them. may be in keeping with good faith, usage and law.
Any stipulation to the contrary is null and void  The perfection of a contract is the moment from
 In order for the appropriation or disposition to be validly which it exists; the juridical tie between the parties
exercised, the power to do so must be expressly given to arises from that time.
the mortgagee-creditor.  The binding force of a contract is not limited to
what is expressly stipulated, but extends to all
pactum leonina - one party bears the lion's share of the consequences which are the natural effect of the
risk contract, considering its true purpose, the
 Art. 1799. A stipulation which excludes one or more stipulation it contains, and the object involved.
partners from any share in the profits or losses is void.  Contracts are not what the parties choose to call
them, but what they really are as determined by
pactum de non alienado - not to alienate the principle of laws.
 Art 2130 A stipulation forbidding the owner from b. By delivery of the object (real)
alienating the immovable mortgaged shall be void.  Art. 1316. Real contracts, such as deposit, pledge
 But even if the vendee may actually sell it, he cannot sell and commodatum, are not perfected until the
it as unencumbered. delivery of the object of the obligation.
 The requirement of the delivery of the object, in
In contracts of antichresis (Labitag) addition to the consent is neither arbitrary nor
 Art. 2137. The creditor does not acquire the ownership of formalistic, but is demanded by the very nature of
the real estate for non-payment of the debt within the real contracts and their purpose.
period agreed upon. 4. according to its relation to other contracts
 In a contract of antichresis, the creditor has a right to a. Preparatory
receive the fruits from an immovable of his debtor, in order b. Principal
c. Accessory
5. according to form
a. Common or informal
b. Special or formal- There is a required formality for the
 donations inter vivos - once accepted, it normally
cannot be revoked; can be in writing not
necessarily in a public document for donations
above 5000 otherwise they may be done orally
but it needs to be coupled with simultaneous
delivery; and
 mortis causa - most formal; subsumed under
testamentary succession i.e you need the
formalities of last will and testament [three
attestation witnesses who will attest to being
present when the donor signs the donation]; if
the donor reserves the right to sell the property,
it is not inter vivos but mortis causa.
6. according to purpose
a. Transfer of ownership, e.g. sale
b. Conveyance of use, e.g. commodatum
c. Rendition of services, e.g. agency
7. according to the nature of the vinculum produced
a. Unilateral
b. Bilateral/Reciprocal
8. according to the cause
a. Onerous
b. Gratuitous or lucrative
c. Remunerative
9. according to the risk
a. Commutative - fair exchange of values
b. Aleatory - involves risk (example: insurance

F. Stages
1. Preparation - period of negotiation and bargaining,
ending at the moment of agreement of the parties
2. Perfection - moment when the parties come to agree on
the terms of the contract
3. Consummation or death - fulfillment or the performance
of the terms agreed upon in the contract