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2014-2018 Cases
Obligations & Contracts
Atty. Crisostomo A. Uribe

Obligations
I. In General

A. Definition
B. Kinds of Obligations as to basis & enforceability
C. Essential Elements
D. Sources of Civil Obligations

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner vs.

ANA GRACE ROSALES AND YO YUK TO, Respondents.
G.R. No.183204 January 13, 2014 Del Castillo, J.

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with
the Bank, all monies, properties or securities of the Depositor now in or which may
hereafter come into the possession or under the control of the Bank, …

Issue:
Whether respondents have an obligation to the bank for the “Hold Out” clause to apply.

Ruling: None. The "Hold Out" clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated in Article 115779 of
the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this
case, petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict.

Jose Sanico and Vicente Castro, Petitioners, v. Werherlina P. Colipano, Respondent

G.R. No. 209969 | September 27, 2017 | J. Caguia | Second Division

Issue:
Whether or not Sanico (employer/operator) and Castro (driver) breached the contract of
carriage with Colipano (passenger)

Ruling: Only Sanico. Since the cause of action is based on a breach of a contract of
carriage, the liability of Sanico is direct as the contract is between him and Colipano.
Castro, being merely the driver of Sanico’s jeepney, cannot be made liable as he is not a
party to the contract of carriage.
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CBK POWER COMPANY LIMITED, Petitioner vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.
G.R. Nos. 198729-30 January15, 2014 Sereno, CJ

Issue :
Whether the principle of solutio indebiti is applicable in the case, thus entitling petitioner
to its claim.

Ruling: No. Also devoid of merit is the applicability of the principle of solutio indebiti to
the present case. According to this principle, if something is received when there is no
right to demand it, and it was unduly delivered through mistake, the obligation to return it
arises. In that situation, a creditor-debtor relationship is created under a quasi-contract,
whereby the payor becomes the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right to receive the payment
becomes obligated to return it.21 The quasi-contract of solutio indebiti is based on the
ancient principle that no one shall enrich oneself unjustly at the expense of another.

Bank of the Philippine Islands v. Amado M. Mendoza and Maria Marcos vda. De Mendoza
G.R. No 198799 | March 20, 2017 | First Division | Perlas-Bernabe

Issue :
Whether or not respondents have the duty to return to BPI the amount withdrawn
pursuant to the principle of solutio indebiti.

Ruling: Yes. BPI's payment of the proceeds of the subject check was due to a mistaken
notion that such check was cleared, when in fact, it was dishonored due to an alteration in
the amount indicated therein. Such payment on the part of BPI to respondents was clearly
made by mistake, giving rise to the quasi-contractual obligation of solutio indebiti under
Article 2154 in relation to Article 2163 of the Civil Code.

People of the Philippines, Plaintiff-Appelle v. Dionisio De Chavez, Jr., Accused-Appellant

G.R. No. 229722 | December 13, 2017 | J. Leonardo-De Castro | First Division

Issue :
Whether the civil liabilities of Dionisio arising from delict were extinguished due to his death.

Ruling: Yes… the death of accused-appellant during the pendency of his appeal,
extinguished not only his criminal liability, but also his civil liabilities arising from or
based on the crime. But, as held in Bayotas, accused-appellant’s civil liability may be
based on other sources of obligation other than ex delicto, in which case the heirs of
Virgilio A. Matundan may file a separate civil action against the estate of accused-
appellant, as may be warranted by law and procedural rules.
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Our Lady of Lourdes Hospital v. Spouses Romeo and Regina Capanzana

G.R. No. 189218 | March 22, 2017 | CJ. Sereno | First Division

Issue :
Whether the hospital is liable on the basis of the Doctrine of Corporate Responsibility or
the Doctrine of Vicarious Liability

Ruling: Yes. For the negligence of its nurses, Petitioner Hospital is liable under Article
2180 in relation to Article 2176 of the Civil Code. Under Art. 2180, an employer like
Petitioner Hospital may be held liable for the negligence of its employees based on its
responsibility under a relationship of patria potestas. The liability of the employer under
this provision is "direct and immediate; it is not conditioned upon a prior recourse against
the negligent employee or a prior showing of the insolvency of that employee. The
employer may only be relieved of responsibility upon a showing that it exercised the
diligence of a good father of a family in the selection and supervision of its employees.
The rule is that once negligence of the employee is shown, the burden is on the employer
to overcome the presumption of negligence on the latter's part by proving observance of
the required diligence of a good father of a family not only in the selection of the
negligent nurses, but also in their supervision.

II. Kinds of Civil Obligations

A. As to Perfection & Extinguishment

B. As to plurality of prestations

ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners, vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS &
PLASTIC PRODUCTS ENTERPRISES, Respondent.
G.R. No. 206806 June 25, 2014 Leonen, J.

The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim the
value of the raw materials or deliver to him their finished products of equivalent value.

Issue: Whether or not the obligation is alternative. Whether or not the obligation had
already been converted to a simple obligation.

Ruling: Yes. By agreement, petitioner Arco Pulp and Paper, as the debtor, had the option
to either (1) pay the price or(2) deliver the finished products of equivalent value to
respondent.
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The appellate court, therefore, correctly identified the obligation between the parties as an
alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw
materials from respondent, would either pay him the price of the raw materials or, in the
alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment
for the scrap papers, they exercised their option to pay the price. Respondent’s receipt of
the check and his subsequent act of depositing it constituted his notice of petitioner Arco
Pulp and Paper’s option to pay.
This choice was also shown by the terms of the memorandum of agreement, which was
executed on the same day. The memorandum declared in clear terms that the delivery of
petitioner Arco Pulp and Paper’s finished products would be to a third person, thereby
extinguishing the option to deliver the finished products of equivalent value to
respondent.

C. As to liability of multiple parties

SPOUSES RODOLFO BEROT AND LILIA BEROT, Peitioners v. FELIPE C.

SIAPNO, Respondent.
G.R. No. 188944 July 9, 2014 Sereno, C.J.

Issue : Whether the loan obligation contracted by petitioners is joint or solidary.

Ruling: Joint. Art. 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the former has a right
to demand, or that each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.

Ruks Konsult and Construction vs. Adworld Sign and Advertising Corporation and
Transworld Media Ads
G.R. No. 204866 January 21, 2015 J. Perlas-Bernabe

Issue : Whether petitioner is jointly or solidarily liable with Transworld.

Ruling: Soliday. As joint tortfeasors, therefore, they are solidarily liable to Adworld.
Verily, "[j]oint tortfeasors are those who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or approve of it after it is
done, if done for their benefit. They are also referred to as those who act together in
committing wrong or whose acts, if independent of each other, unite in causing a single
injury. Under Article 219429 of the Civil Code, joint tortfeasors are solidarily liable for the
resulting damage. In other words, joint tortfeasors are each liable as principals, to the
same extent and in the same manner as if they had performed the wrongful act
themselves."
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Mactan Rock Industries, Inc. and Antonio Tompar v. Benfrei S. Germo

G.R. No. 228799 | January 10, 2018 | J. Perlas-Bernabe | Second Division

Issue:
Whether or not MRII and Tompar, MRII’s president, should be held solidarily liable.

Ruling: No. A corporation is a juridical entity which is vested with legal and personality
separate and distinct from those acting for and in behalf of, and from the people
comprising it. As a general rule, directors, officers, or employees of a corporation cannot
be held personally liable for the obligations incurred by the corporation, unless it can be
shown that such director/officer/employee is guilty of negligence or bad faith, and that
the same was clearly and convincingly proven.

D. As to performance of obligations
E. As to the presence of an accessory undertaking in case of breach
-Obligation with a Penal Clause

LEONARDO C. CASTILLO, Petitioner, v. SECURITY BANK CORPORATION, JRC POULTRY FARMS

OR SPOUSES LEON C. CASTILLO, JR., AND TERESITA FLORES-CASTILLO, Respondents.
G.R. No. 196118 July 30, 2014 PERALTA, J.

Issue: Whether the interest and penalty charges imposed by SBC are just, and not
excessive or unconscionable.

Ruling: Yes. SBC's 16% rate of interest is not computed per month, but rather per
annum or only 1.33% per month. In Spouses Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch,29 the Court held that the interest rate of 24% per
annum on a loan of P244,000.00 is not considered as unconscionable and excessive. As
such, the Court ruled that the debtors cannot renege on their obligation to comply with
what is incumbent upon them under the contract of loan as they are bound by its
stipulations. Also, the 24o/o per annum rate or 2% per month for the penalty charges
imposed on account of default, cannot be considered as skyrocketing.

III. Specific circumstances affecting obligations in general

[Breach of Obligations/Excuse for Nonperformance : Fortuitous Event]
Fraud, Negligence, Delay …

Rodrigo Rivera vs. Spouses Salvador and Violeta Chua

G.R. No. 184458 January 14, 2015 J. Perez

PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR
C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand
Philippine Currency (P120,000.00) on December 31, 1995.
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It is agreed and understood that failure on my part to pay the amount of (120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the
entire obligation is fully paid for. xxx

Issue: Whether or not demand is necessary for Rivera to be in delay.

Ruling: No, The PN expressly provided that after 31 December 1995, default
commences and the stipulation on payment of interest starts.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins. (Emphasis
supplied)

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners vs.

SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.
G.R. No. 185798 January 13, 2014 PEREZ, J.

Issue:
Whether or not the Asian financial crisis constitute a fortuitous event which would justify
delay by petitioners in the performance of their contractual obligation.

Ruling: No. Also, we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is unfortunate that
petitioner apparently met with considerable difficulty e.g. increase cost of materials and
labor, even before the scheduled commencement of its real estate project as early as 1995.
However, a real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements and
business risks. The fluctuating movement of the Philippine peso in the foreign exchange
market is an everyday occurrence, and fluctuations in currency exchange rates happen
everyday, thus, not an instance of caso fortuito.
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IV. Remedies for Breach of Obligations : Rescission

OLIVAREZ REALTY CORPORATION and DR. PABLO R. OLIVAREZ,

Petitioners, v. BENJAMIN CASTILLO, Respondent.
G.R. No. 196251 July 9, 2014 Leonen, J.

Issue:
Whether Castillo is entitled to rescind the “contract of conditional sale” which is actually
a Contract to sell.

Ruling: No, rescission is not an appropriate remedy but cancellation of the contract.

In both contracts to sell and contracts of conditional sale, title to the property remains
with the seller until the buyer fully pays the purchase price. Both contracts are subject to
the positive suspensive condition of the buyer’s full payment of the purchase price.

In a contract of conditional sale, the buyer automatically acquires title to the property
upon full payment of the purchase price. This transfer of title is "by operation of law
without any further act having to be performed by the seller."

In a contract to sell, transfer of title to the prospective buyer is not automatic. "The
prospective seller [must] convey title to the property [through] a deed of conditional
sale."

Swire Realty Dev’t Corp. vs. Jayne Yu

G.R. No. 207133 March 9, 2015 J. Peralta

Issue: Whether or not rescission of Contract to Sell was proper.

Ruling: Yes. Basic is the rule that the right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of faith by the other party who
violates the reciprocity between them. The breach contemplated in the said provision is
the obligor’s failure to comply with an existing obligation. When the obligor cannot
comply with what is incumbent upon it, the obligee may seek rescission and, in the
absence of any just cause for the court to determine the period of compliance, the court
shall decree the rescission.
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NISSAN CAR LEASE PHILIPPINES, INC. (NCLPI), v. LICA MANAGEMENT,

INC. (LMI) and PROTON PILIPINAS, INC. (Proton)
G.R. No. 176986; January 13, 2016; Jardeleza, J.

Issue:
WoN there was a valid extrajudicial rescission of the lease contract without contractual
stipulation

Ruling: Yes. Whether a contract provides for it or not, the remedy of rescission is always
available as a remedy against a defaulting party. When done without prior judicial
imprimatur, however, it may still be subject to a possible court review. The only practical
effect of a contractual stipulation allowing extrajudicial rescission is “merely to transfer
to the defaulter the initiative of instituting suit, instead of the rescinder.”

V. Modes of Extinguishment of Obligations

A. Payment or performance/fulfillment

LEONARDO BOGNOT, Petitioner, v. RRI LENDING CORPORATION,

REPRESENTED BY ITS GENERAL MANAGER, DARIO J. BERNARDEZ,
Respondent.
G.R. No. 180144 September 24, 2014 Brion, J.

Issue: Who has the burden of proving payment.

Ruling: Debtor. Jurisprudence tells us that one who pleads payment has the burden of
proving it;the burden rests on the defendant to prove payment, rather than on the plaintiff
to prove non-payment. Indeed, once the existence of an indebtedness is duly established
by evidence, the burden of showing with legal certainty that the obligation has been
discharged by payment rests on the debtor.

Georgia Osmeña-Jalandoni, Petitioner v. Carmen A. Encomienda, Respondent

G.R. No. 205578 | March 1, 2017 | J. Peralta | Second Division

Issue:
Whether or not Encomienda is entitled to be reimbursed for the amounts she
defrayed for Jalandoni

Article 1236 of the Civil Code provides, “xxx Whoever pays for another may demand
from the debtor what he has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment has been beneficial to
the debtor.”
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Thus, even if she asseverates that Encomienda’s payments to her household bills was
without her knowledge or against her will, she cannot deny the fact that the same still
inured to her benefit and Encomienda must therefore be consequently reimbursed for it.
Also, when Jalandoni learned about the payments, she did nothing to express her
objection to or repudiation of the same, within a reasonable time.

National Power Corporation vs. Lucman M. Ibrahim, et al.

G.R. No. 175863 February 18, 2015 J. Perez

Issue: Whether or not NPC can be held liable to the Ibrahims and Maruhoms despite
having paid Mangondato already.

Ruling: No. Article 1242 of the Civil Code reads:

"Payment made in good faith to any person in possession of the credit shall release the
debtor." Article 1242 of the Civil Code is an exception to the rule that a valid payment of
an obligation can only be made to the person to whom such obligation is rightfully owed.
A finding of bad faith, thus, usually assumes the presence of two (2) elements: first, that
the actor knew or should have known that a particular course of action is wrong or illegal,
and second, that despite such actual or imputable knowledge, the actor, voluntarily,
consciously and out of his own free will, proceeds with such course of action. Only with
the concurrence of these two elements can we begin to consider that the wrong
committed had been done deliberately and, thus, in bad faith.

Payment of debts in money

Special Forms of Payment

PHILIPPINE NATIONAL BANK, Petitioner, vs. TERESITA TAN DEE,

ANTIPOLO PROPERTIES, INC., now PRIME EAST PROPERTIES, INC.) and
AFP-RSBS, INC., Respondents.
G.R. No. 182128 February 19, 2014 Reyes, J.

Issue:
Whether the execution of the dation in payment effectively extinguished respondent
PEPI’s loan obligation to the petitioner insofar as it covers the value of the property
purchased by Dee

Ruling: Dacion en pago or dation in payment is the delivery and transmission of

ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation. It is a mode of extinguishing an existing obligation and
partakes the nature of sale as the creditor is really buying the thing or property of the
debtor, the payment for which is to be charged against the debtor’s debt.
Dation in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties by
agreement – express or implied, or by their silence – consider the thing as equivalent to
the obligation, in which case the obligation is totally extinguished.
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ELIZABETH DEL CARMEN, Petitioner, v. SPOUSES RESTITUTO SABORDO

AND MIMA MAHILUM-SABORDO, Respondents.
G.R. No. 181723 August 11, 2014 Peralta, J.

Issue:
Whether petitioner and her co-heirs are excused from complying with the requirement of
prior tender of payment in order for the consignation made by them to be considered as
payment

Ruling: No. It is settled that compliance with the requisites of a valid consignation is
mandatory.Failure to comply strictly with any of the requisites will render the
consignation void. One of these requisites is a valid prior tender of payment.

Under Article 1256, the only instances where prior tender of payment is excused are:
(1) when the creditor is absent or unknown, or does not appear at the place of
payment;
(2) when the creditor is incapacitated to receive the payment at the time it is due;
(3) when, without just cause, the creditor refuses to give a receipt;
(4) when two or more persons claim the same right to collect; and
(5) when the title of the obligation has been lost.

None of these instances are present in the instant case. Hence, the fact that the subject lots
are in danger of being foreclosed does not excuse petitioner and her co-heirs from
tendering payment to respondents, as directed by the court.

Benjamin Evangelista v. Screenex, Inc., represented By Alexander G. Yu

G.R. No. 211564 | November 20, 2017 | CJ. Sereno | First Division

Issue:
Whether Evangelista may still be held liable for the total amount of ₱l.5 Million indicated
in the two checks if there was failure to present the check for encashment for more than
10 years from their issuance.

Ruling: The delivery of the check produces the effect of payment when through the fault
of the creditor they have been impaired. The delivery of the checks, despite the
subsequent failure to encash them within a period of 10 years or more, had the effect of
payment. Petitioner is considered discharged from his obligation to pay and can no longer
be pronounced civilly liable for the amounts indicated thereon.

It is a settled rule that the creditor's possession of the evidence of debt is proof that the
debt has not been discharged by payment. It is likewise an established tenet that a
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negotiable instrument is only a substitute for money and not money, and the delivery of
such an instrument does not, by itself, operate as payment. Thus, in BPI v. Spouses
Royeca, we ruled that despite the lapse of three years from the time the checks were
issued, the obligation still subsisted and was merely suspended until the payment by
commercial document could actually be realized.

B. Loss of the thing due

C. Condonation
D. Confusion
E. Compensation

Kinds of Compensation as to nature or cause of extinguishment

1. legal
2. conventional/voluntary
facultative
3. judicial

UNION BANK OF THE PHILIPPINES, Petitioner, vs. DEVELOPMENT BANK OF

THE PHILIPPINES, Respondent.
G.R. No.191555 January 20, 2014 PERLAS-BERNABE, J.

Issue:
Whether the obligations of the parties, who are debtors and creditors of each other, were
extinguished by legal compensation.

Ruling: No, because requisites 3 & 4 are not present.

Art. 1279 of the Civil Code provides that in order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;

F. Novation

Kinds of Novation as to object or purpose

1. Subjective or personal
2. Objective or real
3. Mixed
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ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners, vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS &
PLASTIC PRODUCTS ENTERPRISES, Respondent.
G.R. No. 206806 June 25, 2014 Leonen, J.

Issue:
Whether the memorandum of agreement executed by the parties constituted a novation of
the original contract.

Ruling: No. Article 1293. Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in Articles 1236 and 1237. (1205a)

For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.

Contracts

I. In General

A. Definition
Auto-contracts
B. Elements

II. Fundamental Characteristics/Principles of Contracts

A. Autonomy of Contracts
Escalation clause
Non-involvement clause

Raymond A. Son, Raymond S. Antiola and Wilfredo E Pollarco v. UST, Fr. Rolando
Dela Rosa, Dr. Clarita Carillo, Dr. Cynthia Loza, Fr. Edgardo Alaurin and the
College of Fine Arts and Design Faculty Council
G.R. No. 211273 | April 18, 2018 | J. Del Castillo | First Division
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Issues:
Whether Collective Bargaining Agreement is valid insofar as the waiver of
requirement of the masteral degree for tertiary education teachers.

Ruling: DECS Order 92, Series of 1992 was promulgated by the DECS in the exercise of
its rule-making power as provided for under Section 70 of Batas Pambansa Blg. 232,
otherwise known as the Education Act of 1982. As such, it has the force and effect of law.
In University of the East v. Pepanio, the requirement of a masteral degree for tertiary
education teachers was held to be not unreasonable but rather in accord with the public
interest.

Thus, when the CBA was executed between the parties in 2006, they had no right to
included therein the provision relative to the acquisition of tenure by default, because it is
contrary to, and thus violative of, the 1992 Revised Manual of Regulations for Private
Schools that was in effect at the time. As such, said CBA provision is null and void, and
can have no effect as between the parties. “A void contract is equivalent to nothing; it
produces no civil effect; and it does not create, modify or extinguish a juridical relation.”
Under the. Civil Code,

Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or policy; x x x

Security Bank Corporation v. Spouses Rodrigo and Erlinda Mercado, Respondents; Spouses
Rodrigo and Erlinda Mercado, Petitioners v. Security Bank and Trust Company
G.R. No. 192934 and G.R. No 197010 | June 27, 2018 | J. Jardeleza | First Division

Issues:
Whether the provision on interest rate in the revolving credit line agreement is void
being violative of the principle of mutuality of contracts

7. Interest on Availments – I hereby agree to pay Security Bank

interest on outstanding Availments at a per annum rate determined
from time to time, by Security Bank and advised through my
Statement of Account every month. I hereby agree that the basis
for the determination of the interest rate by Security Bank on my
outstanding Availments will be Security Bank's prevailing lending
rate at the date of availment. I understand that the interest on each
availment will be computed daily from date of availment until
paid.

Article 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them. (1256a)
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The interest rate to be imposed is determined solely by Security Bank for lack of a
stated, valid reference rate. The reference rate of “Security Bank’s prevailing rate” is not
pegged on a market-based reference rate as required by the BSP. x x x Stipulated interest
rate based on "Security Bank's prevailing lending rate" is not synonymous with
"prevailing market rate." For one, Security Bank is still the one who determines its own
prevailing lending rate. More, the argument that Security Bank is guided by other factors
(or external factors such as Singapore Rate, London Rate, Inter-Bank Rate) in detemining
its prevailing monthly rate fails because these reference rates are not contained in writing
as required by law and the BSP.

B. Consensuality of Contracts
Contract of Adhesion

Ejercito, et.al, Petitioners, vs. Oriental Assurance Corp., Respondent.

G.R. No. 192099 July 8, 2015 Sereno, C.J.

RENEWALS ALTERATIONS AND SUBSTITUTIONS: - the undersigned hereby

empower and authorize the company to grant or consent to the granting of any extension
continuation increase modifications change alteration and/or renewal of the original bond
herein referred to and to execute or consent to the execution of any substitution for said
bond with the same or different conditions and parties and the undersigned hereby hold
themselves jointly and severally liable to the company for the original bond hereinabove
mentioned or for any extension, continuation, increase, modification, change, alteration,
renewal or substitution thereof until the full amount including principal interests
premiums costs and other expenses due to the company thereunder is fully paid up.

Issues:
Whether petitioners gave their consent to the renewal of the surety bond.
Whether or not the Deed of Indemnity is a contract of adhesion, hence, void.

Ruling: Yes. With regard to the contention that the Deed of Indemnity is a contract of
adhesion, the Court has consistently held that contracts of adhesion are not invalid per se
and that their binding effects have been upheld on numerous occasions.

C. Mutuality of Contracts

D. Obligatory Force of Contracts

New World Developers and Management, Inc., Petitioner, vs. AMA Computer
Learning Center, Respondent.
G.R. No. 187930 February 23, 2015 Sereno, C.J.
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Issue: Whether or not AMA is liable to pay six months worth of rent as liquidated damages.

Ruling: Yes.
Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.

E. Relativity of Contracts
General Rule: Privity of Contract

Excellent Essentials International Corporation, Petitioner v.Extra Excel

International Philippines, Inc., Respondent
G.R. No. 192797 | April 18, 2018 | J. Martires | Third Division

Issues:
Whether Excellent Essentials is guilty of tortuous or contractual interference by a third
party that caused the revocation of Excel PH’s exclusive distributorship

Ruling: Yes.
Under the principle of relativity of contracts, only those who are parties to a contract are
liable to its breach. Under Article 1314, however, any third person who induces another
to violate his contract shall be liable to damages to the other contracting party. Said
provision of law embodies what we often refer to as tortuous or contractual interference.
The elements of tortuous interference:
1. Existence of a valid contract;
2. Knowledge on the part of the third person of the existence of contract; and
3. Interference of the third person is without legal justification or excuse.

To sustain a case for tortuous interference, the defendant must have acted with malice or
must have been driven by purely impure reasons to injure plaintiff; otherwise stated, his
act of interference cannot be justified. The word induce refers to situations where a
person causes another to choose one course of conduct by persuasion or intimidation.

III. Classification of Contracts: Effects

A. According to degree of dependence upon another contract

B. According to perfection or formation

IV. Stages of Contracts

Contract of Option.
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V. Essential Elements of Contracts

A. consent of the contracting parties
B. object certain which is the subject matter of the contract
C. cause of the obligation which is established

VI. Form of Contracts

SPS. EDGARDO and NELIA AGUINALDO vs. ARTEMIO TORRES

G.R. No. 225808 | Perlas-Bernabe, J. | Second Division | 11 September 2017

Issue:
Whether the improper notarization of the 1991 Deed of Sale affected the validity of
the sale.

Ruling: No.
Bearing in mind that the legal requirement that the sale of real property must appear in a
public instrument is merely a coercive means granted to the contracting parties to enable
them to reciprocally compel the observance of the prescribed form, and considering that
the existence of the sale of the subject properties in respondent's favor had been duly
established, the Court upholds the CA's directive for petitioners to execute a registrable
deed of conveyance in respondent's favor within thirty (30) days from finality of the
decision, in accordance with the prescribed form under Articles 1357 and 1358 (1) of the
Civil Code.

VII. Reformation of Instruments

VIII. Interpretation of Contracts

IX. Defective/Void Contracts

A. Rescissible Contracts
B. Voidable Contracts
C. Unenforceable Contracts
D. Void or Inexistent Contracts

Amparo Cruz, et. al. v. Angelito Cruz, et. al.

G.R. No. 21153| February 28, 2018| del Castillo, J.

Issue:
Whether or not the Extrajudicial Settlement is void on grounds of fraud, deceit,
misrepresentation or mistake.
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An action for annulment of contract is one filed where consent is vitiated by lack of legal
capacity of one of the contracting parties, or by mistake, violence, intimidation, undue
influence or fraud. By its very nature, annulment contemplates a contract which
isvoidable, that is, valid until annulled. Such contract is binding on all the contracting
parties until annulled and set aside by a court of law. It may be ratified. An action for
annulment of contract has a four year prescriptive period.
On the other hand, an action tor declaration of nullity of contract presupposes
a voidcontract or one where a1l of the requisites prescribed by law for contracts are
present but the cause, object or purpose is contrary to law, morals, good customs, public
order or public policy, prohibited by law or declared by law to be void. Such contract as a
rule produces no legal and binding effect even if it is not set aside by direct legal action.
Neither may it be ratified. An action for the declaration of nullity of contract is
imprescriptible.

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