CONTRACTS

Absence of notarization –– The absence of notarization of the deed of sale would not invalidate the transaction evidenced therein; it merely reduces the evidentiary value of a document to that of a private document, which requires proof of its due execution and authenticity to be admissible as evidence; a defective notarization will strip the document of its public character and reduce it to a private instrument. (Diampoc vs. Buenaventura, G.R. No. 200383, March 19, 2018)

Advertisement to possible bidders –– An advertisement to possible bidders is simply an invitation to the lowest bidder unless the contrary appears; under Art. 1326 of the Civil Code, “advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.” (Northern Mindanao Industrial Port and Services Corp. vs. Iligan Cement Corp., G.R. No. 215387, April 23, 2018)

Breach of –– When the action against the bank is premised on breach of contractual obligations, a bank’s liability as debtor is not merely vicarious but primary, in that the defense of exercise of due diligence in the selection and supervision of its employees is not available; liability of banks is also primary and sole when the loss or damage to its depositors is directly attributable to its acts, finding that the proximate cause of the loss was due to the bank’s negligence or breach. (Citystate Savings Bank vs. Tobias, G.R. No. 227990, March 07, 2018)

Contract to sell –– Art. 1186 of the Civil Code refers to the constructive fulfillment of a suspensive condition, whose application calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the condition, and (b) the actual prevention of the fulfillment; here, there is no doubt that petitioner prevented the fulfillment of the suspensive condition; it was incumbent upon the sellers to enter into a contract with respondent-spouses for the purchase of the subject property. (Villamil vs. Sps. Erguiza, G.R. No. 195999, June 20, 2018)

––      Defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or compliance with the other obligations stated in the contract to sell; the fulfillment of the suspensive condition will not automatically transfer ownership to the buyer although the property may have been previously delivered to him; conditional contract of sale, explained; contract to sell the subject property, illustrated in this case. (Villamil vs. Sps. Erguiza, G.R. No. 195999, June 20, 2018)

Defect in notarization –– When there is a defect in the notarization of a document, the clear and convincing evidentiary standard normally attached to a duly-notarized document is dispensed with, and the measure to test the validity of such document is preponderance of evidence. (Diampoc vs. Buenaventura, G.R. No. 200383, March 19, 2018)

Form of –– The form of a contract that transmits or extinguishes real rights over immovable property should be in a public document, yet the failure to observe the proper form does not render the transaction invalid; the necessity of a public document for said contracts is only for convenience; it is not essential for validity or enforceability; even a sale of real property, though not contained in a public instrument or formal writing, is nevertheless valid and binding, for even a verbal contract of sale or real estate produces legal effects between the parties. (Diampoc vs. Buenaventura, G.R. No. 200383, March 19, 2018)

Freedom of contract –– While our Civil Code recognizes that parties may stipulate in their contracts such terms and conditions as they may deem convenient, these terms and conditions must not be contrary to law, morals, good customs, public order or policy; a contract of employment is imbued with public interest; the parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. (Gopio vs. Bautista, G.R. No. 205953, June 06, 2018)

Interpretation of  –– The contract between petitioner and respondents is a contract of adhesion; although not automatically void, any ambiguity in a contract of adhesion is construed strictly against the party that prepared it; accordingly, the prohibition against transporting money must be restrictively construed against petitioner and liberally for respondents; viewed through this lens, with greater reason should respondents be exculpated from liability for shipping documents or instruments, which are reasonably understood as not being money, and for being unable to declare them as such. (Federal Express Corp. vs. Antonino, G.R. No. 199455, June 27, 2018)

––      The law will not relieve parties from the effects of an unwise, foolish or disastrous agreement they entered into with all the required formalities and with full awareness of what they were doing; courts have no power to relieve them from obligations they voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments. (Diampoc vs. Buenaventura, G.R. No. 200383, March 19, 2018)

––      The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the contract read to them; if a person cannot read the instrument, it is as much his duty to procure some reliable persons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do so and his failure to obtain a reading and explanation of it is such gross negligence as will estop him from avoiding it on the ground that he was ignorant of its contents. (Diampoc vs. Buenaventura, G.R. No. 200383, March 19, 2018)

––      When the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, the rule is settled that the literal meaning of its stipulations should control. (D.M. Ragasa Enterprises, Inc. vs. Banco De Oro, Inc., G.R. No. 190512, June 20, 2018)

–– As a rule, a contract is perfected upon the meeting of the minds of the two parties; it is perfected by mere consent, that is, from the moment that there is a meeting of the offer and acceptance upon the thing and the cause that constitute the contract. (Sps. Ong vs. BPI Family Savings Bank, Inc., G.R. No. 208638, Jan. 24, 2018)

Principle of mutuality of contracts –– A contract is the law between the parties; obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (Facilities, Inc. vs. Lopez, G.R. No. 208642, Feb. 07, 2018)

––      Found in Art. 1308 of the New Civil Code, which states that contracts must bind both contracting parties, and its validity or compliance cannot be left to the will of one of them; premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality; as such, any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void; likewise, any stipulation regarding the validity or compliance of the contract that is potestative or is left solely to the will of one of the parties is invalid; stipulations as to the payment of interest are subject to the principle of mutuality of contracts; interest rates, when allowed. (Security Bank Corp. vs. Sps. Mercado, G.R. No. 192934, June 27, 2018)

––      In Silos v. Philippine National Bank, the method of fixing interest rates is based solely on the will of the bank; the method is “one-sided, indeterminate, and based on subjective criteria such as profitability, cost of money, bank costs, etc.”; it is “arbitrary for there is no fixed standard or margin above or below these considerations”; the element of consent from or agreement by the borrower is completely lacking; the interest provisions in the revolving credit line agreement and its addendum violate the principle of mutuality of contracts. (Security Bank Corp. vs. Sps. Mercado, G.R. No. 192934, June 27, 2018)

Reformation of an instrument –– Reformation of an instrument is a remedy in equity where a valid existing contract is allowed by law to be revised to express the true intentions of the contracting parties; rationale; in reforming an instrument, no new contract is created for the parties, rather, the reformed instrument establishes the real agreement between the parties as intended, but for some reason, was not embodied in the original instrument; basis in Art. 1359 of the Civil Code; The National Irrigation Administration v. Gamit stated that there must be a concurrence of the following requisites for an action for reformation of instrument to prosper: (1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident; the burden of proof then rests upon the party asking for the reformation of the instrument. (Makati Tuscany Condominium Corp. vs. Multi-Realty Dev’t. Corp., G.R. No. 185530, April 18, 2018)

Relativity of contracts –– Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. (De Roca vs. Dabuyan, G.R. No. 215281, March 05, 2018)

––      The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof; “where there is no privity of contract, there is likewise no obligation or liability to speak about”; guided by this doctrine, respondent corporation cannot shift the burden of paying the storage fees to BOC since the latter has never been privy to the contract of service between respondent corporation and petitioner; to rule otherwise would create an absurd situation wherein a private party may free itself from liability arising from a contract of service, by merely invoking that the BOC has constructive possession over its shipment by the issuance of a Hold-Order. (Asian Terminals, Inc. vs. Padoson Stainless Steel Corp., G.R. No. 211876, June 25, 2018)

––      The law is deemed written into every contract, such that while a contract is the law between the parties, the provisions of positive law which regulate contracts shall limit and govern their relations. (Allied Banking Corp. vs. In the Matter of the Petition to Have Steel Corp. of the Phils. Placed Under Corporate Rehabilitation with Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, G.R. No. 191939, March 14, 2018)

Requisites of –– The requisites of a valid contract are provided for in Art. 1318 of the Civil Code: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established; a contract is perfected when both parties have consented to the object and cause of the contract. (Metro Rail Transit Dev’t. Corp. vs. Gammon Phils., Inc., G.R. No. 200401, Jan. 17, 2018)

Stages of –– There are three (3) stages in a contract: negotiation, perfection, and consummation; negotiation refers to the time the parties signify interest in the contract up until the time the parties agree on its terms and conditions; the perfection of the contract occurs when there is a meeting of the minds of the parties such that there is a concurrence of offer and acceptance, and all the essential elements of the contract; consent, object and cause are present; the consummation of the contract covers the period when the parties perform their obligations in the contract until it is finished or extinguished. (Metro Rail Transit Dev’t. Corp. vs. Gammon Phils., Inc., G.R. No. 200401, Jan. 17, 2018)

Stipulations on floating rate of interest and escalation clauses –– Escalation clauses are stipulations which allow for the increase (as well as the mandatory decrease) of the original fixed interest rate; meanwhile, floating rates of interest refer to the variable interest rate stated on a market-based reference rate agreed upon by the parties; the former refers to the method by which fixed rates may be increased, while the latter pertains to the interest rate itself that is not fixed; nevertheless, both are contractual provisions that entail adjustment of interest rates subject to the principle of mutuality of contracts. (Security Bank Corp. vs. Sps. Mercado, G.R. No. 192934, June 27, 2018)

Tortuous interference –– Under the principle of relativity of contracts, only those who are parties to a contract are liable to its breach; under Art. 1314 of the Civil Code, 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; elements of tortuous interference, laid out in So Ping Bun v. CA: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of a contract; and (3) interference of the third person is without legal justification or excuse. (Excellent Essentials Int’l. Corp. vs. Extra Excel Int’l. Phils., Inc., G.R. No. 192797, April 18, 2018)

Void contract –– 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 public policy. (Son vs. Univ. of Sto. Tomas, G.R. No. 211273, April 18, 2018)

––      A void or inexistent contract has no force and effect from the very beginning, as if it had never been entered into; it is equivalent to nothing and is absolutely wanting in civil effects; it cannot be validated either by ratification or prescription; void contracts may not be invoked as a valid action or defense in any court proceeding, including an ejectment suit. (Heirs of Jose Mariano vs. City of Naga, G.R. No. 197743, March 12, 2018)

––      Being a falsified document, the Deed of Donation is void and inexistent; it cannot be the source of respondent’s transferable right over a portion of the subject property; being a patent nullity, respondent could not validly transfer a portion of the subject property in favor of respondents under the principle of “Nemo dat quod non habet,” which means “one cannot give what one does not have.” (Duque vs. Sps. Yu, G.R. No. 226130, Feb. 19, 2018)

––      Under Art. 1344 of the Civil Code, fraud, as a ground for annulment of a contract, should be serious and should not have been employed by both contracting parties; Art. 1338 of the same Code further provides that there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (Coca-Cola Bottlers Phils. vs. Sps. Soriano, G.R. No. 211232, April 11, 2018)

Source: Supreme Court of the Philippines - Case Index