Kabankalan Sugar Co. vs.

Pachero
Facts: Josefa Pacheco binds herself to acknowledge in favor of the Kabankalan Sugar
Co., Inc., all the easements which the Kabankalan may consider convenient and
necessary for its railroad on the Hilabañgan estate belonging to the Pacheco; the only
differences being that the term of the contract of November 1, 1920, is twenty years,
while that of the contract entered into on September 29, 1922, is seven crops (one of
the stipulations of the contract).
Held: When an easement of right way is one of the principal conditions of a contract,
and the duration of said easement is specified, ​the reduction of said period in a
subsequent contract, wherein the same obligation is one of the principal conditions,
constitutes a novation and to that extent extinguishes the former contractual obligation.
In the contract of November 1, 1920, the duration of the right of way which the
defendant bound herself to impose upon her estate in favor of the plaintiff was twenty
years, while in the contract of September 29, 1922, that period was reduced to seven
crops which is equivalent to seven years. There can be no doubt that these two
contracts, in so far as the duration of the right of way is concerned, are incompatible
with each other, for the second contract reduces the period agreed upon in the first
contract, and so both contracts cannot subsist at the same time. The duration of the
right of way is one of the principal conditions of the first as well as of the second
contract, and inasmuch as said principal condition has been modified, the contract has
been novated, in accordance with the provision quoted above.
Cases Related to Consent
xxx even if the draft renewal contract had not been signed by the lessor, the parties may
be deemed to have agreed to review their lease contract considering the exchanges of
letters between, and the implementing acts of the parties. (Ramon Magsaysay Award
Foundation vs. CA, G.R. No. 55998, Jan. 17, 1985.)
De Lim vs. Sun Life Assurance Co. 41 Phil. 263
On July 6, 1917, Luis Lim applied to the defendant company for a policy of
insurance of his life in the sum of P5,000. In his application, he designated his wife,
Pilar C. de Lim, plaintiff herein, as bene ciary. The  rst premium of P33 was paid, and
upon payment, the company issued a “provisional policy’’ accepting the application
“provided that the Company shall con rm this agreement by issuing a policy on said
application when the same shall be submitted to the Head Of ce in Montreal.’’ Should
the Company not issue such a policy, “then this agreement shall be null and void ab
initio x x x .’’ A period of four months from the date of the application was also stated as
the period within which the Company shall issue the policy. Luis Lim, however, died on
August 24, 1917, after the issuance of the provisional policy but before approval of the
application by the head of ce of the insurance company. The instant action is brought
by the bene ciary to recover from the insurance company the sum of P5,000, the
amount stated in the provisional policy. The question now is whether or not the contract
has been perfected.
Held:
“Our duty in this case is to ascertain the correct meaning of the document above
quoted. Certainly, language could hardly be used which would more clearly stipulate
that the agreement should not go into effect until the home of ce of the company
should con rm by issuing a policy. As we read and understand the so-called provisional
policy it amounts to nothing but an acknowledgment on behalf of the company, that it
had received from the person named therein the sum of money agreed upon as the  rst
year’s premium upon a policy to be issued upon the application, if the application is
accepted by the company.
“It is of course a primary rule that a contract of insurance, like other contracts,
must be assented to by both parties either in person or by their agents. So long as an
application for insurance has not been either accepted or rejected, it is merely an offer
or proposal to make a contract. The contract, to be binding from the date of the
application, must have been a completed contract, one that leaves nothing to be done,
nothing to be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in agreement. Our view
is, that a contract of insurance was not here consummated by the parties.”
Res Perit Domino / Res Perit Creditory
Effect of Loss on Reciprocal Obligations
First View:​ ​If an obligation is extinguished by the loss of the thing or impossibility of
performance through fortuitous events, the counter-prestation is also extinguished. The
debtor is released from liability but he cannot demand the prestation which has been
stipulated for his benefit. He who gives nothing has no reason to demand. (Tolentino,
Commentaries and Jurisprudence on the Civil Code of the Phils., Vol. 4, p. 337-338
[1991])
Second View:​ ​The loss or impossibility of performance must be due to the fault of the
debtor. In this case, the injured party may ask for rescission under Art. 1191 plus
damages. If the loss or impossibility was due to a fortuitous event, the other party is still
obliged to give the prestation due to the other. (J.B.L. Reyes)
Better View: ​Res Perit Creditori general rule
Except:
Law requires Res Perit Domino
Art. 1504 – Sale of Personal Property
Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk whether actual delivery
has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer,
in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the
time of such delivery;
(2) Where actual delivery has been delayed through the fault of either the buyer or seller
the goods are at the risk of the party in fault.
Art. 1655 – In Lease Contracts
Article 1655. If the thing leased is totally destroyed by a fortuitous event, the lease is
extinguished. If the destruction is partial, the lessee may choose between a
proportional reduction of the rent and a rescission of the lease.
Art. 1717 – Contract for a Piece of Work
Article 1717. If the contractor bound himself to furnish the material, he shall suffer the
loss if the work should be destroyed before its delivery, save when there has
been delay in receiving it.

Res Perit Creditori Res Perit Domino

Risk lodged with creditor Risk lodged with debtor
Even if seller is unable to deliver the Art. 1191: Tacit Resolutory Condition
thing, buyer still has to pay
Creditor is at loss Seller at loss; buyer is not

Effect of Conditional Obligation as Far as Novation is Concerned

Effects of Condition in Novation
1) If the original obligation was subject to suspensive/resolutory condition,
the new obligation shall be under the same condition, unless otherwise
stipulated. (Art. 1299)
2) If the new obligation and the old obligation are subject to different
conditions:
 a) If the conditions can stand together—
• If both are fulfilled – the new obligation becomes
demandable
• If only the condition affecting the old obligation is fulfilled –
old obligation is revived while the new obligation loses its
force
• If only the condition affecting the new obligation is fulfilled –
there is no novation since the requisite of a previous valid
and effective obligation would be lacking
Relativity of Contracts – Tortious Interference
Relativity (Art. 1311)
General Rule:​ ​Contracts take effect only between parties, their assigns and heirs.
Limitations:​ ​HOWEVER with respect to assignees or heirs, the general rule under Art.
1311 is not applicable if the rights and obligations arising from the contract are not
transmissible or purely personal.
Exceptions:
1. Beneficial stipulation/stipulation pour autrui – A stipulation in favour of a third
person.
Pour Autrui Requisites: [SPCCL]
(1) that there must be a stipulation in favor of a third person;
(2) the stipulation must be a part, not the whole of the contract;
(3) the contracting parties must have clearly and deliberately conferred a favor upon a
third person, not a mere incidental benet or interest;
(4) the third person must have communicated his acceptance to the obligor before its
revocation; and
(5) neither of the contracting parties bears the legal representative or authorization of
the third party
2. When the third person comes into possession of the object of a contract creating
real rights; (Art. 1312)
3. Where the contract is entered into in order to defraud a creditor; (Art. 1313)
Remedies (in order): [SPApAs]
1. Specific performance
 2. Payment by cession
3. Accion pauliana
4. Accion subrogatoria
4. Where the third person induces a contracting party to violate his contract (Art.
1314). Such third person can be held liable for damages.
a.
5. Contracts creating “status” (marriage contract)
6. In suspension of payments and compositions under the Insolvency Law
7. CBA
8. Negotiorum gestio (Art. 2150-2151)
9. Violence & intimidation employed by 3P (Art. 1336)
Tortious Interference
Art. 1314 enunciates the doctrine that​ any third person who induces another to violate
his contract shall be liable for damages to the other contracting party​. The theory of this
doctrine is that the right to perform a contract and to reap the prots resulting from such
performance, and also the right to performance by the other party, are property rights
which entitle each party to protection, and to seek compensation by an action in tort for
any interference therewith.
Requisites:​ ​[VIK]
(1) the existence of a ​v​alid contract;
(2) ​k​nowledge on the part of the third person of the existence of the contract; and
(3) ​i​nterference by the third person without legal justication or excuse.
Thus, if a party enters into a contract to go for another upon a journey to a remote and
unhealthful climate, and a third person, with a bona de purpose of beneting the one
who is under contract to go, dissuades him from the step, no action will lie. But if the
advice is not disinterested and the persuasion is used for “the indirect purpose of
beneting the defendant at the expense of the plaintiff,” the intermeddler is liable if his
advice is taken and the contract broken. (Daywalt vs. Agustinos Recoletos, 39 Phil. 587)
Concept of Mutuality of Contracts
Mutuality (Art. 1308)
The contract must bind both parties.
*Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them. (1256a)
Note:
The validity or fulfilment of a contract cannot be left to the will of one of the contracting
parties.
Validity or fulfilment may be left to (1) the will of a third person, whose decision shall not
be binding until made known to both the contracting parties (Art. 1309) or (2) chance.
Philippine Savings Bank vs. Sps. Castillo, et al. (May 30, 2011)
Held: The unilateral determination and imposition of the increased rates (of interest in
loan) is violative of the principle of mutuality of contracts under Art. 1308 xxx. A perusal
of the Promissory Note will readily show that the increase or decrease of interest rates
hinges solely on the discretion of petitioner. It does not require the conformity of the
maker xxx. Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result, thus partaking of the nature of a
contract of adhesion, is void. Any stipulation regarding the validity or compliance of the
contract left solely to the will of one of the parties is likewise invalid.
BUT…
MIAA vs. Ding Velayo Sports Center (May 30, 2011)
An express agreement which gives the lessee the sole option to renew the lease is
frequent and subject to statutory restrictions, valid and binding on the parties​. This
option, which is provided in the same lease agreement, is fundamentally part of the
consideration in the contract xxx. It is a purely executory contract and at most confers a
right to obtain a renewal if there is compliance with the conditions on which the right is
made to depend. The right of renewal constitutes a part of the lessee's interest in the
land and forms a substantial and integral part of the agreement.
The fact that such option is binding only on the lessor and can be exercised only by the
lessee does not render it void for lack of mutuality. After all, the lessor is free to give or
not to give the option to the lessee​. xxx Mutuality obtains in such a contract and
equality exists between the lessor and the lessee since they remain with the same
faculties in respect to fulfillment.
Aspect of Adhesion Contract
Contract of Adhesion
In situations ​when a party imposes upon another a ready-made form of contract and the
other is reduced to the alternative of taking it or leaving it, giving no reason for
negotiation and depriving the latter of the opportunity to bargain on equal footing​, a
contract of adhesion​ ​results. While such contract is not necessarily void, it must
nevertheless be ​construed strictly against the one who drafted the same​. (Geraldez vs.
Court of Appeals, 230 SCRA 320).
Article 1377.​ The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.
*The same article applies to contracts of adhesion where the terms are prepared by
only one party while the other merely makes a choice whether he wants to take it or
leave it. Contracts of adhesion become void when the weaker party is reduced to the
alternative of taking it or leaving it and is absolutely deprived of the opportunity to
bargain on equal footing.
Ildefonso vs. Sibal (106 Phil. 287)
FACTS
On October 15, 1953, appellant, Lucio R. Ildefonso and appellee Ernesto Y. Sibal,
plaintiff and defendant therein, respectively, reached a compromise agreement and
thereafter filed a joint motion to dismiss the case. Acting upon the motion the court
granted it and dismissed the case.
Pursuant to the agreement, defendant, during the two-year period stipulated,
commissioned plaintiff to sell some of his real properties situated in Sta. Mesa Heights,
Quezon City. The properties, however, were not sold by plaintiff but by defendant
himself sometime after the lapse of the two-years period and at a price much higher
than that quoted to plaintiff. On the other hand, plaintiff, during the period agreed upon
— in line with defendant’s expressed intention to purchase real estate worth around
P400,000.00 within the commercial district of Manila for the future expansion of his
business of selling books and school supplies-looked for real properties for sale in
Manila. Apparently successful in his search, he offered to sell to defendant at various
times during the stipulated period the Great Eastern Hotel for P1,300,000.00, the Borja
Building for P1,500,000.00 and a lot along Rizal Avenue with an area of 157 square
meters for P190,000.00. Defendant, however, told plaintiff that he could not buy any of
the properties, the Great Eastern Hotel and the Borja Building being not only beyond his
means to buy but also inappropriate or inadequate to his business, while the lot in Rizal
Avenue was too small to meet the requirements of his plans for expansion.
Claiming that defendant Sibal has failed and neglected to make the purchase of real
estate as promised in the compromise agreement above-quoted within the two-year
period stipulated therein, plaintiff Ildefonso, on April 20, 1956, instituted the present
action for the recovery of the penalty provided for in the paragraph 2 (b) thereof in the
amount of P2,000.00, with legal interests thereon from October 16, 1955, plus
attorney’s fee and costs.
Answering the complaint, defendant admitted the execution of the compromise
agreement but denied liability, alleging that under the said agreement his liability may
arise only in the event that he buys or sells real estate without coursing the same
through the plaintiff and that his failure to buy or sell real estate in accordance with the
agreement was entirely due to plaintiff’s inability to sell the lands he (defendant) offered
for sale and to obtain real properties which would be profitable for him to purchase and
suitable to his business.
After trial, the lower court, on December 13, 1956, rendered judgment absolving
defendant from the complaint and ordering plaintiff to pay the former the amount of
P500.00 as attorney’s fee. From that decision plaintiff has taken the present appeal.
ISSUE
Whether or not the defendant has, upon the undisputed facts above narrated, violated
the obligation imposed on him by the compromise agreement.
HELD
There being no dispute that appellee has, in fact, during the two-year period provided in
the compromise agreement, course through appellant his real estate transactions and
that, due to no fault attributable to him, he was not able to purchase or to sell any real
property through appellant (or anybody else, for that matter) which that period, we
cannot say that the trial court has committed any error in dismissing the complaint.
There is, to be sure, ambiguity in the provision of the compromise agreement in
question as a result of the explanatory clause (“that is, to make such real estate
purchase and to course the same to the plaint off as Realtor”) inserted after the phrase
“should he fail thereof” which follows the statement of appellee’s obligation. But
following the rule that ambiguities or obscure clauses in contracts cannot favor the one
who has caused them (article 1377, new Civil Code), and it appearing that the
compromise agreement was drawn by appellant through his counsel, with the
paragraph in dispute creating an obligation in his favor, the ambiguity found therein
must be construed in favor of herein appellee. (H.E Heacock Co. vs. Macondray & Co.,
42 Phil., 205; Asturias Sugar Central vs. The Pure Cane Molasses Co., 57 Phil., 519;
Halili vs. Lloret et al., 95 Phil., 776;50 Off. Gaz., 2493.).
In view of the foregoing, the decision appealed from is hereby affirmed, with costs
against appellant.
Arts. 1381-1382 vs. Art 1191
Article 1381.​ The following contracts are rescissible:
 (1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which
are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
(1291a)
Article 1382.​ Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were effected, are also
rescissible. (1292)

Article 1191.​ The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
(1124)

Rescission (1381) Resolution (1191)

Party who may Parties to the contract, or
institute action third persons
Causes Several causes or grounds
such as lesion, fraud and
others expressly specied
by law
Power of the courts No power of the courts to
grant an extension of time
for performance of the
Only by a part to the
contract
Only ground is failure of one
of the parties to comply with
what is incumbent upon him
The law expressly declares
that courts shall have a
discretionary power to grant
an extension for
 obligation so long as there is performance provided that
a ground for rescission there is a just cause
Contracts which may Unilateral or reciprocal Reciprocal
be rescinded or
resolved
Action Subsidiary Principal

Incapacity – Braganza vs. Villa Abrille Case

FACTS:
Rosario Braganza and her sons loaned from De Villa Abrille P70,000 in Japanese war
notes and in consideration thereof, promised in writing to pay him P10,00 + 2% per
annum in legal currency of the Philippines 2 years after the cessation of the war.
Because they have no paid, Abrille sued them in March 1949. The Manila court of first
instance and CA held the family solidarily liable to pay according to the contract they
signed. The family petitioned to review the decision of the CA whereby they were
ordered to solidarily pay De Villa Abrille P10,000 + 2% interest, praying for
consideration of the minority of the Braganza sons when they signed the contract.
ISSUE:
Whether the boys, who were 16 and 18 respectively, are to be bound by the contract of
loan they have signed.
RATIO:
The SC found that Rosario will still be liable to pay her share in the contract because
the minority of her sons does not release her from liability. She is ordered to pay 1/3 of
P10,000 + 2% interest.
However with her sons, the SC reversed the decision of the CA which found them
similarly liable due to their failure to disclose their minority. The SC sustained previous
sources in Jurisprudence – “in order to hold the infant liable, the fraud must be actual
and not constructive. It has been held that his mere silence when making a contract as
to his age does not constitute a fraud which can be made the basis of an action of
deceit.”
The boys, though not bound by the provisions of the contract, are still liable to pay the
actual amount they have profited from the loan. Art. 1340 states that even if the written
contract is unenforceable because of their non-age, they shall make restitution to the
extent that they may have profited by the money received. In this case, 2/3 of P70,00,
which is P46,666.66, which when converted to Philippine money is equivalent to
P1,166.67.