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Problem Gigi offered to construct minds of the parties that would perfect

the house of Chito for a very a contract?


reasonable price of P1 Million, giving
Answer There is no consent that
the latter 10 days within which to
would perfect a contract as there is no
accept or reject the offer. On the fifth
agreement on the exact area to be
day, before Chito could make up his
sold. Contracts that are consensual in
mind, Gigi withdrew the offer.
nature are perfected upon mere
What is the effect of the withdrawal of meeting of the minds. A contract is
Gigis offer? (2005 Bar Problem) produced once there is concurrence
between the offer and the acceptance
Answer The withdrawal of Gigis
upon the subject matter,
offer will cause the offer to cease in
consideration, and terms of payment.
law. Hence, even if subsequently
The offer must be certain. To convert
accepted, there could be no
the offer into a contract, the
concurrence of the offer and the
acceptance must be absolute and
acceptance. In the absence of
must not qualify the terms of the offer.
concurrence of offer and acceptance,
It must be plain, unequivocal,
there can be no consent. (Laudico vs.
unconditional, and without variance of
Arias Rodriguez, G.R. No.16530, March
any sort from the proposal, constitutes
31, 1922). Without the consent, there
a counter-offer and is a rejection of the
is no perfected contract for the
original offer. Hence, when something
construction of the house of Chito.
is required is desired which is not
(Salonga vs. Farrales, Art. 1319 407
exactly what is proposed in the offer,
G.R. No. L-47088, July 10, 1981).
such acceptance is not sufficient to
Article 1318 of the Civil Code provides
generate consent becauseany
that there can be no contract unless
modification or variation from the
the following requisites concur : (1)
terms of the offer.
consent of the parties; (2) object
certain which is the subject matter of Problem A gasoline manufacturing
the contract; and (3) cause of the company (TPMC) obatined a loan from
obligation Gigi will not be liable to pay PNB and executed a real estate
Chito any damages for withdrawing mortgage over its parcel of land in
the offer before the lapse of the period Paranque City to secure its loan. When
granted. In this case, no consideration the loan matured, PNB sent collection
was given by Chito for the option letters to TPMC. In reply, TPMC
given. Thus, there is no perfected proposed to pay its obligations by way
contract of option for lack of cause of of a dacion en pago conveying its TCT
obligation. Gigi cannot be held to have No. 122533.Instead of accepting the
breached the contract. Thus, he offer, PNB filed a petition for
cannot be held liable for damages extrajudicial foreclosure of the REM.
(Suggested Answers to the 2005 Bar TPMC filed a complaint for annulment
Examination Questions, Philippine of extrajudicial foreclosure sale
Association of Law Schools) alleging that its debt has already been
extinguished by its offer of dacion en
Problem In an offer to sell, parties
pago. PNB contended that the
failed to agree on the size of the land
proposal of TPMC to pay by way of
to be sold. Is there a meeting of the
dacion en pago did not extinguish its
obligation as it was not accepted by car worth P25,000. Upon receipt of the
PNB. Hence, the extrajudicial letter, B, called A by long distance
foreclosure sale was proper. Was PNB telephone telling A that he is
correct? accepting the donation. The same day
B wrote and mailed a letter to A
Answer Yes, TPMC has no clear
accepting the donation. Immediately
right to an injunctive relief because its
after mailing the letter, B died of a
proposal to pay by way of dacion en
heart failure. Who is entitled to the car
pago did not extinguish its obligation.
now, A or the heirs of B? Reasons.
Undeniably, TPMCs proposal to pay by
(1962 Bar Problem).
way of dacion en pago was not
accepted by PNB. Dacion en pago is a Answer A is entitled to the car. The
special mode of payment whereby the reason is that the donation in the
debtor offers another thing to the instant case cannot produce any effect
creditor who accepts it as equivalent whatsoever. According to Art. 748 of
of payment of an outstanding the Civil Code, if the value of the
obligation. The undertaking is really personal property donated exceeds
one of sale, that is, the creditor is P5,000, the donation and the
really buying the thing or property of acceptance shall be in writing;
the debtor , payment for which is to be otherwise, the donation is void. True,
charged against the debtors debt. As the acceptance by B was actually
such, the essential elements of a written and mailed. But immediately
contract of sale, namely, consent, after mailing the letter of acceptance,
object certain and cause or B died. The effect is to bring into play
consideration must be present. It is the provision of Art. 1323 of the Civil
only when the Code which is certainly applicable
here, considering the provision of Art.
ESSENTIAL REQUISITES OF
732. According to Art. 1323, an offer
CONTRACTS Art. 1320 Consent 410
becomes ineffective upon the death,
CONTRACTS thing offered as an
civil interdiction, insanity, or
equivalent is accepted by the creditor
insolvency of either party before
that novation takes place, thereby,
acceptance is conveyed. Analyzing the
totally extinguishing the debt.Thus,
provision, it is clear that the offer of A
the unaccepted proposal neither
has become ineffective and that the
novates the parties mortgage
contract of donation, as a
contract nor suspends its execution as
consequence, has never been
there was no meeting of the minds
perfected.
between the parties on whether the
loan will be extinguished by way of Problem A donated a piece of land
dacion en pago (Technogas Philippines to B in a donation inter vivos. B
Mfg. Corp. vs. Philippine National accepted the donation in a separate
Bank, G. R. No. 161004, April 14, instrument but A suddenly died in an
2008). accident before the acceptance could
be communicated to him. Is the
Problem A, who resides in Manila,
donation valid? Reasons. (1971 Bar
wrote to his friend B, who is residing in
Problem)
Cotabato City, stating in the letter that
he (A) is donating to him (B) one new
Answer Even assuming that both to raise the necessary funds. It was
the donation and the acceptance are further agreed that if B could not
contained in a public instrument, produce the money on or before said
which the law requires (Art. 749, CC), date, no liability would attach to him.
the donation is not valid for the Before May 6, 1975, A backed out of
following reasons: (1) Under Art. 749 the agreement. Is A obliged to sell
of the Civil Code which enunciates the the property to B? Explain. (1975
different formalities required in the Bar Problem)
execution of donations inter vivos, the
Answer Assuming that the offer of
law declares that if the acceptance is
A to sell the land to B is merely a
made in a separate public instrument,
unilateral offer to sell, and that there
the donor shall be notified thereof in
is still no bilateral agreement in the
authentic form, and this step shall be
sense that B had already agreed to
noted in both instruments. It is
buy the land, A is not obliged to sell
obvious that in the instant case the
the property to B. In such case, it is
requirement of notification of the
clear that the general rule stated in
donor in authentic form (constancia
Art. 1324 and the particular rule
autentica) has not been complied with.
stated in Art. 1479, par. 2, of the Civil
It is of course axiomatic under the law
Code are applicable. As a matter of
on donations that all of the formalities
fact, even if B has formally accepted
prescribed in Art. 749 of the Code are
the option given to him by A, such
essential for validity. (2) Art. 734 of the
acceptance would be of no moment
Civil Code declares that a donation is
since the option is not supported by
perfected from the moment the donor
any consideration distinct from the
knows of the acceptance by the
purchase price. A can always change
donee. It is also obvious that in the
his mind at any time. The option does
instant case A never came to know of
not bind him for lack of a cause or
the acceptance by B because he
consideration. It would have been
suddenly died in an accident before
different if B had accepted the offer
such acceptance could be
to sell within the period of the option
communicated to him. Consequently,
before said offer was withdrawn by
the contract of donation was never
A. In such a case, a contract of sale
perfected. (3) And finally, Art. 1323 of
would have been generated right then
the Civil Code is decisive.This article
and there. As it turned out, A
(which is certainly applicable here
withdrew his offer in time. (See
considering. ESSENTIAL REQUISITES
Sanchez vs. Rigor, 45 SCRA 368)
OF CONTRACTS Arts. 1321-1323
(Note: In Sanchez vs. Rigos, supra, the
Consent 412 CONTRACTS the provision
Supreme Court finally resolved a
of Art. 732 of the Code) declares that
question which arose out of the use of
an offer becomes ineffective upon the
the word Accepted in modifying the
death, civil interdiction, insanity or
phrase unilateral promise to buy or to
insolvency of either party before
sell in Art. 1479, par. 2, of the Civil
acceptance is conveyed).
Code. Accepted refers to the option,
Problem A agreed to sell to B a not to the offer, to buy or to sell; in
parcel of land for P5,000.00. B was other words, it refers to the
given up to May 6, 1975 within which acceptance by either prospective
vendee or vendor of the option of, let P100,000.00 within ninety days from
us say, ninety days within which he May 1, 1979. R gave Q one
shall decide whether or not he shall (P1.00) peso as option money. Before
buy or sell the thing. Thus, if A offers the expiration of the ninety-day
to sell a lot to B for P200,000, and period, R went to Q to exercise his
gives the latter an option of ninety option to pay the purchase price but
days within which to decide whether Q refused because somebody
or not he shall buy the property, and wanted to buy his property for
the latter accepts the option, two P150,000.00 and because there was
possible situations may arise: (1) In no sufficient consideration for the
accepting the option, B pays to A option. R sued Q to compel him to
an option money of, let us say, accept payment and execute a deed of
P5,000 which is distinct from the sale in his favor.
purchase price. In such case, there is
Decide the case. (1980 Bar Problem)
already a perfected preparatory
contract of option. A is bound by his
offer. B shall now decide within the
period of the option whether or not he Answer Q should be compelled
shall buy the property. If he decides to to accept the purchase price of
buy, he shall then pay to B the price P100,000.00 and to execute a deed of
of P200,000; if he decides otherwise, sale of the subject property in favor of
no contract of sale will ever be R. The reason is that there is already
perfected. a perfected contract of sale.
Undoubtedly, in the instant case, there
(2) In accepting the option, B does is a unilateral offer of Q to sell the
not pay any option money to A. In subject property to R. For that
such case, there is no perfected purpose, the latter is given an option
preparatory contract of option for lack of ninety days from May 1, 1979 within
of a consideration. The result is a mere which to exercise the option. The
offer to sell, acceptance or which will consideration for the option is P1.00.
be sufficient to generate a perfected According to the Civil Code, since
contract of sale. But suppose that there is a consideration for the option,
meanwhile, A has changed his mind? Q is now bound by his promise to
The lot is no longer for sale. B, on sell the property to R so long as the
the other hand, has decided to buy the latter will exercise the option within
property. What will now happen? the agreed period of ninety days. R
Under this situation, the one who is fi exercised his option. Therefore, there
rst to notify the other of his decision is already a perfected contract of sale.
emerges the victor. If A is the fi rst True, Q will suffer some sort of lesion
to notify B of his change of mind, no or prejudice if what he says about
contract of sale will ever be perfected; another desiring to buy the property
if B is the fi rst to notify A of his for P150,000.00 is established. True
acceptance of the offer, a contract of also, the consideration of P1.00 for the
sale has already been perfected.) option is grossly inadequate. The Civil
Code, however, declares that except in
Problem Q, the owner of a house
cases specifi ed by law, lesion or
and lot in Quezon City, gave an option
inadequacy of cause shall not
to R to purchase said property for
invalidate a contract, unless there has Code, advertisements for bidders are
been fraud, mistake or undue simply invitations to make proposals,
influence. Here, there is no fraud, and the advertiser is not bound to
mistake or undue influence which accept the highest or lowest bidder
would be a possible basis for unless the contrary appears. It is clear
invalidating either the preparatory that the general rule applies in the
contract of option or the principal instant case. In its advertisement, K
contract of sale. and Co. did not state that it will award
the contract to the lowest bidder.
As a matter of fact, even assuming
Therefore, in awarding the contract to
that there is no consideration for the
N, the defendant company acted in
option, the end result would still be
accordance with its rights.
the same. Since R accepted the
offer before it could be withdrawn or Problem Is a person of advanced
revoked by Q, there is already a years or age or by reason of physical
perfected contract of sale. (Note: The infirmities incapacitated to enter into a
second paragraph of the above contract?
answer, which gives the raison detre
Answer A person is not
for what is stated in the first
incapacitated to enter into a contract
paragraph, is based on Arts. 1324 and
merely because of advanced years or
1479, par. 2, of the Civil Code. The
by reason of physical infirmities,
third paragraph, which disposes of the
unless such age and infirmities impair
contentions or defenses of the
his mental faculties to the extent that
defendant, is based on Art. 1355 of
he is unable to properly, intelligently
the Civil Code. The fourth paragraph,
and fairly understand the provisions of
which is a sort of obiter, is based on
said contract (Dr. Jose and Aida Yason
Sanchez vs. Rigos, 45 SCRA 368.)
and Faustino Arciaga, et. al., G.R. No.
Problem K and Co. published in 145017, Jan. 28, 2005).
the newspaper an Invitation to Bid
Problem C, an old and ignorant
inviting proposals to supply labor and
woman, was helped by V in obtaining
materials for a construction project
a loan of P3,000.00 from X Rural Bank
described in the invitation. L, M
secured by a mortgage on her house
and N submitted bids. When the
and lot. On the day she signed the
bids were opened, it appeared that L
promissory note and the mortgage
submitted the lowest bid. However,
covering the loan, she also signed
K and Co. awarded the contract to
several documents. One of these
N, the highest bidder, on the ground
documents signed by her was
that he was the most experienced and
promissory note of V for a loan of
responsible bidder. L brought an
P3,000.00 also secured by a mortgage
action against K and Co. to compel
on her house and lot. Several years
the award of the contract to him and
later, she received advice from the
to recover damages.
sheriff that her property shall be sold
Is Ls position meritorious? (1980 at public auction to satisfy the two
Bar Problem) obligations. Immediately she filed suit
for annulment of her participation as
Answer Ls position is not
co-maker in the obligation contracted
meritorious. According to the Civil
by V as well as of the mortgage in a prospective buyer, Nina. Yollie
relation to said obligation of V on the negotiated with Nina for the sale of
ground of fraud and mistake. Upon the property. They agreed on a fair
filing of the complaint, she deposited price of P2 Million. Nina sent Yollie a
P3,383.00 in court as payment of her letter confirming her intention to buy
personal obligation including interests. the property. Later, another couple,
Marius and Ellen, offered a similar
(a) Can be held liable for the obligation
house at a lower price of P1.5 Million.
of V? Why?
But Nina insisted on buying the house
(b) Was there a valid and effective of Robert and Yollie for sentimental
consignation considering that there reasons. Nina prepared a deed of sale
was no previous tender of payment to be signed by the couple and a
made by C to the Bank? Why? managers check for P2 Million. After
receiving the P2 Million, Robert signed
Answer (a) C cannot be held liable the deed of sale. However, Yollie was
for the obligation of V. It is crystal not able to sign it because she was
clear that Cs participation in Vs saying she changed her mind. Yollie
obligation both as co-maker and as filed suit for nullification of the deed of
mortgagor is voidable not on the sale and for moral and exemplary
ground of fraud because the Bank was damages against Nina. Does Nina
not a participant in the fraud have any cause of action against
committed by V, but on the ground of Robert and Yollie? (2006 Bar Problem)
mistake. There was substantial
mistake on the part of both C and the Answer Considering that the
Bank mutually committed by them as contract has already been perfected
a consequence of the fraud employed and taken out of the operation of the
by V. (See Rural Bank of Caloocan City statute of frauds, Nina can compel
vs. CA, 104 SCRA 151.) Robert and Yollie to observe the form
required by law in order for the
(b) Despite the fact that there was no property to be registered in the name
previous tender of payment made of Nina which can be fi led together
directly to the Bank, nevertheless, the with the action for the recovery of
consignation was valid and effective. house.(Art. 1357, NCC). In the
The deposit was attached to the alternative, she can recover the
record of the case and the Bank had amount of P2 Million that she paid.
not made any claim thereto. Otherwise, it would result in solution
Therefore, C was right in thinking that indebiti or unjust enrichment.
it was useless and futile for her to
make a previous offer and tender of Problem (a) What is a contract of
payment directly to the Bank. Under adhesion?
the foregoing circumstances, the
(b) Are contracts of adhesion void or
consignation was valid, if not under
prohibited?
the strict provisions of the law, under
the more liberal consideration of Answer In the case of
equity. (Ibid.) Development Bank of the Philippines
vs. Perez, G.R. No. 14854, Nov. 11,
Problem Spouses Robert and Yollie
2004, the Court held that: (a) A
wanted to sell their house. They found
contract of adhesion is so-called
because its terms are prepared by footing are not invalid per se. On
only one party while the other party numerous occasions, the Supreme
merely affixes his signature signifying Court has upheld the binding effects of
his adhesion thereto. such contracts.
(b) A contract of adhesion is just as Problem What is the cardinal rule
binding as ordinary contracts. It is true applicable in a case where the terms
that we have, on occasion, struck of a contract are clear and leave no
down such contracts as void when the doubt upon the intention of the
weaker party is imposed upon in contracting parties?
dealing with the dominant bargaining
Answer It is a cardinal rule that if
party and is reduced to the.
the terms of a contract are clear and
Nevertheless, contracts of adhesion
leave no doubt as to the intention of
are not invalid per se; they are not
the contracting parties, the literal
entirely prohibited. The one who
meaning of its stipulation shall control.
adheres to the contract is in reality
In the case of Philippine National
free to reject it entirely; if he adheres,
Construction Corporation vs. The Hon.
he gives his consent. In the case of
CA, et al., G.R. No. 159417, Jan.25,
Sps. Francisco and Ruby Reyes vs. BPI
2007, the Court held that the contract
Family Savings Bank, Inc., et al., G. R.
between parties is the formal
Nos. 149840-41, March 31,2006,
expression of the parties rights, duties
where the petitioner spouses
and obligations. It is the best evidence
undertook to secure the P15M loan of
of the intention of the parties. Thus,
Transbuilders Resources &
when the terms of an agreement have
Development Corporation to BPI-FSB
been reduced to writing, it is
and other credit accommodations of
considered as containing all the terms
whatever nature obtained by the
agreed upon and there can be,
Borrower/Mortgagor under the Real
between the parties and their
Estate Mortgage they executed in
successors in interest, no evidence of
favor of BPI-FSB, the Supreme Court
such terms other than the contents of
held that while the stipulation proved
the written agreement. It is further
to be onerous to the petitioners,
required that the various stipulations
neither the law nor the courts will
of a contract shall be interpreted
extricate a party from an unwise or
together, attributing to the doubtful
undesirable contract entered into with
ones that which may result from all of
all the required formalities and with
them taken jointly (Bobie Rose V. Frias
full awareness of its consequences.
vs. Flora San Diego-Sison, G.R.
Petitioners voluntarily executed the
No.155223, April 3, 2007).
REM on their property in favor of BPI-
FSB to secure the loan. They cannot Problem Mrs. S borrowed
now be allowed to repudiate their P20,000.00 from PG. She and her 19-
obligation to the bank after year old son, Mario, signed the
Transbuilders default. While promissory note for the loan, which
petitioners liability was written in fi ne note did not say anything about the
print and in a contract written by BPI- capacity of the signers. Mrs. S made
FSB, it has been the consistent holding partial payments little by little. After
of the Court that contracts of adhesion seven (7) years, she died leaving a
balance of P10,000.00 on the note. PG Answer No. 1 The defense should
demanded payment from Mario who be sustained. Mario cannot be bound
refused to pay. When sued for the by his signature in the promissory
amount, Mario raised the defense: that note. It must be observed that the
he signed the note when he was still a promissory note does not say anything
minor. Should the defense be about the capacity of the signers. In
sustained? Why? other words, there is no active fraud or
misrepresentation; there is merely
silence or constructive fraud or
misrepresentation. It would have been
different if the note says that Mario is
of age. The principle of estoppel would
then apply. Mario would not be allowed
to invoke the defense of minority. The
promissory note would then have all
the effects of a perfectly valid note.
Hence, as far as Marios share in the
obligation is concerned, the
promissory note is voidable because of
minority or non-age. He cannot,
however, be absolved entirely from
monetary responsibility. Under the
Civil Code, even if his written contract
is voidable because of minority he
shall make restitution to the extent
that he may have been benefited by
the money received by him (Art. 1399,
Civil Code). True, more than four years
have already elapsed from the time
that Mario had attained the age of 21.
Apparently, his right to interpose the
defense has already prescribed. It has
been held, however, that where
minority is used as a defense and no
positive relief is prayed for, the four-
year period (Art. 1391, Civil Code)
does not apply. Here, Mario is merely
interposing his minority as an excuse
from liability. (Braganza vs. Villa
Abrille, 105 Phil. 456.)
Answer No. 2 The defense should
not be sustained. It must be noted that
the action for annulment was
instituted by PG against Mario when
the latter was already 26 years old.
Therefore, the right of Mario to invoke
his minority as a defense has already has an interest in the contract in the
prescribed. According to the Civil sense that he is obliged thereby either
Code, actions for annulment of principally or subsidiarily, Art. 1397 of
voidable contracts shall prescribe after the Civil Code further requires that in
four years. In the case of contracts case of contracts voidable by reason
which are voidable by reason of of incapacity of one of the contracting
minority or incapacity, the four-year parties, the party who has capacity
period shall be counted from the time cannot allege the incapacity of the
the guardianship ceases (Art. 1391, party with whom he contracted.
Civil Code). The same rule should also Because of this additional requisite, it
be applied to the defense. In the is clear that Y and not X can institute
instant case, since more than four the action for annulment.
years already elapsed from the time
Problem. Pedro sold a piece of land
Mario had attained the age of 21,
to his nephew Quintin, a minor. One
therefore, he can no longer interpose
month later, Pedro died. Pedros heirs
his minority as a defense. It would
then brought an action to annul the
have been different if four years had
sale on the ground that Quintin was a
not yet elapsed from the time Mario
minor and therefore without legal
had attained the age of 21. Since
capacity to contract. If you are the
there was no active fraud or
judge, would you annul the sale?
misrepresentation on his part at the
(1974 Bar Problem)
time of execution of the promissory
note, it is clear that the contract is Answer If I am the judge, I will not
voidable as far as he is concerned. In annul the sale. The Civil Code in Art.
such case, the defense of minority 1397 is explicit. Persons who are
should then be sustained. (Braganza capable cannot allege the incapacity
vs. Villa Abrille, 105 Phil. 456.) of those with whom they contracted.
True, Pedro who sold the land to the
Problem X, of age, entered into a
minor Quintin is already dead, and it is
contract with Y, a minor. X knew and
his heirs who are now assailing the
the contract specifi cally stated the
validity of the sale. However, under
age of Y. May X successfully demand
the principle of relativity of contracts
annulment of the contract? Reason.
recognized in Art. 1311 of the Civil
(1971 Bar Problem)
Code, the contract takes effect not
Answer X cannot successfully only between the contracting parties,
demand annulment of the contract. but also between their assigns and
True, said contract is voidable because heirs.
of the fact that at the time of the
(Note: Another way of answering the
celebration of the contract, Y, the
above problem would be to state the
other contracting party, was a minor,
two requisites which must concur in
and such minority was known to X
order that a voidable contract may be
(Arts. 1327, No. 1, 1390 CC). However,
annulled. These requisites are: (a) that
the law is categorical with regard to
the plaintiff must have an interest in
who may institute the action for
the contract; and (b) that the victim or
annulment of the contract. In addition
the incapacitated party must be the
to the requirement that the action may
person who must assert the same. The
be instituted only by the party who
second requisite is lacking in the Answer Yes, an oral sale of land
instant case.) where the land has not been delivered
but the buyer has paid ten percent
Problem A and B entered into a
(10%) of the purchase price may be
verbal contract whereby A agreed to
judicially enforced. Well-settled is the
sell to B his only parcel of land for
rule that the Statute of Frauds by
P20,000.00 and B agreed to buy at
virtue of which oral contracts are
the aforementioned price. B went to
unenforceable by court action is
the bank, withdrew the necessary
applicable only to those contracts
amount, and returned to A for the
which are executory and not to those
consummation of the contract. A,
which have been consummated either
however, had changed his mind and
totally or partially. The reason is
refused to go through with the sale. Is
obvious. In effect, there is already a
the agreement valid? Will an action by
ratification of the contract because of
B against A for specific
acceptance of benefits. As a matter of
performance prosper? Reason. (1982
fact, this reason is now embodied in
Bar problem)
the New Civil Code. According to Art.
Answer It must be observed that 1405 of said Code, contracts infringing
there are two questions which are the Statute of Frauds are ratified by
asked. They are: (1) Is the agreement the failure to object to the
valid? The answer is yes. It is a time presentation of oral evidence to prove
honored rule that even a verbal the same, or by the acceptance of
agreement to sell land is valid so long benefits under them.
as there is already an agreement with
Problem O verbally leased his
respect to the object and the purchase
house and lot to L for two years at a
price. (2) Will an action by B against
monthly rental of P250.00 a month.
A for specific performance prosper?
After the first year, O demanded a
The answer is no, unless it is ratified.
rental of P500.00 claiming that due to
The reason is obvious. The agreement,
the energy crisis, with the sudden
being an agreement of sale of real
increase in the price of oil, which no
property, is covered by the Statute of
one expected, there was also a
Frauds. It cannot, therefore, be
general increase in prices. O proved
enforced by a court action because it
an inflation rate of 100%. When L
is not evidenced by any note or
refused to vacate the house, O
memorandum or writing properly
brought an action for ejectment. O
subscribed by the party charged.
denied that they had agreed to a lease
(Note: The above answer is based on
for two years.
No. 2 of Art. 1403 of the Civil Code and
on decided cases.) Question No. 1 Can the lessee
testify on a verbal contract of lease?
Problem Can an oral sale of land
Reason. (1981 Bar problem)
be judicially enforced as between the
contracting parties, if the land has not Answer Yes, the lessee L may
been delivered but the buyer has paid testify on the verbal contract of lease.
ten percent (10%) of the purchase Well-settled is the rule that the Statute
price? (1974 Bar problem) of Frauds by virtue of which oral
contracts (such as the contract in the
instant case) are unenforceable by Civil Code, these contracts are
court action is applicable only to those inexistent and void from the very
contracts which have not been beginning. They cannot be ratified nor
consummated, either totally or the right to set up their illegality as a
partially. The reason for this is obvious. defense be waived.
In effect, there is already a ratification
(b) The nullity of the stipulation on the
of the contract by acceptance of
usurious interest does not, however,
benefits.Here L has been paying to
affect the lenders right to recover the
O a monthly rental of P250.00 for
principal loan. Nor would it affect the
one year. The case is, therefore, terms of the real estate mortgage
withdrawn from the coverage of the (REM). The right to foreclose the
Statute of Frauds. mortgage remains with the creditors
and said right can be exercised upon
(Note: The above answer is based on
the failure of the debtors to pay the
Arts. 1403, No. 2 and 1405 of the Civil
debt due. The debt due is to be
Code, and on decided cases.)
considered without the stipulation of
Question No. 2 Assuming that O the excessive interest. A legal interest
admits the two-year contract, is he of 12% per annum will be added in
justified in increasing the rental? Why? place of the excessive interest
(1981 Bar problem) formerly imposed. But in a situation
where the total amount of
Answer Yes, O is justified in indebtedness during the foreclosure
increasing the monthly rental. Since it proceedings is pegged in an amount
is admitted that the contract of lease which included interest which is
is for a definite term or period of two excessive, iniquitous and exorbitant,
years, it is crystal clear that the case the foreclosure proceedings cannot be
is withdrawn from the coverage of the given effect and will be considered
new rental law. Now during the invalid.. If the foreclosure proceedings
hearing of the case, O was able to were considered valid, this would
prove an infl ation rate of 100%. result in an inequitable situation
Therefore, an increase is justified. wherein the borrowers will have their
(Note: The above answer is based on land foreclosed for failure to pay an
Batas Pambansa Blg. 25.) over-inflated loan only a small part of
which they were obligated to pay.
Problem (a) Cite an example of a (Heirs of Zoilo Espiritu and Primitiva
contract which is contrary to morals. Espiritu vs. Sps. Maximo Landrito and
Paz Landrito, etc., G.R.No. 169617,
(b) Can the nullity of the stipulation on
April 3, 2007).
the usurious interest affect (i) the
lenders rights to recover the principal Problem On Jan. 15, 1958, D
loan; (ii) the terms of the real estate borrowed P10,000 from C. as evidence
mortgage? of the indebtedness, D executed a
promissory note promising to pay the
Answer (a) Stipulations authorizing
entire obligation on Jan. 15, 1959, at
iniquitous or unconscionable interests
24% interest per annum. As security
are contrary to morals, if not against
for the payment of the obligation, he
the law. Under Art. 1409 of the New
also executed a real estate mortgage
on a house and lot registered in his real estate the title to which is duly
name in favor of C. This mortgage was registered. Therefore, the 18% interest
duly registered. When the note rate plus the additional interest and
matured, D paid the entire obligation penalty charges of 18% and 8%,
plus interest amounting to P2,400. respectively, are highly usurious.
Considering that the contract is [Development Bank of the Philippines
usurious, if D institutes an action vs. Perez, G.R. No. 148541, Nov. 11,
against C for the recovery of the 2004.] Under Central Bank (CB)
usurious interest which he has paid, Circular No. 905, which became
how much can he recover? Reason. effective on Jan. 1, 1983, whereby the
Monetary Board is authorized to fix
Answer D can recover the entire
interest rates, the ceiling rates under
interest of P2,400 which he has paid
the Usury law [Act No. 2655, as
plus 6% interest thereon from the date
amended by P.D. No. 116] have been
of payment. This is in accordance with
abolished. It should be noted that
Sec. 6 of the Usury Law and Art. 1413
Circular No. 905 did not repeal nor in
of the New Civil Code. It must be
any way amend the Usury Law but
observed that under Sec. 6 of the
simply suspended the latters
Usury Law, the debtor may recover the
effectivity. The legislation of usury is
whole interest paid. Under the New
wholly the creature of legislation. A CB
Civil Code , in Art. 1413, interest paid
Circular cannot repeal a law. Only a
in excess of the interest allowed by
law can repeal another law. Thus,
the usury laws may be recovered by
retroactive application of a CB Circular
the debtor, with interest thereon from
cannot, and should not, be presumed.
the date of payment. When the Code
(Development Bank of the Philippines
speaks of interest paid in excess of
vs. Perez, G.R. No. 148541, Nov. 11,
the interest allowed by usury laws, it
2004.)
means the whole usurious interest.
The two provisions, therefore, are In declaring void the stipulations
almost identical. The only change authorizing excessive interest and
effected by Art. 1413, NCC, is not to charges, the SC declared that although
provide for the recovery of the interest the Usury Law was suspended by CB
paid in excess of that allowed by law, Circular No. 905 and consequently the
which the Usury Law already provided parties are given wide latitude to
for, but to add that the same can be agree on any interest rate, nothing in
recovered with interest thereon from the said Circular grants lenders carte
the date of payment. (Angel Jose blanche authority to raise interest
Warehousing Co. vs. Chelda rates to levels which will either
Enterprises, 23 SCRA 119.) enslave their borrowers or lead to a
hemorrhaging of their assets. (Heirs of
(Note: Prior to January 1, 1983 and
Zoilo Espiritu and Primitiva Espiritu vs.
under the Treasury Laws, no person
Sps. Maximo Landrito and Paz
shall receive a rate of interest,
Landrito, etc., G.R. No. 169617, April 3,
including commissions, premiums,
2007).
fines and penalties, higher than 12%
per annum or the maximum rate Problem A partnership borrowed
prescribed by the Monetary Board for P20,000.00 from A at clearly
a loan secured by a mortgage upon usurious interest. Can the creditor
recover anything from the debtor? According to Art. 1420 of the Civil
Explain. Code, in case of a divisible contract, if
the illegal terms can be separated
Answer Yes, the creditor can recover
from the legal ones, the latter may be
from the debtor the following: the
enforced. It is clear that what is illegal
principal, legal interest on the
is the prestation to pay the stipulated
principal from the date of demand
interest. Hence, being separable, the
(Art. 2209, CC), legal interest on the
latter only should be deemed void.
legal interests from the time of judicial
demand (Art. 2212, CC), and (Note: It must be noted that in Angel
attorneys fees, if proper, under Art. Jose vs. Chelda, it was held that
2208 of the Civil Code. attorneys fees cannot be awarded.
The principal reason is that, at the
That the creditor can recover the
time when the decision was
principal from the debtor is now well
promulgated, there was yet no definite
settled. (Angel Jose vs. Chelda
ruling on the point of law involved.
Enterprises, 23 SCRA 119; Briones vs.
Now, it is already well-settled that the
Cammayo, 41 SCRA 404.) In a usurious
creditor may recover the principal.
contract of loan, there are always two
Consequently, plaintiff creditor may
stipulations. They are: first, the
recover the principal plus legal interest
principal stipulation whereby the
under Arts. 2209 and 2212 of the Civil
debtor undertakes to pay the principal;
Code. Hence, attorneys fees may also
and second, and the accessory
be awarded.)
stipulation whereby the debtor
undertakes to pay a usurious interest.
These two stipulations are divisible.