RABUYA DAY 2

What is a stipulation pour autrui?

There is one decision of Chairman/Chairwoman Bernabe touching on the requisites
of a stipulation pour autrui. It is an exception to the principle of relativity of
contracts. As a general rule, contract is binding only between the contracting
parties, including their heirs or assigns. As a general rule, a contract does not affect
the interest of third persons, whether either to favor a third person or to prejudice
him. But, a stipulation pour autrui is one of the exceptions to that rule. In a
stipulation pour autrui, in the contract between the parties they will provide for a
stipulation of bearing a benefit or a favor in favor of a third person who is not a
party to the contract. But in order for that stipulation to be a case of pour autrui, it is
necessary that the following requisites must be present. Aside from conferring a
benefit or a favor to a third person it is necessary that:
1. The conferment of such benefit must be deliberate or intentional. The benefit to a
third person must not only be incidental. It must be conferred deliberately or
intentionally;
2. That conferment of benefit must not be the entire contract. Because if the
contract is about conferring a benefit to a third person and that is what the contract
is all about, the third person must be made party to that contract. So in a stipulation
pour autrui, the stipulation is only a part of the contract and not the entire contract;
3. It is necessary that neither of the contracting parties are the legal or the
representation of the third person. Stated otherwise, either of the contracting
parties must not be the representative of the third person. Otherwise, that third
person is actually a party to the contract;
4. The benefit must be accepted prior to its withdrawal. So prior to acceptance, a
stipulation pour autrui can be withdrawn or it can be revoked. But it can only be
revoked by agreement of the contracting parties since that is already one of the
provisions of the contract. But if the benefit was already accepted by the third
person, the contracting parties will now be obligated to the third person to confer
such benefit. And for that reason, if the third person accepts the benefit, you will
acquire a cause of action to proceed against the contracting parties even if he is not
a party to the contract. By way of exception to the principle of relativity of contracts.
Example – if you are using your credit card and there is no problem with your card,
it has just been renewed, you have been paying religiously your indebtedness to the
credit card company, but for one reason or another, the purchase store refuses to
accept your payment in the form of credit using your credit card. In that situation,
you will have a cause of action against the store for damages for refusing to accept
your tender of payment by using your credit card. Following the principle of
stipulation pour autrui. Bakit applicable? Kasi there is a contract between the credit
card company and the store. And in that contract, there is a stipulation conferring a
benefit in favor of the credit card holder – that the credit card holder is allowed to
make purchases on the store on credit using the credit card. Yung yung tinatawag
nating stipulation pour autrui and that is present in the contract between the credit
card company and the store. And neither of course, that is only a part of the contract
between the two because the contract between the two talks about the rights and
obligations against each other. And the conferment of the benefit is deliberate or
intentional and neither of the contracting parties is a representative of the credit
card holder. Now, everytime that you are making purchases on credit using the
credit card, you are accepting the benefit. So kung magkakaroon ng problema yan, if
your tender of payment in the form of a credit using the credit card will not be
accepted at wala naming problema sa card mo, you will have a cause of action
against either the credit card company or the store as an exception to the principle
of pour autrui.
Let us discuss the distinctions between an option and a right of first refusal. Ang
function nila pareho. The purpose of an option and right of first refusal is to grant an
exclusive privilege to one person the privilege of entering into a contract with the
other person. Yan ang concept ng option and right of first refusal. It creates an
exclusive privilege to enter into a contract with someone else. Ano ang pinagkaiba
nila? The Supreme Court enumerated the distinction between an option and a right
of first refusal. In an option, the object of the contemplated contract is already
certain as well as the cause or consideration which is likewise made certain. In
short, in option, there is already a definite offer. What is lacking is merely
acceptance of the offer. And in option, usually kaya nagkakaroon ng option, the
offeree cannot yet make up his mind whether or not he will accept the offer and the
offeree will ask him for a definite period within which he can consider his offer. But
the offeree wants that during that definite period, yung offer na yan ay exclusive
lang sa kanya so that will create an exclusive privilege on the part of the offeree to
enter into a contract with the offeror. In option the period for the exercise of the
privilege is always a definite period. Pag ganun ang situation, that is an option. On
the other hand, in a right of first refusal, ordinarily, only the object of the
contemplated contract is made certain. Yung lang possible object of the
contemplated contract yun lang yung certain but the price or considreation and the
other terms and conditions are not yet discussed. The price and the other terms and
conditions are still to be discussed to be negotiated at some future time if an offer
will be made. Yan ang concept ng right of first refusal. In a right of first refusal, the
period for the exercise of the privilege can either be a definite period or pwede din
maging indefinite. Example ng right of first refusal, in a contract of lease, if there is a
provision in the contract of lease that during the effectivity of the lease contract, if
the lessor decides to sell the leased premises, then the lessee shall have the first
opportunity to have the leased premises. The first offer shall be made to the lessee.
That is a right of first refusal. Kapag meron na tayong definite offer, hindi daw yun
yung right of first refusal but that is an option. In one case for example, there was a
contract of lease between the lessor and the lessee over a parcel of land, but during
the effectivity of the contract of lease, the lessor wrote a letter to the lessee telling
the lessee that “I am giving you the first opportunity to buy the leased premises at a
quoted/fixed price.” Ang sabi ng lessor, “you can make the decision at any time but it
must not be beyond a certain date. For a period for a decision was fixed by the
lessor. In response, the lessee wrote a letter to the lessor offering to buy the leased
premises at a lower price – that is a counter offer. And the lessor did not reply to the
counter-offer and instead the lessor sold the property to someone else at a lower
price that he quoted to the lessee. Nagreklamo si lessee, sabi ni lessee, “my right to
first refusal is violated since that is a new offer, that is a lower price, the new offer
should be first made to him. He is asking for the recission of the contract between
the lessor and the buyer on the basis of the alleged violation of his right of first
refusal. Sabi ng Supreme Court, ano ba yung nature of the privilege that was granted
to the lessee, what is a right of first refusal or was it an option? And the Supreme
Court proceeded to distinguish between the two. Kapag meron nang definite offer,
that is not a right of first refusal but an option. In that case, since the object is certain
– leased premises, the price ws already made certain – may quoted price na, and
what is lacking is the lessee’s acceptance of the offer. That is not a right of first
refusal but an option. So, bakit mahalagang i-distinguish natin yung one from the
other? Because they are governed by principles. If that is an option and it was
declared to be an option, yung mga principles ng option ang ia-apply natin. Ang
magiging tanong, is the option binding upon the parties? You have learned that in
order for an option to be binding, it must be supported by a consideration distinct
and separate from the price quoted in the contemplated contract because option is a
separate contact. It is a preparatory contract, in our example, it is preparatory to the
contract of sale. And since option is a separate contract, it must be supported by a
cause or consideration of its own. If it is not supported by a cause or consideration
of its own, then it does not become a contract. In order for a contract to exist, there
must be an object. The object in a contract of option is the grant of exclusive
privilege. Pangalawa, there must be consent. Ordinarily, present yung object at
consent, what may be lacking is the cause or consideration for the option contract.
So, a consideration must be paid to the offeror in order for the exclusive privielege
to become a contract. Yung a titignan natin, was there a consideration that was
made for the option? If not, then it does not become a contract because of the
absence of cause or consideration. But if a consideration was paid, then it becomes a
contract kasi kumpleto na yung essential requisites of a contract. What can be a
possible consideration in a contract of option? Pwede bang pure liberality of the
offeror? No, because on option contract according t the supreme court is necessarily
onerous. Therefore, the consideration must be either in money or it is in property or
maybe in the form of a service or anything that has a value. But hindi pwedeng
liberality. In a contract of option, pwede ba natin i-presume yung existence of a
consideration? As a general rule, cause or consideration is presumed in a contract.
But that presumption of the existence of consideration is not applicable in a contract
of option because it is required in an option of contract that the consideration is
proven to exist. In relation to the consideration in an option contract, pwedeng ang
consideration is payment of money. If the consideration is payment of money, ang
tawag natin dun ay “option money”. But we must distinguish “option money” from
“earnest money”. Ang option money is payment for consideration for the contract of
option. On the other hand, earnest money is part of the purchase price that is a
consideration for the contract of sale. Option money is not part of the purchase price
because that is a consideration for the preparatory contract of option. On the other
hand, yung tinatawag nating earnest money, that is part of the purchase price that is
actually a downpayment. So, if an earnest money is given, that is considered as the
downpayment that is proof of the perfection of the contract of sale. On the other
hand, option money is not part of the purchase price, that is the payment or the
consideration for the separate contract of option. So, even if it is paid, it is not proof
of the perfection of the contract of sale. Kaya titignan natin, kahit na gamitin yung
salitang option money, if that option money forms part of the purchase price, it is
not actually an option money but an earnest money and that will become proof of
the perfection of the contract of sale.

If the option is not binding because it does not become a contract because unlawful
consideration was paid for the option. Ang ibig sabihin nun, the parties are not
bound by their agreement granting the offeree an exclusive privilege within a
certain period to enter into a contract with the offeror. Ang ibig sabihin, the offeror
can withdraw the offer at anytime. But he must make the withdrawal prior to the
acceptance of the offer. Let us not forget that even if the option is not binding, meron
pa rin outstanding offer that may be accepted and if accepted prior to the
withdrawal, that will result into a perfected contract of sale. On the other hand, if
the option becomes a contract because it is supported by a consideration of its own,
therefore the agreement is binding upon the offeror and the offeree. Such that if the
offeror withdraws the offer during the definite period agreed upon, there will be a
breach of the contract of option. That will entitle the offeree to recover damages
from the offeror.

Let us go back to our case, so that is an option, not a right of first refusal. Meron
tayong definite offer, what happened to that definite offer? There was a counter
offer that was made by the lessee. Ibig sabihin, the counter offer that was made by
the lessee results in the extinguishment of the original offer of the lessor because
the counter offer is in the nature of a new offer of the offeree. So the offeree now
becomes the offeror but the offer of the offeree was not accepted by the original
offeror. Since the offeror’s original offer is already extinguished and terminated by
its rejection in the form of a counter offer, the original offeror is now free to offer it
(the leased premises) to someone else. Kung right of first refusal talaga yun, ang
magiging tama ay si lessee. Because in a right of first refusal, the offer should first be
made to the lessee/grantee of a right of first refusal. Nung in-offer sa kanya, for
example at P30M, tinanggihan niya, the lessor/grantor of the right of first refusal
can now offer it to someone else. But ang rule, it must be offered at the same price
that it was offered to the grantee or at a higher price – hindi pwedeng lower.
Because if it is offered at a lower price, then the lessee is entitled again to exercise
its right of first refusal because it is considered as a new offer. And if the lessor sold
the property to someone else at a lower price, that will be a violation of the lessee’s
right of first refusal. That is if right of first refusal talaga yun. And we have learned
that if there is a violation of the grantee’s right of first refusal, any contract entered
into by the grantor in violation of the grantee’s right of first refusal is a rescissible
contract under Art. 1381, par. 3 of the civil code. That is considered a contract in
fraud of creditors. What is the remedy of the grantee? The remedy of the grantee is
rescission of the contract that is entered into by the debtor who is the grantor for
the purpose of defrauding him. When will the contract be rescinded? That will
depend on the good faith or bad faith of the buyer. If the buyer acted in good faith,
without knowledge of the existence of the right of first refusal, the contract will not
be rescinded. Because one of the requirements of rescission is that the object of the
contract must not yet be in the legal possession of a 3rd person who did not act in
bad faith. So, in order for the rescission to prosper, it is necessary that the 3rd
person/buyer must have acted in bad faith. So if the buyer acted in bad faith because
the buyer had knowledge of the right of first refusal, the contract will be rescinded.
But if the buyer acted in good faith without knowledge of the existence of right of
first refusal, the contract cannot be rescinded. The only remedy of the grantee or the
lessee is to recover damages against the lessor or grantor of the right of first refusal.

Let us discuss rescissible contracts. A contract, from the point of view of existence
of defects, a contract is classified either as defective or kung walang defect, it is
classified as perfectly valid – yun ang tawag natin if the contract does not suffer
from any defect. As to defective contracts, they are classified into 4 kinds. Take note
of the arrangement na ginawa ng civil code, the civil code classifies defective
contracts from those contracts which have lesser defects going to the most
defective. So yung arrangement, rescissible, voidable, unenforceable, then void or
inexistent. May gamit yung arrangement nay an, so kung binigyan ka ng problem
that the contract can be classified as voidable or unenforceable, hindi niyo pwedeng
sabihin na ang status nya is voidable. Because if the contract is at the same time
unenforceable, ang status niya eh yung pinakagrabe ang depekto. Kasi pag ginawa
mo siyang voidable, ang voidable contract is valid and enforceable, therefore
obligatory, unless it is annulled by a final judgment of the court. So binding yun. But
pag sinabi naitng unenforceable, while a contract may be valid, it cannot be
enforced. Therefore, it is not obligatory unless the defect is ratified and it is not
binding between the parties. So kanina, pag sinabi nating voidable, example nyan
meron isang minor who sold his parcel of land in favor of someone of legal age but
they entered into such contract without the assistance of a guardians but the
contract was formal and purely executory. That was a sale of a parcel of land
entered into verbally and purely executory. Ano ang status ng contract? Hindi
pwedeng voidable because of the incapacity of the minor. The status of the contract
is unenforceable because that contract is governed by the statute of frauds. Pag may
mga ganung problema, watch out, ang pipiliin natin ay yung pinakagrabe ang
depekto. Okay, rescissible. What is the nature of a rescissible contract? A rescissible
contract is a valid contract. It is enforceable therefore it is binding and obligatory
between the contracting parties unless the contract is rescinded by an order from
the court. Without an order of rescission, the contract is obligatory. That is the
nature of a rescissible contract. In the absence of an order of rescission, obligatory
yan. You cannot use the defect of the contract as a defense. Kasi in the absence of an
order of rescission, it is valid and binding and enforceable and obligatory. The defect
of a rescissible contract can only be questioned if there is a direct action for
rescission. In order for an action for rescission of a rescissible contract to prosper,
eto yung mga importanteng requirements na dapat nating tandaan.
1. The action must be filed within the allowable 4-year prescriptive period;
2. From the very start, it is necessary that the plaintiff who files the action must
still be in the position to return what the court may order him to return. If the
plaintiff is no longer in a position to return what he may be ordered to return, the
action for rescission cannot prosper;
3. It is necessary in rescission that the object of the contract that the plaintiff is
seeking to recover must not yet be in the legal possession of a 3rd person who did
not act in bad faith. Magp-prosper lang ang rescission if the object of the
contract is already in the legal possession of a 3rd person, if the 3rd person in
bad faith. If the 3rd person acted in good faith, rescission is not the remedy of the
injured party but recovery of damages;
4. Lastly and most importantly, rescission as a remedy in rescissible contracts must
be a remedy of last resort. If the plaintiff has other available legal remedy for the
purpose of obtaining reparation of damages suffered by him, the rescission will not
prosper. Rescission is a subsidiary remedy. It can only be exercised if the plaintiff
has no other available legal remedy. Kaya yung 1381, parang ____ contracts intended
to defraud of creditor. Habang available pa kay creditor yung action for collection,
hindi pa siya pwedeng magfile ng action for rescission of the contract that was
entered into for the purpose of defrauding him. In 1381, par. 3, tumatakbo lang yung
prescriptive period from the discovery of the fraud. yung discovery of the fraud, it
does not reckon from the registration of the fraudulent ___. Hindi applicable ang
principle of constructive notice in 1381 par 1. Kasi from the time of the registration
of the fraudulent ____ (35:51) kung available pa kay creditor yung remedy of
collecting the credit, the remedy of rescission is not yet available to him kaya hindi
pa tatakbo and prescriptive period because rescission is a remedy of last resort.
Unahin niyo muna yung action for collection, and after filing an action for collection,
makukuha niyo yung judgment and if that judgment is not satisfied because it will
turn out that there are no more properties in the name of the debtor, doon lang
natin cinoconsider that the fraud has been discovered at dun lang tatakbo yung 4-
year prescriptive period. In 1381, par 3, merong decision si Chairwoman Bernabe
where she distinguishes 1381, par. 3 from 1409 par 2. If the contract is in fraud of
creditor, ang titignan nyo, “if that contract absolutely simulated or fictitious, even if
the purpose is to defraud the creditor, the contract is not rescissible. Because the
contract is declared void or inexistent in art 1409 par 2. So yung tinatawag nating
rescissible contract because it is in fraud of creditor, it presupposes that that
contract is valid and that the contract is not absolutely simulated or fictitious. Dapat
para maging rescissible contract because it is in fraud of creditor, dapat hindi siya
absolutely simulated or fictitious. If it is absolutely simulated, kunyari lang yung
kontrata hindi naman totoo, after executing the contract, sya pa rin yung in
possession at sya pa din yung nagbabayad ng real estate taxes, yung kontrata is
absolutely simulated for the purpose of defrauding creditors, that contract is
absolutely simulated and the contract is void. The remedy is not rescission; instead
the remedy is an action for the declaration of the absolute nullity of the contract.
That action is not subject to any prescriptive period. On the other hand, if the
contract is indeed rescissible, because the contract in fraud of creditor is no
absolutely simulated which is therefore a valid contract, that is the time that the
remedy will be rescission which is subject to a 4 year prescriptive period.
1381 par 1 and 2. These are contracts entered into by one person on behalf of
another but the person he represents suffers lesion or damages by more than ¼ of
the value of the property and the contract is not approved by the court.
Par 1, contract entered into by a guardian on behalf of the ward involving the
property of the ward where the ward suffers lesion by more than ¼ of the value of
his property and the contract was not approved by the court – RESCISSIBLE.
Par. 2 the contract was entered into by the legal representative on behalf of the
absentee involving the property of the absentee and the absentee suffered lesion or
damages by more than ¼ of the value of the property and the contract was not
approved by the court. Kung mapapansin niyo, in both the contract is entered into
by one, not in his own name, but one behalf of another without court approval. So
we must distinguish par 1 and 2 of 1381 from 1403 par 1 (Contracts which are
unenforceable). Because those contracts are entered into by one on behalf of
another but without authorization from the owner or from the court. Ang sabi ng
Rules of Court, if the guardian or the legal representative will be disposing or
encumbering a real property of the ward or of the absentee. If the transaction
entered into by the guardian or the legal representative will be a contract disposing
or encumbering a real property of the ward or the absentee, ang requirement there
must be judicial approval. Ano ang epekto kapag walang judicial approval? Sabi ng
SC the contract becomes unenforceable under 1403 par because that is a contract
entered into by one on behalf of another without authorization. So, if the contract
entered into by the guardian or the legal representative is a contract of disposition
or encumbrance of real property of the ward or of the absentee without judicial
approval, ang applicable law ay 1403 paragraph 1. Kahit na merong lesion, hindi yun
rescissible, it is unenforceable. Linawain natin yung coverage ng paragraphs 1 and 2
of 1381 kasi wala din approval yun ng court. It must be a contract entered into by a
guardian or a legal representative BUT it is not a contract of disposition or
encumbrance of the real property of the ward or absentee. Because, if it is a contract
of disposition or encumbrance of real property, ang maga-apply is article 1403, par
1 dahil unenforceable and kontrata. So ang 1381 par 1 & 2 are contracts other than
disposition or encumbrance of the real property of the ward or the absentee when
the ward or absentee suffers lesion of more than ¼ of the value of the property.

What is the effect of an order of rescission? If the court rescinds a contract, the
contract is abrogated. The contract is unmade, parang binubura yung kontrata, that
is rescission. The contract is not invalidated it is in voidable contracts or in
annulment where the contract is invalidated. Kapag rescission, ang sasabihin niyo,
the contract is abrogated – the contract is unmade. Rescission is the unmaking of the
contract, buburahin mo yung kontrata. It is as if there was no contract entered into
in the first place. The parties will go back to ther status prior to the perfection of the
contract. Lahat ng effects that were produced by the contract will have to be wiped
out or erased by mutual restitution. Everything has to be returned. Bakit? Ang
principle is there was no contract. Since there is no contract, it cannot produce any
effect. Lahat ng effects that were produced, will have to be returned to each other.
That is rescission.

Let us go to voidable. Ano ang concept ng voidable contracts? In a voidable

contract, the contract is valid it is enforceable therefore it is binding and obligatory
unless and until the contract is annulled by a final judgment of the court. So in the
absence of a judgment of annulment, a voidable contract is a valid contract. It is
enforceable and obligatory. Kaya without a judgment of annulment, hindi pwedeng
gamiting depense yung defect of a voidable contract. Kasi, in the judgment of
annulment, obligatory siya. Ordinarily, yung defect of the contract as voidable, hindi
mo pwedeng gamiting deppensa yan except by way of a counter-claim. Kasi an
counter-claim ay in the nature of a complaint. Before you can make use of the defect,
papatunayan mo muna that it is annullable. Kaya ang rule sa voidable contracts, it
cannot be used as a defense except by way of a counter-claim. Ang atake natin sa
voidable contract, you can make use of the defect either as a counter-claim or by a
direct action for annulment of the contract. In voidable contracts, while the contract
is valid, enforceable, binding and obligatory, from the very start, from the time of the
perfection, there is a defect in the contract that may invalidate the contract but it is
only the court that can invalidate the contract. Yun yung tinatawag nating
annulment. The invalidity of the contract will only be produced by the judgment of
the court. In the absence of that judgment of the court, that contract is valid. It is
only by the judgment of the court that the contract is invalidated. Yung yung tamang
paggamit ng annulment. It presupposes the contract that is valid but will be
invalidated by the judgment of the court. If the contract is alreay invalid from the
very beginning, it is void ab initio from the very beginning, you do not need a
judgment of the court to invalidate it since it is already invalid from the very
beginning. Hindi yung pwede tawaging annulment. Annulment presupposes the
existence of a valid contract that can be invalidated by the judgment of the court. If
the contract is already invalid from the very beginning, there is nothing to annul. All
that is left to do is to declare its invalidity from the very beginning. That action
simply refers to an action for the declaration of the absolute nullity of the contract
which exists from the very beginning.

There are 2 kinds of voidable contract from out laws.

(1390 PAR 1)
A contract is voidable if one of the contracting parties is incapable of giving
valid consent. Dapat isa lang. If both of them are incapable of giving consent, it is
1403 par 1 that will be applicable – the contract will become unenforceable. Let us
distinguish 1390 par 1 from 1403 par 3. If both parties are insane entering into the
contract, the contract is unenforceable under 1403 par 3. But an unenforceable
contract is subject to ratification. If ratified by one party, yung insane gumaling na,
when he regained his sanity, he ratified the contract. The contract will become
voidable because only one of the contracting parties now is incapable of giving valid
consent. It will now be art 1390 par 1 which will apply. But a voidable contract is
also subject to ratification, kaya pag gumaling na din yung incapacitated party and
regains his sanity who also ratifies the contract, the contract will become perfectly
valid.
1390 PAR 2
Both of the contracting parties are capable of giving valid consent but ang problema,
the consent of one party was vitiated by reason of violence, intimidation,
mistake, fraud or undue influence.

What is the effect of a judgment of annulment? A judgment of annulment will

invalidate the contract from the very beginning. Retroactive yung annulment. It is in
annulment that you must make use of “invalidated”. In annulment, the judgment of
the court will produce the invalidity of the contract and the contract is considered
invalid from the very beginning. As a consequence, the parties will be required to
return what they received from the contract. The annulment will also produce the
obligation of mutually returning what they received from the contract.
Exception is that if the ground is incapacity – that person does not have the
obligation to return what he received from the contract. UNLESS (xpn to xpn):
1. He gets the thing delivered to him or up to the extent that he was benefitted.

UNENFORCEABLE CONTRACTS
What is the nature of an unenforceable contract? It is a valid contract but while it is
valid, it cannot be enforced in court. Kaya siya tinawag na “unenforceable” uless and
until the defect is ratified. If the defect is not ratified, it cannot be enforced in court
but the contract is valid.

In a void contract, the defect is not subject to ratification. In voidable contracts, the
defect may be ratified. If ratified, then the contract becomes valid and enforceable
therefore it will now become binding and obligatory between the parties. Ut so long
as the defect is not ratified, the defect of an unenforceable contract is permanent. It
will not be cured by reason of lapse of time. Kung mapapansin niyo, in an
unenforceable contract, that I purely a matter of defense. There is no action that you
may file in relation to the defect of the contract. Hindi ka pwede mag-file ng action
for declaration of the contract as unenforceable. Kapag ginawa mo yun, ang
consequence is pagtatawanan ka ni judge tapos id-dismiss niya yung kaso niyo. For
example, one of the contracting parties wants you to perform, eh di ang sagot mo
lang eh “wala”. Deadmahin mo siya, kapag nainis yun kasi dinedeadma mo siya
pupunta yun sa court to file an action for performance. At sasagot ka lang and
defense mo, “I cannot be compelled to perform because the contract is
unenforceable.” Depensa lang sya lagi. Kaya sa unenforceable contracts, we do not
speak of prescriptive periods. Permanent ang defect unless the defect is ratified.
Also, in unenforceable contracts, yung defense na “unenforceability” is available
only to the contracting parties. That defense cannot be used by a third person.

There are 3 kinds of unenforceable contracts.

Par. 1
A contract entered into by one, on behalf of another but without authorization from
the alleged principal or it is in excess of authority, which nevertheless is without
authorization, is an unauthorized contract.

Par 2
A contract that is covered by the statute of frauds and the requirement of the statute
of frauds is not followed.

Par 3
Both of the contracting parties are incapable of giving valid consent.

Back to par. 1. A contract entered into by an alleged agent on behalf of an alleged

principal but without the knowledge or consent or authorization of the principal.
Hindi talaga nagbigay ng consent yung principal since the contract is without his
authorization. Do not declare the contract as void. Mali sabihin na “the contract is
void because of the absence of the consent of the principal/owner of the property”.
Kapag dineclare mong void ang nature ng contract, the defect cannot be ratified. In
our law, we are giving the principal the opportunity to ratify the defect by adapting
the contract. Kahit walang authorization yung transction, but later on he gives his
consent, that will amount to the ratification of the defect. Such ratification will
retroact to the date when the agent entered into the contract so that the contract
will be considered as perfected from the very beginning. Yan yung unenforceable.
Kasi there are SC decision na kapag walang authority yung may-ari. Example, the
contract was entered into in the owner’s name but without the owner’s knowledge
and consent, there were cases where the SC declared the contract as void. Sabi ng
SC, there was no consent from the owner/principal. Dapat mali yun kasi malinaw
ang batas natin na the contract was merely unenforceable subject to ratification. We
are giving the principal an opportunity to adopt the contract. If the principal did not
give his consent, we do not declare the contract as invalid as to him. What we should
say is that “the contract cannot be enforced against him because he did not
authorize the contract unless he ratifies the defect, then that ratification will
retroact from the very beginning which will now make it enforceable against him.
As a general rule, if the contract is entered into by an agent on behalf of the principal
but without authorization from the principal, the contract is unenforceable (1403
par 1). EXCEPTION, when the contract entered into by the agent involves sale of a
parcel of land without authority of the owner of the land. Because in that situation,
the applicable law is not 1403 par 1 but art 1874 of the civil code. Art. 1874
provides that in an agency to sell a parcel of land or any interest therein, the law
requires that the authority of the agent must be in writing. Otherwise, the sale that
will be entered into by the agent over the parcel of land is declared by law to be
void. The SC applied that provision (1874) in a situation where the agent sold the
land of the owner without the knowledge and consent of the owner. The SC did not
declare the contract as unenforceable under 1403 par 1 but relied on art 1874. Yung
ang exception natin. Other than that, the contract is unenforceable. (Delos Reyes vs.
CA – involving a prodigal son who got tired of the city life and went to the province
when his father has landholdings. Upon arrival to the province, ang unang ginawa
nung prodigal son was to terminate the services of the caretaker of the land and he
assumed the administration of the land of his father. But he was not contented with
mere administration. He sold his father’s land. But the sale was not made by the son
but in the name of the son, the son sold it in the name of the father *AMEN* lol. That
is a sale on behalf of another without authorization. But, the SC applied ART 1874
and declared the sale void because that is an agency to sell a parcel of land where
the law requires the authority of the principal in writing otherwise the sale is void.)

Statute of Frauds. Idadagdag na lang natin sa statute of frauds sabi ng SC Art 1443
is also Statute of Frauds. Yung express trust over an immovable property cannot be
proven by parole evidence. SC said that is also in the nature of SoF. Aside from
unenforceable contracts enumerated in Art 1403 par 2, 1443 – express trust over an
immovable must be in writing to be proven. It cannot be proven by parole evidence.

Basic principles in SoF.

1. The requirement of formality is only for enforceability and not for validity.
Meaning, if the formalities required under SoF is not followed, the contract is still
valid but it cannot be enforced. Simply because it cannot be enforced since the
existence of the contract cannot be proven. There is only one way to prove the
existence of the contract which is by a) presenting a contract in writing OR b) in the
absence of any contract in writing, some other note or memorandum that will prove
the existence of a perfected contract – from those notes or memorandum, makikita
natin yung existence ng contract. Dapat makikita natin yung identity of the parties in
those notes/memorandum. Makikita din dapat yung object of the contract, dapat
malinaw. Pati yung cause or consideration dapat Makita. It must be certain. Dun din
sa notes/memorandum makikita yung meeting of the offer and the acceptance.
Example, si seller, kapag nag-issue siya ng resibo in accepting down payment, dun sa
resibo nilagay niya kung sino siya, kung sino yung buyer at kung magkano yung
purchase price and inadmit niya nay un yung acceptance niya for downpayment of
the purchase price and it was received and signed by him, malinaw kung ano yung
object, price and the parties and it is signed by the party charged (party charged is
the one who is denying the existence of the contract). So pag pinresent yung receipt,
it is a note proving the existence of a perfected contract of sale. It will show the
consent, object and cause or consideration. It will show who are the parties to the
contract. Other examples ay yung mga letter, correspondences. Sumulat si offeror ng
offer, in that offer definite yung object, price. Tapos sumulat si offeree accepting the
terms of the offer. Yung 2 letter na yun, notes or memoranda, proves the existence of
the perfected contract of sale. Those will be considered as compliance with the
requirement of Statute of Frauds.
2. The violation of statute of frauds is only a defense. Kanina sinabi natin na if the
requirement of the SoF is not followed, it is not invalidated since the defect of the
contract can be ratified. If ratified, then the contract becomes valid and enforceable,
therefore obligatory. So, epekto lang if the Statute of Frauds is not followed, the
contract is still valid but it cannot be enforced unless the defect is ratified. If ratified,
the contract becomes both valid and enforceable.

3. The defenses of Statute of Frauds is applicable only in a wholly executory

contracts. Wala pang performance, whether partial or complete. Kung meron nang
performance of the contract, whether it is partial or complete, hindi na pwedeng
gamiting defense are Statute of Frauds. The court will allow testimony of evidence
to prove at least yung partial performance. So kung meron nang claim for
downpayment, the defense of Statute of Frauds cannot be invoked because the court
can hear the testimony on whether there was really payment of the downpayment.
Kasi unfair naman yun kung totoong tumanggap na siya nung downpayment at hindi
natin papakinggan yung testimony niya that he already made a downpayment, we
will be using the Statute of Frauds not for the purpose of preventive fraud but for
the purpose of perpetuating a fraud. Kaya ang jurisprudence natin, applicable lang
ang depensang yan to a purely executory contract. Kapag meron nang claim that
there was already a partial performance of the contract, the court can hear the
testimony of witnesses for the purpose of proving that there was indeed partial
fulfillment.

4. The defense of Statute of Frauds can only be invoked if the action is for the
performance of the contract or for the violation of the contract. Bakit importante,
bakit dun lang? Kasi if the action is for the performance of the contract, ang kulang
mong problema is to prove that there was a contract. If the action is for violation of a
contract to recover damages because there was a breach of contract, ano ang
problema? To prove the existence of the contract. Kaya applicable yung depensang
yun in those kinds of action.

5. The defect of Statute of Frauds can be waived. If waived, the defect in the contract
is deemed ratified. How will the defect of the contract be waived? Dalawang paraan:
First, by acceptance of benefits. If benefits are accepted from the contract, that is a
waiver of the defense of statute of frauds.
Second, by failure to timely object to the presentation of oral evidence. Kaya
importante sa Statute of Frauds na dapat gising ka. Kasi dapat may timely objection.
So kung ang lawyer mo ay tulog habang nagppresent ng evidence, walang objection,
eh yung oral testimony pasok na sa records of the case. That may now be used by
the court in deciding the case. Na-waive na yung defense of statute of frauds.

6. The defense of Statute of Frauds cannot be used by third persons. For that matter,
yung unenforceability of the contract cannot be used by other persons. Available
lang yun to the parties themselves.

7. The Statute of Frauds is limited only to Art 1403 par. 2 and Art 1443.

Pinakaimportante sa Art. 1403 par 2 aside from express trust over an immovable, is
yung paragraph (e) which is sale of real property and lease of real property for a
period longer than 1 year.

In relation to real property, tatlo lang ang covered ng Statute of Frauds. 1. Sale
of Real Property, 2. Express trust over a real property, 3. Lease of real
property for a period longer than 1 year. Yung tatlong yun tandaan niyo. Any
other transaction involving a real property which is not a sale, nor a lease for longer
than 1 year, nor an express trust over a real property, hindi yan covered ng Statute
of Frauds. For example, a real estate mortgage over a real property is not covered by
the Statute of Frauds. Hindi siya sale, hindi siya express trust, hindi siya lease. Sale,
Lease for a period over than 1 year, and express trust.

Art. 1357.
Alam niyo naman yung mga contracts which require form for its validity. Meron
bang requirement na form for validity in a contract of sale? Wala. A contract of sale
is valid in any form, kahit oral valid yun. EXCEPT FOR ONE, sale of large cattle. Ano
yung large cattle? Sale of cows, sale of carabaos, horses. Yan yung large cattle. Kahit
yung anak nilang small pa, large yun. It does not depend on the size, but about
membership to the bovine family. So pag ganun may requirement for validity. The
sale must be recorded in the office of the treasurer and the treasurer shall issue a
certificate of registration. Otherwise, the ownership will not be transferred and the
sale is not valid. Yun lang yung may requirement of form for validity, sa lahat wala
na. Pag nagbenta ka ng lupa, it can be entered into orally at valid yun. A sale for a
parcel of land does not require form for validity BUT it is unenforceable because it is
covered by the Statute of Frauds but it can be ratified. If ratified, kahit na oral yun, it
becomes valid, enforceable and obligatory. Sale of house, sale of jaguar – valid in any
form. Because a jaguar is not a member of the bovine family – it is a car. So kahit
magbenta ka ng expensive car, it can be entered into orally, walang requirement ng
form.

But for enforceability, ang sale ay may required form. Sale of personal property, ang
value is at least P500 – merong required form, it must be in writing. Sale of real
property may required form under Statute of Frauds which is it has to be in writing.
Otherwise, the sale is unenforceable but can be ratified.

Bago tayo pumunta sa 1357, sa 1358 muna. There are contracts enumerated under
1358 which are also required to be in a certain form which is to be in a public
document. Example of a contract that is required to be in a public document,
contracts creating real rights like a real estate mortgage contract. A real estate
mortgage contract is a public document under 1358. But what if it is merely entered
into orally, not in a public document… is an oral real estate mortgage contract valid?
Yes, kasi walang requirement of formalities in a contract of real estate mortgage for
its validity so kahit oral, valid pa din. Is an oral real estate mortgage contract
enforceable? Sabi ng SC, 1358 is not a requirement for validity. Also, the
requirement for a contract to be in a public document is not a requirement for
enforceability. So kahit hindi nasunod yun, the contract is still enforceable and valid.
Is a real estate mortgage contract covered by Statute of Frauds? No, because in
relation to real property, tatlo lang ang covered ng Statute of Frauds, sale of real
property, lease of real property for a period of more than one year, and express trust
over real property. So ang oral real estate mortgage contract remains enforceable
dahil hindi siya covered ng Statute of Frauds. But in 2125 of the civil code, the law
requires the real estate mortgage contract to be recorded in the registry of property.
But ano ang purpose nung registration? To bind third persons. So even if it is not
recorded, it is valid and enforceable between the contracting parties. But in order to
bind 3rd persons, it must be recorded in the registry of property.

In order for the real estate mortgage to be recorded, it must be in a public

document. Ang purpose ng 1358 is neither for validity nor for enforceability but
only for the convenience of the parties. Bakit for convenience? Because in order for
that document to be registered in the registry of property, it must be in the form of a
public document. Anong purpose ng requirement of registration? In order to bind
3rd persons for the convenience of the contracting parties. So if the requirement of
public document in 1358 is not complied, the contract remains valid and
enforceable but it cannot be registered hence cannot bind 3rd persons.

May remedy ba ang contracting parties? Yes, in 1357, for those contracts
enumerated in 1358 which require a public document and the contract is not in a
public document, the parties can compel each other to reduce their contract in a
public document so that later on they will be able to register the same in the registry
of property. But in order for the remedy in 1357 to be available, the requisites must
be satisfied.
1. The contract must already be perfected;
2. That perfected contract must be valid as to form. Yung requirement na yun is in
the last sentence of 1356. Sabi sa 1356, yung remedy sa 1357 ay pwede lang gamitin
if the contract is valid as to form;
3. Pwede daw gamitin ang remedy sa 1357 if the contract is also enforceable as to
form. So kapag ang kontrata is unenforceable because of failure to comply with the
requirements of SoF, you cannot make use of the remedy under 1357. Dapat
enforceable na siya as to form. Example, nagrereview ka sa bar tapos tinawagan ka
ng pinakamayaman mong uncle, “balita ko nagrereview ka na sa bar? Ikaw magiging
kauna-unahang lawyer sa angkan. Promise, kapag pumasa ka, yung jaguar na nasa
garahe, iyo na.” Eh di ginalingan, jaguar eh. Pumasa tapos tinawagan si uncle. “Uncle,
pasado na ako. Meron nang lawyer ang pamilya, nakahanda na ba ang jaguar?” Sabi
ni uncle, “Di ka naman mabiro? Sinabi ko lang yun para ganahan ka. Ayan lawyer ka
na, makakabili ka na ng jaguar mo.” So inisip mo ngayon, can you compel your uncle
to reduce the agreement in a public document under 1357 so you may accept the
donation in writing? Pwede mo ba gamitin ang 1357? Sabi sa 1356, if the contract is
void as to form, hindi mo pwedeng gamitin ang 1357 to make it valid, dapat valid na
siya as to form. Example, dalawang magkaibigan nag-uusap, “Pare, ibebenta ko sayo
yung lupa na yan for P1M.” “Sige pare, bibilhin ko.” In short, nagkabentahan yung
magkaibigan ng parcel of land, verbal lang. Kinabukasan nagkita ulit. “O pare, eto
1M, saan na ang titulo at deed of sale?” “Pare, sineryoso mo talaga yun? Biro lang
yun eh.” So nag-isip siya, can the buyer compel the seller to reduce the oral sale of
the parcel of land in a public document under 1357? Hindi pwede. Because the
contract is a sale of a parcel of land made orally and is purely executor should be
covered by SoF and it is unenforceable as to form. Eh sabi sa 1356, bago mo
magamit ang remedy ng 1357, the contract must already be enforceable as to form.

Baguhin natin yung usapan nung magkaibigan. Humirit yung isa, “pare pwede ba
makahingi ng downpayment, kahit mga 10k lang.” Pumayag tapos inabot sa kanya
yung downpayment. Ang tanong, in this situation, can the buyer compel the seller to
reduce the oral sale over a parcel of land where there is already a downpayment of
10k in a public document? Dapat yung 3 requisites are complied. Contract must
already be perfected. Is that contract already perfected? Yes, a sale is a consensual
contract which is perfected upon the meeting of the offer and acceptance with
respect to the object and the cause. Pangalawang tanong, is the contract valid as to
form? Yes, the contract is valid as to form because in a contract of sale there is no
requirement of formality for validity except in the sale of a large cattle. So, an oral
sale over a parcel of land is a valid contract. Third question, is the contract
enforceable as to form? Yes, even if a sale of a parcel of land is covered by the SoF.
But in this situation that defense of SoF can no longer be invoked because the
contract is no longer purely executory since there was acceptance of benefits from
the contract. Therefore, the existence of the contract can now be proven through the
presentation of oral evidence. For the purpose of enforcing the contract, ang sabi ng
1357, the remedy of 1357 can be made simultaneously with the action upon the
contract. So the action for the purpose of performing the contract of sale wherein
the buyer will now be allowed to prove the existence of an oral contract of sale
because the defense of SoF can no longer be invoked. In the same action, you can
compel the seller to reduce the oral sale over the parcel of land in a public
document.

Merong isang desisyon si Perlas-Bernabe involving a real estate mortgage contract

that was entered into orally. Tanong, kapag ang real estate mortgage ay entered into
orally, umutang ka sa kumpare mo. Magkaibigan lang kayo kaya verbal lang usapan.
“Pare pahiram naman 300k.” Inabot sa’yo pero sabi “pare akin muna yung titulo ng
lupa mo” tapos binigay mo. Anong mga contracts ang pinasok niyong dalawa? Una,
loan. Pangalawa, accessory contract of real estate mortgage. Hindi yung pledge kasi
ang collateral mo ay yung lupa represented by a certificate of title. So the collateral
is an immovable property so real estate mortgage tayo but it is entered into
verbally. Magagamit mo yung remedy ng 1357 to compel the mortgagor to reduce
the oral real estate mortgage in a public document. Pangatlong tanong, is an oral
real estate mortgage agreement a perfected contract? Yes because it is consensual. It
is perfected by mere consent. Fourth, is that oral real estate mortgage agreement
valid as to form? Yes because the requirement in 1358, public documents is not
required for validity. Is an oral real estate mortgage agreement enforceable? Yes
because the requirement of public document in 1358 is also not for enforceability.
At the same time, a real estate mortgage contract is not covered by the statute of
frauds. Therefore, an oral real estate mortgage is perfected, valid, and enforceable
and the remedy under Art. 1357 is available. The creditor/mortgagee can compel
the debtor/mortgagor to reduce the oral real estate mortgage in a public document.
Pag public document na yan, he can now compel the registration of that real estate
mortgage in the registry of property in order to bind 3rd persons.