Definition. -“Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give something or to render some service. Article 1318 provides:
Art. 1318. There is no contract unless the following requisites concur:
(l) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.[1]
A contracting party cannot insist that the other party has breached their contract when it has stopped fulfilling its own obligations. Moreover, a third person cannot commit tortious interference with a contract when a legitimate reason exists behind their conduct.[2]
A party’s claim that their parents were duped into signing the contract is contrary to human experience and conventional wisdom since their father is a practicing lawyer while the the other party is not. It can be reasonably presumed that the former and his wife reviewed the provisions of the contract, understood and accepted its provisions before they affixed their signatures thereon.[3]
Parties who have validly executed a contract and have availed themselves of its benefits may not, to escape their contractual obligations, invoke irregularities in its execution to seek its invalidation.[4]
RELATIVITY OF CONTRACTS
“Based on the principle of relativity of contracts embodied in Article 131125 of the Civil Code, a contract can only bind the parties who had entered into it, or their successors who have assumed their personality or their juridical position; and as a consequence, such contract can neither favor nor prejudice a third person (in conformity with the axiom res inter alios acta aliis neque nocet prodest). Thus, generally, a contract cannot produce any effect whatsoever as far as third persons are concerned; and he or she, who is not a party thereto, or an assignee thereunder, has no legal capacity to challenge its validity.27 This lack of capacity on the part of third persons is apparent in voidable, unenforceable and void contracts under Articles 1397, 1408 and 1421 of the Civil Code, which provide:
ART. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. (1302a)
x x x x
ART. 1408. Unenforceable contracts cannot be assailed by third persons.
x x x x
ART. 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly affected. (n)
However, insofar as rescissible contracts are concerned, they can be attacked by a third party who is injured or defrauded since, by nature, a rescissible contract is one which is valid because it contains all of the essential requisites prescribed by law, but which is defective because of injury or damage to either of the contracting parties or to third persons.”[5]
Who may assail a contract. Assuming that this allegation was true, petitioners are not the proper parties to raise it. Article 1397 of the Civil Code provides that “persons who are capable cannot allege the incapacity of those with whom they contracted[.]”[6]
“Article 1397 of the Civil Code provides that “persons who are capable cannot allege the incapacity of those with whom they contracted[.]”68 Even if they were, they still filed the wrong action. The contracting party’s incapacity is a ground for annulment of contract, not rescission. Article 1390 of the Civil Code states.”[7]
INTEREST IN A CONTRACT
Interest refers to “material interest” not merely “incidental interest.- Being a new provision in the Civil Code, can the jurisprudence on the provision in the Spanish Civil Code, Article 1302 on action for nullity of contracts, which was modified into Article 1397 on annulment of contracts, have persuasive application in interpreting Article 1421? The Court so believes. While the operative phrase in Article 1397 is “obliged principally or subsidiarily” and its precursor, Article 1302, “principally or subsidiarily obligated,” and in Article 1421 “interests not directly affected”, there is no cogent reason to depart from the Court’s pronouncements in House International Building Tenants regarding “interest” as referring to “material interest” and not mere “incidental interest” in relation to the definition of a real party in interest under Section 2, Rule 3 of the Rules, who can assail the illegality of the contract under Article 1421. Also, the “indispensable” burden in Ibañez “to show the detriment which positively would result to [the third person/party] from the contract in which he[/she] had no intervention”39 has to be hurdled”[8]
Damage and prejudice to the good name and reputation of the plaintiffs, who are strangers to a contract, does not approximate the material interest required of a real party in interest; neither can it be considered “interest directly affected” by the Deed of Sale sought to be nullified. And, it is definitely not the interest in issue in a contract nullification suit.”[9]
IN PARE DELICTO
“To reiterate, under the void loan and mortgage contracts, the parties, being in pari delicto, cannot recover what they each has given by virtue of the contract. Neither can the parties demand performance of the contract. No remedy or affirmative relief can be afforded the parties because of their presumptive knowledge that the transaction was tainted with illegality. The courts will not aid either party to an illegal agreement and will instead leave the parties where they find them[10].(citations omitted)
A party must come to court with clean hands. – Petitioner in this case did not come to this court with clean hands. He was aware of the restrictions in his title when he executed the loan and mortgage contracts with respondent. He voluntarily executed the contracts with respondent despite this knowledge. He also availed himself of the benefits of the loan and mortgage contract. He cannot now assail the validity of the mortgage contract to escape the obligations incurred because of it[11]
CONTRACT OF SALE VS CONTRACT TO SELL
“In a contract of sale, the seller transfers the property sold to the buyer for a consideration called the price, which means ownership is transferred to the buyer upon its execution through any of the modes of delivery or tradition.
On the other hand, in a contract to sell, the seller merely “agrees to transfer” the property object of the sale to the buyer for a consideration called the price, which implies that ownership is not right away transferred to the buyer.
Pursuant to Article 1478 of the Civil Code, even if the object of the sale is delivered to the buyer upon the execution of the contract, the parties may still stipulate that the ownership in the thing shall not pass to the purchaser until he has fully paid the price. The withholding of ownership despite delivery of the object to the buyer must be expressly stipulated. Otherwise, with the delivery or tradition of the object to the buyer, ownership is acquired by the buyer. Under Article 712, ownership and other real rights over property are acquired and transmitted by tradition, in consequence of certain contracts, like sale. Specifically, in sales, Article 1496 states that: “The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501,57 or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.”
The instance wherein the transfer of ownership is withheld by the seller despite delivery of the object sold highlights the two obligations of the seller in a contract of sale under Article 1495, which provides: “The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.” To fully comply with his obligations, the seller has still to transfer the ownership of the object of the sale despite its delivery to the buyer at an earlier time if transfer of ownership has been withheld until full payment of the consideration.[12]
TORTIOUS INTERFERENCE
Tortious interference refers “to a situation where a third person induces a party to renege on or violate [their] undertaking under a contract.” “Induce” here means “a person causes another to choose one course of conduct by persuasion or intimidation.” In forbidding tortious interference, the law aims to respect the property rights of contracting parties by providing a cause of action ex delicto based on an “unlawful interference by one person of the enjoyment by the other of [their] private property.”[13] (Citations omitted)
ELEMENTS OF TORTIOUS INTERFERENCE
“(1) existence of a valid contract;
(2) knowledge on the part of the third person of the existence of contract; and
(3) interference of the third person is without legal justification or excuse.”[14]
Action for annulment of contract distinguished from declaration of nullity of contract. – An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud.By its very nature, annulment contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on all the contracting parties until annulled and set aside by a court of law. It may be ratified. An action for annulment of contract has a four-year prescriptive period.
On the other hand, an action for declaration of nullity of contract presupposes a void contract or one where all of the requisites prescribed by law for contracts are present but the cause, object or purpose is contrary to law, morals, good customs, public order or public policy, prohibited by law or declared by law to be void. Such contract as a rule produces no legal and binding effect even if it is not set aside by direct legal action. Neither may it be ratified. An action for the declaration of nullity of contract is imprescriptible.[15] (Citations omitted)
“XX. while the CA was correct in ruling in favor of Concepcion and setting aside the subject deed of extrajudicial settlement, it erred in appreciating and ruling that the case involved fraud – thus applying the four-year prescriptive period – when it should have simply held that the action for the declaration of nullity of the defective deed of extrajudicial settlement does not prescribe, under the circumstances, given that the same was a total nullity. Clearly, the issue of literacy is relevant to the extent that Concepcion was effectively deprived of her true inheritance, and not so much that she was defrauded.”[16]
[1] Bacalso v. Aca-Ac, et al, G.R. no. 172919, January 13, 2016
[2] GMA Network Inc v. Cruz-Valdez and ABS-CBN, Inc. G.R. No. 205498, May 10, 2021
[3] Catulngal, et al v. Rodriguez, G.R. No. 146839, March 23, 2011
[4] Vitug v. Abuda, G.R. No. 201264, January 11, 2016
[5] Rapid City Realty Corporation v. Cline, et. Al. G.R. No. 217148, December 7, 2021
[6] Manas v. Nicolasora, et al. G.R. No. 208845, February 3, 2020
[7] Manas v. Nicolasora, et al, G.R. No. 208845, February 3, 2020
[8] Rapid City Realty Corporation v. Cline, et. Al. G.R. No. 217148, December 7, 2021
[9] Rapid City Realty Corporation v. Cline, et. Al. G.R. No. 217148, December 7, 2021
[10] Villegas v. Rural Bank of Tanjay, Inc., G.R. No. 161407, June 5, 2009
[11] Vitug v. Abuda, G.R. No. 201264, January 11, 2016
[12] Heirs of Villza v. Aliangan, et al, G.R. no. 244667-69, December 2, 2020
[13] GMA Network Inc v. Cruz-Valdez and ABS-CBN, Inc. G.R. No. 205498, May 10, 2021
[14] GMA Network Inc v. Cruz-Valdez and ABS-CBN, Inc. G.R. No. 205498, May 10, 2021, citing So Ping Bun v. CA, 373 Phil. 532 (1999)
[15] Leonardo v. CA, et al, G.R. No. 125485, September 14, 2004
[16] Cruz, et al v. Cruz, et al, G.R. No. 211153, February 28, 2018