11.

Contracts with stipulation pour Autrui

 Definition: Contracts with stipulation pour autrui (French for

Stipulation for other persons) are contracts wherein there is a
stipulation which clearly and deliberately gives benefits in favor of a
third-party. He then now has the right to demand the fulfillment of the
contract, provided the third-party had communicated his acceptance of
the benefit to the debtor, before its revocation by the creditor.

 Example

 A leased a parcel of land to B for 3 years for P20, 000 a month.

They stipulated that the P20, 000 monthly payment should be
given to C, a friend of A, . C communicated his acceptance of the
benefit to B, the debtor, before A’ revocation.

 Related Cases

 Rebecca C Young et al. v. CA, et al. GR 79518, Jan 13 1989

Where the court held that the requisites of a stipulation pour

autrui are the following:

(1) there must be a stipulation in favor of a third person.

(2) the stipulation must be a part, not the whole of the contract.

(3) the contracting parties must have clearly and deliberately

conferred a favor upon a third person,not a mere incidental
benefit or interest.

(4) the third person must have communicated his acceptance to

the obligor before its revocation.

(5) neither of the contracting parties bears the legal

representation or authorization of the third party. (Florentino v.
Encarnacion, Sr., 79 SCRA 193 [1977]).
 Associated Bank v. CA & Lorenzo Sarmiento, Jr. GR 123793,
June 29, 1998

Where the court held that there must be an examination of the

intention of the parties in order to determine whether the
contract is stipulation pour autrui or merely an incidental
interest. Like in this case wherein there was a “fairest test” that
determined the intention of the parties involve.

 Uy tam v Leonard, 30 Phil, 471

Where it was held that the contract in question was merely

incidental and not a stipulation pour autrui based on the intention
of the parties involve.

 Florentino v. Encarnacion, Sr., 79 SCRA 193, 1977

Where the court held that the fruits of a certain parcel of land that
was will be use for expenses in relation with a specific religious
festivities is an example of stipulation pour autrui provided that
there is a clear stipulation found in the contract.

It was also held that a stipulation pour autrui does not need to
have a particular form. It may be inferred if the third party had
enjoyed the benefit for a considerable period.

 Poblete v Lo Singco, 44 Phil. 369

Where the court held that the acceptance of the third party to the
stipulation may either be express or implied, formal or informal.
12. Rescissible Contracts

 Definition : Rescissible Contracts are contracts wherein an action of

‘Rescission’ may commence inorder to protect one of the parties involve
or a third party against damages that the contracts may cause. The
remedy makes it as if the parties involve are at the position before the
contract was entered. There are two kinds of rescission, one being
mention in Art. 1380 of the New Civil code and the other found in Art.
1191 of the same, the former is properly speaking ‘rescission’ while the
latter should be properly called a “resolution”. Rescissible Contracts are
considered valid until rescinded.

Requisites for rescission includes the following:

(1) There must be at the beginning either a valid or voidable contract

(2) There is an economic or financial prejudice to someone

(3) There is mutual restitution

Rescissible contracts as provided by Article 1381 of the New Civil Code

provides the following:

“xxx (1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-fourth
of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot

in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
 (5) All other contracts specially declared by law to be subject to
rescission. (1291a) xxx”

The action shall only cover the extent necessary that the damages
caused, hence there are partial rescission since as mention earlier the
purpose of rescission is to cover the damage caused.

The action to claim rescission must be commenced within four years,

but in the case of guardianship and absentees the period shall not begin
for as long as there is no termination of the former’s incapacity, and the
domicile of the latter is known.

 Example

 A owed B P20, 000. A was a third party, A then gave B a deed of

sale over one of its properties as payment for the debt even
though the debt was not yet enforceable. The contract is
rescissible because it was made in a state wherein A is insolvent
and as well as the debt is not yet enforceable.

 Related Cases

 Leagarda Hermanos v Suldano L-26578, Jan 28, 1974

Where the court held that if the buyer does not continue to pay
after the payment has already exceeded the purchase price of one
of the two lots that he is paying in installment, it is not a
rescissible contract for it would result in unfairness. In this case at
bar the one of the two lots was given to the buyer.

 Marimperio v. CA GR 40234, Dec. 14, 1987

Where the court held that a charter party may be extrajudicially

rescinded on the violation of any terms and condition of the
 contract provided that there is a stipulation found in the same
that allows it.

 Mortera v Martinez 14 Phil. 541

Where the court held that a sale cannot be rescinded on a land

subject of litigation if the decision had already passed in favor of
the seller prior to the sale. Like this case in bar the sale of a piece
of land which was a subjet of a litigation was sold to another after
the case had been decided.

 Asia Bankng Corporation v. Corcuera 51 Phil. 781

Where the court held that an action of rescission may commence

under a state of insolvency as long as the demand of the debt is
not yet due, but if it is due the contract is not rescissible.

It is also held that if there is great disparity between the price and
the real value of the property, there is an indication of badges of
fraud.

 Alpuerto v. Perez Pastor and Roa 38 Phil.785

Where the court held that a sale may be rescinded if it failed to

prove that he was a purchaser in good faith. Like in the case at bar
wherein the secrecy of the sale and relation of kinship between
the parties are circumstance indicative of collusion
13. Voidable Contracts

 Definition: A voidable contract is a type of contract where it is

considered a legally binding contract until the court annuls or sets it
aside. A contract is voidable if it damages the contracting parties
however a contract may also be voidable even if there is no such
damages as provided by Art. 1390 of the New Civil code:

“xxx(1) Those where one of the parties is incapable of giving

consent to a contract;

(2) Those where the consent is vitiated by mistake, violence,

intimidation, undue influence or fraud.xxx”

The contract are also susceptible of ratification, and if they are ratified
the action to annul is extinguish and it becomes a completely valid
contract, wherein the defect that it had from the beginning is cleansed.

Generally the action for annulment shall be brought within four years.
This four year period varies on where it shall begin. In intimidation,
violence or undue influence, it is from the time the defect of the consent
ceases. In mistake or fraud, from the time of discovery, and for minors, it
is the time they reach the age of full juridical capacity.

Effects of the annulment are the following:

(1) The parties are excused of their obligation if the contract is

not yet been performed.
(2) Mutual Restitution of the thing with its fruits or the price
with interest if the contracts had already been performed.
 Examples

 A entered into a contract with B when he was 16 years of age.

 A entered agreed to sell to B a parcel of land under gunpoint.

 Related Cases
 Lopez v Jimmy Ong L-9021, May 31, 1957

Where it was held that a contract may be voidable under fraud if

the ‘ratification’ was done in a short period of time to even
warrant a validation of the contract.

 Carantes v Couty of Appeals L-33360, April 25,1977

The court held that registration in the deed of assignment is

already considered as a constructive trust, and it is where the
period of 4 years begins in cases of fraudulent contract.

 Mendoza v. De Guzman (C.A.) 39 O.G. May 27, 1941 p.1505

Where it was held that capacitated party has no right to bring an

action for annulment against incapacitated party. Like in the case
at bar even if the heirs of capacitated party sued he has still no
right to do so as his predecessors rights did not include the same.

 Development Bank v. Court of Appeals L-28774, Feb. 28, 1980

Where the court held that as an exception to the rule, A person

may exercise an action for nullity of the contract even if he is not a
person who is obliged principally or subsidiarily if he is
prejudiced in his rights with respect to one of the parties involve
and is capable of showing the detriment which could result to him
from the contract on which he had no intervention

 Labrador v De lose Santos, 66 Phil. 579

Where it was held that in an annulment of sale the price of sale

and as well as legal interest should be returned to the purchasers.

 Dumasug v Modelo, 34 Phil 252

Where the court held that purchaser must return and deliver to
seller the thing in these case two parcels of land in question with
 their fruits. The purchaser must also pay a sum for the death of
the carabao while in his possession.

14. Void Contracts

 Definition: Void contracts or Inexistent Contracts are contracts that

may not be ratified nor the right to set up defense of illegality be waived.
As a general rule it produces no effect and no declaration of them being
void is needed for it was inexistent from the beginning, but there is also
nothing wrong in the declaration of void contracts as it provides
convenience and clarity.

As provided by Art 1409 of the New Civil Code void contracts are:

“xxx (1) Those whose cause, object or purpose is contrary to law,

morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the
transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the

principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law. xxx”

The Action for declaration of inexistence of the contract does not

prescribe.

As a general rule the doctrine of pari delicto does not apply with void
contracts but exception is when the principle is invoked with respect to
inexistent contracts. If the act results in a criminal offense both parties
are in pari delicto and there shall be no available action they may use
against each other and both of them shall be prosecuted, however the
 innocent party may claim what he has given and shall not be bound to
comply with the performance. However if it does not results in a
criminal offense; If parties are in pari delicto neither of them may
recover what was given, If only one is at fault and the other is not, the
former may not recover what he has given and may not compel the
latter for the fulfillment of the performance, while the latter may
demand the return of what was given and has no obligation to do his
performance.

 Examples

 A contract of sale wherein A sells B illegal drugs.

 Related Cases

 Liguez v Lopez, 102 Phil. 577

Where the court stated that there are two kinds of void contracts.
The inexsistent ones and illegal or illicit ones. The former are those
that could not come into existence because the object may legally
be a future thing, while the latter those which are contrary to law.

 Pilipinas Shell Petroleum Corp. v De la Rosa and the

Workmen’s Compensation Commission L-41301, Dec. 15,
1986

Where it was held that contracts which are intended to exempt an

employer from all of the liability of the Workmen’s Compensation
Act is a void contract.

 Singson v Babida L-30096, Sept. 27, 1977

 Where it was held that surety bonds not signed by the principal
obligors are void contracts, because there is no principal
obligation which is the cause of such bonds.

 Tolentino v. Judge Edgardo L. Paras GR 43095, May 30 , 1983

Where it was held that it is not necessary to have a judicial decree

of invalidity if a marriage is bigamous and void.

 Mercedes Canullas v Hon. Willelmo Fortun L-57499, June 22,

1984

Where the court held that a contract of sale is a void contract if a

husband that abandoned his family sold the conjugal property to
his concubine as the act would be considered contrary to good
morals and public policy.

 Angeles, et al. v Court of Appeals, 102 Phil. 1006

Where it was held that mere lapse of time cannot give effect to
contracts that are null and void.

 Caram, Jr. v. Laureta L-28740, Feb. 24, 1981

Where it was held that the contract of sale for buyers of land who
are in bad faith are void contracts.
15. Unenforceable Contracts

 Definition: Unenforceable Contracts are those contracts which are

unenforceable unless they are ratified. They may be unauthorized
contracts, those that fail to comply with the Statute of Frauds and those
where both parties are incapable of giving consent to a contract, as
provided by Art. 1403 of the New Civil Code Unenforceable Contracts
are the following:

“xxx (1) Those entered into in the name of another person by one
who has been given no authority or legal representation, or who
has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same,
or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a

year from the making thereof;

(b) A special promise to answer for the debt, default, or

miscarriage of another;

(c) An agreement made in consideration of marriage, other than a

mutual promise to marry;
 (d) An agreement for the sale of goods, chattels or things in action,
at a price not less than five hundred pesos, unless the buyer
accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the
time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a

contract. xxx”

 Example

 A sold B’s car to C without B’s authorization

 Related Cases

 Bumanlag v. Alzate, GR 39119, Sept. 26, 1986

Where the court held that if a lawyer entered a compromise

agreement in behalf of the client without the authorization of the
latter, it is an unenforceable contract

 Basa v Raquel, 45 Phil 655

Where the court held that a contract of sale is unenforceable if it
has insufficient details being; the purchase price, description of
the property, authorized signature in behalf of the seller.
 Gerardo Cordial v. David Miranda, GR 135492, Dec. 14, 2000
Where the court held unless otherwise provided by law, a verbal
contract that is completed may not be barred by its enforceability
by the Statute of Frauds.