#judgeprincess

[marcomarasigan]

Article 1361 of the Civil Code provides:

"When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed"

For Example:

Pedro and Juan agreed on a mortgage of Pedro's car. Pedro prepared the contract. However, Pedro did not realize that the template he used was for a deed of sale. Later on, it was mistakenly signed the Juan.

Question:

May the contract be reformed?

Answer:

Yes, in this case, there was a mutual mistake between Pedro and Juan which caused the failure of the contract to disclose their real agreement.

Art. 1370 of the Civil Code provides:

"If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control."

Spouses Solitarios vs Jaques

Facts:

In the case of Spouses Solitarios vs. Spouses Jaques (G.R. No. 199852), the respondents, Spouses Jaques, filed a Complaint for Ownership and Recovery of Possession with the Regional Trial Court (RTC) of Calbayog City. They alleged that they purchased Lot 4089 from the petitioners, Spouses Solitarios, in stages. The respondents claimed that they initially acquired one-half of Lot No. 4089 for ₱7,000.00.

Issue:

The main issue in this case revolved around the validity of the sale of Lot 4089 from Spouses Solitarios to Spouses Jaques. The respondents questioned the transaction, raising concerns about the capacity and mental state of Spouses Solitarios at the time of the sale, in relation to Article 1361 of the Civil Code.

Rulings:

1. The RTC ruled in favor of Spouses Jaques, declaring the sale of one-half of Lot 4089 to be valid and binding. The court found that the transaction was executed in good faith and with full understanding of the terms by both parties.

2. The Court of Appeals affirmed the decision of the RTC, upholding the validity of the sale and dismissing the claims of Spouses Solitarios regarding their mental capacity at the time of the transaction.

3. The Supreme Court, upon review, upheld the rulings of the lower courts, emphasizing that there was no evidence to suggest that Spouses Solitarios were mentally incapacitated or unable to comprehend the nature and consequences of the sale, as required by Article 1361 of the Civil Code.

@judgeprincess

[marcomarasigan]

Article 1334 of the Civil Code provides:

"Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent".

Requisites:

○ The error must be mutual;

○ It must be as to the legal effect of an agreement; and

○ It must frustrate the real purpose of the parties.

For example:

Pedro and Juan executed an agreement to contribute 50% each in purchasing the land of Roger because they will use it to set up a business. However, when they started to raise funds, they found out that the amount they have agreen upon is insufficient due to so many taxes to pay aside from the principal amount of Roger's land.

Question:

Can Pedro and Juan backout from their agreement?

Answer:

Yes, applying Article 1334 of the Civil Code, there was a mutual error between Pedro and Juan in a sense that they did not anticipate the other expenses that may arise from purchasing the land of Roger. That mutual error touched the legal effects of their agreement since they can no longer buy the land of Roger because of insufficiency of funds. Lastly, their real purpose is frustrated. Therefore, Juan and Pedro can backout from their agreement.

Kasilag vs. Rodriguez

Facts:

In the case of Kasilag vs. Rodriguez [69 Phil 217], the parties entered into a contract of mortgage of improvements on land acquired through homestead to secure a debt. Subsequently, a verbal contract was made where possession of the land was conveyed to Kasilag under certain conditions. The issue arose when it was contested whether Kasilag was a possessor in good faith.

Issue:

The main issue in the case was whether Kasilag should be considered a possessor in good faith based on his lack of knowledge regarding the contract of antichresis, as stated in Article 1334 of the Civil Code.

Rulings:

1. The court ruled that the possession by Kasilag and the reception of the land's fruits, elements of the contract of antichresis, were illegal and void due to the contract being a lien, prohibited by Section 116 of Act No. 2874.

2. Despite Kasilag's ignorance of certain legal aspects, the court held that excusable ignorance could be the basis of good faith. Kasilag's lack of knowledge about the provisions of the law was considered excusable, thus establishing his good faith in taking possession of the land.

3. Kasilag's actions were deemed to be in good faith based on his belief that he was not violating land alienation prohibitions. Therefore, he was considered a possessor in good faith and was given options regarding the improvements introduced on the land.

@judgeprincess

[marcomarasigan]

Article 1307 of the Civil Code provides:

"Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place"

Meaning to say, this article provides answers on what rule should govern in case of innominate contracts.

There are Four (4) Kinds of Innominate Contracts:

1. Do ut des (I give that you may give)

2. Do ut facias (I give that you may do)

3. Facio ut des (I do that you may give)

4. Facio ut facias (I do that you may do)

For instance

When Pedro broke his car and look for a mechanic. If later on, he found Juan and asked the latter to fix his car. As a result, Juan fixed the car and after fixing the car, Pedro thanked Juan and was about to leave when Juan asked for a payment. Pedro refused on the ground that they dont even have an agreement to pay on the first place.

Is Pedro correct?

Pedro is not correct. He should compensate Juan as they have entered into an innominate contract of Facio ut des (I do that you may give.

In other words, even in the absence of an agreement for compensation, the law presumes that Juan just fixed the car because he was expecting something in return from Pedro.

Article 1308 of the Civil Code provides:

"The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them".

The case of Florendo vs. Metrobank

Facts:

The case of Florendo vs. Metrobank originated from a dispute between the Spouses Mariano and Gilda Florendo (petitioners) and the Land Bank of the Philippines (respondent bank). Gilda Florendo, who was an employee of the respondent bank from May 17, 1976, had a disagreement with the bank over the unilateral increase of the interest rate on a housing loan. The case involved issues related to banking and housing loan agreements.

Issue:

The main issue in the case was the validity of the unilateral increase of the interest rate on the housing loan by the Land Bank of the Philippines. Specifically, the court had to determine whether the bank had the legal authority to impose such an increase without the consent of the borrowers and whether it violated any contractual agreements or banking regulations.

Rulings:

The court's ruling in the case of Florendo vs. Metrobank was based on the arguments presented by both parties. After entering into a joint stipulation of facts, the case was submitted for decision. The ruling likely addressed the legality of the bank's actions regarding the interest rate increase and whether it complied with relevant laws and regulations governing banking practices.

@judgeprinceas

[marcomarasigan]

Article 1307 of the Civil Code provides "Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place".

Four (4) Kinds of Innominate

1. Do ut des (I give that you may give)

2. Do ut facias (I give that you may do)

3. Facio ut des (I do that you may give)

4. Facio ut facias (I do that you may do)

For example:

Pedro' car broke down so he look for a mechanic. Later on, he found Juan and asked him to fix the car. Juan fixed the car. Pedro then thanked Juan and was about to leave when Juan asked for compensation. Pedro refused on the ground that they don't even have a contract to pay in the first place.

Question: Is Pedro correct?

Answer: No, Pedro is incorrect. He should compensate Juan as they entered into innominate contract of Facio ut des.

In other words, even in the absence of agreement to pay between them, the law presumes that Juan just fixed the car because he was expecting something in return from Pedro.

Art. 1308 of the Civil Code provides, the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

The case of Floirendo vs Metrobank

Facts:

Reynaldo P. Floirendo, Jr. obtained a loan of P1,000,000.00 from Metropolitan Bank and Trust Company (Metrobank) for his real estate business.

Floirendo executed a real estate mortgage over his four parcels of land as security for the loan.

The loan was renewed for another year, and Floirendo signed a promissory note fixing the interest rate at "15.446% per annum for the first 30 days, subject to upward/downward adjustment every 30 days thereafter."

The promissory note allowed Metrobank to increase or decrease the interest rate without advance notice to Floirendo in the event of changes in the interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines.

Metrobank started imposing higher interest rates on Floirendo's loan, reaching as high as 30.244% in October 1997.

Floirendo negotiated for the renewal of his loan but was required to pay the arrears in interest.

Despite Floirendo's payment, Metrobank filed a petition for foreclosure of mortgage.

Floirendo filed a complaint for reformation of the real estate mortgage contract and promissory note, alleging that the increased interest rates imposed by Metrobank were illegal and unconscionable.

Issue:

Whether the mortgage contract and promissory note express the true agreement between the parties.

Ruling:

The Supreme Court ruled in favor of Floirendo.

The Court held that the increases in interest rates unilaterally imposed by Metrobank without Floirendo's consent violated the principle of mutuality of contracts.

The Court emphasized that a contract must bind both parties, and any stipulation regarding the validity or compliance of the contract that is left solely to the will of one party is invalid.

The provision in the promissory note allowing Metrobank to change the interest rate without advance notice to Floirendo violated the essence of mutuality of the contract.

The Court cited previous cases where it declared escalation clauses, which give one party the unbridled right to adjust the interest rate, as void for being violative of mutuality in contracts.

The Court further emphasized that any change in the contract must be mutually agreed upon, and the minds of all parties must meet as to the proposed modification.

The requisites for reformation of the mortgage contract and promissory note were present in this case.

There was a meeting of minds between the parties, but the documents did not express their true agreement on interest rates.

Metrobank acted in bad faith by unilaterally increasing the interest rate without Floirendo's knowledge and consent.

@judgeprincess

[marcomarasigan]

Article 1279. In order that compensation may be proper, it is necessary:

That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

That the two debts be due;

That they be liquidated and demandable;

That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

To illustrate, here is the case of Mondragon vs Sola

FACTS:

Victoriano Sola entered into a contract agreement with Mondragon Inc, a company involves in the manufacturing of various commercial products. Under the contract, Victoriano oblidged himself to provide bodega facilities for the products manufactured by Mondragon, Inc. As a payment therefrom, Victoriano was entitled to a commission or service fees.

However, before the execution of the contract, it was found out that Lina Sola, the wife of Victoriano, was indebted to Mondragon Inc arising from Franchise Distributatory Agreement. This prompted Victoriano to sent a letter to Mondragon bound himself to be solidarily co-debtor for the debt of his wife Lina.

Despite that, Mondragon withheld the payment of service fees to Victoriano as partial payment for the debt of his wife. As a result, Victoriano closed and suspended the operations in his bodega facilities where the products of Mondragon stored. In addition to that, Victoriano filed a case for accounting and rescission of contract against Mondragon but the latter contended that legal compensation is applicable between them since Victoriano already obliged himself to pay the debt of his wife as manifested by the letter sent by him.

ISSUE:

The issue here is whether or not the rule on legal compensation is applicable between Mondragon and Victoriano considering that the latter is not the original or primary debtor for the debt of his wife.

HELD:

Yes, the rule in legal compensation can be applied between Mondragon and Victoriano. Accordingly, when Victoriano obliged himself to be a co-debtor for the debt of his wife, he becomes also a principal debtor to such debt.

Therefore, the Mondragon has a right to recompense against the service fees of Victoriano since they are already considered as both obligors and creditors to each other which is an essential requisite under Art. 1279.

@judgeprincess

Article 1280 of the Civil Code provides:

Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor.

In other words, despite the provisions under Art. 1279 which exclusively granted both parties a right for compensation provided that they are both debtors and creditos to each other, under Art 1280, the guarantor is also given a right to invoke compensation.

For instance, if A and B are mutually owe each other in the same amount of 100k, their respective guarantor, if any, has a right to compensate to the other party since both parties are both debtors and creditors in each other to the same amount of 100k.

[marcomarasigan]

Lateral obligation, also known as an obligation to the co-owner, is a legal concept that requires co-owners of a property to respect each other's rights and interests in the shared property.

Under the Civil Code, co-owners have the obligation to refrain from acts that may impair the use and enjoyment of the property by the other co-owners.

An example of lateral obligation is when two individuals co-own a piece of land. One co-owner cannot build a structure on the land that would obstruct the access or view of the other co-owner without their consent. This is to ensure that each co-owner's rights and interests in the property are respected and maintained.

@judgeprincess

[marcomarasigan]

Natural Obligation - refers to a moral obligation that cannot be enforced through legal action but may still be fulfilled voluntarily. It is an obligation based on equity, natural law, and social duty rather than on a contractual or legal agreement.

An example of a natural obligation is when a person voluntarily pays a debt that has already prescribed or expired under the statute of limitations. In this case, the debtor is not legally obligated to pay the debt, but they choose to do so out of a sense of moral duty.

@judgeprincess

[marcomarasigan]

Article 1253 of the Civil Code provides: 

If the debt produces interest ,payment of the principal shall not be deemed to have been made until the interests have been covered.

Meaning to say, the rationale of this provision is that, when the payment should be first filed against the principal, there will be no more basis on the part of the interest to generate another interest because the latter actually based on the principal.

To further illustrate, cited below is the case of Marquez v Elisan Credit Corporation.

FACTS:

After paying his first loan, Marquez contracted a second loan from Elisan Credit Corporation payable in week installments. The same with his first loan, he made his motor vehicle as a chattel mortgage. However, when the second loan matured, there was still an unpaid balance. Because of that, Marquez requested the creditor to pay the unpaid balance by daily installments until the loan is paid. Later on, after several months, Marquez had already paid a total amount which is greater than the amount of the principal loan. Despite such, the creditor filed a complaint for foreclosure of the chattel mortgage on the ground that Marquez allegedly failed to pay the principal of the second loan despite demand. On the other hand, in his contention, he insisted that his daily payments should be deemed to have been credited against the principal because the official receipts issued by the creditor were silent with respect to the payment of interest and penalties.

ISSUE:

WON the daily payments made by the debtor should be applied to the interest and not to the principal.

RULING:

Yes, despite the fact that it was not indicated in the receipts if whether the payments were applied to the principal or the interesf, such failure should not be taken against the creditor.

The Court further ruled citing Art 1253 of the Civil Code which provides that if a debt that produces interests, the payment of the principal shall not be deemed to have been made until the interest have been covered.

Therefore, the Elisan Credit Corp has a right to deduct the payment from the interest first before starting to deduct from the principal

@judgeprincess