obligations & contract.sdg.doc

7/24/2019 Obligations & Contract.SDG.doc

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BLIGATI NS AND C NTRACTS

For the Exclusive Use of SHARMEN D. GALLENERO

Acceleration ClauseAn acceleration clause is a stipulation statin that! on the occasion of

the "ortaors# $efault! the %hole su" re"ainin unpai$ auto"aticall&'eco"es $ue an$ pa&a'le. (Luzon Development Bank v. Benedicto C.Conquilla,GR No. )*+++,! Septe"'er -)! -/0Agency

1n a contract of aenc&! one 'in$s oneself to ren$er so"e service or to$o so"ethin in representation or on 'ehalf of another! %ith the latter#sconsent or authorit&. 2he follo%in are the ele"ents of aenc&3 ()0 theparties# consent! express or i"plie$! to esta'lish the relationship4 (-0 theobject, %hich is the execution of a 5uri$ical act in relation to a thir$ person4 (+0

the representation, '& %hich the one %ho acts as an aent $oes so! not foroneself! 'ut as a representative4 (60 the limitation that the aent acts %ithinthe scope of his or her authorit&. As the 'asis of aenc& is representation!there "ust 'e! on the part of the principal! an actual intention to appoint! anintention naturall& infera'le fro" the principal#s %or$s or actions. 1n the sa"e"anner! there "ust 'e an intention on the part of the aent to accept theappoint"ent an$ act upon it. A'sent such "utual intent! there is enerall& noaenc&. (Maria Tuazon v. Heirs of amos,GR No. )/*-*-! 7ul& )6! -/0

2he $eclarations of aents aloneare enerall& insufficient to esta'lish

the fact or extent of their authorit&. 2he la% "a8es no presu"ption of aenc&4provin its existence! nature an$ extent is incu"'ent upon the person alleinit. (Maria Tuazon v. Heirs of amos,GR No. )/*-*-! 7ul& )6! -/0

2he rule is that the principal is responsi'le for the acts of the aent!$one %ithin the scope of his authorit&! an$ shoul$ 'ear the $a"ae cause$ tothir$ persons. On the other han$! the aent %ho excee$s his authorit& ispersonall& lia'le for the $a"aes. (!leasantville Development v. Court of

"ppeals,GR No. 9:*,,! Fe'ruar& )! )::*0

Assignment of CreditAn assin"ent of cre$it is an aree"ent '& virtue of %hich the o%ner of

a cre$it (8no%n as the assinor0! '& a leal cause ;; such as sale! $ation inpa&"ent! exchane or $onation ;; and #it$out t$e need of t$e debtor%sconsent, transfers that cre$it an$ its accessor& rihts to another (8no%n asthe assinee0! %ho ac


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2he riht of rescission of a part& to an o'liation un$er Article )):) ofthe >ivil >o$e is pre$icate$ on a 'reach of faith '& the other part& %hoviolates the reciprocit& 'et%een the". 2he 'reach conte"plate$ in the sai$provision is the o'lior#s failure to co"pl& %ith an existin o'liation. ?henthe o'lior cannot co"pl& %ith %hat is incu"'ent upon it! the o'liee "a&

see8 rescission an$! in the a'sence of an& 5ust cause for the court to$eter"ine the perio$ of co"pliance! the court shall $ecree the rescission.(+pouses elarde v. Court of "ppeals,GR No. ),+6*! 7ul& ))! -)0Brokerage

Since a 'ro8erae relationship is essentiall& a contract for thee"plo&"ent of an aent! principles of contract la% also overn the 'ro8er;principal relationship. ("bacus +ecurities v. uben -. "mpil,GR No. )*)*!Fe'ruar& -9! -*0

1n securities tra$in! the 'ro8ers are essentiall& the counterparties tothe stoc8 transactions at the Exchane. Since the principals of the 'ro8er areenerall& un$isclose$! the 'ro8er is personall& lia'le for the contracts thus"a$e. ("bacus +ecurities v. uben -. "mpil,GR No. )*)*! Fe'ruar& -9!-*0Conditional Obligation

>on$ition has 'een $efine$ as @ever& future an$ uncertain event upon%hich an o'liation or provision is "a$e to $epen$. 1t is a future an$uncertain event upon %hich the ac


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constitute a li"itation of action. (&ederal 'press v. "merican Home "ssurance,GR No. )/:6! Auust ),! -60Consignation

>onsination is "a$e '& $epositin the proper a"ount to the 5u$icial

authorit&! 'efore %ho" the ten$er of pa&"ent an$ the announce"ent of theconsination shall 'e prove$. (M(rna amos v. +usana +. +arao, GR No.)6:9/*! Fe'ruar& ))! -/0Contract of Adhesion

2he aree"ent involve$ here is a @contract of a$hesion! %hich %asprepare$ entirel& '& one part& an$ offere$ to the other on a @ta8e it or leave it'asis. Follo%in the eneral rule! the contract "ust 'e rea$ aainst the part&that prepare$ it! "ore so 'ecause a 'an8 is hel$ to hih stan$ar$s of care inthe con$uct of its 'usiness. (+olidbank v. Mindanao &erroallo(, GR No.

)/+/+/! 7ul& -,! -/4 ictorino +avellano v. 0ort$#est "irlines, GR No.)/)9,+! 7ul& ,! -+4 !ilipinas +$ell v. *o$n Bordman Ltd., GR No. )/:,+)!Octo'er )6! -/0Contracts; Definition

A contract is a "eetin of "in$s 'et%een t%o persons! %here'& one is'oun$ to ive so"ethin or to ren$er so"e service to the other. ("rc$ipela)oMana)ement v. Court of "ppeals, GR No. )-,,/! Nove"'er -! )::,4 +ta.Clara Homeo#ners v. +pouses /aston, GR No. )6):*)! 7anuar& -+! --0

>ontracts have the force of la% 'et%een the contractin parties %ho "a&esta'lish such stipulations! clauses! ter"s an$ con$itions as the& "a& %ant!su'5ect onl& to the li"itation that their aree"ents are not contrar& to la%!"orals! custo"s! pu'lic polic& or pu'lic or$er. (+olid Homes v. Court of

"ppeals, GR No. ))9/)! 7ul& ,! )::90Contracts; Interpretation

?hen the %or$s of a contract are clear an$ rea$il& un$erstan$a'le!there is no roo" for construction. >ontracts are to 'e interprete$ accor$in totheir literal "eanin an$ shoul$ not 'e interprete$ 'e&on$ their o'viousinten$"ent. 2he contract is the la% 'et%een the parties. (Heirs of t$e Late+pouses Balite v. odri)o 0. Lim,GR No. )/-)*,! Dece"'er )! -64!r(ce Corporation v. !$ilippine "musement and /amin) Corporation,GR No.)/96,! Ma& *! -/0

1n $eter"inin the nature of a contract! the >ourt loo8s at the intent ofthe parties an$ not at the no"enclature use$ to $escri'e it. ivotal to$eci$in this issue is the true ai" an$ purpose of the contractin parties assho%n '& the ter"inolo& use$ in the covenant! as %ell as @'& their con$uct!%or$s! actions an$ $ee$s prior to! $urin an$ i""e$iatel& after the executinthe aree"ent. 1n this rear$! parole evi$ence 'eco"es a$"issi'le to prove

the true intent an$ aree"ent of the parties. 1Lao v. Court of "ppeals2 GR No.))/+9! 7ul& ,! )::94 'dilberto Cruz v. Bancom &inance Corporation! GR No.)699,,! March ):! --4 amon amos v. Heirs of amos +r., GR No.)6,6,! April -/! --4 M(rna amos v. +usana +. +arao, GR No. )6:9/*!Fe'ruar& ))! -/0


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?hen the text of a contract is explicit an$ leaves no $ou't as to itsintention! the court "a& not rea$ into it an& intention that %oul$ contra$ict itsplain i"port. 2he horn'oo8 rule on interpretation of contracts ives pri"ac& tothe intention of the parties! %hich is the la% a"on the". Ulti"atel&! theirintention is to 'e $eciphere$ not fro" the unilateral post factoassertions of

one of the parties! 'ut fro" the lanuae use$ in the contract. An$ %hen theter"s of the aree"ent! as expresse$ in such lanuae! are clear! the& are to'e un$erstoo$ literall&! 5ust as the& appear on the face of the contract.

1n$ee$! the leal effects of a contract are $eter"ine$ '& extractin theintention of the parties fro" the lanuae the& use$ an$ fro" theirconte"poraneous an$ su'se


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(L4L La#rence &oot#ear v. !C3 Leasin), GR No. )*/+)! Auust +! -/4&idela del Castillo v. +pouses 0a)uiat, GR No. )+9::! Dece"'er ))! -+43nternational &inance Corporation v. 3mperial Tetile Mills, GR No. )*+-6!Nove"'er )/! -/0

2he la% is clear that %hen its ter"s have 'een re$uce$ to %ritin! anaree"ent "ust 'e presu"e$ to contain all the ter"s aree$ upon4 an$ therecan 'e! 'et%een the parties an$ their successors in interest! no evi$ence ofsuch ter"s other than the contents of the %ritten aree"ent. ("polonia Ll.5campo v. &idela Ll. 5campo, GR No. )/99! April )6! -60

arties are free to enter into an& contractual stipulation! provi$e$ it isnot illeal or contrar& to pu'lic "orals. ?hen such aree"ent! freel& an$voluntaril& entere$ into! turns out to 'e $isa$vantaeous to a part&! the courtscannot rescue it %ithout crossin the constitutional riht to contract. 2he& are

not authorie$ to extricate parties fro" the necessar& conse


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purchase! the finance co"pan& then leases the e


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Frau$ refers to all 8in$s of $eception ;; %hether throuh insi$ious

"achination! "anipulation! conceal"ent or "isrepresentation ;; that %oul$lea$ an or$inaril& pru$ent person into error after ta8in the circu"stances intoaccount. Nee$less to sa&! the $eceit e"plo&e$ "ust 'e serious. (+olidbank v.

Mindanao &erroallo(, GR No. )/+/+/! 7ul& -,! -/0

Frau$ is present %hen the $e'tor 8no%s that its actions %oul$ causein5ur&. (Coastal !acific Tradin) v. +out$ern ollin) Mills,GR No. )),*:-! 7ul&-,! -*0&ood Faith

Goo$ faith is a ivil >o$e! %hich provi$es that o'liations areenerall& consi$ere$ 5oint! except %hen other%ise expressl& state$ or %hen thela% or the nature of the o'liation re


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or shoul$ have 'een $one earlier. 1t is nelience or o"ission to assert ariht %ithin an unreasona'le ti"e! %arrantin the presu"ption that the part&entitle$ to assert it has either a'an$one$ or $ecline$ to assert it. 2he


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slu"'er on their rihts. (Desamparados M. +oliva v. 3ntestate 'state ofillalba,GR No. )/6)9! Dece"'er ,! -+0

1n several $ecisions! this >ourt has hel$ that laches %ill 'ar recover& ofa propert&! even if the "o$e of transfer use$ '& an allee$ "e"'er of a

cultural "inorit& lac8s executive approval. (Catalina *andoc6/atdula v. *ulioDimalanta,GR No. )+:/+! 7ul& -/! -*0$ease

A stipulation in a lease contract statin that its five;&ear ter" is su'5ectto @an option to rene% shall 'e interprete$ to 'e reciprocal in character.Unless the lanuae sho%s an intent to allo% the lessee to exercise itunilaterall&! such option shall 'e $ee"e$ to 'enefit 'oth the lessor an$ thelessee %ho "ust 'oth consent to the extension or rene%al! as %ell as to itsspecific ter"s an$ con$itions. (LL and Compan( v. Huan) C$ao C$un! GR

No. )6-+9,! March 9! --0

1n eneral! the po%er of the courts to fix a loner ter" for a lease is$iscretionar&. Such po%er is to 'e exercise$ onl& in accor$ance %ith theparticular circu"stances of a case3 a loner ter" to 'e rante$ %here eivil >o$e exclu$escases fallin un$er Article )*9+ fro" those un$er Article )*,9. Article )*9+provi$es! a"on others! that the lessor "a& 5u$iciall& e5ect the lessee upon

the expiration of @the perio$ aree$ upon or that %hich is fixe$ for the $urationof the leases. ?here no perio$ has 'een fixe$ '& the parties! the courts!pursuant to Article )*,9! have the potestative authorit& to set a loner perio$of lease. (LL and Compan( v. Huan) C$ao C$un! GR No. )6-+9,! March 9!--0

2he extension of a lease contract "ust 'e "a$e 'efore the ter" of thearee"ent expires! not after. Upon the lapse of the stipulate$ perio$! courtscannot 'elate$l& exten$ or "a8e a ne% lease for the parties! even on the'asis of e


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>o$e provi$es that @the lessee shall return the thin lease$! upon theter"ination of the lease! 5ust as he receive$ it! save %hat has 'een lost ori"paire$ '& the lapse of ti"e! or '& or$inar& %ear an$ tear! or fro" aninevita'le cause. (Minde esources v. 'p$raim Morillo,GR No. )+,)-+!March )-! --0

$ease; Assignment

2he assin"ent of a lease '& the lessee involves a transfer of rihtsan$ o'liations pertainin to the contract4 hence! the consent of the lessor isnecessar&. Article )*6: of the >ivil >o$e is explicit.

2he o'5ective of the la% in prohi'itin the assin"ent of the lease%ithout the lessor#s consent is to protect the o%ner or lessor of the lease$propert&. 1n the case of cession or assin"ent of lease rihts on realpropert&! there is a novation '& the su'stitution of the person of one of the

parties ;; the lessee. 2he personalit& of the lessee! %ho $issociates fro" thelease! $isappears4 onl& t%o persons re"ain in the 5uri$ical relation ;; thelessor an$ the assinee %ho is converte$ into the ne% lessee. (*osie /oTamio v. 'ncarnacion Ticson,GR No. )/6,:/! Nove"'er ),! -60$ease; $essor)s "itle

2he relation of lessor an$ lessee $oes not $epen$ on the for"er#s title'ut on the aree"ent 'et%een the parties! follo%e$ '& the possession of thepre"ises '& the lessee un$er such aree"ent.As lon as the latter re"ainsin un$istur'e$ possession! it is i""aterial %hether the lessor has a vali$ title

;; or an& title at all ;; at the ti"e the relationship %as entere$ into. =et%eenthe present parties! the lease ;; %hich %as actuall& a su'lease ;; %aseffective. An$ respon$ent ha$ a colora'le riht to lease the pre"ises '&virtue of the assin"ent even if! as aainst the o%ner! 'oth the assin"entan$ the su'lease %ere ineffectual. (*osie /o Tamio v. 'ncarnacion Ticson,GR No. )/6,:/! Nove"'er ),! -60*isrepresentation

2he act of the >o""ission on Hiher E$ucation en5oinin petitionerfro" usin the %or$ @universit& in its corporate na"e an$ or$erin it to revertto its authorie$ na"e $oes not violate its proprietar& rihts or constituteirrepara'le $a"ae to the school. 1n$ee$! petitioner has no veste$ riht to"isrepresent itself to the pu'lic. An in5unction is a re"e$& in eivil >o$e provi$es that an essential re


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Article -)-* of the >ivil >o$e $escri'es the real nature of a "ortae3 itis a real riht follo%in the propert&! such that in su'se


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Loss 'rouht a'out '& the concurrent nelience of t%o persons shall'e 'orne '& the one %ho %as in the i""e$iate! pri"ar& an$ overri$inposition to prevent it. 1n the present case! the "ortaee ;; %ho is enae$ inthe 'usiness of len$in "one& secure$ '& real estate "ortaes ;; coul$have easil& avoi$e$ the loss '& si"pl& exercisin $ue $ilience in

ascertainin the i$entit& of the i"postor %ho clai"e$ to 'e the reistere$o%ner of the propert& "ortae$. (/uillermo "driano v. omulo !an)ilinan,GR No. )+969)! 7anuar& )*! --0+o%ation

?e have rule$ previousl& that there are onl& t%o %a&s to effect novationan$ there'& extinuish an o'liation. First! novation "ust 'e explicitl& state$an$ $eclare$ in une


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+0 2he ol$ contract "ust 'e extinuishe$.60 2here "ust 'e a vali$ ne% contract.

Novation "a& also 'e express or i"plie$. 1t is express %hen the ne%o'liation $eclares in une


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principal o'liation. (!r(ce Corporation v. !$ilippine "musement and /amin)Corporation,GR No. )/96,! Ma& *! -/0,ari Delicto

2he principle of in pari delicto provi$es that %hen t%o parties are

e


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,ayment2rue! 5urispru$ence hol$s that! in eneral! a chec8 $oes not constitute

leal ten$er! an$ that a cre$itor "a& vali$l& refuse it. 1t "ust 'e e"phasie$!ho%ever! that this $ictu" $oes not prevent a cre$itor fro" acceptin a chec8as pa&"ent. 1n other %or$s! the cre$itor has the option an$ the $iscretion of

refusin or acceptin it. (&ar 'ast Bank v. Diaz ealt(, GR No. )+,/,,!Auust -+! -)0

artial pa&"ent $i$ not extinuish the o'liation. 2he >ivil >o$e statesthat a $e't is not pai$ @unless the thin in %hich the o'liation consists has'een completel($elivere$. =esi$es! a late partial pa&"ent coul$ not havepossi'l& forestalled a lon)6epired maturit( date. (+ele)na Mana)ement v.-nited Coconut !lanters Bank,GR No. )*/**-! Ma& +! -*0

?hen cre$itors receive partial pa&"ent! the& are not ipso facto $ee"e$

to have a'an$one$ their prior $e"an$ for full pa&"ent. (+ele)naMana)ement v. -nited Coconut !lanters Bank,GR No. )*/**-! Ma& +! -*0

Nonpa&"ent of the full consi$eration $i$ not invali$ate the contract ofsale. Un$er settle$ $octrine! nonpa&"ent is a resolutor& con$ition thatextinuishes the transaction existin for a ti"e an$ $ischares the o'liationscreate$ thereun$er. 2he re"e$& of the unpai$ seller is to sue for collection or!in case of a su'stantial 'reach! to rescin$ the contract. (Desamparados M.+oliva v. 3ntestate 'state of illalba,GR No. )/6)9! Dece"'er ,! -+4&idela del Castillo v. +pouses 0a)uiat, GR No. )+9::! Dece"'er ))! -+0

,enalty2he


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the lapse of ti"e. 1t %as $esine$ to pro"ote 5ustice '& preventin surprisesthrouh the revival of clai"s that have 'een allo%e$ to slu"'er until relevantproofs are lost! "e"ories fa$e$! an$ %itnesses no loner availa'le.>onsistent %ith la% an$ 5urispru$ence an$ the purpose of statutes ofli"itations! the prohi'ition on for"er overn"ent attorne&s fro" involve"ent

in "atters in %hich the& too8 part lon ao! pursuant to their official functions%hile in pu'lic service! shoul$ li8e%ise have an expir& or $uration. (SeparateOpinion in !C// v. +andi)anba(an,GR No. )/),:;)-! April )-! -/0

Actions 'ase$ upon a %ritten contract shoul$ 'e 'rouht %ithin ten&ears fro" the ti"e the riht of action accrues. (!ilipinas +$ell v. *o$nBordman Ltd., GR No. )/:,+)! Octo'er )6! -/0

Actions for the annul"ent of contracts prescri'e in four &ears. 1f theroun$ for annul"ent is vitiation of consent '& inti"i$ation! the four;&ear

perio$ starts fro" the ti"e such $efect ceases. 2he runnin of thisprescriptive perio$ cannot 'e interrupte$ '& an extra5u$icial $e"an$ "a$e '&the part& %hose consent %as vitiate$. 1f the facts $e"onstratin the lapse ofthe prescriptive perio$ are apparent fro" the recor$s! the co"plaint shoul$ 'e$is"isse$. (9illiam "lain Miail$e v. Court of "ppeals,GR No. ),::)! March-! -)0

rescription of the action is %ithout pre5u$ice to ac


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Relati%ity ,rinciple

A fun$a"ental rule in contracts is the principle of relativit& e"'o$ie$ inArticle )+)) of the >ivil >o$e.

1n consonance %ith the axio" @res inter alios acta aliis neque nocetprodest,a contract can onl& o'liate the parties %ho ha$ entere$ into it! ortheir successors %ho assu"e$ their personalities or 5uri$ical positions! an$that! conco"itantl&! a contract can neither favor nor pre5u$ice thir$ persons!althouh! in so"e %a&s! such persons "a& 'e affecte$ in var&in $erees.2hus! in contracts creatin real rihts! thir$ persons %ho co"e intopossession of the o'5ect of the contract "a& 'e 'oun$ there'& un$er theprovisions of "ortae la%s an$ lan$ reistration la%s. >re$itors areprotecte$ in cases of contracts inten$e$ to $efrau$ the". "ccion directa isallo%e$ '& la% in certain cases. An& thir$ person %ho in$uces another to

violate his contract can 'e "a$e lia'le for $a"aes to the other contractinpart&. Exceptionall&! contracts "a& confer 'enefits to a thir$ person or %hatare other%ise also 8no%n as @stipulation pour autrui. =ut that shoul$ 'e 5usta'out all. (+ps. La)andaon v. Court of "ppeals, GR Nos. )-/-*;+)! Ma& -)!)::,0Rescission

Rescission creates the o'liation to return the o'5ect of the contract. 1tcan 'e carrie$ out onl& %hen the one %ho $e"an$s rescission can return%hatever he "a& 'e o'lie$ to restore. 2o rescin$ is to $eclare a contract

voi$ at its inception an$ to put an en$ to it as thouh it never %as. 1t is not"erel& to ter"inate it an$ release the parties fro" further o'liations to eachother! 'ut to a'roate it fro" the 'einnin an$ restore the parties to theirrelative positions as if no contract has 'een "a$e. (+pouses elardev. Courtof "ppeals,GR No. ),+6*! 7ul& ))! -)4 epublic v. *err( . David, GR No.)//*+6! Auust )*! -60

Rescission has li8e%ise 'een $efine$ as the @un"a8in of a contract! orits undoin) from t$e be)innin), and not merel( its termination. escission"a& 'e effecte$ '& 'oth parties '& "utual aree"ent4 or unilaterall& '& one ofthe" $eclarin a rescission of contract %ithout the consent of the other! if aleall& sufficient roun$ exists or if a $ecree of rescission is applie$ for 'eforethe courts. (!r(ce Corporation v. !$ilippine "musement and /amin)Corporation,GR No. )/96,! Ma& *! -/0

Ele"entar& is the principle that the vali$it& of a contract $oes notpreclu$e its rescission. Un$er Articles )+, an$ )+,) (+0 of the >ivil >o$e!contracts that are other%ise vali$ 'et%een the contractin parties "a&nonetheless 'e su'se


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(Coastal !acific Tradin) v. +out$ern ollin) Mills,GR No. )),*:-! 7ul& -,!-*0

Rescission %ill not 'e per"itte$ for a sliht or casual 'reach of acontract! 'ut onl& for such 'reaches as are so su'stantial an$ fun$a"ental as

to $efeat the o'5ect of the parties in enterin into the aree"ent.(Multinational illa)e Homeo#ners "ssociation v. "ra +ecurit(, GR No. )/6,/-!Octo'er -)! -64 !$ilippine 0ational Construction Corporation v. MarsConstruction 'nterprises, GR No. )++::! Fe'ruar& )/! -4 &idela delCastillo v. +pouses 0a)uiat, GR No. )+9::! Dece"'er ))! -+4 epublic v.*err( . David, GR No. )//*+6! Auust )*! -60!imulated Contracts

Si"ulation occurs %hen an apparent contract is a $eclaration of afictitious %ill! $eli'eratel& "a$e '& aree"ent of the parties! in or$er to

pro$uce! for the purpose of $eception! the appearance of a 5uri$ical act %hich$oes not exist or is $ifferent fro" that %hich %as reall& execute$. (icenteillaflor v. Court of "ppeals, GR No. :/*:6! Octo'er :! )::90

Article )+6/ of the >ivil >o$e provi$es that the si"ulation of a contract"a& either 'e a'solute or relative. 1n a'solute si"ulation! there is a colora'lecontract 'ut %ithout an& su'stance! 'ecause the parties have no intention to'e 'oun$ '& it. An a'solutel& si"ulate$ contract is voi$! an$ the parties "a&recover fro" each other %hat the& "a& have iven un$er the @contract.On the other han$! if the parties state a false cause in the contract to conceal

their real aree"ent! such a contract is relativel& si"ulate$. Here! the parties#real aree"ent 'in$s the". (Heirs of +pouses Balite v. odri)o 0. Lim,GRNo. )/-)*,! Dece"'er )! -60

?hen Bthe parties to a contractC have no intention to 'e 'oun$ at all! thepurporte$ contract is a'solutel& si"ulate$ an$ voi$. ?hen the& conceal theirtrue aree"ent! it is not co"pletel& voi$ an$ the& are 'oun$ to their realaree"ent! provi$e$ it is not pre5u$icial to a thir$ person an$ is not inten$e$for an& purpose that is contrar& to la%! "orals! oo$ custo"s! pu'lic or$er orpu'lic polic&. A $ul& execute$ contract carries %ith it the presu"ption ofvali$it&. 2he part& %ho i"puns its reularit& has the 'ur$en of provin itssi"ulation. (amon amos v. Heirs of amos +r.,GR No. )6,6,! April -/!--4"lfonso D. 8amora v. Court of "ppeals,GR No. )-//9! 7ul& +! )::*0

Si"ulation ta8es place %hen the parties $o not reall& %ant the contractthe& have execute$ to pro$uce the leal effects expresse$ '& its %or$ins.Si"ulation or vices of $eclaration "a& 'e either a'solute or relative. Article)+6/ of the >ivil >o$e $istinuishes an a'solute si"ulation fro" a relativeone %hile Article )+6* $iscusses their effects ('dilberto Cruz v. Bancom&inance Corporation! GR No. )699,,! March ):! --0

?here the essential re


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2he 'ur$en of provin the allee$ si"ulation of a contract falls on those%ho i"pun its reularit& an$ vali$it&. A failure to $ischare this $ut& %illresult in the uphol$in of the contract. 2he pri"ar& consi$eration in$eter"inin %hether a contract is si"ulate$ is the intention of the parties as"anifeste$ '& the express ter"s of the aree"ent itself! as %ell as the

conte"poraneous an$ su'se


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A suret&ship is "erel& an accessor& or a collateral to a principalo'liation. Althouh a suret& contract is secon$ar& to the principal o'liation!the lia'ilit& of the suret& is $irect! pri"ar& an$ a'solute4 or e


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the consination of the su" $ue. (M(rna amos v. +usana +. +arao,GR No.)6:9/*! Fe'ruar& ))! -/0

For a vali$ ten$er of pa&"ent! it is necessar& that there 'e a fusion ofintent! a'ilit& an$ capa'ilit& to "a8e oo$ such offer! %hich "ust 'e a'solute

an$ "ust cover the a"ount $ue. 2houh a chec8 is not leal ten$er! an$ acre$itor "a& vali$l& refuse to accept it if ten$ere$ as pa&"ent! one %ho in factaccepte$ a full& fun$e$ chec8 after the $e'tor#s "anifestation that it ha$ 'eeniven to settle an o'liation is estoppe$ fro" later on $enouncin the efficac&of such ten$er of pa&"ent. (&ar 'ast Bank v. Diaz ealt(,GR No. )+,/,,!

Auust -+! -)0"ermination of Contract

1n leal conte"plation! the terminationof a contract is not e


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2here are reconie$ exceptions to the esta'lish"ent of an i"plie$resultin trust. 2he first is state$ in the last part of Article )66, itself. 2hus!%here A pa&s the purchase "one& an$ title is conve&e$ '& a'solute $ee$ to

A#s chil$ or to a person to %ho" A stan$s in loco parentis an$ %ho "a8es noexpress pro"ise! a trust $oes not result! the presu"ption 'ein that a ift %as

inten$e$. Another exception is! of course! that in %hich an actual contrar&intention is prove$. Also %here the purchase is "a$e in violation of anexistin statute an$ in evasion of its express provision! no trust can result infavor of the part& %ho is uilt& of the frau$. (odolfo Ti)no v. Court of

"ppeals, GR No. ))))/! Octo'er ,! )::90

A trust is the riht! enforcea'le solel& in e


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2he i"prescripti'ilit& of an action to annul a contract $oes not "ean thatthe present respon$ents are perpetuall& allo%e$ to recover the propert&!the su'5ect of the voi$ contract. 2he& "a& file the action to annul! 'ut theirriht to recover 'ase$ on o%nership is continent on the pre"ise that the&

still o%n the propert&. O%nership "a& have 'een lost in the interval $urin%hich the& re"aine$ inactive. For this reason! the >ourt constantl&re"in$s parties to re"ain viilant over their rihts. (Delfina da. dei)onan v. 8oroaster Derec$o,GR No. )/:/9)! 7ul& )/! -/0

2oidable Contracts

Althouh allee$l& voi$a'le! Bthe >ontract of SaleC is 'in$in unlessannulle$ '& a proper action in court. Not 'ein a $eter"inate con$uct thatcan 'e extra5u$icall& $e"an$e$! it cannot 'e consi$ere$ as an o'liationeither. Since Article )+: of the >ivil >o$e states that voi$a'le @contracts are

'in$in! unless the& are annulle$ '& a proper action in court! it is clear thatthe $efen$ants %ere not o'liate$ to acce$e to an& extra5u$icial $e"an$ toannul the >ontract of Sale. (9illiam "lain Miail$e v. Court of "ppeals,GR No.),::)! March -! -)0

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