Art. 1340

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n)

The article refers to the usual exaggerations in trade which are not fraudulent by themselves when the party has the opportunity to investigate and know the true facts.

The exaggerations are also known as “dealer’s talk” or “traders talk” or “dolus bonus” which constitute tolerated fraud as long as the other party has the opportunity to check and know the facts.

What tolerated fraud covers. Tolerated fraud or dealer’s talk usually refers to the misrepresentation of traders tending to minimize the perceived defects of the thing or service advertised for sale; exaggerations or magnifications of its qualities, and its establishment with qualities that it does not possess.

Dealer’s talks do not give rise to actions for damages because of their insignificance or because it is the credulousness or stupidity of the victim which is real cause of his loss.

When there is a written contract, what does not appear on the face of the contract should be regarded as trader’s talk. Hence, the need to remember always the maxim “caveat emptor”.

Caveat emptor – the buyer has the duty to check the title of the seller over the property plus other circumstances necessary for his own protection. Otherwise he would be buying the property at his own risk.

Art. 1332

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n)

Rationale behind the article. The code commission found it necessary to incorporate the article into the code because of its belief there is still a fairly large number of illiterates in the country, and documents are ordinarily drawn in English or Spanish.

In the law of evidence, it is presumed that “a person intends the ordinary consequences of his voluntary act; or a person makes ordinary care of his concerns”.

No contract shall arise unless its acceptance is communicated to the offeror.

The presumption does not apply in the following cases:

a.    

When one of the contracting parties is unable to read;

b.    

When the contract is written in a language not understood by the said party.

If the contracting party is an illiterate or even if literate, but he could not understand the language used in the contract which he signed, and later, he alleged fraud and mistake in the execution thereof, there is a presumption created that there was fraud or mistake when he signed or gave his conformity to the contract.

The burden of proof is shifted now to the party who is enforcing the agreement. He must prove that the document was fully explained to the party alleging fraud or mistake. Failure to rebut the presumption will sustain the charge of fraud or mistake.

Art. 1324

Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n)

          The article applies only to a situation where the offeror has alloed the offeree “a crtain period of time to accept”. This is giving the offeree the option to accept or not to accept within a fixed period of time.

          The time of acceptance will depend on the circumstances:

a.     If a period is fixed by the offeror;

b.     If no period is fixed by the offeror.

Option contract, concept. It is a contract between the offeror and the offeree whereby the former grants the latter, for a valuable consideration, the privilege to buy or not to buy certain objects at anytime within the specified period and for a fixed price.

Art. 1316

Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. (n)

Perfection of real contracts. The article refers to real contracts which require delivery of the object for their validity, in addition to the presence of the other essential elements of a contract: consent subject matter and cause of consideration.

Real contract are perfected from the moment of the delivery of the object of the obligation.

The real contracts mentioned in the law are:

a.     Deposit;

b.     Pledge;

c.     Commodatum

d.     A contract of carriage is also real contract as well as mutuum or loan.

A loan contract is not a consensual contract but a real contract, perfected only upon the delivery of the object of the contract.

Reason why delivery is required in real contracts. In real contracts, delivery of the object is necessary because without the object, the other party cannot comply with his duties under the contract.

Agreement to enter into real contract distinguished from real contract itself. There can be a contract “to make a deposit, pledge, etc.” This is consensual. It is perfected upon the meeting of the minds of the parties. However, once the object has been delivered, the contract is converted into a real contract.

Art. 1308

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)

Mutuality of contracts. It is but natural and logical that the contract shall bind both contracting parties. This is the principle of mutuality contract. It is based on the essential quality of the parties. It is incongruous to bind one party and let free the other party from responsibility.

Obligations arising from contract have the force of law between the parties and should be complied with in good faith.

The binding effect of a contract on both parties is based on the principle that the obligations arising from contract have the force of law between the contracting parties, and there must be mutuality between them based essentially on their quality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom.

Validity or Compliance. Cannot be left to the will of the one of the contracting parties.

What is meant here is that the contract cannot have any stipulation authorizing one of the contracting parties:

a.     To determine whether or not the contract shall be valid, or;

b.     To determine whether or not the contract shall be fulfilled

However, a third person may be authorized to determine the performance or fulfillment of the contract but not to determine its validity. He must not however make the determination of the fulfillment evidently equitable.

Stipulations allowing a party to cancel or rescind do not militate against mutuality of contracts.

No judicial action for rescission is necessary where the revocation of the contract is authorized for the violations of its terms and conditions.

Mutual cancellation. The general rule is that a party cannot revoke or renounce a contract without the consent of the other. They may however mutually cancel their contract under such terms and conditions as they deem wise.

MARIA S. PASCUAL vs. JOSE LACSAMANA

MARIA PASCUAL (Plaintiff) vs. JOSE LACSAMANA (Defendant)

November 27, 1956

Justice Labrador

Facts:

1.       July 23, 1951, the Defendant executed a document in Tagalog, presented at the trial which reads:

“ALAMIN NG LAHAT NG MAKABABASA NITO:chanroblesvirtuallawlibrary

“Na ako, si Jose Lacsamana, may sapat na gulang, may asawa, at kasalukuyan naninirahan sa 1039 Trabajo, Sampaloc, Manila ay nagpapatunay ng sumusunod:chanroblesvirtuallawlibrary

“Una. — Na ako ay umutang ng halagang anim na libo apat na daan at limang piso at limang pu at tatlong sentimos lamang (P6,405.53) kualtang pilipino, kay Gng. Maria S. Pascual ng Malabon, Rizal ngayong araw na ito.

“Ikalawa. — Na ang nasabing utang ay ipinangangako kong bahayaran sa nasabing Ginang sa Deciembre 31, 1951.

“Ikatlo. — Na ang lahat ng isdang huhulihin sa aming palaisdaang “MAGPITO” at “PULO” na nasa Pampanga, sa punduhan ng isda sa Hulong Duat, Malabon, Rizal, upang ipagbili at sa lahat ng pagbibilhan ay aawasin ang kangyang komissiong 5 porciento.

“Ikaapat. — Na ang nasabing halaga ay aking bibigyan ng tubo o interest ng 12 porciento isang taon sa nasabing Ginang mula ngayon araw na ito hanggang sa Deciembre 31, 1951.

“Ikalima. — Na kung sakali’t hindi ako makabayad sa aking utang sa nasabing Ginang sa taning na nakalagay dito, at ang pagsiñgil sa akin ay umabot sa “jusgado” ako ay nangangako na magbabayad ng aking pagkakautang at bukod sa doon ay magbabayad ako ng 25 porciento ng aking pagkakautang bilang daños y perjuicios o costas ng abogado.

“SA KATUNAYAN NG LAHAT NG ITO, ako ay lumagda sa ibaba nito, dito sa Malabon, Rizal ngayong ika 23 ng Julio, 1951.

“Jose Lacsamana”

2.       On February 27, 1953, he again executed another document, presented at the trial which read:

“SA LAHAT AY AKING PINATUTUNAYAN:chanroblesvirtuallawlibrary

“Ako, si JOSE LACSAMANA, matapos na makapanumpa, ay nagsasalaysay ng mga sumusunod:chanroblesvirtuallawlibrary

“1.  Na ako ay may nakuhang cualta sa Gng. Maria Pascual, sa halagang Anim na libong piso at apat na daan at lima at limanpu’t tatlong centimos (P6,405.53) noong 23 ng Julio ng 1951.

“2.  Na bilang katunayan na ako ay handang magbayad ng nasabing utang ako ay nangakong maghuhulog ng isda kay Gng. Maria Pascual, at bukod dito’y ako’y nangakong magpapatong ng nuukol na interes sa halagang aking nautang hanggang sa mabayaran ang halagang aking nakuha.

“3.  Na ako’y nangakong magbayad ng nasabing utang, kasama and nauukol na interes, sangayon sa kasulatang aking nilagdaan, noong ika a 31 ng Deciembre, 1951.

“4.  Na hangga sa ngayon ay hindi pa ako nagbabayad ng nasabing utang kay Gng. Maria Pascual.

“5.  Na noong Deciembre, 1952, ako ay nakipagusap kay Gng. Maria Pascual at ulit ay nangakong magbabayad ng nasabing utang nitong katapusan ng Febrero, 1953, nguni’t hindi pa rin ako nagbayad ng nasabing utang.

“6.  Na ngayong ika 27 ng Febrero, ako’y muling nakipagusap sa kay Gng. Maria Pascual at sa kay Atty. Arsenio Roldan, Jr., at sa harap nitong huli, ako ay nangakong muli na magbabayad ng nasabing utang sa fecha 20 ng Marzo, 1953.

“SA KATUNAYAN NG LAHAT NG ITO, ako ay lumagda sa kasulatang ito, ngayong ika 27 ng Febroro, 1953.

“Manila, Philippines

“JOSE LACSAMANA”

Plaintiff brought this action alleging that Defendant has not paid the indebtedness that he had agreed and promised to pay in accordance with his promissory note of July 23, 1951.

The Defendant also promised therein to sell all the fish that would be harvested from his two fishponds, through the Plaintiff, who will receive 5 per cent commission, but failed to comply with this obligation.

During the trial the Defendant claims that the facts are not presented clearly by Plaintiff. He alleges that on February 27, 1953, he and Plaintiff settled and liquidated all their outstanding accounts, and in consideration of said cancellation and renovation, Defendant executed the contract. By way of counterclaim, he alleges that he had delivered fish valued at P1,198.15, and that after deducting Plaintiff’s commission thereon, Plaintiff still owed him a balance of P1,004.25. He, therefore, asks that Plaintiff’s complaint be dismissed, and that Plaintiff be sentenced to pay the sum stated in his counterclaim.

After the trial and on January 4, 1954, the court rendered judgment sentencing Defendant to pay the sum of P6,405.53, plus interest thereon at 12% per annum from July 23, 1951 until the whole amount is fully paid, and the further sum of P1,601.38, representing 25 per cent of the aforementioned amount, as liquidated damages and attorney’s fees, plus the costs. Defendant’s counterclaim was dismissed.

Issue

Whether or not the first contract novate the second contract.

Held:

A comparison between the two instruments will readily show that the second one is absolutely silent on Defendant’s obligation to deliver all the fish produced from his two fishponds to the Plaintiff, as well as on the payment of liquidated damages of 25 per cent. It contains nothing but a recital of past unfulfilled promises to pay made by Defendant, and a final promise to pay the obligation on March 20, 1953. Whether or not Plaintiff agreed to this date of payment does not appear, but even if she did, the change would be limited to the date of payment and it cannot be held to extend to all other particulars of the contract. For a novation to exist, there must be a change, substitution, or renewal of an obligation or obligatory relation, with the intention of extinguishing or modifying essentially the former, debitum pro debito. (4 S. R. 424.) If the second instrument was accepted by Plaintiff so that the period for the payment was intended to be postponed, there would still be no novation because mere extension of payment and the addition of another obligation not incompatible with the old one is not a novation thereof (Inchausti & Co. vs. Yulo, 34 Phil. 978). Furthermore, novation is never presumed; there must be a declaration to that effect in unequivocal terms, or that the old and the new obligations must be incompatible (Article 1292, Civil Code).

Finding no error in the judgment of the court a quo, the same is hereby affirmed in toto, and it appearing that the appeal is frivolous, Defendant is hereby sentenced to pay double costs.

Article 1300

Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect.

Ang subrogation ng ikatlong tao sa mga karapatan ng nagpautang ay maaaring legal o konbensyonal. Ang nauna ay hindi ipinapagpalagay, maliban sa mga kaso na malinaw na nabanggit sa Code na ito; ang nahuli ay dapat na malinaw na itinatag upang ito ay magkabisa. (1209a)

                Subrogation is the active subjective novation characterized by the transfer to a third person of all the rights pertaining to the creditor in the transaction concerned including the right to proceed against the guarantors or possessor of mortgages, and similar other subject to any applicable legal provisions or any stipulation agreed upon by the parties in conventional subrogation.

                It is the transfer of the credit of the creditor arising in a transaction, to a third person with all the rights appertaining thereto, either against the debtor or against third persons.

                Subrogation is designed to promote and accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay.

Kinds of subrogation (or Active Subject Novation)

                As to their creation

a.       Legal subrogation

b.      Voluntary or conventional subrogation

As to their extent

a.       Total subrogation

b.      Partial subrogation

Legal subrogation is not presumed except in the cases mentioned in the law. Voluntary subrogation must be clearly established with sufficient evidence, otherwise, its existence will not be sustained.