Tuesday, February 23, 2016

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

PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON FAUSTINO, deceased, vs. LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng, deceased, G.R. No. L-17587, September 12, 1967

“x x x.

Justina Santos maintained — now reiterated by the Philippine Banking Corporation — that the lease contract (Plff Exh. 3) should have been annulled along with the four other contracts (Plff Exhs. 4-7) because it lacks mutuality; because it included a portion which, at the time, was in custodia legis; because the contract was obtained in violation of the fiduciary relations of the parties; because her consent was obtained through undue influence, fraud and misrepresentation; and because the lease contract, like the rest of the contracts, is absolutely simulated.

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this agreement." It is claimed that this stipulation offends article 1308 of the Civil Code which provides that "the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them."

We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. Uy Tieng Piao.1 We said in that case:

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement. Indeed, the cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment.2

And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee, at any time before he erected any building on the land, might rescind the lease, can hardly be regarded as a violation of article 1256 [now art. 1308] of the Civil Code."

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of mutuality, because of a difference in factual setting. In that case, the lessees argued that they could occupy the premises as long as they paid the rent. This is of course untenable, for as this Court said, "If this defense were to be allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner should desire the lease to continue the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals." Here, in contrast, the right of the lessee to continue the lease or to terminate it is so circumscribed by the term of the contract that it cannot be said that the continuance of the lease depends upon his will. At any rate, even if no term had been fixed in the agreement, this case would at most justify the fixing of a period5 but not the annulment of the contract.

X x x.”