Don’t Be Fooled: Why Consideration Matters in Philippine Contracts

G.R. No. 108522, January 29, 1996

Imagine signing a contract to sell your property, only to realize later that you were never paid. This scenario highlights a critical aspect of Philippine contract law: the requirement of valid consideration. The case of Gerardo A. Del Mundo v. Court of Appeals underscores the importance of ensuring that contracts, especially deeds of sale, are supported by genuine consideration to avoid being declared null and void. This case serves as a cautionary tale about the dangers of simulated contracts and the legal repercussions that can arise from them.

What is Consideration in a Contract?

In Philippine law, a contract is defined as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. For a contract to be valid, it must have consent, object, and cause or consideration. Consideration is the why of a contract, the essential reason that motivates the parties to enter into the agreement. Article 1350 of the Civil Code of the Philippines provides:

“In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.”

In simpler terms, consideration is what each party gives or promises to give to the other party as part of the agreement. Without it, the contract may be deemed simulated and therefore void. For example, in a contract of sale, the consideration for the seller is the price paid by the buyer, and the consideration for the buyer is the delivery of the property by the seller.

The Case of Del Mundo vs. Nava: A Story of Broken Promises

The case revolves around a property in Quezon City owned by Spouses Carlos and Alejandra Nava, who leased it to Gerardo A. del Mundo with an option to purchase. Del Mundo, a lawyer, later persuaded the Navas, who had migrated to the United States, to sign a Deed of Sale with Assignment of Mortgage, promising to pay their obligations to a bank and other creditors. However, Del Mundo failed to fulfill his promises, leading the Navas to revoke the Deed of Sale. This eventually led to a series of legal battles.

• Unlawful Detainer Case: The Navas, through their attorney-in-fact, filed an ejectment case against Del Mundo, who was ordered to vacate the property.
• Declaratory Relief Case: Del Mundo filed a case seeking to validate the Deed of Sale, arguing that it was supported by consideration.

The Regional Trial Court (RTC) and subsequently the Court of Appeals (CA) ruled against Del Mundo, finding that the Deed of Sale was simulated due to the lack of actual consideration. Del Mundo then elevated the case to the Supreme Court, arguing that the CA erred in upholding the lower court’s decision.

The Supreme Court, in its decision, emphasized the factual nature of Del Mundo’s claims. The Court quoted the Court of Appeals’ findings which were based on the trial court’s observations:

“a) Appellant’s allegation that he paid the amount of P476,000.00 to Mrs. Nava in his law office was not corroborated by any of the office personnel allegedly present at that time…”

The Court further stated,

“There is no justification to depart from the well-settled principle laid down in a long line of cases that the findings of fact of the lower courts, the trial court and the Court of Appeals, are, as a general rule, binding and conclusive upon this Court.”

The Supreme Court affirmed the CA’s decision, finding no compelling reason to overturn the factual findings of the lower courts. The Court also noted Del Mundo’s delaying tactics and reprimanded him for his conduct.

What are the Lessons for Businesses and Individuals?

This case offers several key takeaways for businesses and individuals entering into contracts:

• Ensure Genuine Consideration: Always ensure that there is actual and lawful consideration exchanged in a contract.
• Document Payments: Keep detailed records and receipts of all payments made pursuant to a contract.
• Avoid Simulated Contracts: Be wary of entering into contracts where the true intent is not reflected in the agreement.
• Seek Legal Advice: Consult with a lawyer to ensure that your contracts are legally sound and enforceable.

Frequently Asked Questions

Here are some common questions related to contracts and consideration in the Philippines:

What happens if a contract lacks consideration?

A contract without consideration is generally considered void or unenforceable.

What is the difference between cause and consideration?

While often used interchangeably, cause generally refers to the essential reason for the contract, while consideration is the specific thing or service exchanged.

Can a contract be valid if the consideration is not monetary?

Yes, consideration can be in the form of money, goods, services, or even a promise.

What is a simulated contract?

A simulated contract is one that does not reflect the true intent of the parties or lacks a genuine purpose.

How can I prove that a contract has valid consideration?

You can provide evidence of payments made, services rendered, or promises exchanged as part of the agreement.

Is a notarized contract automatically valid?

Notarization adds a layer of authenticity but does not guarantee validity. The contract must still meet all the legal requirements, including valid consideration.

What should I do if I suspect a contract I signed is simulated?

Consult with a lawyer immediately to assess your legal options and protect your rights.

ASG Law specializes in contract law and real estate transactions. Contact us or email hello@asglawpartners.com to schedule a consultation.