Principle of Relativity, Stipulation Pour Atrui, A1311 Civil Code
1. Concept
Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a)
1) The principle of relativity of contracts provides that contracts can only bind the parties who entered into it. (CCC Insurance Corporation v. Kawasaki Steel Corporation, G.R. No. 156162, June 22, 2015 Per Leonardo-De Castro, J.)
2) The basic principle of relativity of contracts is that contracts can only bind parties who entered into it, and cannot favor or prejudice a third person, even if he or she is aware of such contract and has acted with knowledge thereof. Where there is no privity of contract, there is likewise no obligation or liability to speak about. This principle is embodied in Art. 1311 of the Civil Code, which states that “contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law.” (International Exchange Bank v. Labos, G.R. No. 206327, July 6, 2022, Per Hernando, J.)
3) Based on the principle of relativity of contracts embodied in Article 131125 of the Civil Code, a contract can only bind the parties who had entered into it, or their successors who have assumed their personality or their juridical position; and as a consequence, such contract can neither favor nor prejudice a third person (in conformity with the axiom res inter alios acta aliis neque nocet prodest). Thus, generally, a contract cannot produce any effect whatsoever as far as third persons are concerned; and he or she, who is not a party thereto, or an assignee thereunder, has no legal capacity to challenge its validity. This lack of capacity on the part of third persons is apparent in voidable, unenforceable and void contracts under Articles 1397, 1408 and 1421 of the Civil Code… (Rapid City Realty and Development Corporation v. Paez-Cline, G.R. No. 217148, December 7, 2021, Per Caguioa, J.)
4) It is clear that under Article 1311 of the Civil Code, contracts take effect only between the parties who execute them. Where there is no privity of contract, there is likewise no obligation or liability to speak about. The civil law principle of relativity of contracts provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof. Since a contract may be violated only by the parties thereto as against each other, a party who has not taken part in it cannot sue for performance, unless he shows that he has a real interest affected thereby. (Sps. Borromeo, G.R. No. 169846, March 28, 2008, Per Chico-Nazario, J.)
Integrated Packaging Corp. v. CA, G.R. No. 115117, June 8, 2000, Per Quisumbing, J.:
• As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by petitioner with Philacor. Private respondent is not a party to said agreements. It is also not a contract pour autrui. Aforesaid contracts could not affect third persons like private respondent because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof.
• Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct bearing on the contracts of petitioner with Philacor. As pointed out by private respondent and not refuted by petitioner, the paper specified in the order agreement between petitioner and private respondent are markedly different from the paper involved in the contracts of petitioner with Philacor. Furthermore, the demand made by Philacor upon petitioner for the latter to comply with its printing contract is dated February 15, 1984, which is clearly made long after private respondent had filed its complaint on August 14, 1981. This demand relates to contracts with Philacor dated April 12, 1983 and May 13, 1983, which were entered into by petitioner after private respondent filed the instant case.
CCC Insurance Corporation v. Kawasaki Steel Corporation, G.R. No. 156162, June 22, 2015 Per Leonardo-De Castro, J.:
• The Court reiterates that a surety’s liability is determined strictly by the terms of contract of suretyship, in relation to the principal contract between the obligor and the obligee. Hence, the Court looks at the Surety and Performance Bonds, in relation to the Consortium Agreement.
• According to the principle of relativity of contracts in Article 1311 of the Civil Code, a contract takes effect only between the parties, their assigns, and heirs; except when the contract contains a stipulation in favor of a third person, which gives said person the right to demand fulfillment of said stipulation. In this case, the Surety and Performance Bonds are enforceable by and against the parties FFMCCI (the obligor) and CCCIC (the surety), as well as the third person Kawasaki (the obligee) in whose favor said bonds had been explicitly constituted; while the related Consortium Agreement binds the parties Kawasaki and FFMCCI. Since the Republic is neither a party to the Surety and Performance Bonds nor the Consortium Agreement, any action or omission on its part has no effect on the liability of CCCIC under said bonds.
• The Surety and Performance Bonds state that their purpose was “to secure the full and faithful performance on [FFMCCI’ s] part of said undertaking,” particularly, the repayment by FFMCCI of the downpayment advanced to it by Kawasaki (in the case of the Surety Bond) and the full and faithful performance by FFMCCI of its portion of work in the Project (in the case of the Performance Bond).These are the only undertakings expressly guaranteed by the bonds, the fulfillment of which by FFMCCI would release CCCIC from its obligations as surety; or conversely, the non-performance of which would give rise to the liabilities of CCCIC as a surety.
• The Surety and Performance Bonds do not contain any condition that CCCIC would be liable only if, in addition to the default on its undertakings by FFMCCI, the Republic also made a claim against the PCIB Letter of Credit furnished by Kawasaki, on behalf of the Kawasaki-FFMCCI Consortium. The Court agrees with the observation of the Court of Appeals that “it is not provided, neither in the Consortium Agreement nor in the subject bonds themselves that before KAWASAKI may proceed against the bonds posted by [FFMCCI] and CCCIC, the Philippine government as employer must first exercise its rights against the bond issued in its favor by the consortium.”
• The Court cannot give any additional meaning to the plain language of the undertakings in the Surety and Performance Bonds. The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself. Article 1370 of the Civil Code provides that “[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. “
International Exchange Bank v. Labos, G.R. No. 206327, July 6, 2022, Per Hernando, J.:
• In the case at bar, IEB would like to convince the Court that Rockwell became bound to the Deed of Assignment dated July 2, 2003 when Padilla signed the conforme portion of the said contract. However, a plain perusal of the subject deed shows that there was no intention to include Rockwell as a party thereto. The Deed of Assignment provides:
The ASSIGNMENT made this day of July 02 2003 at Makati City by:
RUDY S. LABOS & ASSOCIATES INC., a corporation duly organized and existing under the laws of the Philippines with office address at Suite 111 Casman Building, 372 Quezon Avenue, Quezon City, hereafter referred to as the “ASSIGNOR” INTERNATIONAL EXCHANGE BANK, a commercial banking corporation, duly organized and existing under and by virtue of Philippine laws, with principal office at iBank Exchange Building, 142 Amorsolo Street, Salcedo Village, Makati City, 1227, Philippines, and hereinafter referred to as “BANK”.
• From the foregoing, it is clear that there were only two parties involved therein, namely, RSLAI and IEB. To include Rockwell as a party in the Deed of Assignment will force it to enter into a contract that it did not intend to join. If Rockwell was meant to be a party to the Deed of Assignment, the same could have easily declared and specified it to be so.
a. Privy to a contract
Vda. De Rojales v. Dime, G.R. No. 194548, February 10, 2016, Per Peralta, J.:
• We have consistently held that the parties to a contract are the real parties-in-interest in an action upon it. The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof. Hence, one who is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract performed by the contracting parties would incidentally inure to one’s benefit.
• As evidenced by the contract of Pacto de Retro sale, petitioner, the vendor, bound herself to sell the subject property to respondent, the vendee, and reserved the right to repurchase the same property for the same amount within a period of nine (9) months from March 24, 1999 to December 24, 1999. Therefore, in an action for the consolidation of title and ownership in the name of vendee in accordance with Article 1616 of the Civil Code, the indispensable parties are the parties to the Pacto de Retro Sale – the vendor, the vendee, and their assigns and heirs.
• Villamin, as the alleged source of the consideration, is not privy to the contract of sale between the petitioner and the respondent. Therefore, she could not maintain an action for consolidation of ownership and title of the subject property in her name since she was not a party to the said contract.
Where there is no privity of contract, there is likewise no obligation or liability to speak about. This Court, in defining the word “privy” in the case of Republic vs. Grijaldo, said that the word privy denotes the idea of succession, thus, he who by succession is placed in the position of one of those who contracted the judicial relation and executed the private document and appears to be substituting him in the personal rights and obligation is a privy.
• For not being an heir or an assignee of the respondent, Villamin did not substitute respondent in the personal rights and obligation in the pacto de retro sale by succession. Since she is not privy to the contract, she cannot be considered as indispensable party in the action for consolidation of title and ownership in favor of respondent. A cursory reading of the contract reveals that the parties did not clearly and deliberately confer a favor upon Villamin, a third person.
Home Guaranty Corporation v. Manlapaz, G.R. No. 202820, January 13, 2021, Per Hernando, J.:
• Jurisprudence teaches that “the parties to a contract are the real parties-in-interest in an action upon it.”85 As such, “[t]he basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof’.
• Indeed, “‘[w]here there is no privity of contract, there is likewise no obligation or liability to speak about.”‘ HGC cannot expect Manlapaz to meddle in its dealings with VELI and FLPPI as she has no business doing so, and, as she alleged, she was not made aware of these developments in the first place. Notably, Manlapaz remitted all her installment payments88 to FLPPI and eventually paid the purchase price for the disputed property in full. She has been religiously paying the installments to FLPPI and completed the payments in November 1999. This is another indication that she did not have knowledge of the subsequent transactions involving FLPPI, VELI and HGC, as she solely transacted with FLPPI.
• Moreover, FLPPI itself did not notify her of the changes and continued to receive her payments and issued the corresponding receipts therefor. HGC did not sufficiently dispute Manlapaz’s claim that she had no information about the said contracts involving HGC, VELI and FLPPI; it merely insisted that Manlapaz was not an innocent purchaser for value.
• Indeed, “[i]n a long line of cases, the Court has defined a purchaser in good faith or innocent purchaser for value as one who buys property and pays a full and fair price for it at the time of the purchase or before any notice of some other person’s claim on or interest in it”.
• A “contract to sell is textually defined as a ‘bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon.’ The obligation of the prospective seller, which is in the nature of an obligation to do, is to sell the property to the prospective buyer upon the happening of the positive suspensive condition, that is, the full payment of the purchase price.”
• Since Manlapaz already fully paid the purchase price, she is entitled to the issuance of the deed of absolute sale and the transfer certificate of title in her favor, even if the disputed property has already been transferred to HGC’s name due to FLPPI’s default in the third contract. By virtue of the Memorandum of Agreement and the third contract, HGC not only acquired the rights to the assets, but also the obligations attached thereto. Since Manlapaz paid the full price, FLPPI, as the seller when the second contract was executed, should issue the title in her favor.
• However, given that the assets were already transferred to HGC, it is now HGC’s obligation to tum over the disputed property to Manlapaz and then issue the corresponding deed of absolute sale and certificate of title in her name. As found by the CA, “[Manlapaz], who had fully paid the purchase price of the property, should not be made to suffer the consequences of the default of the Asset Pool, including the failure of [FLPPI] to comply with its obligation to [HGC] under their contract to sell 3rd contract].”
• Considering the foregoing observations, and given that Manlapaz had fully paid the purchase price of the contested lot, the property should now be transferred in her name. It is settled that “the seller’s obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer’s full payment of the purchase price.”
