Section 3. Cause of Contracts

Cause (cause) is the "why of the contract, the essential reason which moves the contracting parties to enter into the contract," or, as expressed in another instance, it is the "essential or more immediate purpose or reason which the contracting parties have in view at the time of entering the contract."

distinguished from the English doctrine of consideration

The terms "cause" and "consideration" are used interchangeably, but there is an essential difference between the two.

The accepted meaning of the term "consideration" in common law is either some legal right, interest, benefit, or advantage conferred upon the promissor to which he is otherwise not lawfully entitled, or some legal harm, prejudice, loss, or disadvantage endured or assumed by the promisee other than that to which he is at the time of consent bound to bear.

Unlike the English principle, the continental doctrine never rejects any cause or consideration as insufficient. Whatever inducement is enough to satisfy the contracting parties, it is enough to satisfy the law. (see Salmond, Jurisprudence)

Cause distinguished from object

In a bilateral or reciprocal contract like purchase and sale, the cause for one is the subject matter or object for the other, and vice versa. Hence, the distinction is only a matter of viewpoint.

Classification of contracts according to cause

 They are: 

(1) Onerous: the prestation or promise of a good or service by the other party is one of the reasons that, in this agreement, the parties are each contractually responsible to the other.

(2) remuneratory, remunerative, or one the cause of which is the service or benefit which is remunerated. The purpose of the contract is to reward the service that had been previously rendered by the party remunerated, and

3) gratuitous or one the cause of which is the mere liberality of the benefactor or giver, such as commodatum; pure donation; guaranty or suretyship unless there is a stipulation to the contrary (Art. 2048.); mortgage given by a third person to secure an obligation of a debtor (see Art. 2085, last par.) unless a consideration is paid for such a mortgage.

Liberality as a cause in contracts of beneficence

Under Article 1350, the liberality of the benefactor is deemed causa only in those contracts that are of pure beneficence, that is to say, contracts designed solely and exclusively to procure the welfare of the beneficiary without any intent of producing any satisfaction for the donor; in other words, contracts in which the idea of self-interest is totally absent on the part of the transferor.

Cause is the essential or more proximate purpose that the contracting parties have in view at the time of entering into a contract.

Example:

Lisa sold a ring to Ruby Jane for PHP 55,000.00.

The cause for Rubyjane is the delivery of the watch; for Lisa, it is the delivery of PHP 55,000.00; and the subject matter is the ring.

ILLUSTRATIVE CASES:

1. Contract is that the plaintiff would receive property after being allowed to live with the defendant. 

Facts:Jin and V signed a document which in effect stated that if the girl, Rose, was allowed to live with them, and she (Rose) should marry or leave them, or if they (Jin and V) should die, she would receive one-half of their property. It appeared that Rose accepted the stipulation. (see Art. 1311.) Rose later married and left Jin and V. 

Issue: Should the contract be given effect? 

Held: Yes. Although the case offers an exceptional situation, there is no legal justification for not putting the contract in effect. The document resembles a contract in nature. It is actually a donation con causa onerosa, which implies that it is governed by the provisions of the Civil Code relating to contracts. (Tabar vs. Becada and Endab, 44 Phil. 619 [1923].)

Motive is the purely personal or private reason that a party has for entering into a contract. It is different from the cause of the contract.

Cause is distinguished from motive.

In addition to the inference of the existence of such a condition from an external fact of a nature that causes such a condition, motive also comprises the state of mind that inspires action. The differences are as follows:

• Cause is the immediate or direct reason, while motive is the remote or indirect reason.

• The cause is always known to the other contracting party, while the motive may be unknown.

• Cause is an essential element of a contract, while motive is not.

• The illegality of the cause affects the validity of a contract, while the illegality of one’s motive does not render the contract void.

When motive is regarded as a cause

General Rule: The motive does not affect the validity or existence of the contract.

EXCEPTION: The motive may be considered the cause when such motive predetermines the cause of the contract.

• i.e., it is made a condition for the efficacy of the contract,

• or is founded on a fraudulent purpose to prejudice third persons

Illustration:

YG sells her cars and lot to JYP for 31 million.For YG, the cause or consideration is 31M.

Her motive or private reason may be to use the money in business or to buy another house.

In the event that YG’s motive in selling her property is to defraud MYD, a creditor, MYD may ask for the rescission of the sale.

Requisites of the cause

The following are the requisites of the cause:

• It must exist at the time the contract is entered into (Arts. 1352, 1409 [3]); 

• It must be lawful (Ibid.) and

• It must be true or real. (Art. 1353.)  

Effect of absence of cause

Absence or want of cause means that there is a total lack of any valid consideration for the contract.

• Statement in contract of a non-existent cause.

• Grant of the right of first refusal

Effect of failure of cause

Absence of cause should be distinguished from inadequacy of cause, which, as a general rule, is not a ground for relief (see Art. 1355), and from failure of cause, which does not render a contract void. (See Arts. 1169, par. 3; 1170, 1191.)

Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract, while the latter prevents the existence of a valid contract.

Effect of illegality of cause

Illegality of cause implies that there is a cause, but the same is unlawful or illegal.

The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy. (See Art. 1306.) Contracts with unlawful causes are also null and void.

Illustration:

The administrator of the estate of Mario de Peligro brought an action against the heirs of Syete to declare null and void a deed of sale purportedly executed by Mario de Peligro in favor of Syete for P18 million. When the deed of sale was executed, Mario de Peligro was almost 120 years old and in a weak condition with a heart problem. Syete was only the gardener for Mario, with a monthly salary of P16,000. In this case, at the time of the sale, Syete could not have raised the amount of P18 million as consideration for the land supposedly sold to him by Mario de Peligro; therefore, the sale is null and void.

Effect of falsity of cause  

By falsity of cause it means that the contract states a  valid consideration but such statement is not true.

A false cause may be erroneous or simulated. The first  always produces the inexistence of a contract. If the  cause is false, the contract is rendered void because the  same actually does not exist.  

The second does not always produce this effect,  because it may happen that the hidden but true cause is  sufficient to support the contract. If the parties can  show that there is another cause and that said cause is  true and lawful, then the parties shall be bound by their  true agreement.

Illustrative Cases:

Jennie sells to V a parcel of land. In the deed of sale, P500,000.00 is the price of land at fair value. If this statement is false, then there is no contract of sale.

However, if V can prove that the contract is founded upon another consideration, as when V has exchanged his car for the land, then the contract of barter or exchange (not sale) shall be valid. In this case, the statement of the price is simulated because it is wilfully made. Otherwise stated, there is, in fact, a real consideration but the same is not the one stated in the contract.

Illustrative Cases: 

Real consideration of a promissory note is partly legal and partly il- legal. 

Facts: Fran executed a promissory note in favor of Soyaa for money received by Fran, when it was in fact for losses in monte and burro, the former a prohibited game, and the latter not a prohibited one. It was proven by Fran that the consideration was false.

Issue: Can Soyaa recover the amount of the promissory note without proving how much was lost at the game not prohibited?

Held: No. In this case, the consideration for the note is partly legal and partly illegal. By the terms of Article 1353, the burden of proof is upon Soyaa to show that there was a lawful consideration, and to show what part of the amount was won at the game of burro. Soyaa cannot recover unless he proves that part of the amount supported by the lawful consideration. (Lichauco vs. Martinez, 6 Phil. 594 [1906].)

Cause presumed to exist and lawful

It is necessary that cause must exist but it is not necessary that the cause is expressly stated in the contract. The presumption is that the cause exists and is lawful. This presumption, though, is rebuttable if the debtor can prove otherwise.

Note: This presumption applies when no cause is stated in the contract.

Basis of Presumption

Cause must:

• Exist at the time the contract is entered into;

• Lawful; and

• True or real

whether the cause is stated or not in the contract.

Effect of presumption upon the burden of proof

• Create an obligation to the debtor to provide sufficient evidence to disprove the presumption; and

• If no evidence is presented or offered, presumption will prevail.

Meaning of Lesion

• Lesion is any damage, in consequence of an inequality of situation, by which one party receives unjust or inadequate consideration for what he gives in a commutative contract.

 General Rule

• Lesion or inadequacy of cause does not affect the validity of a contract.

Exceptions:

Together with the lesion, there has been:

• Fraud;

• Mistake;

• Undue influence; or

• In cases specified by law

Example:

Connie sold his car worth P30 million to Macky for only P17 million because Connie was not aware of the true value of her car. May the contract of sale be rescinded?               

Answer: No. Although it is shown that there is inadequate consideration in terms of price, the contract of sale remains valid. As a rule, lesion or inadequacy of cause is not sufficient ground for the cancellation of a contract. But if there can be proof that Connie sold it only for the said amount because of fraud, mistake, or undue influence, the contract may be annulled in court.