LAW ON OBLIGATION AND CONTRACTS:

THE PRINCIPLE OF RELATIVITY AND

STIPULATION POUR ATRUI

WHO IS THE REAL

PARTY-IN-INTEREST?

Cristy C. Bangayan
2018 - 01799
 In Article 1305 of the New Civil Code which states that: A
contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to
render some service.

The provision stated above gives an emphasis on the

meeting of the minds of the two contracting parties which takes
place when an offer is accepted by the other. This also stresses that
the person bind himself with respect to another or reciprocally to
the fulfilment of the given prestation.

In this light, the relativity of contracts is one of the most

important characteristics of the contract. The parties are the root
of the contract which will be the basis of how it will be formed.
Parties are the ones creating theThese parties and their legal tie
will define who can only be included in the contract.

The objective of this paper is to know who the real parties

of interest in a contract are.

The very nature of the relativity of contracts was itemized

in Article 1311 of the Civil Code.

Article 1311

Contracts take effect only in 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 heirs 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 fulfilment 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.

As a general rule contracts take effect only between parties,

their assigns and heirs. In other term, it can only take effect
between immediate parties to the same as stated by Sta Maria,
2017. In this view, we can say that strangers cannot invoke the
contract of another for the source of prejudice of the real party and
for his own wanting to get a positive outcome that will benefit him.
The real party cannot compel a stranger to a certain obligation
stated in the contract.

The Supreme Court as early as 1903 has already made the

pronouncement that “He who contracts does so for himself and his
heirs.”1

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. 2
There must be consensus agreement to both parties involved and
cannot be ruled unilaterally nor be ruled to prejudice the other
party of the contract.

1
Eleizeguii v. Lawn Tennis Club, G.R. No. 967
2
Integrated Packaging Corporation v. Court of Appeals, 333 SCRA 170 (2000)
 The principle of relativity it is also associated with the
Doctrine of Privity of Contracts. The privity is the relationship
between the parties to a certain contract to allow them to sue each
other. If there is no privity of contract, there is likewise no
obligation or liability to speak about about and thus no cause of
action arises. 3

This provision must be read together with the principle of

transmissibility of rights under Article 1178 which provides that
subject to the laws, all rights in virtue of an obligation are
transmissible, if there has no stipulation to the contrary.
Transmissibility must be well defined and must be stated properly.

Exceptions for the provision given above is enumerated in

Article 1311 (2). These are: stipulation in favor of a third person
(stipulation pour autrui) as in a beneficiary of an insurance policy;
Contracts creating real rights; and third, person liable to pay
damages in case he induces a party to violate his contract.
Relativity of contracts will be applied to the given legal and valid
exceptions above.

.As to stipulation pour autrui or the stipulation in favour of

a third person will be valid as long as the requisites are present.
These requisites are: the contract must be for the benefit or
interest of the third person; the benefit must not be merely
incidental; contracting parties must clearly and deliberately
conferred such benefit or interest upon the third person; lastly, the

3
Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February
19, 2014.
third person must have communicated his acceptance to the
obligor before his revocation.

Moreover, stipulation pour autrui has this so called the

party of interest. Party of interest was also provided in Section 2 of
Rule 3 of the 1997 Rules of Civil Procedure. The said section
provides: A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended
in the name of the real party in interest.4

Contracts to perform personal acts which cannot be as well

performed by others are discharged by the death of the promissor.
On the other hand, where the service or act is of such a character
that it may as well be performed by another, or where the contract,
by its terms, shows that performance by others was contemplated,
death does not terminate the contract or excuse non-performance.
This circumstance the stipulation is a stipulation pour autrui
because the true intent of the parties is to confer a direct and
material benefit upon a third party.5

In certain conditions, the law operates to effect transfer of

a chosen action from one person to another without any
compatible act on the part of the parties. The usual ways of transfer
is by transfer of interest in land, by marriage and by death. Hence,
in this type of transfers, it will be binding upon the new party or

4
Section 2, Rule 3, Rules of Civil Procedure
5
Florentino v. Encarnacion, 1977
parties. 6 Liability for the transfer of ownership or any provisions
given in a contract will bind the parties only to that specific
agreement and not beyond what is stated. Parties who are not of
interest have no action to recover from the real parties. Provisions
that is agreed upon the signing of contract will only be applicable
to the parties with real interest.7

Consent for relativity of contracts is also needed for its

validity. For Articles 1709-1710 and 1727 of NCC, the principal must
therefore fulfill all the obligations contracted by the agent, who
acted within the scope of his authority. In Article 1259, no one can
contract in the name of another without being authorized by him
or without his legal representation according to law.

If the nature of the rights and obligations are, by their

nature, transmissible. There is no need of personal act required
from the deceased lessor. Her obligation to deliver the possession
of the subject property upon petitioner’s exercise of its option may
be well performed by her heir who succeeds only the rights her
mother had and what is valid and binding against her is also valid
and binding against him. The death of his mother did not extinguish
property rights which are transmissible by nature. 8

In common law, it is recognized that no one could sue for a

breach of contract if they are not the real party in the contract. The
person who is in the legal title of the contract will be the one that

6
Sta Maria, 2017
7Manila Railroad Company v La Campania Translantica G.R No. 11318 October
26, 1918
8
DKC Holdings Corporation v. Court of Appeals G.R. No. 118248, April 5, 2000
can bring the action.9 As stated in Section 234 of Code Pleading
Philips in action ex Contractu – When an action of contract
concerns only the original parties to the instrument, it is not
difficult to determine who should be the plaintiff. Obviously the
one seeking to enforce it is the real party in interest. 10

Fair play and justice will be contravened when the relativity

of contracts will not be understood properly by the people who
uses this in their everyday lives. Further, in rendering justice, courts
have always been, as they ought to be, conscientiously guided by
the norm that on the balance, technicalities take a backseat vis-à-
vis substantive rights, and not the other way around.11

9
L. G. MARQUEZ and Z. GUTIERREZ LORA vs.FRANCISCO VARELA and CARMEN
VARELA G.R. No. L-4845 December 24, 1952
10
Phillips, Code Pleading, page 226.
11
S.C. Megaworld Construction v Engr. Luis U. Parada G.R. No. 183804
September 11, 2013