General Provisions of Contracts

Chapter 1
I. Meaning – Art 1305 – 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.
- usually entered by two persons or more.
- Obligation vs Contract – latter may exist w/o contract but with a contract there is
automatically an obligation
- Contract vs Agreements – the former are binding agreements through legal
proceedings while the latter cannot be enforced by action in courts of justice. The former must
have all its essential requisites to be valid while the latter has a broader scope in that it does not
need the requisites.

“All contracts are agreements but not all agreements are contracts.”

- Emphasizes: meeting of minds between 2 contracting parties which takes place when
an offer by one party is accepted by another

II. Elements- building block

a. Essential Elements – required and always existing
a.1. Consent - meeting of minds between parties on the subject matter and the
cause; mutual assent or agreement takes place when there is an offer and acceptance of the
offer.
a.2. Object – is the subject matter; things, rights, services
a.3. Cause – is the essential reason or purpose

b. Natural Elements – Initially present in the start in some certain contract but you can
remove under any stipulation
- warranty against tha
c. Accidental Elements
- stipulation of parties, they do not exist at the start of the contract however they
may exist upon stipulation of the parties.
III. Classifications
According to name:
a. Nominate – the law gives it a special name; e.g. sales, loan, partnership
b. Innominate – the law does not give it a special name or designation
 i. Do ut des – I give that you may give
ii. Do ut facias – I give that you may do
iii. Facio ut facias – I do that you may do
iv. Facio ut des – I do that you may give
 Reasons: the impossibility of anticipating all forms of
agreement and the progress of man’s sociological and
economic relationships
 When dealing with innominate contracts / rules governing
innominate contracts (in order of priority):
1. Stipulations of the parties
2. Rules governing law on ObliCon
3. Rules governing the most analogous contract
4. Customs of the place
According to Perfection:

a. Consensual – perfected by consent, object, cause (COC), the essential

elements are enough to formal contract
- ex. Sales, partnership, real mortgage
b. Real – perfected by COC + delivery; ex. Pledge, loan, commodatum
c. Formal or Solemn – perfected by COC + formalities required by law; ex,
donation of real property, chattel mortgage, antichresis
According to cause:
a. Onerous – cause has valuable consideration;
b. Remuneratory or remunerative – case is based on services or benefits already
received
c. Gratuitous – cause is purely generosity
According to form:

a. Informal, common or simple e.g. loans, lease,

b. Formal or solemn, chattel mortgage, donation
According to obligatory/binding force:
a. Valid – meet the requirements and limitations of the type of agreement, thus
are legally binding and enforceable
b. Rescissible - valid contracts but by reason of economic damage to one of the
parties or to a third person the contract may be rescinded
c. Voidable – valid and enforceable
d. Unenforceable
 e. Void and inexistent – has no effect; has one or some or lacks all of the
requisites of a valid contract
According to parties obliged/liability:
a. Unilateral – only one party is obliged; commodatum - gratuitous, donation
b. Bilateral – both parties are required to perform or are obliged
According to risks:

a. Commutative – when the undertaking of one party is considered the equivalent

of that of the other; e.g. sales, lease
b. Aleatory – when it depends upon an uncertain event of contingency both as to
benefit or loss; e.g. contract of insurance, sales of hope
According to status:
a. Executory – when it has not been performed by both parties
b. Executed – when it has been fully and satisfactorily carried out by both parties.
According to relation to other contract:

a. Principal – can exist on its own; e.g. sales, loan

b. Accessory – existence depends upon a principal contract; e.g. pledge,
mortgage, guaranty
c. Preparatory – needed for the formation of subsequent contracts; are also
principal; e.g. partnership, agency; entered into as a means to an end
According to dependence of part of contract to other parts:
a. Indivisible – when each part of the contract is dependent upon the other parts
for the satisfactory performance
b. Divisible – When one part of the contract may be satisfactorily performed
independently of the other parts

IV. Stages
1. Preparation/Conception/Generation/Negotiation – no contract yet; steps taken
by the parties leading to the perfection of the contract; not yet arrived at the definite agreement
2. Perfection/Birth/Formation – contract are not necessarily signed to be valid;
parties have come to a definite agreement;
3. Consummation/Death/Extinguishment – all obligations are performed; parties
have performed their respective obligations that results in the extinguishment of the obligation;
may be extinguish by the mutual agreement of the parties.
V. Characteristics (MARCO)
A. Mutuality of contracts – contract must be binding to/with parties; validity can’t be left
to the will of one them (Art. 1308)
- Determination of the performance may be left to a third
person, whose decision must not be binding; he has to
communicate with the parties; the parties, however, has to
agree (Art. 1309)
- Determination shall not be obligatory if it is evidently
inequitable; if inequitable, the courts shall decide what is
equitable (Art. 1310)

B. Autonomy / Liberty of contracts – parties may establish any stipulations, clauses,

terms, and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, public policy (Art. 1306); the parties can make any
stipulation as long as it is not unlawful.
 Valid Contracts – meet the legal requirements and limitations for the type of
agreement involved and are, therefore, legally binding and enforceable
 Limitations on contractual stipulations:
a. Law – fundamental requirement that the contract entered into must be
accordance to the law. Thus, the law sets a limit
b. Police Power – when there is no law in existence; the will of the parties
may prevail given they are not against the morals, good customs, public
order, or public policy;
i. Not contrary to law – law is superior to a contract; acts against
the law are void, except when the law authorizes the validity;
contracting parties must respect it because it is an integral part of
every contract
ii. Not contrary to morals – morals deal with norms of good and
right conduct evolved in a community;
iii. Not contrary to good customs – customs consist of habits and
practices which have been followed for a long time by a society
iv. Not contrary to public order – refers to public safety
v. Not contrary to public policy – broader than public order , has
consideration which are moved by the common good

C. Relativity of contracts
- contracts take effect only between the parties, their assigns and
heirs;
- contracts are generally transmissible EXCEPT:
a. the rights and obligations arising from the
contract are not transmissible by their
nature
 b. by stipulation
c. provision of the law
- the heir is not liable beyond the value of the property he
received from the decedent (Art. 1311)
EXCEPTION to the relativity of contracts (STCT):
1. Stipulation Pour Autrui /o-tri/ – direct conferment of a benefit towards a third
person
Requisites:
a. There must be a stipulation (clear and deliberate) in favor upon a third
person
b. The stipulation must be part, not the whole of the contract
c. The contracting parties must have clearly and deliberately conferred a
favor upon a third person, NOT mere incidental benefit or interest
d. The third person must have communicated his acceptance to the obligor
before it revocation
e. NO relation of agency exists between any of the parties and the third
person favored

2. Third person in possession of a contract creating real rights – if a third

person registered a property under his name he has the right, notwithstanding
the fact that there exist a binding force between the parties.
- The third person in possession of the object of the
contract are bound thereby, subject to the provisions of Mortgage Law and the
Land Registration Law
3. Contract is entered to defraud creditor – creditor may cancel a contract of
his debtor to defraud him; if the contract was for the creditor to be defraud then
the creditor has the right for the cancellation of the contract.
4. Third person induced a party to a contract to violate the contract –
recognizes an instance where a stranger to a contract can be sued for damages
for his unwarranted interference with the contract

D. Consensuality of contracts – contracts are perfected by mere consent, and from

the moment it is perfected the parties are bound not only to the fulfillment of the stipulations but
also the consequences which, according to their nature may be in keeping with good faith, sage
and law.
EXCEPTIONS:
- real contracts are not perfected until the delivery of the
object of the obligation
- formal contracts
 E. Obligatory force of the contract – Obligations arising from contracts have the force
of law between the contracting parties and should be complied with in good faith

Unauthorized contracts are unenforceable

- As a general rule, a person is not bound by the
contract of another which he has no knowledge or to
which he was not given consent.
- EXCEPTIONS: Unless ratified, expressly or impliedly,
by the person whose name was used to enter into the
contract or the person authorized. The ratification must
be clear and express without doubt or vagueness.
When a person is bound by the contract of another
- The person entering must be duly authorized
- He must act within his power

Chapter 2
Essential Requisites of Contract
Art. 1318. There is no contract unless the following requisites concur:
1) Consent if the contracting parties;
2) Object certain which is subject matter of the contract;
3) Cause of the obligation which is established
Classes of elements of a contract
1. Essential elements – without which there will be no contract even if there are
intentions of the parties. Subdivided into:
a. Common – present in all contracts: consent, object, cause
b. Special – not common to all contracts or maybe present only in certain
specified contracts, and such peculiarity may be:
1) As to form – e.g. public instrument in donation of
immovable property, delivery in real contracts, registration
in real estate mortgage, chattel mortgage
2) As to subject matter – e.g. real property in antichresis,
personal property in pledge
3) As to consideration or cause – e.g. price in sale, in lease,
liberty in commodatum
2. Natural Elements – presumed to exist unless the contrary is expressly stipulated; e.g.
warranty against eviction, warranty in sale
3. Accidental Elements – exist only if expressly stipulated by the parties; e.g. conditions,
period, interest, penalty
 SECTION 1 – CONSENT
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it
came to his knowledge. The contract, in such a case, is presumed to have been entered
into in the place where the offer was made. (1262a)

Consent – meeting of minds between parties on the subject matter and the cause; mutual assent
or agreement takes place when there is an offer and acceptance of the offer.
Requisites/elements:
1) Manifested by the concurrence of the offer and the acceptance (Art. 1319-1326)
2) The contracting parties must possess the necessary legal capacity (Art.1327-
1329)
3) It must be intelligent, spontaneous, free and real (Art 1330-1346)
Offer – is a proposal made by one party to another, indicating a willingness to enter into a contract;
promise to act or refrain from acting on condition that the terms thereof are accepted by the person
to whom it is made.
1. The offer must be certain so the liability/right of the parties be fixed;
necessary that the acceptance be identical with the offer to create a
contract without any further act on the part of the offeror.
2. An offer must be seriously intended – an offer made out of anger, emotions
or not seriously intended is not a valid offer; when the lack of seriousness
was not apparent to the offeree, the offer may be valid.
Acceptance – the manifestation of the offeree’s assent to the terms of the offer; there can be no
meeting of minds without acceptance
- The acceptance of the offer must not only be clear but
absolute, unconditional, unqualiified1 – must be identical
in all respect to produce consent
- Qualified acceptance – constitutes a counter-offer, in
law, in considered a rejection of the original offer
Art. 1320. An acceptance may be express or implied.
Form of acceptance – may be oral or written; an implied acceptance is one that is inferred from
act or conduct
 ART. 1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with. (n)

The person making the offer may fix the time, place and the manner of acceptance, all of which
must be complied with. An acceptance departing from the terms constitutes a counter-offer.

Communication of the offer – offer must be communicated and received by the offeree; may be
letter, telephone, email; may be expressed or implied by the language or acts by the offeror
understood by the other party.

ART. 1322. An offer made through an agent is accepted from the time acceptance is
communicated to him. (n)
Communication of Acceptance
1) To offerer – acceptance must be absolute; must be communicated to the offerer;
maybe expressed or implied
2) To agent – by legal fiction, an agent is considered an extension of the personality
of his principal; if authorized, the act of the agent is the act of the principal; there
will be no meeting of minds if the principal made an offer and the acceptance is
communicated through the agent, unless he is authorized to receive the
acceptance.
ART. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed. (n)
The offer may be revoked before it is accepted by communicating such intentions; acceptance of
the offer leads to the perfection of the contract.
Above article states, even if not withdrawn, the offer will be ineffective upon the death, civil
interdiction, insanity, or insolvency of either the parties before the conveyance of the acceptance.
Failure to comply with the terms of the offer will render the offer ineffective and prevent the
creation of the contract.
Civil Interdiction – cannot enter into another contract. Your rights are suspended as a penalty.
ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as something paid or promised.
(n)
Option Contract – giving a person for a consideration of a certain period within which to accept
the offer of the offerer; may also refer to the privilege itself given to the offeree to accept within a
certain period
Option Period – period given within which the offeree must accept the offer
Option Money – money paid or promised in consideration for the option
Withdrawal of offer where period stipulated for acceptance:
GENERAL RULE: The offer may be withdrawn as a matter of right at any time before the
acceptance
EXCEPTION: when the option is founded upon a consideration, as something paid or
promised.
Art. 1324 vs Art. 1479
In a unilateral buy and sell, if there is no consideration given or not supported by any
consideration, the offerer may withdraw the offer anytime, even if it was accepted.

Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not
definite offers, but mere invitations to make an offer.
Business advertisements are not definite offers – they are merely invitations to the reader to
make an offer
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary
appears.
Advertisements of bidders are not definite offers – the advertisers are not the offerers, the
bidders are the one making the offer for the advertisers to accept.
GENERAL RULE: The advertiser is not bound to accept the highest bidder (in case of a sale),
or the lowest bidder (in case of a construction) unless the contrary appears.
EXCEPTIONS: In judicial cases, the sheriff or auctioneer is bound to accept the highest bidder

Art. 1327. The following cannot give consent to a contract:

1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who do not know how to write.
Capacity to give consent presumed – the civil does not define who is capacitated to give consent,
however, it does define who are not. The burden of proof is on the party who asserts incapacity.
Persons who cannot give consent – contracts entered by incapable persons are voidable. But
susceptible of ratifications
a. Unemancipated minors – persons not reached 18 years old and still subject to
parental authority. May be emancipated by attainment of age of majority, by
marriage, or by the concession recorded in the Civil Register, of the father or of
the mother or of the father who exercises parental authority
b. Insane or demented persons – the insanity must exist at the time of contracting.
Unless proved otherwise, a person is presumed sane
c. Deaf-mutes – [they are persons who are deaf and dumb]
 - If the deaf-mute knows how to write, the contract is valid
for then he is capable of giving intelligent consent
- A deaf-mute that can read can give a consent – valid
Reason for disqualification – can easily be victims of fraud as they are not capable of
understanding or knowing the nature or import of their actions
Other Special Disqualification may be provided by law –

1. Under the Rules of Court – may be placed under guardianship

a. Persons suffering the accessory penalty civil interdiction
b. Hospitalized lepers
c. Prodigals
d. Deaf and dumb who are unable to read and write
e. Those who are of unsound mind even though they have lucid intervals
f. Those who, by reason of age, disease, weak mind and similar causes that
cannot take care of themselves becoming an easy prey for deceit and
exploitation
2. The following can’t give a valid consent:
a. Insolvents until discharged
b. Married woman in cases specified by law
c. Husband and wife with respect to sale of property of each other
d. Other persons especially disqualified by law
e. Under civil interdiction
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a
state of drunkenness or during a hypnotic spell are voidable.
Lucid Interval – temporary period of sanity; must be shown, however, that there is a full return of
the mind to sanity as to enable him to understand the contract he is entering into.
Contract entered into in a state of drunkenness or during hypnotic spell is VOIDABLE.
Art. 1329. The incapacity declared in Art. 1327 is subject to the modifications determined
by law, and is understood to be without prejudice to special disqualifications established
in the laws.
MODIFICATIONS TO ART. 1327
1. When necessaries are sold and delivered to a minor or other person w/o capacity, he
must pay a reasonable price therefor
2. A minor 18 y.o. or above may contact for life, health, and accident insurance, provided
the insurance is taken on his life and the beneficiary appointed is the minor’s estate or
the minor’s father, mother or siblings, wife, child
3. Entered into through a guardian or legal representative
4. When the minor misrepresented his age and convincingly led the other party to believe
in his legal capacity
5. When a minor bet 18- 21 yo voluntarily pays a sum of money or delivers a fungible thing
in fulfillment of his obligation and the oblige has spent or consumed it in good faith
 Art. 1330. A contract where consent is given through mistake, violence, intimidation,
undue influence, fraud, is voidable.
Characteristic of consent (or requisites?)
1. It is intelligent – capacity to act
2. Free and voluntary – no violence or intimidation
3. Conscious or spontaneous – no mistake, undue influence, or fraud
Vices of Consent (VIMFU)
- Violence (Art. 1335)
- Intimidation or threat or duress (Art. 1331)
- Mistake (Art. 1331)
- Fraud (Art. 1338)
- Undue Influence (Art. 1337)
Causes vitiating consent and causes of incapacity distinguished (but both make a contract
voidable)

Causes vitiating consent Causes of incapacity

Temporary More or less permanent
Refers to the contract itself Person entering the contract

ART. 1331. In order that mistake may invalidate consent, it should refer to the substance
of the thing which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only
when such identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1266a)
Mistake or error – is the false notion of a thing or a fact material to the contract
Nature of Mistake:

- Generally, a person who makes mistake can’t avoid liability to the innocent party unless he
shows that he is free of fault or neglect
1. Mistake of Fact – ignorance or lack of knowledge
2. Mistake of Law – substantial mistake of fact; party would not have given the
consent had he known the mistake
 Mistakes of fact to which the law refers (SCI).
a. Substance of the object of the contract
b. Conditions which have principally moved one or two to enter into
the contract
c. Identity or qualifications of one of the parties provided the same

3. Maybe Unilateral vs Bilateral – Unilateral: only one party is mistaken about a

material fact; Bilateral: when both parties are in error
EXCEPTION:
1. Error to the incidents of a thing or accidental qualities not taken as principal
consideration, unless error is caused by fraud of the other party
e.g. buying a thing with this quality but it is not
2. Mistake to the quality or amount does not vitiate consent but only gives rise to its
correction, unless it goes to the essence of the contract
e.g.
3. Errors of motives unless the motives constitute a condition or cause of the contract
e.g. [motives does not affect a contract unless it is the cause]
4. Mistake as to the identity or qualification. As long as entered into more in
consideration of the things and services rather than the person. However, if the identity
or qualifications of the person is taken into consideration. As obligations to do requiring
personal qualifications: contracts of partnership, agency, commodatum, guaranty,
deposit, etc.
e.g.
5. Errors that can be avoided. If he had known due to ordinary diligence . . .
Effect of mistake of account.
1. Where mistake is simple. – simple mistakes does not avoid contract coz it does not
affect the essential requisites. Mistake can be corrected.
2. Where mistake is gross. – where mistake is so gross and was clearly apparent to one
party, said party cannot avoid liability on the ground of mistake in computation
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former.
Presumption: when a person signs a document he does so with full knowledge and
understanding of the contents
Exception: when one of the party entering into a contract who is unable to read, the party
enforcing the contract who is duty-bound to show that there has been no fraud or mistake and
the terms of the contract have been fully explained to the former.
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk
affecting the object of the contract.
Assumption: if a party knew beforehand the doubt, contingency or risk, he is willing to take the
chances and cannot, therefore, claim mistake.

Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the
parties is frustrated, may vitiate consent
Meaning of mistake of law – arises from ignorance of some provisions of law, or from
erroneous interpretation of its meaning or erroneous conclusion as to the legal effect of the
agreement.
Effect of mistake of the law – does not invalidate consent because “ignorance from the law
excuses no one”

EXCEPTION: when there is mistake on a doubtful question of law, or on the construction or

application of law
Requisites of the application of Art. 1334
1. The error must be mutual
2. It must be as to the legal effect of an agreement
3. It must frustrate the real purpose

Art. 1335. There is violence when in order wrest consent, serious or irresistible force is
employed.
There is intimidation when one of the contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants or ascendants, to give consent.
To determine the degree of the intimidation, the age, sex and the condition of the person
shall be borne in mind.
A threat to enforce one’s claim through competent authority, if the claim is just or legal,
does not vitiate consent.
Nature of violence or force.
- Employment of physical force
- Force employed must be either serious or irresistible
- For the above cases: Consent is not free
Nature of Intimidation or fear
For intimidation to vitiate fear:
1. It must produce a reasonable and well-grounded fear of an evil
2. The evil must be imminent and grave
3. The evil must be upon his person or property, or that of his spouse, descendants,
or ascendants
4. It is the reason he entered into the contract
Factors to determine degree of intimidation

Depends upon the circumstances, including the age, sex, and condition of the person. If
it is only reverential fear, the contract is still valid unless the fear so deprives one of reasonable
inference that undue influence has been exercised.
Threat to enforce just or legal claim

The threat of a court actions as a means ti enforce a just or legal claim is justified and
does not vitiate consent. The creditor may demand payment, this may result as a threat but
does not vitiate consent. It is his rights to demand fulfillment.
 Art. 1336. Violence or intimidation shall annul the obligation, although it may have been
employed by third person who did not take part in the contract.
Violence and intimidation may be employed by a third person. However, it is necessary that
violence and intimidation be of the character required in Art. 1335
Art. 1337. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in financial
distress.
Undue Influence – influence that overpowers the mind of a party as to prevent him from acting
understandingly and voluntarily to do what he would have done if he had been left to exercise
freely his own judgment and discretion; MUST BE UNDUE AND IMPROPER.
Circumstances to be considered:
1. Confidentiality, family, spiritual and other relations between the parties
2. Mental weakness
3. Ignorance
4. Financial distress of the person alleged to have unduly influenced
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.
Causal Fraud – fraud committed to secure consent of the other party. Used by a party to induce
the other to enter into a contract w/o w/c the latter would not have agreed to.
How causal fraud is committed
1. Insidious Words or Machinations – this includes any misrepresentation in words or
action done with a fraudulent purpose
2. Concealment – failure to communicate or disclose that which a party to a contract
knows and ought to communicate (Art. 1339)
If the causal fraud did not cause the other contracting party to give consent, it gives rise only to
damages.
Requisites of causal fraud under Art. 1344
1. It should be serious ( its importance; slight and usual deviations from the truth)
2. It should not have been employed by both contracting parties ( the fraud of one,
neutralizes the other)
3. It should not have been known by the other contracting parties
Requisites to annul consent through Causal Fraud
 1. There must be misrepresentation or concealment of a material fact with knowledge of its
falsity
2. It must be serious
3. It must be employed by one of the contracting parties. If a third person committed fraud
in connivance with, or at least the knowledge of the favored party.
4. Made in bad faith or with the intent to deceive the other contracting party
5. It must have induced the consent of the other contracting party
6. It must be alleged and proved by clear and convincing evidence
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes fraud.
Concealment- a neglect or failure to communicate or disclose that which a party to a contract
knows and ought to communicate; equivalent to misrepresentation or false representation; the
injured party may RESCIND OR ANNUL the contract, may it be intentional or unintentional as
long as there was a duty to disclose them.
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent. (n)
The law allows considerable latitude to seller’s statements statement and teaches that it is
exceedingly risky to accept it at its face value. To constitute fraud, the misrepresentation must
be of a fact, past or present, and not a mere expression of an opinion.
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former’s special knowledge.(n)
For expressions amount to fraud:
1. It must be made by an expert
2. The other contracting party has relied on the experts opinion
3. The opinion turned out to be false or erroneous
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)
Fraud by a third person.
General Rule and a characteristic of contract: A THIRD PERSON HAS NO
CONNECTION TO THE CONTRACT
However, If the misrepresentation has created a substantial mistake and affects both
parties, the contract may be annulled but principally on the grounds of MISTAKE.
If the misrepresentation was practiced in connivance with, or at least the knowledge of
the favored contracting party, this vitiate consent.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute
error.
If the misrepresentation is not intentional but made in good faith, it only considered a mistake.
The contract may be voidable.
 Art. 1344. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
Two (civil) fraud in making contracts:
1. Causal Fraud – grounds for the annulment of contracts; at times may also give
rise to an action for damages
2. Incidental Fraud – only renders the party who employs it liable for damages
because the fraud was not the principal inducement that led the other to give the
consent. This does not vitiate the consent.
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement.
Art. 1346. An absolute simulated or fictitious contract is void. A relative simulation, when
it does not prejudice a third person and is not intended for any purpose contrary to law,
morals, and good customs, public order or public policy binds the parties to their real
agreement.
Simulation of a contract – is the act of deliberately deceiving others, by feigning or pretending
by agreement, the appearance of a contract which is either non-existent or concealed.
Kinds of Simulation:
1. Absolute Simulation – when the parties do not exist and the parties do not intend
to be bound at all. They are inexistent and void.
2. Relative Simulation – when the contract entered into the parties is different from
their true agreement. They are bound by their real agreement
- Question for number 2: what are the actions against
the relative simulation?
- Answer: Art. 1345-1346

SECTION 2 – OBJECT OF CONTRACTS

Art. 1347. All things which are not outside the commerce of men, including future things,
may be object of a contract. All rights which are not transmissible may also be the object
of contracts.
No contract may be entered into upon future inheritance in cases expressly authorized
by law.
All services which are not contrary to law, morals, good customs, public order and public
policy may likewise be object of a contract
Art.1348. Impossible things or services cannot be the object of contracts.
Object of the Contract – is its subject matter; the obligation created; it may be said that the
thing, service, or right which is the object of the obligation is also the object of the contract.
Requisites of things as object of contract
1. Within outside the commerce of men – it can legally be the subject of commercial
transaction
2. It must not be impossible, legally or physically
3. It must be in existence or capable of coming into existence (determinable things)
4. It must be determinate or determinable without the need of a new contract
between the parties
Requisites of services as object of contract
1. The services must be within the commerce of men
2. It must not be impossible, physically and legally
3. It must be determinate and capable of being made determinate
Rights as object of contracts
All rights may be the object of a contract. EXCEPTION: when they are not transmissible
by their nature, or by stipulation, or by provision of the law.
Future Inheritance – is any property or right, not in existence or capable of determination at the
time of the contract, that a person may inherit in the future
Inheritance ceases to be future upon the death of the decedent or deceased.
Validity of contracts upon future inheritance.

When the law permits contracts on future inheritance:

1. In the case of donations by reason of marriage between future spouses with
respect to their future property to take effect, only in the event of death, to the
extent laid down by law in testamentary succession
2. In the case of partition of property by act inter vivos by a person to take effect
upon his death
Kinds of Impossibility
1. Physical – when the thing or service in the very nature of things cannot exist. When
impossibility to service:
a) Absolute – when the act cannot be done in any case so that nobody can perform
it
b) Relative – when it arises from special circumstances of the case
2. Legal – when the thing or service is contrary to law, morals, good customs, public order
and public policy, may be forbidden by the law, rule of law makes it impossible
Art. 1349. The object of every contract must be determinate as to its kind. The fact that
the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine same, without the need of a new contract between
parties.
Quantity of object need not be determinate.
It is sufficient the quantity of the determinable object is possible to determine without the
need of a new contract between the parties.
 SECTION 3 – CASE OF CONTRACTS
Art. 1350. 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.
Cause – the essential reason or purpose; it is something bargained for or given by a party in
exchange for a legally enforceable promise of another
Cause vs Object – the distinction is only a matter of viewpoint in bilateral or reciprocal contract;
each party in a bilateral contract is both a promisor and a promise with the mutual promises
constituting the cause or consideration.
Classification of contracts according to cause:
1. Onerous – the cause of one is the prestation of another; parties are reciprocally
obligated to each other
2. Remuneratory – the case of which is the service or benefit which is remunerated;
purpose of the contract is to reward the service that was been previously rendered by
the party remunerated
3. Gratuitous – the cause of which is the liberality of the benefactor or giver
Art. 1351. The particular motives of the parties in entering into a contract are different
from the cause thereof.
Motive – purely personal or private reason which a party has in entering into contract

Cause Motive
Immediate or direct reason The remote or indirect reason
Known to other contracting parties May be unknown
Essential element of a contract Not
The illegality of the cause affects the validity The illegality of the motive does not render
of the contract the contract void

The motive may be found as a cause in a contract upon a fraudulent purpose to prejudice a
third person
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law, morals, good customs, public order or
public policy.
Art. 1353. The statement of a false cause in contracts shall render them void, if it should
not be proved that they were founded upon another cause which is true and lawful.
Requisites of Cause:
1. It must exist
2. Must be lawful
3. Must be true and real
Effect of the absence of cause:
 This means that there is total lack of valid consideration for the contract. CONTRACTS
W/O CAUSE CONFER NO RIGHT AND PRODUCE NO LEGAL EFFECT WHATEVER.
1. A contract which is absolutely simulated or fictitious is inexistent and void
2. Where there is, in fact, no consideration the statement of one in the contract will
not suffice to bring it under the rule of Article 1353 as stating a false
consideration.
3. Promises are not enforceable as contracts because they contain no
consideration
4. Similarly, promises made in gratitude for good deeds of others cannot be
enforced for they constitute moral consideration only not legal
Effects of failure of cause
Effects of illegality of cause
Illegality of cause implies that there is a cause but it is unlawful or illegal. Such contracts
are null and void.
Effects of falsity of cause
Falsity of cause – means that the contract states a valid consideration but such
statement is not true. False cause may be:
1. Erroneous – always render a contract void. (if the contract is false, the same does not
exist)
2. Simulated – does not produce the same effect as the erroneous. Because the hidden
but true cause may be sufficient to support the contract. If the parties can prove that there is
another cause that is true and law they shall be bound by the true agreement.
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists
and is lawful, unless the debtor proves the contrary.
It is not necessary that the cause be expressly stated in the contract. The presumption is that
the cause exists and is lawful unless the debtor proves the contrary. However, this is not
conclusive and may be contradicted by contrary evidence.
Art. 1355. Except in cases specified by law, lesion or inadequacy of case shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.
Lesion – is any damage caused by the fact that the price is unjust or inadequate.

GENERAL RULE: Lesion or inadequacy of cause does not of itself invalidate a contract. The
law assumes that the parties themselves remain the best judges of how much their bargain is
worth. – the law assumes that the parties bargains with their best judgments.
EXCEPTIONS: Lesion will invalidate contracts:
a. When there has been fraud, mistake, or undue influence
b. In cases specified by law
 CHAPTER 3
FORMS OF CONTRACT
Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. However, when the
law requires that the contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable. In such cases, the right of the parties stated in the following article
cannot be exercised.

Forms of Contract – manner in which a contract is executed; may be oral, in writing or partly
writing or partly oral;
Express – when the parties expressly state their intentions
Implied – intentions may be inferred from their actions or conduct
Contracts are generally recognized as written contracts. When they part written and part oral
they are oral contracts
Classifications of contract according to form:
1. Informal or common – maybe entered into in whatever form as long as all the
requisites are present; e.g. consensual contracts such as sale. Maybe written or oral.
2. Formal or Solemn – required by law for its efficacy to be in a specified form

Rules on Contracts
General Rule – Contracts are binding and enforceable reciprocally by the contracting parties,
whatever form they maybe, provided all 3 requisites are present for validity.
A written contract may consist of a letter, memo, note or other instrument w/o ff any particular
form or language, it being sufficient that the parties express their intentions.
Exceptions – form is required in the ff cases:

1. When the law requires it to be in some form to be valid

2. When the law requires it to be in some form to be enforceable or proved in a certain
way
3. When the law requires that a contract be in some form for the convenience of the
parties or for the purpose of affecting a third person
Form for validity of contract
1. Donation of real property
2. Donation of personal property the value of which exceeds P5,000
3. Sale of Land through an agent
 4. Stipulation to pay interest
5. Contract of partnership
Forms for enforceability of contract
Cases covered by Statutes of Frauds, contracts must be in writing. If not, it is still
unenforceable but can’t be proved. So dle ma enforce by either party if one refuses to perform
unless it is ratified by the party who refused.
Art. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract.

In certain cases, a certain form may be requires for the convenience of the parties. Non-
compliance with the required form would not adversely affect the validity nor enforceability of the
contract between the parties themselves.
ART. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must appear
in writing, even a private one. But sales of goods, chattels or things in action are
governed by Articles 1403, No. 2 and 1405. (1280a)

Contracts w/c must appear in a public document

Public documents are required for the convenience and greater protection of the parties
and to make the contract binding as against third persons. The law does not require a contract
in a public instrument but only to ensure efficacy so that after the existence of the act or contract
has been admitted, the party bound may be ordered by the court in w/c the action or suit is filed
to execute the document.
- Dle required na public document siya but for efficacy or
convenience for the both parties lang.
 Chapter 4
REFORMATION OF INSTRUMENTS
Art. 1359. When, there having been a meeting of the minds of the parties to a contract,
their true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the instrument to the end that such true intention
may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds
of the parties, the proper remedy is not reformation of the instrument but annulment of
the contract.

Reformation – remedy allowed by law to amend or rectify the written instrument to conform to
the real intentions of the parties.
If through the mistake, fraud, inequitable conduct or accident the remedy is annulment of the
contract.
The rationale – it would be unjust and inequitable to allow enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds of the parties.

Requisites of Reformation:
1. There is meeting of the minds of the parties to the parties
2. The written instrument does not express the true intentions of the parties
3. Failure to express the true intention is due to mistake, fraud, inequitable conduct or
accident
4. The facts upon which relief by way of reformation of the instrument is sought are put in
issue by the pleadings
5. There is clear and convincing evidence of the mistake, fraud, inequitable conduct or
accident
Reformation vs Annulment

Reformation
There is a meeting of minds of the parties.
The contract exist but the written instrument
does not reflect the true intentions of the
parties by reason of mistake, etc.
If they agreed some inclusion but it is not
written in the instrument pwede ra siya
reformation.
Annulment
There has been no meeting of the minds, the
consent of one of the parties being vitiated by
mistake, etc.
Here one party thought different, one thought
another, thus no meeting of minds so
annulment is a remedy
Art. 1360. The principles of the general law on the reformation of instruments are hereby
adopted insofar as they are not in conflict with the provisions of this code.

If New Civil Code vs the principles of the general law, the former must prevail.
e.g.

Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to
disclose their real agreement, said instrument may be reformed.
Mutual Mistake – mistake of fact common to both parties of the instrument which causes the
failure to express the real intentions of the parties.
Requisites for reformation under mutual mistake:
1. The mistake must be of fact
2. Such mistake must be proved by clear and convincing evidence
3. The mistake must be mutual, that is, common to both parties to the instrument
4. Mistake must cause the failure of the instrument to express their true intentions
If mutual mistake is of law, the remedy is annulment.
Art. 1362. If one party has mistaken and the other acted fraudulently or inequitably in a
way that the instrument does not show their true intention, the former may ask for the
reformation of the instrument.

Here the right to ask for reformation is granted only to the party who was mistaken in good faith.
Art. 1363. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from the former, the
instrument may be reformed.
The remedy for reformation may be availed by the party who acted in good faith. Concealment
of mistake constitutes fraud.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of
the person drafting the instrument or of the clerk or typist, the instrument does not
express the true intention of the parties, the courts may order that the instrument be
reformed.
Neither of the parties are at fault, either may ask for reformation
Art. 1365. If two parties agree upon the mortgage or the pledge of real or personal
property, but the instrument states that the property is sold absolutely or with a right of
repurchase, reformation of the instrument is proper.
Reformation of the instrument is proper, otherwise the true intention of the parties would be
frustrated.
WHAT IS THE DOCTRINE OF REFORMATION OF INSTRUMENTS UNDER THE CIVIL
CODE?
When the true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that such true intention may be expressed
(Article 1359).

Art. 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void

Art. 1367. When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation.
Cases when reformation is not allowed:
1. Simple donations inter vivos where no condition is imposed. Donation – act of liberty
whereby a person disposes gratuitously of a thing or right in favor of another, who
accepts it. Donors can ask for reformation of the deed. If donation is conditional or
onerous, the deed may be reformed to express the real intentions.
2. Wills – formalities prescribed by the law to control at a certain degree the disposition of
his estate, to take effect after his death. The making of the will is strictly personal and a
free act. A will may be revoked by the testator any time before his death.
3. When the real agreement is void – when the real agreement is void, there is nothing to
reform
4. When one party has brought an action to enforce the instrument – based on estoppel or
ratification. When a party brings action to enforce the contract, he admits the validity of
the contract and expresses true intentions of the parties. It becomes inconsistent with
reformation.
Art. Reformation may be ordered at the instance of either party or his successors in
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his
heirs and assigns.
Party entitled for reformation:
1. Either of the parties, if the mistake is mutual
2. In all other cases - the injured party
3. The heirs or successors in interest, in lieu of the party entitled
The burden of proof is upon the party who insists that the contract should be reformed;
Presumption – an instrument sets out the true agreement of the parties. Effect is retroactive
from the time of the execution of the original contract.
Art. 1369. The procedure for the reformation of instruments shall be governed by rules of
court to be promulgated by the Supreme Court.
 Chapter 5
INTERPRETATIONS OF CONTRACTS
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.

Interpretation of Contracts – is determining the meaning of the terms of the contract. The
process of ascertaining the intentions of the parties from the written words of the parties.
Contracts should be fulfilled according to their literal sense of stipulations.

Intentions of the party vs Terms of the contract

If the intention of the parties contradict with the terms of the contract the former should
prevail. Substance over Form.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.

When the intentions of the parties are not ascertained from the words of the contract, their
contemporaneous and subsequent conduct may be indication of the contracts.
Art. 1372. However general the terms of a contract may be, they shall not be understood
to comprehend things that are distinct and cases that are different from those upon
which the parties intended to agree.
The parties express themselves in reference to a particular matter, the attention is directed to
that. If it is a general matter, wherein the particular matter may be included, does not
necessarily indicate that the parties had a particular matter in mind.
If we base it one general terms then we can’t assure if there was a particular matter in mind.
Art. 1373. If some stipulation of any contract admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.
Contracts with several meanings:
One of which would render it effectual, it should be given that interpretation.
e.g. S sold to B a parcel of land. S has two parcels of land but the other one is co-owned. The
one most adequate would be the parcel of land not co-owned by S.
Art. 1374. The various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly.
Contracts with various stipulations
A contract must be interpreted as a whole and the intention of the parties is to be
gathered from the entire instrument and not from particular words or phrases.
Art. 1375. Words which may have different significations be understood in that which is
most in keeping with the nature and object of the contract.
Words with different significations
If there are words susceptible to two or more meanings, the meaning which is most
keeping with the nature and object of the contract must prevail.
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of
the ambiguities of a contract, and shall fill the omission of the stipulations which are
ordinarily established.
The usage or custom of the place may be used to explain what is doubtful or ambiguous in a
contract on the theory that the parties entered into their contract with reference to such usage or
custom.
Burden of proof of the existence of the usage or custom is to be carries by the party alleging it.
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.
Responsible ang party nga nag cause sa doubt or is in favor man sa party nga nag
comply with good faith.
The party that caused obscurity could have prevented mistakes or ambiguity in meaning
by careful choice of words
Contracts of Adhesion – contracts most of the terms of which do not result from mutual
negotiation between the parties. Usually prepared by one party and the other may adhere to it
but not change.
ART. 1378. When it is absolutely impossible to settle doubts by the rules established in
the preceding articles, and the doubts refer to incidental circumstances of a gratuitous
contract, the least transmission of rights and interest shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a way that it
cannot be known what may have been the intention or will of the parties, the contract
shall be null and void. (1289)

Rules in case doubts impossible to settle.

1. Gratuitous Contract – if doubts refer to incidental circumstances of a gratuitous
contract, the one with the least transmission of rights and interest shall prevail/ should be used.
e.g. Donation vs Commodatum – the latter has the least transmission of rights
 2. Onerous Contract – greatest reciprocity of interest
e.g. a loan within 6 months or 1 year – the latter has the greatest reprocity
3. Principal Object of the Contract – if doubt refers to the principal object and such doubt
can’t be resolved thereby leaving the intention of the parties unknown, the contract is null and
void.
Art. 1379. The principles of the interpretation stated in Rule 123 of the Rules of Court
shall likewise be observed in the construction of contracts.

Chapter 6
RESCISSIBLE CONTRACTS
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by
law.
Rescissible Contracts – are validly agreed upon by the parties ‘coz all the requisites are
present, but in the cases established by law, rescission may be granted in the interest of equity.
They are valid and enforceable but are subject to rescission when there is economic injury on
one of the parties or of a third person. The contract’s enforcement would cause injustice.
Rescission – remedy granted my law to the contracting parties (or at times the third party) to
secure reparation of the damages caused by the valid contract, by means of the restoration of
things to their condition in which they were prior to the celebration of the contract.
Requisites of rescission:
1. The contract must be validly agreed upon
2. There must be lesion or pecuniary prejudice to one of the parties or to a third person
3. The rescission must be based upon a case provided by law
4. There must be no other legal remedy to obtain reparation for the damages
5. The party asking for reparation must be able to return what he is obliged to restore by
reason of the contract
6. The object of the contract must not legally be in the possession of third persons who did
act in bad faith
7. The period for the action for the rescission must not have prescribed
ART. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object
thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated
in the preceding number;
 (3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)

Cases of rescissible contracts:

1. Contracts entered into by guardians/ in behalf of wards – ward: a person under
guardianship by reason of some incapacity. When the wards suffer lesion by more than
¼ of the original value of the thing
2. Contracts agreed upon in representation of an absentee – absentee : is a person who
disappears from his domicile, his whereabouts are unknown and w/o leaving an agent to
administer hi properties. ¼ rule lesion applies here as well.
3. Contracts undertaken in fraud of creditors – ff are requisites for this case (in order that
fraud of creditor be valid for rescission) :
a) There must be an existing credit prior to the contract to be
rescinded, although it is not yet due and demandable
b) There must be fraud on the part of the debtor which may be
presumed or proved
c) The creditor can’t recover his credit in any other manner , it not
being required that the debtor be insolvent
4. Contracts w/h refer to things under litigation –
5. Other instances –

Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time they were effected, are also rescissible.

DI KO PANI GETS
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
Rescission is not a principal remedy. It is only subsidiary, meaning it can only be availed of the
injured party has proven that he has no other legal means to aside from rescinding the contract
to obtain redress for the damages caused.
Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused.
The rescission shall only be to the extent of the creditor’s unsatisfied credit.
ART. 1385. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can return whatever he may be
obliged to restore.
 Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
(1295)
When the court declares a contract rescinded, the parties must return to each other;
1. The object of the contract with its fruits
2. The price thereof with legal interest
The purpose is to restore the parties to their original situation.

A third person may also demand rescission, if naa siyay irestore? Or need niya I return? Or
affected siya?

Rescission not allowed:

1. If the party who demands rescission can’t return what he is obliged to restore
2. If the property is in the hands of a third person who acted in good faith. Remedy is to
indemnify the person who caused the loss.

Art. 1386. Rescission referred to in No. 1 and 2 of article 1381 shall not take place with
respect to contracts approved by the courts.
If the contract entered into in behalf of a ward or absentee has been approved by the court,
rescission can’t take place because it is valid whether there is lesion or not.
The law presumes that the court is acting in the interests of the ward or absentee when it
approved the contract.
ART. 1387. All contracts by virtue of which the debtor alienates property by gratuitous
title are presumed to have been entered into in fraud of creditors, when the donor did not
reserve sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against
whom some judgment has been rendered in any instance or some writ of attachment has
been issued. The decision or attachment need not refer to the property alienated, and
need not have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in any
other manner recognized by the law of evidence. (1297a)
When alienation presumed in fraud of creditors:
1. Alienation by gratuitous title – (ang dating sa ako kay bale daghan siya utang tas nag donate
siya kay somebody ug property para dle maapil sa bayad sa utang)
2. Alienation by onerous title –

Circumstances denominated as badges of fraud

1. The fact that the consideration of the conveyance is fictitious or inadequate
2. A transfer made by a debtor after suit has been begun and while it is pending
against him
3. A sale upon credit by an insolvent debtor
4. The transfer of all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially
5. The fact that the transfer is made between father and son, when there are
present some or any of the above circumstances
6. The failure of the vendee to take exclusive possession of all the property
7. It was known to the vendee that the vendor had no properties other than that sold
to him.
ART. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on
successively. (1298a)
The purchaser in bad faith, must return the same if the sale is rescinded. If impossible to return,
due to any cause, he must indemnify the person who defraud the creditor(?).
ART. 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not
begin until the termination of the former’s incapacity, or until the domicile of the latter is
known. (1299)
Periods for filing action for rescission

General Rule: actions to claim rescission must be commenced w/in four years from the
date the contract was entered into.

Exception:
1. For persons under guardianship, the period shall begin from the termination of
the incapacity
2. For absentees, from the time the domicile is known
Persons entitled to bring action:

1. The injured party or the defraud creditor

2. His heirs, assigns, or successors in interest
3. The creditors of the above entitled to subrogation
 Chapter 7
VOIDABLE CONTRACTS
ART. 1390. The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification. (n)
Voidable or annullable contracts – are those which possess all the essential requisites of a
valid contract but one of the parties is incapable of giving consent or consent is vitiated through
the different vices.
They are legally binding and enforceable but may be annulled by the injured party. Once
ratified, they can absolutely become valid and can no longer be annulled. Economic damage is
not required.
Kinds of rescissible contracts:
1. Legal capacity to give consent – one of the parties is not capable of giving
consent
2. Violation of consent, vitiated through the diff. vices
Annulment – remedy provided by the law, for the declaration of the inefficacy of a contract
based on a defect or vice of a consent of one of the parties
ART. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the
consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases. (1301a)
Period of filing action for annulment.

1. In cases of intimidation, violence, or undue influence – the time of the same

ceases. Before that time, consent is still vitiated and therefore cannot bring
actions in court
2. Mistake or fraud – the time it was discovered
 3. Contracts entered into by minors or incapacitated persons – time the
guardianship ceases

Art. 1392. Ratification extinguishes the action to annul a voidable contracts.

Ratification – means that one voluntarily accepts/adopts/approves the defects in a contract,
which without his approval would not be binding him. It indicates an intention on the part of the
ratifier to be bound to the provisions of the contract.
This cleanses the contracts of its defects from the moment it was constituted.
ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there is
a tacit ratification if, with knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to invoke it should execute
an act which necessarily implies an intention to waive his right. (1311a)

Kinds:

1. Express – when the ratification is manifested in words or in writing

2. Implied or tacit – in many forms: silence or acquiescence; by acts showing adoption or
approval of the contract; or by acceptance and retention of benefits flowing therefrom
Requisites:

1. Requisites of Implied Ratification

a) There must be knowledge of the reason which renders the
contract voidable
b) Such reason must be ceased
c) The injured party must have executed an act which necessarily
implies an intention to waive his right
2. Requisites for express ratification – are the same as those for implied ratification except
it is effected expressly.
Art 1394. Ratification may be effected by the guardian of the incapacitated person.
Who may ratify:
1. Contract entered into by an incapacitated person
a) The guardian – have the power to contract on their behalf, hence
they may also ratify contracts
b) The injured party himself provided he is already capacitated
2. In case the contract is voidable on the ground of mistake, etc. ratification can be made
by the party whose consent it vitiated

Art. 1395. Ratification does not require the conformity of the contracting party
who has no right to bring the action for annulment.
 Ratification is unilateral act by which a party waives the defect in his consent. The
consent of the guilty party is not required.

Art. 1396. Ratification cleanses the contract from all its defects from the moment it
was constituted.

Ratification cleanses the contract of all its defects from the moment it was executed. It
extinguishes the right for annulment. Effects: makes the contract valid from its inception
subject to the prior rights of the third persons.

ART. 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the contract. (1302a)

Partly entitled to bring an action to annul:

1. The plaintiff must have an interest in the contract
2. The victim and not the party responsible for the defect is the person who must
assert the same

Right of strangers to bring action

General Rule: one who is not a party to the contract or an assignee thereunder –
basta total stranger to the contract has no legal capacity to challenge the validity of such
contract

Except: Unless they can show detriment which would positively result to them
from the contract in which they had no intervention or participation.

Guilty party without right to bring action:

The guilty party, including his successor in interest, can’t ask for annulment. “He
who comes to court must come with clean hands”

Art. 1398. An obligation having been annulled, the contracting parties shall restore
to each other the things which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in cases provided by law. In
obligations to render service, the value thereof shall be basis for damages.

Duty of mutual restitution upon annulment

1. If the contract is annulled, the parties must restore to each other:

a) The subject matter of the contract with its fruits
b) The price thereof with legal interest
2. In personal obligations where service has been rendered, the value thereof with the
corresponding interest, is the basis for damages recoverable from the party benefited by
the service.
Art 1399. When the defect of the contract consists in the incapacity of one of the parties,
the incapacitated person is not obliged to make any restitution except insofar as he has
been benefited by the thing or price received by him.
For incapacitated persons, unless and until they are benefited, is not obliged to make restitution.
Art. 1400. Whenever the person obliged by the decree of annulment to return the thing
cannot do so because it has been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss, with interest from the same
date.
Effect of loss of thing to be returned
1. If the thing to be returned is lost w/o the fault of the person obliged to make restitution
(DEFENDANT), there is no more obligation to return the thing. In such a case, the other
cannot be compelled to restore what in virtue of the decree of annulment he is bound to
return
- If dle na magbalikanay ug things.
2. If the thing is lost through his fault, the obligation is converted into indemnity for
damages consisting:
a) The thing lost at the time
b) Interest of the thing lost at the time
c) Fruits from the time given to the time lost.
Art. 1401. The action for annulment of contracts shall be extinguished when the thing
which is the object thereof is lost through the fraud or fault of the person who has a right
to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties,
the loss of the thing shall not be an obstacle to the success of the action, unless said
loss took place through the fraud or fault of the plaintiff. (1314a)
Extinguishment of action for annulment

1. If the person who has the right to institute an action for annulment losses the thing
through his fraud or fault, his rights for annulment is extinguished.
2. Rules are the same with the above.
Art. 1402. As long as one of the contracting parties does not restore what in virtue of the
decree of annulment, he is bound to return, the other cannot be compelled to comply
with what is incumbent upon him.
When a contract is annulled, reciprocal obligation of restitution is created. The return of what is
incumbent upon him may be a condition of another of doing the same.
So walay annulment if the party cannot restore kung unsa iya kailangan iuli. Bisag unsa pa na
iya cause.
 Chapter 8
UNENFORCEABLE CONTRACT

ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the making
thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to
marry;
(d) An agreement for the sale of goods, chattels, or things in action, at a price not less
than Five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.

Unenforceable contract – those that cannot be enforced or given effect in a court of law or
sued upon by reason of defects provided by law unless they are ratified.
Valid but not enforceable in court unless ratified.
Kinds of unenforceable contracts:
1. Those entered into in the name of another by one w/o, or in excess of, authority;
2. Those that do not comply with the Statutes of Fraud;
3. Those where both parties are incapable of giving
Unauthorized contracts – those entered into in the name of another person by one who has
been given no authority or legal representation or has acted beyond his powers.

STATUTES OF FRAUD
History:
Purpose:
Writing under the Statute:
Application

Agreements within the scope of the Statutes of Frauds:

1. Agreement not to be performed within one year from the making thereof
2. Promise to answer for the debt, default, or miscarriage of another
3. Agreement in consideration of marriage other than mutual promise to marry
4. Agreement for sale of goods, etc at price not less than P500
5. Agreement for leasing for a longer period than one year
6. Agreement for the sale of real property or of an interest therein
7. Representation as to the credit of a third person
Art. 1404. Unauthorized contracts are governed by article 1317 and the principles of
agency in Title X of this Book.
Art 1405. Contracts infringing the Statutes of Frauds, referred to in No. 2, Article 1403,
are ratified by the failure to object to the presentation of oral evidence to prove the same,
or by the acceptance of benefits under them.
Modes of ratification under the Statutes:
1. By failure to object to the presentation of oral evidence to prove the contract.
2. By acceptance of benefits under the contract
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry of Deeds, the parties may avail
themselves of the right under article 1357.
Right of a party where contract enforceable.

There must be valid agreement and not infringe the Statutes of Frauds
1. Accordingly, a party to an oral sale of real property cannot compel the
other to put the contract in a public document for the purpose of
registration because it is unenforceable unless, of course, it has been
ratified
 2. Similarly, the right of one party to have the other execute a public
document is not available in a donation of realty when it is a private
instrument because the donation is void.
Art 1407. In a contract where both parties are incapable of giving consent, express or
implied ratification by the parent, or guardian, as the case may be, of one of the
contracting parties shall give the contract the same effect as if only one of them were
incapacitated. If ratification is made by the parents or guardians, as the case may be, of
both contracting parties, the contract shall be validated from the inception.

When the unenforceable contract becomes
voidable
If both the parties are incapable and if the
parent or guardian of either party or if one of
the parties have gained capacity ratifies the
contract, it becomes voidable.
When the unenforceable contract becomes
valid
If both of the guardians ratify, or both of them
have gained capacity then ratifies, the
contract becomes valid and its validity
retroacts to the time it was entered into.

Art 1408. Unenforceable contracts cannot be assailed by the third persons.

Chapter 9
VOID OR INEXISTENT CONTRACTS

ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality
be waived.
Void contracts – generally produces no effect
Inexistent Contracts – refer to agreements which lack one or some or all the requisites or do
not comply with the formalities which are essential for the existence of a contract

Characteristics of a void or inexistent contract:

1. Generally it produces no force and effect whatsoever
2. It cannot be ratified
3. The right to set up the defense of illegality cannot be waived
4. The action or defense of illegality is not available to third persons whose interests are
directly affected
5. It cannot give rise to a valid contract
Instances of void or inexistent contracts
1. whose cause, object or purpose is contrary to law, etc. (Art. 1306-1416)
2. which are absolutely simulated or fictitious –
3. without cause or object
4. whose object is outside the commerce of men
5. Contemplate an impossible service
6. Where the intention of the parties relative to the object cannot be ascertained
7. Expressly prohibited or declared void by law:
a) Contracts upon future inheritance except in cases expressly authorized
by law
b) Sale of property between husband and wife except when there is a
separation of property. (Art. 1490.)
c) Purchase of property by persons who are specially disqualified by law
(like guardians, agents, executors, administrators, public officers and
employees, judges, lawyers, etc.) because of their position or relation with
the person or property under their care. (Art. 1491.)
d) “Every donation between the spouses during the marriage shall be void
except moderate gifts which the spouses may give each other on the
occasion of any family rejoicing”
e) “A testamentary provision in favor of a disqualified person, even though
made under the guise of an onerous contract, or made through an
intermediary, shall be void”
f) “Any stipulation that household service is without compensation shall be
void”
g) “Under the Constitution members of Congress are prohibited from being
financially interested, directly or indirectly, in any contract with the
government or any subdivision or instrumentality thereof.
Art. 1410 The action or defense for the declaration of the inexistence of a contract does
not prescribe.
ART. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto,
 they shall have no action against each other, and both shall be prosecuted. Moreover,
the provisions of the Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract. This rule shall be
applicable when only one of the parties is guilty; but the innocent one may claim what he
has given, and shall not be bound to comply with his promise. (1305)
1. When both parties are in pari delicto:
a) The parties shall have no action against each other;
b) Both shall be prosecuted;
c) The things or the price of the contract, as the effects or instruments of the crime,
shall be confiscated by the government
2. Where only one party is guilty – par 1 of Art 1411, is only applicable to the guilty party. The
innocent or the less guilty may claim what he has given and shall not be bound to comply with
his promise

ART. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the other’s
undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise. (1306)
Rules where contract is illegal but the act does not constitute a criminal offense.
1. Where both parties are in pari delicto – if the cause of the contract is unlawful or
forbidden but there is no criminal offense, the rules are as ff:
a) Neither party may recover what he has given by virtue of the contract
b) Neither party may demand the performance of the other’s undertaking
2. Where only one party is guilty
a) The guilty party loses what he has given by reason of the contract
b) The guilty party cannot ask for the fulfillment of the other’s undertaking
c) The innocent party may demand the return of what he has given
d) The innocent party cannot be compelled to comply with his promise
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of the payment.
The person paying the usurious interest can recover in a civil action not only the interest in
excess of that allowed by law, but the whole interest paid.
ART. 1414. When money is paid or property delivered for an illegal purpose, the contract
may be repudiated by one of the parties before the purpose has been accomplished, or
before any damage has been caused to a third person. In such case, the courts may, if
 the public interest will thus be subserved, allow the party repudiating the contract to
recover the money or property.

Requisites for this article:

1. The contract is for an illegal purpose
2. The contract is repudiated before the purpose has been accomplished or before any
damage has been caused to a third person
3. The court considers that public interest will be subserved by allowing recovery
Art. 1415. Where one of the parties to an illegal contract is incapable of giving consent,
the courts may, if the interest of justice so demands, allow recovery of money or
property delivered by the incapacitated person.

Exception to the pari delicto, recovery can be allowed if one of the parties is incapacitated and
the interest of justice so demands
Art. 1416. When the agreement is not illegal per se but merely prohibited, and the
prohibition by the law is designed for the protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he has paid or delivered.
Recovery is permitted provided:
1. The agreement is not illegal per se but is merely prohibited;
2. The prohibition is designed for the protection of the plaintiff; and
3. Public policy would be enhanced by allowing the plaintiff to recover what he has paid or
delivered
Prohibited Sale of Land
Art. 1417. When the price of any article or commodity is determined by statute, or by
authority of law, any person paying any amount in excess of the maximum price allowed
may recover such excess.
Ceiling Law – Statute fixing the max price of any article or commodity; purpose: to curb the
evils of profiteering or black marketing
Art 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of
labor, and a contract is entered into whereby a laborer undertakes to work longer than
the maximum thus fixed, he may demand additional compensation for service rendered
beyond the time limit.
Labor Code – sets forth that the normal hours of work of any employee shall not exceed eight
hours a day
This law applies to all the establishments and undertakings, whether profit or not, but not to:
a) Government employees
b) Managerial Employees
c) Field personnel
d) Members of the family of the employers who are dependent upon him for
support;
e) Domestic Helpers
 f) Persons in the personal service of another
g) Workers who are paid by results

ART. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers,
and a contract is agreed upon by which a laborer accepts a lower wage, he shall be
entitled to recover the deficiency.

If the employee receives less than the minimum wage, he can still recover the deficiency with
legal interest and the employer shall be criminally liable

ART. 1420. In case of a divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced.
Effects of illegality where contract indivisible/divisible:
1. When the consideration is entire and single, the contract is indivisible so that if
part of such is illegal, the whole contract is void and unenforceable
2. When the contract is made up of several parts, where the illegal ones can be
separated from the legal ones, the latter may be enforced

Divisible Contract Divisible Obligation

Divisibility of its cause Susceptibility of partial fulfillment
Refers to the cause Refers to prestation or object

ART. 1421. The defense of illegality of contracts is not available to third persons whose
interests are not directly affected.
In all types of contract, third persons are not allowed to bring an action to the contract. But if it’s
illegal or void, a third person may bring action as long as his interest is directly affected by the
contract.
ART. 1422. A contract which is the direct result of a previous illegal contract, is also void
and inexistent.
An illegal contract is void and inexistent and cannot, therefore, give rise to a valid contract. NO
novation can happen if there is no valid contracts.

NATURAL OBLIGATIONS
ART. 1423. Obligations are civil or natural. Civil obligations give a right of action to
compel their performance. Natural obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to enforce their performance, but
after voluntary fulfillment by the obligor, they authorize the retention of what has been
delivered or rendered by reason thereof. Some natural obligations are set forth in the
following articles.
 ART. 1424. When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot recover what he
has delivered or the value of the service he has rendered.
ART. 1425. When without the knowledge or against the will of the debtor, a third person
pays a debt which the obligor is not legally bound to pay because the action thereon has
prescribed, but the debtor later voluntarily reimburses the third person, the obligor
cannot recover what he has paid.
ART. 1426. When a minor between eighteen and twenty-one years of age who has
entered into a contract without the consent of the parent or guardian, after the annulment
of the contract voluntarily returns the whole thing or price received, notwithstanding the
fact that he has not been benefited thereby, there is no right to demand the thing or price
thus returned.
ART. 1427. When a minor between eighteen and twenty-one years of age, who has
entered into a contract without the consent of the parent or guardian, voluntarily pays a
sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be
no right to recover the same from the obligee who has spent or consumed it in good
faith. (1160a)
ART. 1428. When, after an action to enforce a civil obligation has failed, the defendant
voluntarily performs the obligation, he cannot demand the return of what he has
delivered or the payment of the value of the service he has rendered.
ART. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent
exceeding the value of the property which he received by will or by the law of intestacy
from the estate of the deceased, the payment is valid and cannot be rescinded by the
payer.
ART. 1430. When a will is declared void because it has not been executed in accordance
with the formalities required by law, but one of the intestate heirs, after the settlement of
the debts of the deceased, pays a legacy in compliance with a clause in the defective will,
the payment is effective and irrevocable.