CONTRACTS 5 Basic Principles / Characteristics

(Article 1305-1422 Civil Code) M – Mutuality (1308)

A – Autonomy (1306)
Chapter 1 R – Relativity (1311)
General Provision C – Consensual (1315)
(Video 89) O – Obligatory (1159) – contractual obligation (Obligations arising from contracts
Article 1305 - CONTRACTS have the force of law between the contracting parties and should be complied with in
“A contract is a meeting of minds between two persons whereby one binds himself, good faith)
with respect to the other, to give something or to render some service”
-meeting of minds Example (obligatory)
-2 parties (there can be more than 2 parties) A sells his car to B for 100,000, then B buys the car. They have a contract then A
cannot refuse to deliver, and B also cannot refuse to pay, because there is obligatory
*there should be no 1 party only (exception: AUTO CONTRACT) force (mandatory) of contract. Then the parties must have to comply. If they refuse to
comply, they will be liable to pay for damages.
Auto contract - a contract in which a person literally contract with himself
Example of auto contract: suppose A authorized B to sell his car worth 100,000. A is Kinds/Classification of Contract
the principal, B is the agent. B is the one who will sell the car, but he decided to buy 1. According to name or designation
the car. Then B will be the seller and buyer at the same time. a. Nominate
b. Innominate
General rule: 2 parties (exception: auto contract) 2. According to perfection
a. Consensual
Bilateral – two parties b. Real
Multilateral – more than two parties 3. According to cause
a. Onerous
-Obligation can exist even there is only one party (example: quasi-contract = b. Remuneratory or remunerative
negotiorum gestio, solution indebiti, because it is unilateral) c. Gratuitous
4. According to form
To give – to deliver a car (something) a. Informal, common or simple
To do – contract of employment, contract of piece of work b. Formal or solemn
5. According to obligatory force
1156 – Juridical necessity to give, to do or not to do (more extensive and broader a. Valid
definition) b. Rescissible
c. Voidable
Contract – one of the sources of Obligation – there are sources of d. Unenforceable
obligation obligation e. Void or inexistent
- Contract is the cause, obligation is - Broader because all contracts have 6. According to person obliged
the effect obligations but not all obligations a. Unilateral
have contracts b. Bilateral
Contract – always legal Agreement – broader because it may be 7. According to risks
legal or illegal a. Commutative – when the undertaking of one party is considered the
Contract - Stipulation – portion / part of a contract equivalent of that of the other (sale, lease)
where you can certainly agree b. Aleatory – depends upon an uncertain event or contingency both as to
Contract - Pact – incidental part of the contract benefit or loss (insurance, sale of hope)
8. According to liability
a. Unilateral – created an obligation on the part of only one of the parties
(commodatum, gratuitous deposit)
b. Bilateral – when it give rise to reciprocal obligations for both parties (sale,
lease)
9. According to status
a. Executory – has not yet been completely performed by both parties
b. Executed – has been fully and satisfactorily carried out by both parties
10. According to dependence to another contract
 a. Preparatory – entered into as a means to an end (agency, partnership) Exception: if the case is contrary to…
b. Accessory – dependent upon another contract is secures or guarantees 1. Law – Example: Supposed he hired Pedro to kill Juan, Pedro agrees. Then they do
for its existence and validity not have a contract, but they have an AGREEMENT because agreement may be
c. Principal – does not depends on it existence and validity upon another legal or illegal.
contract but is an indispensable condition for the existence of an accessory contract 2. Morals – Example: Supposed he hired a prostitute for sexual services. Then the
11. According to the dependence of part of contract to other parts contract is void, because that is contrary to moral.
a. Indivisible (or entire) – each part of the contract is dependent upon the 3. Good custom – Example: Supposed he pay one of my classmates, 5k, provided he
other parts for satisfactory performance slap the face of his parents. Then that is VOID, which is contrary to good custom. He
b. Divisible – one part of the contract may be satisfactorily performed supposed to extend respect and gratitude to his parents.
independently to the other parts 4. Public order – Example: Supposed he have a contract to one of his leasee (one
(1) Consensual vs. Real renting to his dorm/house). If they will not pay, he will physically throw them out of the
Consensual – contract is created by mere consent (only need is consent) window. Then that is VOID which is contrary to public order.
Real (1316) – need consent and delivery of the thing 5. Public Policy – Example: Supposed he hired a person and had an agreement that
he cannot receive the minimum wage. Then the contract is VOID because that is
(2) Commutative vs. Aleatory contrary to public policy. Because he supposed to protect his employees and give his
Commutative – equivalent consideration must be given minimum wage (under 1987 Constitution – Protection to Labor must be extended)
Example: A sells a car to B for 100,000. B buys the car for 100k, 95k, or 90k,
there is an equivalent consideration Article 1307 – INNOMINATE CONTRACTS
Aleatory – consideration are not the same (fulfillment of the contract is dependent “Innominate contracts shall be regulated by the stipulations of the parties, by the
upon chance) provisions of Titles I and II of this Book, by the rules governing the most analogous
Example: A buys from B a lotto ticket. Lotto ticket: 20 pesos, winning price: 5 nominate contracts, and by the customs of the place.”
million. Then the consideration is not the same.
Innominate – no name
(3) Executory vs. Executed
Executory – the parties will be complying with the obligation Distinction between nominate and innominate
Example: A sells a car to B for 100,000, and B buys the car. The obligation NOMINATE INNOMINATE
of A is the deliver; the obligation of B is to pay. If A has not yet delivered or B has not -has a name - no name
yet paid, that is executor. Example: contract of sale, contract of -which has no specific name or
Executed – both of the parties had already complied. lease, commodatum, agency, designation in law
Example: A sells a car to B for 100,000, and B buys the car. The obligation mutuum, guaranty
of A is the deliver; the obligation of B is to pay. If A has already delivered, and B -which has specific name or
already paid, that is executed. But if one party had not yet complied, it is still designation in law.
executed.
Kinds of innominate contract
Statute of Fraud – the contract must be in writing covers only executory contract. If 1. do ut des - I give that you may give
one of the parties performed the obligation, it is not part of statute of fraud. 2. Do ut facias - I give that you may do
3. Facio ut des - I do that you may give
Article 1306 – AUTONOMY / LIBERTY / Freedom to Contract 3. Facio ut facias I do that you may do
“The contracting parties may establish such stipulations, clauses, terms and Hint: If the word is long, the translation is short. If the word is short, the translation is
conditions as they may deem convenient, provided they are not contrary to law, long
morals, good customs, public order, or public policy” Facio – do
Do – give
General rule: Parties can agree to anything provided it is not contrary to (1)law,
(2)moral, (3)good customs, (4)public order, or (5)public policy Rules Governing Innominate Contract
(If it is contrary to the five, it becomes void) A – Agreement
C – Provisions of the Civil Code
Example: A – Analogous contracts
A sells a car to B, then B buys the car (MUTUALITY) but it is autonomy because the C – Customs of the palace
contract is valid (because it is not contrary to law, morals, good customs, public order,
or public policy)

Autonomy - they can agree…

1308 – MUTUALITY
“The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.”
Mutuality – both parties must agree
Example: suppose he said to one of my classmates that he is selling the marker
whether he like it or not. The principle violated is mutuality because there must be
consent on both parts of the parties.
*In the case of PNB vs. Padilla
-Padilla able to get a contract of loan with PNB. Unfortunately, during the existence of
the contract, PNB increased the interest without the consent of Padilla. The Supreme
Court says that the cause if INVALID because it violated the law of mutuality
Article 1309 – Determination of Performance by a Third Person
“The determination of the performance may be left to a third person, whose decision
shall not be binding until it has been made known to both contracting parties.”
General rule: Third Person cannot decide, because both parties must agree not the
third person.
Example: Supposed I’m selling something to a person, a car.
It is necessary to us to get the third person for us to decide? NO.
Exception:
- The third person was authorized by both parties
Example: He said to his buyer that the agreement is 100k, the reply of the buyer
is 80k, then there is no meeting of minds because his offer is 100k and the
buyer’s reply is 80k. Supposed he and the buyer agrees to let Pedro decide for
them, then there is mutuality (they agreed to allow Pedro to decide)
Effect: The decision of third person is valid to both parties
Exception to the exception (1310)
Article 1310 – If the decision of the third person is evidently INQUITABLE
“The determination shall not be obligatory if it is evidently inequitable. In such case,
the courts shall decide what is equitable under the circumstances”
Inequitable – unfair to one of the parties
Example: His offer is 100k, the buyer reply is 80k. Supposed the decision of Pedro
(third person) is 50k. Then that is evidently inequitable.
Effect: The decision of third person is NOT VALID, then the court is the one who will
decide.
Summary:
1308 – general rule (both parties will decide)
1309 – exception (third person cannot decide unless he’s authorized)
1310 – exception to the exception (third person is authorized but his decision is
evidently inequitable)
(video 90)
Article 1311 – RELATIVITY OF CONTRACT
“Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person”
Article 1178 – Obligations are not transmissible, rights are transmissible
Example: A have 2 heirs, A1 and A2. And B also have 2 heirs, B1 and B2. Supposed
A dies, A1 and A2 should not pay A’s obligation (because obligations are not
transmissible). Supposed B dies, B1 and B2 can collect from A (because rights are
transmissible.
Article 1311
Example: A and B – they are the parties/privy. A have 2 heirs, A1 and A2. B has 2
heirs, B1 and B2. Supposed B assigned his right to C (assigned/assignee – if the
contract is transferred to another person)
Who are included in the contract/who are bound in the contract? (parties, heirs,
assigns – relativity)
Supposed there is Pedro, he is not a party, not an heir, and not an assigned. Pedro is
a third person.
*if you are not part of a contract, you are a third person or a third party.
General rule: Third person are not bound, not liable, and not affected by the contract
(because contract take effect only between the parties, heirs and assigned)
Exception (4): where a third person is bound, liable and affected.
1. 1311 – Stipulation pour autrui
2.1312 – Contracts creating real rights
3. 1313 – Contracts entered into to defraud creditors
4. 1314 – Interference in contractual relation (In contracts which have been violated at
the inducement of a third person)
1311 – STIPULATION POUR AUTRUI
- Stipulation in favor of a third person.
- Clearly and deliberately conferring a favor upon a third person who has a right to
demand its fulfillment provided he communicate his acceptance to the obligor
before its revocation by the obligee or original parties.
Requisites of Stipulation Pour Autrui
1. There is a stipulation in favor of a third person which is clearly and deliberately
conferred
2. Communication of acceptance before is revocation to the parties
3. Third person should be part of the contract
4. Stipulation should not be conditioned or compensated by any kind of obligation
5. Neither bears legal representation or authorization of the third party
Most important: Communication of acceptance before is revocation to the parties
Example: Supposed A owes B 9k (principal) with 2% interest (accessory). One of the
requisites says that it must be part of the contract. A and B agreed to give the 2% to
Pedro (third person), Pedro is not part of the contract so he must communicate to
both A and B, and if Pedro communicate then he is already part of the contract. 2% is
the stipulation pour autrui.
- Third person must communicate his acceptance before revocation, Pedro is
already part the moment he communicated. But supposed it was revoke before
the communication to be made by Pedro, then Pedro is not part of the contract
Article 1312 – Contracts creating Real Right
“In contracts creating real rights, third persons who come into possession of the
object of the contract are bound thereby, subject to the provisions of the Mortgage
Law and the Land Registration Laws.”
1164 – There are 2 kinds of rights (personal and real)
Personal right – demandable from specific person
Real right – demandable against the whole world
*The real right in contract is created by the registration
Where do you register your name? (NSO/Civil registry)
Where do you register your car? (LTO)
Where do you register your land? (Registry of Deeds)
Why do you need to register? (to create a real right)
*the moment you register, it is binding to the whole world.
*it is necessary to register
Example: A sells his land to B, in writing. The contract then valid to both parties, but
supposed he want it to be valid to the third person, that’s the reason why he have to
register it – Registry of Deeds.
Supposed A owes B a loan of 100k, land is the mortgage. The mortgage
must be registered again; if it is not registered then it did not create a real right. If it
not registered, it is not binding to third person.
Article 1313 – CONTRACTS TO DEFRAUD CREDITOR
“Creditors are protected in cases of contracts intended to defraud them.”
1177 – ACCION PAULIANA (remedies in monetary obligation – principal: specific
performance, exact fulfillment, collection of sum of money & subsidiary” exhaust,
subrogation, action pauliana/recession)
Example: Supposed A owes B 100k, A has only one land. In order for A to pay B, A
has to give his land, or A may sell the land and give the proceeds to B.
A supposed sold the land to C with the element of fraud, because A will not tell B. A
don’t want to pay B so he secretly sold the land to C, because he wants to defraud his
creditor.
-A and B have a contract
-B and C have not a contract
-A and C have a contract
But B can go after C because of the element of Fraud committed by A against B
Article 1314 – INTERFERENCE IN CONTRACTUAL RELATIONS
“Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party”
-Is a rule of American Law.
-Is also proper under the general principles of the Philippine Law; because a
contractual right is property
Example:
1. Film star – there was a famous film star, he has a contract with regal films. Viva
film knows that the film star has a contract with regal film, viva film decided to take
away the film star from regal film. Then the viva film is interfering contractual relation.
Regal and Viva have no contract but regal can hold viva films liable
2. Contractor of a building – supposed in a school, there is one who is in charge of
repairing all broken things. Pedro tell the owner of the school to do not hire him
because he uses substandard material or he’s lazy, in short Pedro is trying to ruin the
good reputation of the contractor. Pedro is interfering a contractual relation so he is
liable
Article 1315 – CONSENSUAL
“Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith,
usage and law.”
Consensual – mere consent
-In which is perfected by mere consent
General Rule: Contracts are created by mere consent
Example: A is hiring a person to be his secretary and the salary will be 10k a month,
then he agreed. They did not put it in writing but the contract is already created
because they both agreed and give their consent.
Exception:
(1) Real contract (Art. 1316) – need to things, consent and delivery of the thing
(2) Formal or Solemn contract (Art. 1356) – need a particular form for it to be valid
Article 1316 – Kinds of Real Contracts
“Real contracts, such as deposit, pledge and Commodatum, are not perfected until
the delivery of the object of the obligation.”
Real contracts – In which is perfected by the delivery of the thing subject matter of the
contract
-consent and delivery of the thing is needed.
3 KINDS OF REAL CONTRACTS
1. Pledge
Example: A is borrowing from a person of 10k. The loan can be oral, but using a
collateral like phone. Both parties agree to pledge the phone, but the pledge is not
already created because A should deliver physically the phone. If there is no delivery,
there is no pledge.
Physical or actual delivery is required for the pledge to be created
2. Depositum / Deposit
Example: A told to his classmate to safe keep the marker and he will get it on their
next meeting. The classmate already agreed but there is no deposit created because
there is no delivery
3. Loan - has no form
-Mutuum
-Commodatum
Example: (mutuum) A is borrowing from classmate, 1k (loan/simple loan/mutuum –
consumable thing). The classmate already agreed but there is no loan created
because he must deliver the 1k first for the loan to be created. If there is no physical
delivery, the loan is not created.
Example: (commodatum) A borrowed from his classmate a ball pen. The classmate
agreed but the commodatum is not yet created because ball pen must deliver first. If
there is no physical delivery, the commodatum is not created.
Stages of Contract
1. Preparation / Negotiation / Conception – parties are bargaining (nagtatawaran),
there is no contract yet
2. Perfection / Creation / Birth – contract has been created, there is now meeting of
the minds
3. Termination / Consummation / Death – parties will perform their respective
obligation. The seller has to deliver, the buyer has to pay (obligation of parties)
(1) Example: A asks B if he likes to buy his car for 100k, B reply 80k. There is no
contract because there is no meeting of minds (preparation).
(2) Example: A asks B if he likes to buy his car for 90k, B reply 90k. There is already
a contract because there is a meeting of minds.
(3) Example: A and B has already a contract of sale, A’s obligation is to deliver and
B’s obligation is to pay. When the parties already performed the respective obligation,
there is termination or consummation
*delivery in consensual contract is in number 3 stage (termination / consummation)
*delivery in real contract is in number 2 stage (Perfection / Creation / Birth) because
real contract cannot be created unless there is delivery
When ownership required? Termination
Effect of Perfection of Contract
From the moment the parties come to an agreement on a definite subject matter and
valid consideration, they are bound not only –
1. To the fulfillment of what has been expressly stipulated but also;
2. To all the consequences which according to their nature, may be in keeping with
good faith, usage, and law
(video 91)
Article 1317 – UNAUTHORIZED CONTRACTS
“No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless
it is ratified, expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party.”
*Unauthorized contracts are unenforceable
Unauthorized / unenforceable
General rule: a person is not bound by the contract of another of which he has no
knowledge or to which he did not give his consent
- If a person did not give his consent or if he is not aware of the contract, then he
cannot be held liable
Exception: Authorization given to the TP
Requisites to be bound by the third person
1. He must be authorized
2. Act within the scope of authority
-If one requisites is missing – unenforceable
Example: A owns a phone, but not anyone can sell his phone. Also, they cannot sell
his phone because A did not authorize them to sell the phone. If he sell A’s phone
without his authority, that would be unenforceable
Example: Supposed A already authorize the classmate to sell his phone, then the
classmate can sell it because he is authorized
Example: Supposed A authorize the classmate to sell his phone for 10k. Then the
classmate can sell it for the amount of 10k. But supposed the classmate only sell it for
5k, he is authorized but he did not follow the scope of authority, then the contract is
unenforceable.
But supposed the classmate sell the phone for 12k, the contract will be valid because
it is more advantageous (one of the principle in agency). The excess of 2k is belong
to A (principal) not to the classmate (agent). Agent is just an extension, whatever the
agent benefits is belong to the principal.
Remedy: Ratification – the consent is given after the contract was created
Example: Supposed A authorize the classmate to sell his phone for 10k. Then the
classmate can sell it for the amount of 10k. But supposed the classmate only sell it for
5k, then that is unenforceable. The remedy is when the consent is given after the
contract is created, wherein A agreed to 5k right after the classmate sold his phone.
The principal ratify the contract.
Effect of Ratification: it cleanses the contract from all its defects.
-Valid but unenforceable (if the contract is ratified, it is only VALID)
Chapter 2
Essential Requisites of Contracts
Article 1318 – Classes of Elements of Contracts
“There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.”
Classes of elements of contract
1. Essential – (requisites) those without which no contract can validly exist regardless
of the intentions of the parties.
- if one of them is missing, the contract is VOID
a. Common – those present in all contracts. COC (consent , object, cause)
b. Special – those not common to all contracts, example: form in a formal/solemn
contract, delivery in a real contract
c. Extraordinary – price in a contract of sale (price – use only in a contract of sale)
2. Natural – presumed to exist in certain contracts. Already automatic. By the mere
fact that you entered a contract, then it is already part of a contract. Example:
warranty against eviction, warranty against hidden defects in sale.
-you don’t need to agree in the warranty, because it is already part of the
contract
3. Accidental – particular stipulation, clauses, terms, or conditions established by the
parties in their contract.
-specific terms, conditions, stipulations (Art. 1321)
-if the parties do not agree to….time of delivery, place of delivery, manner of
delivery
-if the party did not agree or agree on the accidental element, the effect is
valid
-it may or may not be present
Essential elements of contracts
C – Consent
O – Object – the subject matter of the contract
C – Cause
Article 1319 – CONSENT
“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.”
CONSENT – Is the conformity or concurrence of wills and with respect to contracts, it
is the agreement of the one (1) contracting party with that of another or others, upon
the object and terms of the contract.
2 things required: offer and acceptance
OFFER – Is a proposal made by one (1) party (offerer) to another (offeree), indicating
a willingness to enter into a contract.
- Offer must be certain or definite
ACCEPTANCE – is the manifestation by the offeree of his assent to all the terms of
the offer.
- Acceptance must be absolute
Example: A is selling to B his car for 100k (offer). B accepts the car for 100k
(acceptance)
*consent – meeting of the offer and acceptance with respect to the thing, cause, and
subject matter of the contract
st
(2) Policitacion – (1 paragraph of 1319)
-imperfect promise
-An accepted unilateral promise to buy or to sell a thing
-only one party makes an offer, the other party did not reply
Example: A offers B to buy his car, B did not reply (policitation). B tells A to buy his
car, A did not reply (policitation)
nd
Cognition Theory (2 paragraph of 1319)
Can a contract be created electronically (by sending a text message of email)? YES
Shopee and Lazada – electronic contracts
When is a perfected if sent by letter?
-From the time of the knowledge of the acceptance
Where is the contract created?
-on the place where the offer was made
(Video 92)
nd
Article 1319 – 2 part
“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.”
Cognition Theory – answers the question “when is the contract perfected if it is sent
by letter or telegram?”, and “Where the contract created?”.
Example: Supposed A is in Manila, and B situated in Cebu. Supposed it is October 1
and A send the letter to B, and it reaches B on October 5. Letter contains an offer
where A tells B to buy his car for 100k. On October 6, B opened the letter and on
October 7, B decided that he would like to buy the car. On October 8, he sent his
letter (acceptance) to A. And the letter reaches B on October 14. Then on October 15,
A has knowledge that B accepted the offer.
When is contract perfected if it is sent by letter?
nd
- From the time of the knowledge of the acceptance (according to the 2 paragraph
Acceptance made by letter or telegram does not bind the offerer except from the time
it came to his knowledge”). Then A acquire knowledge on October 15, then it is also
when the contract perfected.
How the contract perfected?
-Mere consent, but in the example is by letter or telegram
Where is the contract created?
- On the place where the offer was made. In the example, the contract is created in
nd st
Manila. (According to the 2 sentence of 1 paragraph, “The contract, in such a case,
is presumed to have been entered into in the place where the offer was made”

EXCEPTION: Manifestation Theory –

(1) Counter-offer / qualified acceptance -when B decided to buy
- if the offer changed
Example: A is selling to B his car for 100k. B accepts the car for 80k (counter offer Expedition Theory –
qualified acceptance). A change his offer to 90k (counter offer) -when B sent his acceptance to the offer

Reception Theory –
-when A received the acceptance of B
*in the Philippines, we are following Cognition Theory
*when the problem or situation is face-to-face, that is mere consent. But when it is
sent by letter/telegram, cognition theory will be applied.
*if it is sent by email, e-commerce law will be applied. E-commerce law was created
during the year 2000.
Article 1320 – Form of acceptance
“An acceptance may be express or implied.”
1. Express – may be in oral or writing
2. Implied – based on the acts of the parties
Example: A is offering his cellphone to a person. A person takes a look to a cellphone
without speaking then brings the cellphone at home, that is implied.
Article 1321 – Matters that may be fixed by the offerer
“The person making the offer may fix the time, place, and manner of acceptance, all
of which must be complied with.”
*Accidental Elements
Example: A offer his car to B for 100k, B replies 100k. There is an offer and there is
an acceptance. If there is an offer and acceptance, there is consent. And if there is
consent, the contract is created or perfected.
Accidental – the parties may or may not stipulated on time, manner, or place.
The question is supposed they did not stipulate?
*Can B pay it partially? NO because that is covered by 1233,1248,1199 (there must
be complete payment or complete performance) so B has to pay in full. Also, A
cannot deliver the car partially.
*Can B pay through promissory note? NO, that is covered under 1249 (it must be
legal tender)
Where A supposed to deliver the thing? 1251(general rule: stipulation, if there is no
stipulation, generic – domicile of the debtor. If there is no stipulation, specific place
where the thing was at the time of the perfection of the contract.
*When A supposed to deliver?
When B supposed to pay?
-if there is no period, the obligation is pure, and when it is pure, the obligation is
immediately demandable.
*accidental – the parties can stipulate. But supposed the parties did not agree on it,
the law will provide the details on it.
Article 1322 – Offer made by an agent
“An offer made through an agent is accepted from the time acceptance is
communicated to him.”
Example: Supposed A offers B to buy his car for 100k. A is the one who makes the
offer (it is possible that another person is making the offer). A offers to B to sell his car
for 100k and give him 10% commission. A is the principal, B is the agent, and B was
able to sell it to a third person. Initially, third person should give his acceptance to B
(agent), but he can also give his acceptance to A (principal) because both A and B is
considered one and the same person. B considered as extension of A and B also
serving as representative capacity.
Article 1323 – INEFFECTIVE OFFER
“An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency
of either party before acceptance is conveyed”
-both parties must be living and capacitated at the time of the knowledge of
acceptance (following the cognition theory)
Instances in ineffective offer (1170, 1330)
1. Death
2. Insanity
3. Civil interdiction – when a person commits a crime (there two liabilities — criminal
and civil — one of the aspect of civil liability is a person cannot enter into a contract),
he cannot enter into a contract and he is prohibited in doing so.
4. Insolvency – more liabilities than assets, so a person cannot enter into a contract.
Example in 1319: October 1 when A made his offer and October 15 when A has
knowledge of acceptance.
(1) Death – Supposed on October 8, A dies, then there is no contract on October 15
because both parties must be living on October 15.
(2) Insanity – Supposed on October 9, B becomes insane, then there is no contract
on October 15 because both parties must be capacitated.
(3) Civil interdiction – supposed on October 10, B was imprisoned. Then there is no
contract on October 15 because both parties must be capacitated.
(4) Insolvency – supposed on October 12, B became insolvent. Then there is no
contract on October 15.
*if any of the following is present, there will be ineffective offer, there is no contract
Voidable effect – only happen in Insanity and Civil Interdiction
Other instances in ineffective offer
- Failure to perform a condition
- Arrival of the period
- The party rejected the offer
Article 1324 – Option Money vs. Earnest Money
“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.”
Option Money Earnest Money
One giving a person for consideration a
certain period within which to accept the
offer of the offerer.
Example:
A offer B his car for 100k, then B buys the car for 100k. There is an offer and consent,
and then there is a contract.
A offer B his car for 100k, then B want to buy the car for 80k. There is no contract
because it is counter offer or qualified acceptance.
A offer B his car for 100k, and B did not reply. There is no contract because that case
is policitation. (Policitation – only one party is interests).
A offer B his car for 100k, but A can still sell his car to another person if B has not
given his acceptance. But supposed A gives B one week to decide if he will buy the
car, but before one week expire A can still sell his car to another person because B
has not yet given his acceptance. But if before one week expire, B given his
acceptance to A then A cannot sell his car to another person.
1323 – Before acceptance, the offer can be withdraw. But after acceptance, the offer
cannot be withdraw because the contract already created.
A offer B his car for 100k, B reply to give him one week (Php 10.00). Php 10.00 is the
option money. A can still sell it to C before one week period expires because B has
not yet given his acceptance. B will also be liable for breach of contract because A
violated the option contract.
Option period – the one week
Option money – the 10 pesos
Option contract – B has the option, to buy or not to buy
Contract of sale is not yet perfected
A offer B his car for 100k, B reply to A his 10k (earnest money) and pay the balance
of 90k in one week.
Arras – earnest money or down payment
If B already paid for the down payment, A cannot sell it to the third person because
the contract of sale was already perfected. A will be liable for breaching the contract
of sale.
The moment the earnest money was given, the contract of sale was already perfected
Option Money Earnest Money
If the option money is given, it is If the earnest money is given, it
the distinct part / distinct the part of the price
consideration / separate part.
Not included in the purchase
price
Sale is not yet created Already perfected contract of
sale
Buyer is not required to buy Buyer is required to pay the
price because the contract of
sale is already perfected
The money given is separate to Buyer supposed to pay the
purchase price balance
Example: The buyer decide to buy, option money cannot be deducted. The buyer
decides not to buy; the option money also cannot be deducted.
Article 1325 – Business advertisements are NOT definite offer
“Unless it appears otherwise, business advertisements of things for sale are not
definite offers, but mere invitations to make an offer”
General rule: Business advertisements are NOT definite offer
-Business advertisement can now see in internet like Lazada and Shopee
-Supposed you’re going to give your acceptance, the contract of sale is not created
because they are not definite offer, because they are mere invitation to make an offer.
-it is about paper transactions (different from internet transactions where in there is
cancellation of order with a certain period)
Exception: when business advertisement became definite offer, if it is complete in all
respects
Example: it was mentioned in a newspaper ads, land for sale, situated in Quezon
City, 1 million (BUSINESS ADVERTISEMENT)
Example: mentioned in an ad was complete in everything: where is the land, what’s
the area of the land, what’s the composition of the land, how much is the per square
meter, who is the owner of the land, etc. when it is very detailed, or it is a complete
offer. Then it became a definite offer.
-the moment you call the person making the advertisement, the sale is not yet created
or perfected.
Article 1326 – Advertisement forbidders is not definite offers
“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.”
Bidding – supposed you are going to erect a building and posted it in newspaper or in
the internet, qualified bidders required to submit their bids sealed in an envelope and
to be submitted in a particular address up to the particular time.
Example: there are four bidders (A, B, C, and D). A bids 40 million, B bids 45 million,
C bids 50 million and D bids 60 million.
Supposed I was the one who publish the requirements of the building, and the one
who needs the construction of the building.
What should be accepted? The lowest bid or the highest bid?
Law says: advertiser is not bound to accepted the highest or the lowest bidder unless
it was mentioned in the advertisement that I am accepting the highest or the lowest
bidding.
But generally, advertiser cannot accept the highest or the lowest bid. 3. Deaf-mute who do not know how to write – they cannot enter into a contract
because they cannot understand, but when he knows how to write then he can enter
Why it is not a definite offer? Because that is only invitation to make proposals into a contract
4. Person suffering under civil interdiction – a person is in imprisonment
1325 1326 5. Incompetents under guardianship – e.g. person suffering from vegetable stake,
Only business advertisement Advertisement for bidders person who is mentally deprived
Both of them are not definite offer. Example: Both of them are minors and they are entering into a contract of prohibited
drugs – VOID
Example: Both of them are minors and they are selling in the moon and the stars –
Video 93 VOID because outside the commerce of man
Article 1327 – Persons who cannot give consent
“The following cannot give consent to a contract: 1328 – Lucid Interval
(1) Unemancipated minors; “Contracts entered into during a lucid interval are valid. Contracts agreed to in a state
(2) Insane or demented persons, and deaf-mutes who do not know how to write. of drunkenness or during a hypnotic spell are voidable.”
Lucid interval – period wherein a person is not insane
Incapacitated Prohibited When this person enters into a contract – valid
More worst Hypnotic spell – Voidable
State of drunkenness – Voidable
If one is incapacitated – the contract is voidable
If both are incapacitated – unenforceable Voidable – valid until it is annulled. It is possible if it will not take effect later because it
If one or both are prohibited – void is subject to the remedy of annulment

Example: supposed A and B, A is a minor. A is incapacitated, then only one of the More worst – VOID than voidable
parties is incapacitated – the contract is voidable
Void- worst defective contract
Example: supposed both of them are minors, and then both of them are incapacitated
– the contract is unenforceable Hierarchy (highest to lowest)
-Void
Example: supposed a minor enters into a contract, voidable. Supposed both of them -Unenforceable
are minor, unenforceable. -Voidable
Exceptions to the rule – case of marriage -Rescissible
If one or both parties are minors, the answer is VOID. Because a minor cannot enter
into a contract of marriage. 1329 – Other instances of incapacity
If one of them is minor or both of them are minors, the contact is void. “The incapacity declared in Article 1327 is subject to the modifications determined by
law, and is understood to be without prejudice to special disqualifications established
Example: if a person is insolvent, and he enters into a contract, the contract is in the laws.”
automatically be void - Those who are suffering from leprosy, prodigals, deaf who do not know how to
write
Example: A husband and wife cannot sell property to each other because that is void.
If A is minor entered into a contract, is A liable? No, because he’s a minor
Example: A husband and wife cannot donate property to each other because that is
void Exceptional cases:
Example: Case of Mercado and Espiritu
Example: A husband and wife cannot enter into a universal partnership because that There was a minor entered into a contact, it is a written contract. The contract says
is void. “of legal age”. The minor signs the contract reading “of legal age”, then minor is liable.
Because minor is guilty of ACTIVE MISREPRESENTATION
Because those are prohibited, it is illegal for them to enter into a contract.
Example: Case of Bragarza and Villa-abrille
Persons who are incapacitated There was a mother along with his 2 minor children; they sign a contract where there
1. Minor – the person is below 18 (18 – 21 is an emancipated minor) is no mention of “legal age”. The mother is liable but the minors are not liable
2. Insane – crazy person
because according to the law, they are only guilty of PASSIVE
MISREPRESENTATION
Article 1330 – Characteristics of consent
“A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.”
1. Intelligent – minor and insane person cannot give a valid consent, they cannot give
an intelligent consent because they are incapacitated. (there is capacity to act)
2. Free and voluntary – if there is violence. If there is stipulation, how can you give a
free and voluntary consent. (there is no vitiation of consent by reason of violence or
intimidation)
3. Conscious or spontaneous – if there is a fraud and mistake, how can you give a
valid consent. (there is no vitiation of consent by reason of mistake, undue influence,
or fraud)
Vices of consent
M – Mistake or error
I – Intimidation or threat or duress
V – Violence or force
U – Undue influence
F – Fraud or deceit
If one of them is present, the contract is voidable. That is VITIATED CONSENT
Vitiated consent – if there is consent plus mistake, there consent plus intimidation,
there is consent plus violence, there is consent plus undue influence, there is consent
plus fraud.
If there is no consent, the contract is VOID
If there is vitiated consent, the contract is VOIDABLE
Article 1331 – Mistake
“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.”
Mistake – or error, is the false notion of a thing or a fact material to the contract.
Kinds of Mistake (effects)
1. Mistake of facts – voidable
2. Mistake of law – valid
How come mistake of law is valid, because of the article 8 of the Civil Code.
Ignorance of the law excuses no one from compliance therewith. It is already a
conclusive presumption – (already final)
Instances of mistake of fact (voidable)
1. Substance of the thing
2. Condition to which have principally moved one or both parties from entering into a
contract
3. Identity or qualifications of one of the parties
(1) Example: supposed I am buying a horse for the purpose of breading the horse,
but it turned out that the horse is baog so it cannot reproduce. Then I can return the
horse because there is a mistake as to the substance of the thing. It is annullable.
The remedy if the contract is void is annulment.
(2) example: I thought that the contract of sale is payable by installment but the fact is
it is payable by cash
(3) Example: supposed I am buying a car from a person and I thought that the person
is architect turns out that he is an engineer, there is no mistake because there is NO
connection between the person being an architect or engineer in the contract of sale
Example: I thought that this person is my long lost brother that’s why I gave him a
brand new car turns out that hi is not, then there is a mistake in terms of identity of
one or both parties
Simple mistake of account – VALID
Example: I was selling something and I thought that the numbers of coconut trees are
1000 but the fact is it was 998. Then that is not fraud, that is only simple mistake of
account
Article 1332 – Burden of proof in case of mistake or fraud
“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.”
General rule: it is the party mistaken
If I was mistaken, then I am the one who supposed to prove that there is mistake
Exception: it is the other party, the other party is supposed to prove that there is no
mistake
1. If one party is unable to read
2. Language is not understood by him
It is possible for an illiterate person to enter a contract, because it is not a requirement
for voting that you should know how to read and write
(1) Example: supposed the person is illiterate, then he can enter into a contract by
means of reading aloud or explain the contents of the contract
(2) Example: is the language is not understood because it was in Spanish or French,
that it should have to be translated
- If you did not explain it aloud or did not translate it, then there is a mistake. The
other party should have to prove it.
*general rule: who prove the mistake? The party mistaken.
*exception: other party should prove that there was no mistake
Article 1333 – Effect of knowledge of risk
“There is no mistake if the party alleging it knew the doubt, contingency or risk
affecting the object of the contract.”
The contract is VALID
Example: there is a danger but still enter it into a contract, there is no mistake.
Supposed I am selling something to a person, offering if he would like to buy his
house and lot situated in Quezon City for 1 million, there is a squatter there and they
are pain in the neck because they are causing disturbance. Then the buyer still
decided to buy it even though he knows that there is squatter living there. But after 1
month it have entered to a contract of sale, the buyer returning the house and lot by
the reason of squatters. Then there is no mistake because the buyer knew the danger
Article 1334 – Mistake of law
“Mutual error as to the legal effect of an agreement when the real purpose of the
parties is frustrated, may vitiate consent.”
General rule: If there is mistake of law, that is VALID
Exception: it is possible to become voidable if the three requisites will be present
Requisites:
1. The error must be mutual (both parties committed the mistake)
2. Legal effect of an agreement
3. Frustrate the real purpose of the party
Example: A tells B that they are going to enter into a contract of sale, B agrees, but in
the document it is a mortgage. But under the written document, what is written is not
sale but mortgage.
A and B has meeting of minds then the contract is valid, the remedy is
REFORMATION
Supposed A tells B that it is a contract of sale but B tells A that it is a mortgage. The
problem is the error must be mutual. Then they are not same because in contract of
sale you have to transfer ownership, but in mortgage you are going to use it as
collateral.
Then the error is mutual, it pertains to the legal effect because they thought that the
contract of sale and mortgage are the same, but in fact they are not the same. It
frustrated the real purpose of the parties
*The mistake of law becomes voidable because it pertains to the legal effect of an
agreement.
Video 94
Article 1335 – Violence vs. Intimidation
“There is violence when in order to 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 his consent.
To determine the degree of intimidation, the age, sex and 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.”
Vices of consent under 1330 – MIVUF
Violence – or force, when in order to wrest consent, serious or irresistible force is
employed.
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 his
consent.
In both cases, there is violence, and the effect is voidable
Violence Intimidation
Physical Moral
External Internal
Example (violence): supposed I am selling a phone to one of my classmate but he
don’t want to buy so I punched him. Then that is physical and external.
Example (intimidation): supposed I am selling a phone to my classmate and he don’t
want to buy, so I placed my eye on his face, then that’s intimidation
“A threat to enforce one's claim through competent authority, if the claim is just or
legal, does not vitiate consent.”
Example: supposed a person owes me 20k, upon demand the person did not pay and
even after extrajudicial demand he still not pay. Then I told him to sue him, file an
action for damages in court, file a case in specific performance, I recover damages –
those are NOT threat. Because the claim is just or legal.
Article 1336 – Violence or intimidation can be committed by a third person
“Violence or intimidation shall annul the obligation, although it may have been
employed by a third person who did not take part in the contract.”
Violence or intimidation can be committed by a third person – YES
(Opposite of 1342)
Article 1337 – Undue influence Article 1339 – Fraud by concealment
“There is undue influence when a person takes improper advantage of his power over “Failure to disclose facts, when there is a duty to reveal them, as when the parties are
the will of another, depriving the latter of a reasonable freedom of choice. The bound by confidential relations, constitutes fraud.”
following circumstances shall be considered: the confidential, family, spiritual and -whether the fraud is intentional or not, it is possible to be committed
other relations between the parties, or the fact that the person alleged to have been How do we commit fraud by concealment?
unduly influenced was suffering from mental weakness, or was ignorant or in financial Example: partnership, failed to fulfill fiduciary relationship (must tell the other party)
distress.”
Article 1340 – Usual Exaggeration in Trade
Circumstances to be considered “The usual exaggerations in trade, when the other party had an opportunity to know
-Spiritual the facts, are not in themselves fraudulent.”
-Family relation / confidential (example: disowning as a family because he did not do
what they want) Usual exaggeration in trade/sales talk/buyer’s talk
-Mental weakness / ignorance (example: deceiving through gold) Sales talk – VALID
-Financial distress CAVEAT EMPTOR – buyer beware
(If these things are present, it contributed to undue influence) CAVEAT VENDITOR – seller beware

Undue influence and intimidation are not the same.
Intimidation – bring out fear.
Undue influence – the person decides not because of his decision but because of the
influence of another person. Those influences may arise from any of the
circumstances considered.
- Influence exerted from a certain force from another person.
Example (financial distress): supposed your classmate recently bought iphone 11,
paying 50k. Out of nowhere, there’s an emergency, she has to bring her relative to
the hospital; and she don’t have money because she spent it on buying her iphone.
Then she comes to me to pledge her phone saying that she bought the phone just a
week ago for 50k and pledge it now for 10 or 20k. But I don’t like the pledge; instead I
want to buy it for only 10k. If your classmates don’t want the deal, then she is free to
leave. But because of financial distress, your classmate was forced to sell it for 10k,
she has no other remedy.
Caveat emptor – buyer should beware because sales talk is part of the craft of the
seller
Article 1341 – Expression of an opinion
“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.”
General rule: Mere expression of an opinion by an ordinary person does not signify
fraud. It must tell by an expert
Exception: It became VOIDABLE if the person tells it is an expert and other party has
relied on the former’s special knowledge
Article 1342 – Fraud by a third person
“Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.”

Article 1338 – Two Kinds of Fraud General rule: does NOT vitiate consent (it should have one of the parties who commit
“There is fraud when, through insidious words or machinations of one of the fraud, not the third person) then the contract is valid
contracting parties, the other is induced to enter into a contract which, without them,
he would not have agreed to.” Exception: it becomes voidable if;
1. It created substantial mistake
2 kinds of Fraud 2. The same is mutual
Dolo Causante (1338) Dolo Incidente (1170)
1343 – Effect of misrepresentation made in good faith
Committed at the start Committed after the creation “Misrepresentation made in good faith is not fraudulent but may constitute error.”
-Misinterpretation made in good faith is an ERROR not fraud
Purpose: get the consent Purpose: to violate or to breach the
obligation
Fraud is worse than error/mistake
Voidable Valid
Remedy: annulment Remedy: pay for damages 1344 – Causal Fraud
“In order that fraud may make a contract voidable, it should be serious and should not
How is Causal Fraud committed? have been employed by both contracting parties.”
1. Insidious words or machinations (nanloloko verbally) ex. 123 gang, laglag barya Incidental fraud only obliges the person employing it to pay damages.”
gang
2. Concealment (1339)
\Requisites of casual fraud to be substantial
1. Must be serious Future inheritance Right to inherit
2. Must be unilateral (not employed by both parties) Can’t sell future inheritance Can sell the right to inherit
Not possible Possible
If the fraud is committed by both parties and both of them are aware that they are
deceiving each other – then that is not fraud because it should be UNILATERAL (only
Article 1348 – Impossible things
one party).
“Impossible things or services cannot be the object of contracts”
Article 1345 – Simulation of Contract 2 kinds of impossible things
“Simulation of a contract may be absolute or relative. The former takes place when 1. Physically impossible things
the parties do not intend to be bound at all; the latter, when the parties conceal their 2. Legally impossible things
true agreement”
Article 1349 – Quantity of object need not be determinate (future things)
Simulate – you pretend
Simulation – the parties are pretending to agree when in fact there is not contract at “The object of every contract must be determinate as to its kind. The fact that the
all. quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract
Article 1346 – Kinds of Simulation of Contract between the parties.”
“An absolutely 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, Future things – the quantity of object need not be determinate but it does not stop the
morals, good customs, public order or public policy binds the parties to their real existence of the contract
agreement.”
Section 3 – CAUSE OF CONTRACTS
1. Absolute / Fictitious – more worse; there is no intention to be bound. Effect: VOID.
Article 1350 – 3 Kinds of Cause
(walang bayad / kunware lang)
“In onerous contracts the cause is understood to be, for each contracting party, the
2. Relative – parties conceal their true agreement. General rule: it is VALID
Exception: prestation or promise of a thing or service by the other; in remuneratory ones, the
1. Does not prejudice a third person service or benefit which is remunerated; and in contracts of pure beneficence, the
2. Not contrary to 1306 (law, morals, good customs, public order, or public policy) mere liberality of the benefactor.”
Effect of exception: VOID
Cause / CAUSA / consideration
Video 95 - Why of the contract
Section 2 – OBJECT OF CONTRACT
Article 1347 – Object of a contract 3 kinds of cause
“All things which are not outside the commerce of men, including future things, may 1. Onerous – prestation / promise / reciprocally obligated. (may bayad) example: sale,
be the object of a contract. All rights which are not intransmissible may also be the partnership, lease, agency, employment
object of contracts. 2. Gratuitous / Pure beneficence – mere liberality of the benefactor. Free / walang
No contract may be entered into upon future inheritance except in cases expressly bayad / gratis, probolo. Example: donation, commodatum, guaranty, deposit
authorized by law. 3. Remuneratory / remuneration / remunerative – for the service of benefit given.
All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract.” Article 1351 – Motive
Object of a contract – subject matter; thing, right or service “The particular motives of the parties in entering into a contract are different from the
cause thereof.”
Requisites of object Motive – is the private reason or purely personal which a party has in entering into a
1. It must be within the commerce of man (appropriated, transferred or assigned) contract.
2. Real or possible (existing)
3. Licit or lawful Cause Motive
4. Determinate or determinable without the need of a new contract between the Immediate or direct reason Remote / indirect reason
parties (specific), can be manufactured/created Known to other Unknown to other
5. Transmissible Essential element of contract (consent, Not an element
object, cause)
General rule: all rights may be the object of a contract If the cause is illegal – VOID If the motive is illegal – VALID because
it is not an element
Exception: If it is prohibited by law / stipulation / by the nature of the obligation
Article 1352 – 1353 – Requisites of Cause General rule: No form is required (because a contract is consensual in character,
1352 – “Contracts without cause, or with unlawful cause, produce no effect whatever. created by mere consent)
The cause is unlawful if it is contrary to law, morals, good customs, public order or Exception: when a form is required
public policy.” 1. Form for VALIDITY –
1353 – “The statement of a false cause in contracts shall render them void, if it should 2. Form for ENFORCEABILITY / enforcement –
not be proved that they were founded upon another cause which is true and lawful.” 3. Form to bind third persons / convenience of the parties / Greater efficacy of the
Requisites of cause contract
1. It must be in existence of the time the contract is entered into
2. It must be lawful Hierarchy of Contract
3. It must be true or real Registered – create real right
^
Effects of Cause Public document / instrument – notarized
-Absence / want of cause – VOID (simulation of contract – if the contract is simulated ^
because there is no cause – VOID) Writing / private document / electronic
-Illegal cause – VOID (example: selling illegal drugs) ^
-False cause – VOID Oral contract / Verbal
-Failure of Cause – VALID (parties fail to perform the obligation)
-Insufficient / Inadequate cause - VALID 1. Form for VALIDITY – form varies (it can be written, public document, or registered)
if did not comply, the effect is VOID
Article 1354 – Cause presumed to exist and lawful
“Although the cause is not stated in the contract, it is presumed that it exists and is 2. Form for ENFORCEABILITY / enforcement – the contract must be in writing or
lawful, unless the debtor proves the contrary.” written, if did not comply the effect if UNENFORCEABLE
Generally, it does not need to state in contract because it is presumed to exist and it
is lawful 3. Form to bind third persons – required public instrument AND registered. If did not
comply, the effect is VALID only for the parties.
Article 1355 – Lesion
“Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a Form for Validity
contract, unless there has been fraud, mistake or undue influence.” a. In writing / private document / private instrument
Lesion – any damage caused by the fact that the price is unjust or inadequate. 1. If interest is oral – VOID
(Insufficient cause) Interest must be in writing for it to be VALID
Oral loan – VALID
General rule: Lesion does not invalidate (meaning the contract is VALID) 2. Antichresis must be in writing, if not VOID
Oral antichresis – VOID
Exception: 3. Donation of personal property value in excess of 5,000 – VOID (it must be in
1. MIVUF – VOIDABLE writing)
2. 1381 – RESCISSIBLE 4. Sale of land through an agent –
3. No intention to be bound – VOID Oral – VOID
Writing – VALID
Effect of gross inadequacy of cause in a contract
Gross inadequacy – sobrang liit - VALID b. Public instrument
1. Donation of real property – (immovable) regardless of the value
Video 96 Oral – VOID
Chapter 3 – FORMS OF CONTRACTS Writing – VOID
Article 1356 – Form of contracts Public instrument – VALID
“Contracts shall be obligatory, in whatever form they may have been entered into, 2. Contribution of real property in partnership
provided all the essential requisites for their validity are present. However, when the Oral sale of land – VOID
law requires that a contract be in some form in order that it may be valid or Sale of land through writing – VOID
enforceable, or that a contract be proved in a certain way, that requirement is Sale of land through public instrument – VALID
absolute and indispensable. In such cases, the right of the parties stated in the
following article cannot be exercised.” c. Registered
Form of contract – manner in which contract is executed or manifested 1. Chattel mortgage
Oral – VOID
 Writing – VOID
Public instrument – VOID
Registered – VALID
2. Sale of Large Cattle
Oral – VOID
Writing – VOID
Public instrument – VOID
Registered – VALID
Form for Enforceability
1. Sale of real property – regardless of the value
-Oral sale of real property – UNENFORCEABLE
-Written sale of real property – VALID to the parties
2. Sale of personal property – 500 or more - VALID
- Oral sale of personal property of 500 below – UNENFORCEABLE
- Written Sale of personal property – 500 or more – VALID to the parties
*Valid to the parties, if it is valid to the third person then it have to appear in Public
instrument and registered.
Unenforceable – the seller cannot demand the payment, the buyer cannot demand
the delivery. Cannot be demanded, cannot be executed
Article 1357 – Form for the convenience of the party
“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.”
Form for the convenience of the party / Greater efficacy
Remedy: compel public instrument
Purpose: Bind it to the third person
Article 1358 – Contracts which must appear in a public instrument for
convenience
“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.”
Instances
1. Creation of real right over real property
2. Cession or renunciation of hereditary right or those of conjugal partnership of gains
3. Power to administer property
4. Cession of actions or rights
GPA – general power of authority
SPA – special power of authority (if binding in public instrument, it is not binding to
third person)
Video 97
Chapter 4 – REFORMATION OF INSTRUMENTS
Article 1359 – Reformation
“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 of Instruments – correcting the instrument to express the true agreement
of parties
-We correct instrument, not the contract because it is the agreement of the parties
Instrument – the paper, the document, because sometimes it has typographical error
Remedy: reformation / correct (there should be have meeting of minds)
Remedy: annulment (if there is no meeting of minds)
Cause to have failure to have meeting of minds
- Mistake
- Fraud
- Inequitable contract
- Accident
It causes contract to be VOIDABLE
Instances when reformation is allowed (Article
Article 1360-1365)
Article 1360 – Principle of the general law on reformation
“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”
General law – there are other laws equally applicable and it have to be adapted
Article 1361 – Mutual mistake as basis of reformation
“When a mutual mistake of the parties causes the failure of the instrument to disclose
their real agreement, said instrument may be reformed.”
Both parties were mistaken.
Article 1362 – Mistake on one side, fraud or inequitable conduct on the other
side
“If one party was mistaken and the other acted fraudulently or inequitably in such a
way that the instrument does not show their true intention, the former may ask for the
reformation of the instrument.”
Only one mistaken but the other party committed fraud nonetheless.
Article 1363 – Concealment of mistake by the other party
“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 other party did not tell the other party that there is mistake or there is something
wrong in the document

Article 1364 – Ignorance on the part of the third person
“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.”
Example: the encoder committed a mistake in typing
Article 1365 – Mortgage or pledge stated as a sale
“If two parties agree upon the mortgage or 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.”
Example: the contract is said to be mortgage but it was mentioned to be contract of
sale or pledge, then those are not the same, they are different contracts.
*article 1360-1365 the reformation is allowed in those instances
Instances when reformation is NOT allowed (Article 1366-1367)
Article 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.”
(1) Simple donations inter vivos wherein no condition is imposed;
Donation Inter vivos – when the donation takes effect during the lifetime, no condition
(2) Wills – the stator is the one who can reform
(3) When the real agreement is void
(4) 1367
Article 1367 – when the parties enforced the contracts
“When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.”
-when one of the parties has brought an action to enforce the instrument then he
cannot ask for reformation because he is guilty of estoppel or ratification or waiver
Article 1368 – Parties entitled to reformation
“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.”
Parties entitled to reformation
1. Either of the parties
2. In all other parties, the injured party
3. The heirs or successors in interest
Article 1369 – Procedure of reformation
“The procedure for the reformation of instrument shall be governed by rules of court
to be promulgated by the Supreme Court.”
Key points:
1. Reformation – correcting the instrument to express the true agreement of the
parties
2. There must be meeting of minds to have reformation, if none the remedy is
annulment.
3. 4 instances where reformation is not allowed
Chapter 5 – INTERPRETATION OF CONTRACT
Article 1370 – Interpretation of contract
“If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former.”
Interpretation – get the meaning because there is ambiguity
If the language is clear – no need to interpret; apply is literally or apply the letter
If the language is doubtful or vague – need to go to spirit or intention of the parties;
need to interpret
Video 98
Tools for Interpretation (1371 – 1378)
Article 1371 – Contemporaneous and subsequent acts relevant in the
determination of intention
“In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered.”
It interpreted based on what happened after the contract was created.
Article 1372 – Special intent prevails over a general intent
“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.”
General intent vs. Special intent
If there is conflict between the general intent and special intent, what will prevail is the
special intent because that is the latest intention of the parties.
Article 1373 – Interpretation of stipulation with several meaning
“If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.”
Interpretation to be effectual – you have to give life to the contract (valid)
Article 1374 – Interpretation of various stipulations of a contract
“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.”
Interpretation as a whole – no segregation principle
Whole contract vs. piece-meal
Piece-meal – select certain part of the contract
-we have to read the contract in its entirety, we cannot separate parts because they
belong to one whole agreement
Article 1375 – Interpretation of the words with different significations Video 99
“Words which may have different significations shall be understood in that which is Introduction to Chapter 6, 7, 8 and 9
most in keeping with the nature and object of the contract.”
Intention of the parties prevailed (1370) Article 1380 – Rescissible contract
“Contracts validly agreed upon may be rescinded in the cases established by law”
Article 1376 – Resort to usage or custom RESCISSBLE CONTRACT
“The usage or custom of the place shall be borne in mind in the interpretation of the - Those validly agreed upon because all the essential elements exist and legally
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily effective but in the cases of established by law, the remedy of rescission is
established.” granted in the interest of equity.
Using custom to interpret
Void – most defective
Article 1377 – Interpretation of obscure words ^
“The interpretation of obscure words or stipulations in a contract shall not favor the Unenforceable
party who caused the obscurity.” ^
Obscure – vague Voidable
Contract of adhesion – to agree ^
Rescissible – least defective
If there is ambiguity, it must be interpreted against the person who made the contract
because he has all the time in the world to make necessary correction Example: A and B, A is a minor – voidable

Article 1378 – Rules in case doubts absolutely impossible to settle
“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 interests 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.”
Rules:
1. If onerous – may bayad; there is prestation, promise, the parties are reciprocally
obligated; in favor of greatest reciprocity of interest; both parties should be equal
2. If gratuitous – in favor of the least transmission of rights
3. If doubt is impossible to settle – apply all the tools for interpretation – VOID
Article 1379 – Principles of interpretation in the rules of court applicable
“The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise
be observed in the construction of contracts.”
Example: A and B, both of them are minor – unenforceable
Example: A and B, both of them are minors and they are selling prohibited drugs –
void
Example: A person selling a property without authority – unenforceable
Defect – there is a damage or injury to one of the parties or to third person (more on
money)
Status – valid (has consent, object and cause) but rescissible (there is pecuniary
prejudice and economic damage)
Grounds – GACLOS (Guardian, Absentee, Creditor, Litigation, Other instances, and
State of Insolvency)
Remedy – Rescission
Period – 4 years
Requisites (7)
1. Must validly agreed upon (when there is consent, object and cause)
2. There must be lesion or pecuniary prejudice to one of the parties or to third person
(pecuniary – monetary damage is involve)
3. Rescission must be based upon a case especially provided by law (GACLOS)
4. There is no other legal remedy to obtain reparation for the damage (this is the last
remedy because it is not the first remedy). Rescission is only a subsidiary remedy
5. Party asking for rescission must be able to return what he is obliged to restore by
reason of the contract (what is required is mutual restitution – to repair the damage
cause)
6. Object of the contract must not legally be in the possession of third persons who
did not act in bad faith (because if the property transfer to a third person acquired it in
good faith, you can no longer ask for the return, then the only thing to do is to ask for
damages)
7. Period of filing the action for rescission must not have prescribed (the period is 4
years) State of insolvency – (1382)

Rescission - Article 1382 – Payments made in State of Insolvency

1191 1380 “Payments made in a state of insolvency for obligations to whose fulfillment the
Remedy – principal action Remedy – subsidiary debtor could not be compelled at the time they were effected, are also rescissible.”
Rule of thumb – insolvent person can’t enter a contract because it is VOID
Involve breach of trust, because the There is lesion or economic prejudice But in this case, it is not VOID but RESCISSIBLE
person was not able to perform and
violated the obligation Example: A owes B 100k, C 500K, D 1 million and E 2 million. A only have 300k. He
One party did not comply with the It applied whether is it reciprocal or not cannot pay A only because the other creditors will be damage.
obligation
Article 1383 – Rescission is NOT principal remedy
Article 1381 – Classes of rescissible contract “The action for rescission is subsidiary; it cannot be instituted except when the party
“The following contracts are rescissible: suffering damage has no other legal means to obtain reparation for the same.”
(1) Those which are entered into by guardians whenever the wards whom they Rescission is not a principal remedy, only a subsidiary remedy.
represent suffer lesion by more than one-fourth of the value of the things which are Principal – first remedy
the object thereof; Subsidiary – secondary or last remedy
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number; If damage is required, there is no rescission
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them; If there are other remedies or available remedies, the thing to do is to exhaust those
(4) Those which refer to things under litigation if they have been entered into by the remedies before able to avail the remedy of rescission.
defendant without the knowledge and approval of the litigants or of competent judicial
authority; The purpose of rescission is to repair the damage, and once the contract is repaired
(5) All other contracts specially declared by law to be subject to rescission.” then there is no longer rescissible contract

GACLOS Article 1384 – Extent of rescission

Guardian – sells the property of the ward and suffer lesion by more than ¼ of value
of property. (Wards – person is incapacitated, minor, insane, deaf-mute who do not
know how to read and write or persons who are incompetent under guardianship).
The person taking care of the wards is the guardian.
Example: Guardian sells the property of minor (worth of 100k) for 90k – VALID then
there is lesion
Example: Guardian sells the property of minor (worth of 100k) for 70k –
RESCISSIBLE
Absentee – person who is missing (suppose the person is sunk, there is calamity).
Then the administrator is the one who will take care of the property. There must be
lesion by more than ¼
Creditors – fraud by creditors (1177, 1313). Accion Pauliana
Litigation –
litis pendentia (pending litigation)
custodia legis (in custody of the court)
You need the authority of the court.
Other instances – (1654/1539/1526/1189)
Example: partition – heir receive less than ¼ and damaged the heir – RESCICCIBLE
Example: 1539 – sale per unit
“Rescission shall be only to the extent necessary to cover the damages caused.”
Purpose – repair damage
Once the damage has been covered then the contract will become valid
Video 100
Article 1385 – Mutual Restitution
“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.”
Whether the contract is voidable or rescissible, it requires mutual restitution.
Why it is necessary to require mutual restitution?
- To restore the parties to their original situation (so there will be no damage or
injury)
What must be returned?
- The object of fruits
- Price and interest
When is rescission not allowed? If the other person is in good faith, then the remedy is action for damages because
1. If the party demanding rescission cannot return (because you have to return the number 1 is not possible
thing)
2. Property is in possession of third person who acted in good faith General rule: if the contract is rescinded and if the person is in bad faith, it has to
Remedy – ask for damages RETURN.

Article 1386 – Contracts approved by courts Article 1389 – Period for filing action for rescission
“Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with “The action to claim rescission must be commenced within four years.
respect to contracts approved by the courts.” For persons under guardianship and for absentees, the period of four years shall not
No rescission in contracts approved by the court. begin until the termination of the former's incapacity, or until the domicile of the latter
- Exception to 1381 is known”
If it is approved by the court – VALID General rule: 4 years from the date the contract was entered into

Article 1387 – When alienation presumed in fraud of creditors Exception:

“All contracts by virtue of which the debtor alienates property by gratuitous title are 1. For the person is under guardianship – period shall begin from the termination of
presumed to have been entered into in fraud of creditors, when the donor did not incapacity
reserve sufficient property to pay all debts contracted before the donation. 2. For absentees – from the time the domicile is known
Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been issued. The decision or attachment need not Persons entitled to bring action
refer to the property alienated, and need not have been obtained by the party seeking 1. Injured party or the defrauded creditor
the rescission. 2. His heirs, assigns, or successors in interest
In addition to these presumptions, the design to defraud creditors may be proved in 3. Creditors of the above entitled to subrogation
any other manner recognized by the law of evidence.”
Alienation – transfer or convey or assign it to other person Video 101
Chapter 7 – VOIDABLE CONTRACTS
When alienation presumed in fraud of creditors – RESCISSIBLE Article 1390 – Voidable contracts
“The following contracts are voidable or annullable, even though there may have
Kinds of alienation been no damage to the contracting parties:
1. Alienation by gratuitous title – the transfer is for free; donor did not reserve (1) Those where one of the parties is incapable of giving consent to a contract;
sufficient property to pay all the debts (2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
2. Alienation by onerous title – the transfer is for the certain some; if some judgment These contracts are binding, unless they are annulled by a proper action in court.
has rendered; writ of attachment issued (the court has taken possession over the They are susceptible of ratification.”
land)
Defect – vitiated consent (there is consent plus MIVUF)
Continuation of 1381 – grounds and litigation Remedy – annulment
Status – valid until annulled
Badges of Fraud – indication that it is fraud committed against the creditor Grounds – (2) incapacitated and MIVUF
1. Inadequate consideration Period – 4 years
2. Sale on credit by an insolvent person
Other grounds
Article 1388 – Liability of purchaser in bad faith Example: mistake of law, state of drunkenness
“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, Article 1391 – Period for filing action for annulment
whenever, due to any cause, it should be impossible for him to return them. “The action for annulment shall be brought within four years.
If there are two or more alienations, the first acquirer shall be liable first, and so on This period shall begin:
successively” In cases of intimidation, violence or undue influence, from the time the defect of the
consent ceases
Liability of purchaser in bad faith In case of mistake or fraud, from the time of the discovery of the same.
1. Must return the same if sale is rescinded And when the action refers to contracts entered into by minors or other incapacitated
2. If not possible then action for damages persons, from the time the guardianship ceases”.
General rule: within 4 years

Exception: the counting of period is different
- Intimidation, Violence, Undue influence – from the time the defect of consent
ceases
- Mistake and Fraud – discovery (when did you discover the mistake or fraud?)
Exception: registration (when the contract registered)
- Minor and incapacitated – from the time the guardianship ceases (minor – from
the time the person reached 18) (incapacitated – from the time the incapacity
stopped) (insane – lucid interval)
Article 1392 – Effect of ratification
“Ratification extinguishes the action to annul a voidable contract.”
Effect of ratification
1. Cleanses the contract (it only become valid)
2. Extinguished the action to annul (can no longer file an action for annulment)
Article 1393 – Kinds of Ratification
“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.”
Kinds of Ratification
1. Express – when the ratification is manifested in words.
2. Implied – take diverse forms, such as by silence or acquiescence; acts of the
parties
Article 1394 – Who may ratify?
“Ratification may be effected by the guardian of the incapacitated person.”
Who may ratify?
1. Guardian
2. Injured party
Article 1395 – Conformity of guilty party to ratification not required
“Ratification does not require the conformity of the contracting party who has no right
to bring the action for annulment.”
Do we need the consent of the guilty party? NO
Article 1396 – Retroactive effect of ratification
“Ratification cleanses the contract from all its defects from the moment it was
constituted”
- Cleanses
Article 1397 – Partly entitled to bring an action to annul
“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.”
Ratification Annulment
Positive remedy – made the contract Negative remedy – set aside the contract
valid
Who are the parties entitled to bring an action to annul?
1. Plaintiff (must have an interest)
2. Victim
Do we need the consent of:
1. Strangers / Third person
2. Guilty party
ANSWER: NO, because they cannot file an action for annulment
Article 1398 – Duty of mutual restitution upon annulment
“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 the basis for damages.”
Duty of mutual restitution upon annulment
1. Obligation to give – restoration (return)
2. Personal obligation – value thereof shall be the basis for damage / pay for
damages
*persons capable cannot allege in capacity of a person to whom he contracted
Article 1399 – Restitution by an incapacitated person
“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.”
General rule: if you are incapacitated, you are not liable
*only insofar as it was beneficial to him
Article 1400 – Effect of loss of thing to be returned
“Whenever the person obliged by the decree of annulment to return the thing can not
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.”
1. If the thing is destroyed without fault – no obligation to return
2. If with fault – liable to pay for damages
Basis for damage
Value + fruits received + interest
Article 1401 – Extinguishment of action for annulment
“The action for annulment of contracts shall be extinguished when the thing which is Defect – (3)
the object thereof is lost through the fraud or fault of the person who has a right to Grounds – (3)
institute the proceedings. Remedy – none
If the right of action is based upon the incapacity of any one of the contracting parties, Period – none
the loss of the thing shall not be an obstacle to the success of the action, unless said Status – valid but unenforceable
loss took place through the fraud or fault of the plaintiff.”
- If lost through fault or fraud of the person who has right to file the case 1403 – Grounds
Can he still file an action for annulment? NO because there is fault / fraud 1. 1317 – no authority or in excess
2. Violation of statute of fraud – the contract must be in writing
Article 1402 – Effect when a party cannot restore what he is bound to return - executory vs. executed
“As long as one of the contracting parties does not restore what in virtue of the decree - effect of admission – if one or both of the parties admitted that the contract is
of annulment he is bound to return, the other cannot be compelled to comply with inexistence even though it is oral, then it is outside the coverage because the
what is incumbent upon him.” admission will ratify the contract
Effect where a party cannot restore – no annulment - exclusive – there are only 7 grounds and there are no other grounds
- waivable / personal - even though it is oral but if the party did not question why it is
Effect of minority oral; the third person cannot question an unenforceable contract
a. If one person is incapacitated – VOIDABLE 3. Both are incapacitated
b. If both parties are incapacitated – UNENFORCEABLE
c. In marriage, one or both are minors – VOID General rule: the contract must be in Writing
Case of Supreme Court Effect if not: UNENFORCEABLE (no parol evidence, no oral evidence)

Video 102
Chapter 8 – UNENFORCEABLE CONTRACTS
Article 1403 – Unenforceable contracts
“The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in 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 of 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.”
If the contract is already executed, the oral evidence is allowed. If executory,
unenforceable
Instance of Grounds
1. Agreement not performed within one year
2. Promise to answer for the debt, default or miscarriage of another – promise of the
guarantor
Surety Guarantor
Principally liable Subsidiarily liable
More burdensome
If guarantor made an oral promise – unenforceable
3. Agreement in consideration of marriage
- Donation proptir nuptias (donation by reason of marriage)
- Marriage settlement / ante-nuptial agreements
4. Agreement for the sale of goods, not less than 500
More than 500 and oral – unenforceable
More than 500 and in writing – valid to the parties
5. Agreement for the sale of real property, regardless of the value it must be in writing
- Even though it is oral, of the contract is executed, it will be valid
6. Lease for more than 1 year
If the lease is lest than 6 months, the lease can be oral
If the lease is more than 1 year, it must be in writing in order for it to be enforceable
7. Representation as to the credit of another person
If another person’s representation is oral, he is not liable
If another person’s representation is in writing, he not liable (6) Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained;
Article 1404 – Unauthorized contracts governed by 1317 and principle of (7) Those expressly prohibited or declared void by law.
agency These contracts cannot be ratified. Neither can the right to set up the defense of
“Unauthorized contracts are governed by Article 1317 and the principles of agency in illegality be waived.”
Title X of this Book.”
If there is no authority in excess of authority – unenforceable Void Inexistent
Instances: Instances:
Article 1405 – Modes of ratification 1. Contrary to 1306 1. Lack of one, some or all COC
“Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are 2. Prohibited by law (consent, object, cause)
ratified by the failure to object to the presentation of oral evidence to prove the same, 3. Declared by law to be void 2. Form for validity is not complied
or by the acceptance of benefit under them.”
1. Failure to object to presentation of oral evidence
2. Implied – acts of the parties Defect / grounds – 7
Statues – no effect
Article 1406 – Requisites to apply Remedy – declaration of absolute nullity
“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 Characteristics of Void / inexistent contract
themselves of the right under Article 1357” 1. No force or effect
1. It must be a valid contract (there must be consent, object and cause) 2. Cannot be ratified
2. Should not be against the statute of fraud 3. Right to set up the defense of illegality cannot be waived
4. Action or defense for the declaration of its inexistence does not prescribe (does not
1357 end, does not prescribed)
Remedy – compel public instrument 5. Defense of illegality is not available to third persons, unless interest is directly
affected
Article 1407 – Effect of Ratification – one or both 6. Cannot give rise to valid contract, cannot be novated
“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 Instance of Void Contract
parties shall give the contract the same effect as if only one of them were 1. Contrary to 1306
incapacitated. 2. Absolutely simulated or fictitious (1345)
If ratification is made by the parents or guardians, as the case may be, of both 3. No COC
contracting parties, the contract shall be validated from the inception.” 4. Outside the commerce of men
5. Impossible service (1347 / 1348)
If one guardian ratified – VOIDABLE 6. Intention of the parties cannot be ascertain (1378)
Both guardians ratified – VALID because nobody is incapacitated already 7. Prohibited or declared void by law
a. Future inheritance
Article 1408 – Right of the third person to assail in unenforceable contract b. Sale of property between husband and wife
“Unenforceable contracts cannot be assailed by third persons.” c. Person is specially disqualified by law
d. Donation between spouses
Can third person question unenforceable contract? NO e. Prohibited testamentary provision
f. Foreigners buying lands in the Philippines
Video 103 g. No compensation for household service
Chapter 3 – VOID OR INEXISTENT CONTRACTS
Article 1409 – Void contracts Article 1410 – Imprescriptible
“The following contracts are inexistent and void from the beginning: “The action or defense for the declaration of the inexistence of a contract does not
(1) Those whose cause, object or purpose is contrary to law, morals, good prescribe.”
customs, public order or public policy; Imprescriptible – does not end, does not prescribed
(2) Those which are absolutely simulated or fictitious; Exception: laches
(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;
1411 / 1412 – In pari delicto
Article 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.”
Article 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 his promise.”
In pari delicto – equally at fault; both are guilty
If the contract is VOID – in pari delicto will be applied
- The law will not aid either party to a void agreement, it leaves them where they
are (there is no remedy, there is no recovery)
- Parties must come to court will clean hands
1411 – in pari delicto (criminal offense)
a. Both parties are guilty
-both will be prosecuted
-the property/things will be confiscated
-cannot demand the performance of the obligation
b. Only 1 is guilty
-the innocent party can demand the recovery
1412 – in pari delicto (not criminal offense)
a. Both parties are guilty
-cannot demand
-cannot recover
b. Only 1 is guilty
-the innocent party can recover
General rule: No recovery if contract is VOID because of in pari delicto
Exceptions: when recovery is allowed (1413 – 1419)
Article 1413 – Recovery of usurious interest
“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.”
There is no more usury law
Recovery of usurious interest - YES
Article 1414 – Recovery where contract entered into for illegal purpose
“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.”
Can recover even the person change his mind
Article 1415 – Recovery by an incapacitated person
“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.”
Minor or incapacitated person can recover
Article 1416 – Recovery where contract not illegal per se
“When the agreement is not illegal per se but is merely prohibited, and the prohibition
by the law is designated for the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or delivered.”
Article 1417 – Recovery of amount paid in excess of ceiling price
“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 price in Philippines – DTI will determine
The excess can be recovered
Article 1418 – Recovery of additional compensation for service rendered
beyond time limit
“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.”
Recovery of overtime pay
Article 1419 – Recovery of amount of wage less then minimum fixed
“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”
Minimum wage changes in different regions
The difference can be recovered
Article 1420 – Effect of illegality where contract indivisible/divisible
“In case of a divisible contract, if the illegal terms can be separated from the legal
ones, the latter may be enforced”
If the contract is divisible, the void one is separated from the valid one
If the contract is indivisible, the whole contract is void
Article 1421 – Persons entitled to raise defense of illegality or nullity
“The defense of illegality of contract is not available to third persons whose interests
are not directly affected.”
Third persons can question but only if the right is directly affected
Article 1422 – Void contract cannot be novated a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall
“A contract which is the direct result of a previous illegal contract, is also void and be no right to recover the same from the obligee who has spent or consumed it in
inexistent.” good faith.”
Void contract can never be valid, never be ratified Restitution by minor after annulment of contract
- Minor should not pay the obligation because he is not liable
Title III – NATURAL OBLIGATIONS - Guardian file an annulment to the creditor, then the creditor must return the thing
Article 1423 – Concept of natural obligation - But if the minor still pay the creditor voluntarily, he cannot recover because he
“Obligations are civil or natural. Civil obligations give a right of action to compel their performed a natural obligation
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 Article 1428 – Performance after action to enforce civil obligation has failed
voluntary fulfillment by the obligor, they authorize the retention of what has been “When, after an action to enforce a civil obligation has failed the defendant voluntarily
delivered or rendered by reason thereof. Some natural obligations are set forth in the performs the obligation, he cannot demand the return of what he has delivered or the
following articles.” payment of the value of the service he has rendered.”
Civil obligation Natural obligation
Based on positive law Based on equity and natural law Article 1429 – Payment by heir of debt exceeding value of property inherited
Right of action to compel/can demand No action/cannot demand “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
Enumeration is not exclusive estate of the deceased, the payment is valid and cannot be rescinded by the payer.”
1178 – Obligations are not transmissible, rights are transmissible
Obligation cannot be demanded Heirs cannot pay the obligations because obligations are not transmissible, but if they
The debtor cannot pay the obligation, but if the debtor pay or perform it voluntarily did pay then they cannot recover because they perform natural obligation
then he cannot recover because he perform natural obligation
Article 1430 – Payment of legacy after will has been declared void
Article 1424 – Performance after civil obligation has prescribed “When a will is declared void because it has not been executed in accordance with
“When a right to sue upon a civil obligation has lapsed by extinctive prescription, the the formalities required by law, but one of the intestate heirs, after the settlement of
obligor who voluntarily performs the contract cannot recover what he has delivered or the debts of the deceased, pays a legacy in compliance with a clause in the defective
the value of the service he has rendered.” will, the payment is effective and irrevocable.
Heir – receive inheritance
Prescriptive periods/ Statute of limitation Third person – receive legacy
Written – 10 years
Oral – 6 years If the court declared that the “will” will be void, the third person cannot receive legacy
because he is not heir. But if the heir delivers the thing, they cannot recover because
We can extend/lengthen the period if the creditor demand from the debtor, then the they perform natural obligation
demand halts the period
*the creditor cannot demand
Article 1425 – Reimbursement of third person for debt that has prescribed *the debtor cannot pay
“When without the knowledge or against the will of the debtor, a third person pays a *the debtor paid, then he cannot recover
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 Handout 18 – distinction of the effects
cannot recover what he has paid.”
Third person cannot pay beyond the period because that would be natural obligation
and he is a third person.

Article 1426-1427
Article 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 the he has not been benefited thereby, there is no right to
demand the thing or price thus returned.”
Article 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