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CONTRACTS
CHAPTER 1 : GENERAL PROVISION (ARTICLE 1305 - 1317)

ARTICLE 1305 (Definition of Contracts)
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to
render some service.
CONTRACTS
A meeting of minds between two contracting parties which takes place when an offer by one party is accepted by the other. In a
contract, one or more persons bind himself or themselves with respect to another or others, or reciprocally, to the fulfillment of a
prestation to give, to do, or not to do.
● Meeting of minds takes place when an offer of one party is accepted by the other party.
● Meeting of minds must not be in writing, except for those contracts that are required by law.
● It may not be just two people involved, but it could be two or more people involved in the fulfillment of a prestation.
● We don't notice that we're engaged in various contracts, such as purchasing, borrowing, & dealing with someone.
CONTRACT AND OBLIGATION DISTINGUISHED.

Contract Obligation
It is one of the sources of obligation. Everytime that there's a It is the legal tie or relation itself that exists after a contract has
contract, automatically there's an obligation, which can be been entered into.
unilateral or bilateral obligations
Hence, there can be no contract if there's no obligation. But an obligation may exist without a contract because we have
obligations that come directly from the law and other sources of obligation.
CONTRACT AND AGREEMENT DISTINGUISHED.

Contracts are agreements enforceable through legal proceedings. Those agreements which cannot be enforced by action in the
courts of justice (like an agreement to go to a dance party, or to have fun) are not contracts but merely moral or social agreements.
An agreement is broader than a contract because the former may not have all the elements of a contract.
● All contracts are agreements, which contracts are agreements that CAN ENFORCEABLE through legal proceedings.
● Not all agreements are contracts, which those agreements CAN'T BE ENFORCED by action in the courts of justice.
ELEMENTS OF A CONTRACT
(1) Essential Elements - It is required these essential elements in order to have contract
- The essential elements are: (1) Consent; (2) Object; and (3) Cause.
a. Consent - meeting of the minds of the two parties
b. Object - must be definite and certain (ex. Land, or house etc)
c. Cause - reason in the performance of the contract
(2) Natural Elements - It the the elements that are INITIALLY present in some certain contracts
- It is not required elements, so it may exist or not exist in any contracts.
- Through the stipulation of the parties, these elements can be REMOVED later on.
- Ex. Warranty against eviction and hidden defects case of sales.
(3) Accidental Elements - It the the elements that are NOT INITIALLY present in some certain contracts
- Through the stipulation of the parties, these elements can be ADDED later on.
- It is not required elements, so it may exist or not exist in any contracts.
- Ex. Stipulations such as interest in loan
CHARACTERISTICS OF CONTRACTS. - MARCO

1. Freedom or Autonomy of contracts. (ARTICLE 1306)
The parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided, they
are not contrary to law, morals, good customs, public order, and public policy
2. Obligatoriness of contracts.
Obligations arising from contracts have the force of law between the contracting parties and should be complied with in
good faith.
3. Mutuality of contracts. (ARTICLE 1308 - 1310)

Contracts must bind both and not one of the contracting parties; their validity or compliance cannot be left to the will of one
of them.
4. Relativity of contracts. (ARTICLE 1311 - 1314)

Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations
arising from the contracts are not transmissible by their nature, or by stipulation, or by provision of law.
5. Consensuality of contracts. (ARTICLE 1315- 1316)

Contracts are perfected, as a general rule, by mere consent, and from that moment the parties are bound not only by 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.
CLASSIFICATIONS OF CONTRACT.
According to name or designation: ARTICLE 1307
a. Nominate contract
● It has a SPECIFIC NAME or DESIGNATION IN LAW.
● There's a particular name or designation provided by law.
● Examples: commodatum, lease, agency, sale, etc.
b. Innominate contract
● It has NO SPECIFIC NAME or DESIGNATION IN LAW.
● There's NO particular name or designation provided by law.
● It shall be regulated:
a. By the stipulations of the parties
b. By the provisions
c. By the rules governing the most analogous (similar) nominate contracts, and
d. By the customs of the place.
4 KINDS OF INNOMINATE CONTRACT. (Do or Des - Give) (Facio or Facias - Do)

1. do ut des (I give that you may give)
An agreement in which A will give one thing to B, so that B will give another thing to A.
2. do ut facias (I give that you may do)

A contract under which A will give something to B, in order that B may do something for A.
3. facio ut des (I do that you may give)

An agreement in which A binds himself to do something for B, so that B will give something to A.
4. facio ut facias (I do that you may do)

A convention whereby A is to do something for B, so that B will render some other service to A.
According to perfection: ARTICLE 1315-1316
a. Consensual (GENERAL RULE)

● It is perfected by mere CONSENT, OBJECT, and CAUSE OF CONTRACTS of the parties.
● It also says that it is perfected by mere agreement of the parties
● Examples: sales or lease.
Illustration:
Buying and selling. The moment the seller and buyer agree on a price for an item to be sold and
bought respectively, the seller and buyer have mutual actions.
b. Real (EXCEPTION)
● It is perfected by DELIVERY of the parties + COC
● Not only requires the consent of the parties, also the delivery of the object by 1 party to another
● Examples: commodatum, deposit, or pledge.
Illustration:
Loans of money. As the loanee gets the loaned money he has the obligation to pay back the
money.
c. Formal or Solemn Contract (EXCEPTION)

● It is perfected by the needs of special formalities.
● It requires some compliance with certain formalities prescribed by law.
● Contracts that require special form or method of creation to be enforceable.
● It uses negotiable instruments.
● Examples: donation, chattel, or mortgage.
Illustration:
Promissory Note. Proof of promise to pay.
According to person obliged or liability
a. Unilateral
● It is the one which gives rise to an obligation for only ONE of the parties
● It is also called as one-sided contract.
● Only one of the parties that has an obligation.
● Examples: commodatum or deposit
Illustration:
(1) Insurance contracts are one example of a unilateral contract. When you take out, say, home insurance, the
company promises to pay you a specific amount of money if something happens to your home.
(2) Nathaniel is obliged to give 50,000 on June 17, 2022 pursuant to a contract of loan they executed on May
18, 2022.
● It is unilateral because only one party is required to perform a particular conduct.
(3) Nathaniel takes a public auto to go to Mount Road. Nathaniel's contract comes into existence as soon as
Nathaniel was dropped in Mount Road. By that time, auto man has fulfilled his obligation, only Nathaniel has
to fulfill his obligation (i.e. paying the auto- man)
b. Bilateral
● It is one which gives rises to reciprocal obligation for BOTH parties
● Both parties are required to render prestations.
Illustration:
(1) Any sales agreement is an example of a bilateral contract. A car buyer may agree to pay the seller a certain
amount of money in exchange for the title to the car. The seller agrees to deliver the car title in exchange for
the specified sale amount.
(2) Nathaniel and Jefferson executed a deed of sale wherein Nathaniel sold his lot to Nathaniel for 100,000.
● It is bilateral because each party is required to perform a particular conduct
(3) Nathaniel promises to stitch a blouse and Jeffrey promises to pay 100,000. Here Nathaniel promises to stitch
the blouse and Jeffrey promises to pay. Thus each party is both a promisor and a promisee.
According to dependence to another contract
a. Principal
It doesn't depend on its existence & also validity upon another contract but is an indispensable condition for the
existence of an accessory contract.
● It can stand alone or exist on its own
● One that can stand independently by itself
● It can subsist independently from other contracts & purpose can be fulfilled by themselves.
● Examples: agency or partnership.
Illustration:
b. Accessory
It is dependent upon another contract it secures or guarantees for its existence and validity;
● It can't stand alone or exist on its own
● One whose existence depends upon another contract.
● It should have at least one accessory that is attached to a principal thing.
● Examples: mortgage or guaranty
Illustration:
c. Preparatory
It is when it is entered into as a means to an end and needed for the formation of subsequent contracts.
● It is when the parties don't consider the contract as an end by itself.
● One which serves as a means by which other contract maybe entered into.
● It has for its object establishment of a condition in law that is necessary as a preliminary step towards
another subsequent contract.
● Examples: agency or partnership
Illustration:
According to cause
a. Onerous
● One the cause of which is the undertaking or the promise of the thing or service by the other party.
● In other words, in this contract, the parties are reciprocally obligated to each other.
● Those where there's an EXCHANGE OF VALUABLE CONSIDERATION
● A contract that will cost more to fulfill than what will receive in return.
b. Remuneratory or remunerative;
● One the cause of which is the service or benefit which is remunerated.
● Something is given for benefit or service that had been rendered previously.
● A contract where a party gives something to another because of some service render by the other.
● Examples: Salary or Commission
c. Gratuitous or Lucrative
● One the cause of which is the mere liberality of the benefactor or giver.
● Those where one party receives NO EQUIVALENT CONSIDERATION. (Only one person benefited)
● A contract in which one party promises to do something without receiving anything in exchange.
● Examples: Gifts or Donation of land for church construction.
According to obligatory force - ang pagkasunod sunod nito ay based to its binding force.
a. Valid (see Art. 1306.);

● Automatically, when it does not fall in any defective contracts, we will consider it as a valid contract.
● It has 100% BINDING FORCE.
b. Rescissible (Chapter 6.)

Those validly agreed upon because ALL THE ESSENTIAL ELEMENTS EXIST and, therefore, legally effective, but in
the cases established by law, the remedy of rescission is granted in the interest of equity.
● It's not actually a defective contract because there was not any defect in any rescissible contract at all.
However, the mere existence of the rescissible contract causes damage to a third person or one of the
contracting parties.
● It is VALID, BINDING, and ENFORCEABLE against the other parties.
● The contract is considered as defective because IT CAUSES DAMAGE TO THIRD PERSONS or may be
ONE OF THE CONTRACTING PARTIES.
c. Voidable (Chapter 7.);

Those which possess ALL THE ESSENTIAL REQUISITES OF A VALID CONTRACT but ONE OF THE PARTIES IS
LEGALLY INCAPABLE OF GIVING CONSENT, or consent is vitiated by mistake, violence, intimidation, undue
influence, or fraud.
● This kind of contract has a problem with the CONSENT.
● It is VALID, BINDING, and ENFORCEABLE against the other parties.
● The contract is considered as defective because THE CONSENT IS DEFECTIVE.
● Example of person who voidable in any contract:
a. Minor Age (18 y/o below)
b. Someone who lacks the mental capacity
c. Someone who is intoxicated or on drugs at the time the contract was drafted.
d. Unenforceable (Chapter 8.);

Those that CANNOT BE ENFORCED IN COURT or SUED BY REASON OF DEFECTS PROVIDED BY LAW until and
unless they are ratified according to law.
● Those entered in a contract are incapable of giving consent or authority of the other party.
● It is still VALID, however they're NOT BINDING and NOT ENFORCEABLE against the other parties.
● The contract is considered a defective contract because IT HAS LACK OF AUTHORITY or FORM.
e. Void or inexistent. (Chapter 9.)

Those which, because of CERTAIN DEFECTS, GENERALLY PRODUCE NO EFFECT AT ALL. They are considered
as inexistent from its inception or from the very beginning.
● The missing essential element/s hinders (hinahadlangan) the contract from being perfected.
● It is NOT VALID, NOT BINDING AT ALL, and also NOT ENFORCEABLE against the other parties.
● The contract is considered a defective contract because THERE'S A MISSING ESSENTIAL ELEMENT/S.
● Example of essential elements: (COC + the DELIVERY of the object by 1 party to another)
a. Consent - meeting of the minds of the two parties
b. Object - must be definite and certain (ex. Land, or house etc)
c. Cause - reason in the performance of the contract or why a party assumes an obligation.
VALID BINDING ENFORCEABLE
Rescissible ✓ ✓ ✓
Voidable ✓ ✓ ✓
Unenforceable ✓ X X
Void or inexistent X X X
Rescissible Voidable Unenforceable Void or inexistent
Why defective? Causes damage to Consent is defective. Lack of authority or Missing essential
third persons. form. element/s.
This can be Ratified? Yes Yes Yes No

(cure sa defect)
Applicable Provision Article 1381 Article 1390 Article 1403 Article 1409
Remedy to avoid Rescission Annulment None None

(to make invalid) (wala ng effect - void) (wala ng effect - void)
According to form:
a. Formal or Solemn Contract

It is required by law for its efficacy to be in a certain specified form.
● It uses negotiable instruments.that must be in writing.
Illustration:
b. Informal or Common Contract

It may be entered into in whatever form, provided, all the essential requisites for their validity are present.
● This refers only to consensual contracts, such as the contract of sale.
● An informal contract may be oral or written
Illustration:
Contract of sales, orally or written stipulated
According to risks or fulfillment
a. Commutative
● The undertaking of one party is considered the equivalent of that of the other.
● Parties give equal or almost equal values.
● Examples:., sale, lease
b. Aleatory
● It depends upon an uncertain event or contingency both as to benefit or loss.
● Agreement whereby the parties involved don't perform particular action until unexpected event occurs.
● Examples: insurance, sale of a hope.
According to subject matter
a. Involving things (example: sales, deposit, pledge)

b. Involving rights or credits (example: usufruct, assignment of credits)
c. Involving services (example: agency, lease of services, contract of common carriage)
According to time fulfillment
a. Executed
● One that HAS BEEN PERFORMED
● It is a fully implemented contract.
● A contract between two or more parties has been signed and is binding to all parties involved.
● It means that whatever the contract is stipulated/has been carried out, the contract has been executed.
Illustration:
Sales Agreement (Appliances). Once the contract has been entered into, the appliance will be delivered
immediately
b. Executory
● One that HAS NOT BEEN PERFORMED
● A contract that had not yet been fully performed or fully executed.
● It is a contract in which both sides still have important performance remaining.
According to number of persons who participated in the drafting of contracts:
a. Ordinary
● One where both parties participated in preparation of the contract
● Examples: Deed of sales prepared by both parties
b. Contract of adhesion
● One were only one party participted to the contract
● Its terms are prepared by only 1 party & the other party merely affixes his signature signifying adhesion
● Examples: Insurance contract
ARTICLE 1306 (Freedom or autonomy of contracts)

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
● The contracting parties may establish stipulations, terms, or conditions that must not be contrary to law, morals, good
customs, public order, or public policy.
FREEDOM OR AUTONOMY OF CONTRACTS

The parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided, they are not
contrary to law, morals, good customs, public order, and public policy
● It allows the parties to establish such stipulations, clauses, terms and conditions
● It may deem provided that they're not contrary to law, morals, good customs, public order, or public policy.
● The ability of parties to create the terms of their agreement as they desire without interference of government.
OTHER TERMS
● Autonomy of will
● Principle of freedom
● Principle of autonomy of contracts
CONTRACT MUST NOT BE CONTRARY TO LAW.

LAW is “a rule of conduct, just, obligatory, promulgated by legitimate authority, and of common observance and benefit. Although a
contract is the law between the parties, the contracting parties must respect the law which is deemed to be an integral part of every
contract.
CONTRACT MUST NOT BE CONTRARY TO MORALS.

MORALS deal with norms of good and right conduct evolved in a community. These norms may differ at different times and places
and with each group of people. Morals or good customs are often embodied in the law, but the morals or good customs must refer to
those not expressed in legal provisions.
Examples:
A contract, whereby X promised to live as the common-law wife of B without the benefit of marriage in consideration of P50,000.00,
is immoral and, therefore, void.
● It is also contrary to law.
● An agreement to pay usurious interest is contrary to the usury law and morality.
● An agreement whereby X is to render service as a servant to Y without compensation as long as X has not paid his debt is
reprehensible and censurable.
CONTRACT MUST NOT BE CONTRARY TO GOOD CUSTOMS.

CUSTOMS consist of habits and practices which through long usage have been followed and enforced by society or some part of it
as binding rules of conduct. It has the force of law when recognized and enforced by law. A custom must be proved as a fact,
according to the rules of evidence.
GOOD CUSTOMS are expressly mentioned, although morals are already specified. The spheres of morals and good customs may
frequently overlap each other but sometimes they do not.
CONTRACT MUST NOT BE CONTRARY TO PUBLIC ORDER.
PUBLIC ORDER refers principally to public safety although it has been considered to mean also the public weal. (Kapakanan)
CONTRACT MUST NOT BE CONTRARY TO PUBLIC POLICY.

PUBLIC POLICY is broader than public order, as the former may refer not only to public safety but also to considerations which are
moved by the common good. By public policy is intended that principle of law which holds that no subject or citizen can lawfully do
that which has a tendency to be injurious (nakakapinsala) to the public or against the public good which may be termed the “policy of
the law,’’ or “public policy in relation to the administration of the law.’’
Examples:
X stole the car of Y. Later, they entered into a contract whereby Y would not prosecute X in consideration of P1,000.00.
It is to the interest of society that crimes be punished.
● The agreement between X and Y is, therefore, contrary to public policy because it seeks to prevent or stifle the
prosecution of X for theft.
● To permit X to escape the penalties prescribed by law by the purchase of immunity from Y, a private individual, would
result in a manifest perversion of justice.
A condition in a contract of sale states: “In case of sale, the buyer shall not sell to others the land sold but only to the seller, or to his
heirs or successors for the same price of P5,600.00 when the latter shall be able to pay for it.’
● The condition is contrary to public policy, because it virtually amounts to a perpetual restriction on the right of ownership,
specifically the owner’s right to freely dispose of his property. Such a prohibition is indefinite and unlimited as to time, so
much so that it shall continue to be applicable even beyond the lifetime of the original parties to the contract is a nullity.
ARTICLE 1307 (Nominate & Innominate Contracts)

Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules
governing the most analogous nominate contracts, and by the customs of the place.
CLASSIFICATION OF CONTRACTS ACCORDING TO ITS NAME OR DESIGNATION.

1. Nominate contract
● It has a SPECIFIC NAME or DESIGNATION IN LAW.
● There's a particular name or designation provided by law.
● Examples: commodatum, lease, agency, sale, etc.
2. Innominate contract
● It has NO SPECIFIC NAME or DESIGNATION IN LAW.
● There's NO particular name or designation provided by law.
● It shall be regulated:
e. By the stipulations of the parties
f. By the provisions
g. By the rules governing the most analogous (similar) nominate contracts, and
h. By the customs of the place.
4 KINDS OF INNOMINATE CONTRACT. (Do or Des - Give) (Facio or Facias - Do)

1. do ut des (I give that you may give)
An agreement in which A will give one thing to B, so that B will give another thing to A.
2. do ut facias (I give that you may do)

A contract under which A will give something to B, in order that B may do something for A.
3. facio ut des (I do that you may give)

An agreement in which A binds himself to do something for B, so that B will give something to A.
4. facio ut facias (I do that you may do)

A convention whereby A is to do something for B, so that B will render some other service to A.
REASONS FOR INNOMINATE CONTRACTS

The impossibility of anticipating all forms of agreement on one hand, and the progress of man’s sociological and economic
relationships on the other, justify this provision. A contract will not, therefore, be considered invalid for failure to conform strictly to
the standard contracts outlined in the Civil Code provided it has all the elements of a valid contract.
Innominate contracts are based on the well-known principle that “no one shall unjustly enrich himself at the expense of another.”
RULES GOVERNING INNOMINATE CONTRACTS or SPECIFIC RULES THAT MAY GOVERN INNOMINATE CONTRACTS
1. the agreement of the parties; (what parties are stipulated must be followed)
2. the provisions of the Civil Code on obligations and contracts; (
3. the rules governing the most analogous (most similar) contracts;
4. the customs of the place. (Kung ano ang nakagawian or accepted in a certain place)
ARTICLE 1308 (Mutuality of Contracts)

The contracts must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
● It emphasizes that it doesn't depend on just one party because it must be bound in both contracting parties.
● A debtor of a contract is liable for damages for breach or violation.
MUTUALITY OF CONTRACTS
The contracts must bind both and not one of the contracting parties and also their validity or compliance cannot be left to the will of
one of them.
● A reciprocal understanding or agreement of the parties under the terms of the contract.
● It emphasizes that it doesn't depend on just one party because it must be bound in both contracting parties.
● It is essentially a legal principle that provides that both parties to a contract are bound, or neither should be.
BREACH OF CONTRACTS
● A failure without legal reason to comply with the terms of the contract.
● A failure without legal excuse to perform any promise which forms the whole or part of the contract.
● A party who entered a contract fails to perform their promised obligation.
Examples:
In a loan contract, if the one party has the sole discretion, unilateral right, to adjust interest, anytime, as he wants.
● This is not allowed because all contracting parties must agree in any adjustments or increases of interest.
X agreed to sell his car to Y and Y agreed to pay 1,000,000.

● A contract is binding by both contracting parties upon X and Y.
● If there's a stipulation stating that X alone will determine or adjust the price of the car and Y has no right to negate X's
decision. It violates Mutuality of contracts because it must have a mutual consent.
ARTICLE 1309 (Exception to Mutuality of Contracts)

The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made
known (ipinaalam) to both contracting parties.
DETERMINATION
● Determination can be a decision.
● A decision of a court or administrative agency regarding an issue, case, or claim.
● A conclusion of a dispute or lawsuit by the rendering of a final decision.
Examples:
S sold his parcel of land to B. It was agreed that X, a real estate appraiser (3rd) would be the one to determine the reasonable price
of the land. X, then, fixed the price after considering all the circumstances and factors affecting the value of the land.
● In this case, X must make known his decision to S and B who will be bound by the same.
● Decision or determination shall be binding, if the 3rd it has been made known to both contracting parties.
ARTICLE 1310 (Exception to Mutuality of Contracts)

The determination shall not be obligatory if it is evidently inequitable. In such cases, the courts shall decide what is equitable under
the circumstances.
● The decision of the 3rd person is not binding, where its determination is evidently inequitable or unjust (Unfair)
● Therefore, the courts shall decide what is equitable under the circumstances.
EFFECT WHERE DETERMINATION IS INEQUITABLE.

A contracting party is not bound by the determination if it is evidently inequitable or unjust as when the third person acted in bad faith
or by mistake. In such cases, the courts shall decide what is equitable under the circumstances.
● The decision of the 3rd person is not binding, where its determination is evidently inequitable or unjust (Unfair)
● Therefore, the courts shall decide what is equitable under the circumstances.
BAD FAITH
● It does not simply connote bad judgment or negligence.
● It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong.
● A breach of known duty through some motive or interest or ill will that partakes of the nature of fraud.
● Therefore, the debtor is liable to pay for the expenses incurred by the creditor.
SOLUTIO INDEBITI - BY MISTAKE

We considered it as solutio indebiti, when you received something by mistake. In the principle of quasi-contracts, your duty is to
return what you received by mistake.
ARTICLE 1311 (Relativity of Contacts & 1 out of 4 exceptions)

Contracts take effect only between the parties, their assigns and heirs, except in cases 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 the person who is obliged to pay dies, his heirs may use his remaining property to pay the person he owes.
● Indebtedness is not inherited, but you can use the property of the deceased person to pay all its creditors.
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.
Sila ang may have rights and obligations under their contract.
● Only the parties (not including the stranger or third person) have the rights and obligation in their contracts.
● Contracts are only effective for contracting parties and that's what the principle of relativity means.
● Therefore, Strangers can't demand for enforcement of your contract and can't demand for cancellation of contract.
RELATIVITY OF CONTRACTS
Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from
the contracts are not transmissible by their nature, or by stipulation, or by provision of law.
1ST PARAGRAPH
Contracts take effect only between the parties, their assigns and heirs, except in cases 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.
PERSONS AFFECTED BY CONTRACTS

As a general rule, contracts take effect only between the parties. This means that only the parties, their assigns and heirs can
have rights and obligations under a contract. Under the basic civil law principle of relativity of contracts, a contract can bind only
the parties (their heirs or assigns) who had entered into it and cannot favor or prejudice a third person.
Examples:
D is indebted to C in the amount of P10,000.00. D and C are the parties to the contract.
● If C dies, D must pay the heirs of C.
● If C assigns his credit to X, then D is liable to pay X.
● If D dies and Y is the heir, then Y is obliged to do D's obligation to pay to C using the D's property. The death of a party
does not excuse non-performance of a contract which involves a property right or interest in the subject matter of the
contract. The right and the obligation thereunder pass to the personal representative(s) of the deceased.
● However, Y is not liable beyond the value of the property he inherits from D, the decedent.
Exceptions:
Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising
from the contract ARE NOT transmissible by their nature, or by stipulation or by provision of law.
a. By their nature (like a contract requiring/involving personal qualifications, such as painting, singing, etc.)
Examples:
There is an AGREEMENT is X & Y that X paints for Y. Unfortunately X died, so X's heirs are not obligated to
paint for Y.
b. By stipulation (in accordance with the principle of freedom to contract)
Examples:
X & Y have a CONTRACT and they both discussed or agreed that it is not transmissible to their heirs.
Unfortunately X died, so X's heirs are not obligated here because the agreement is only between the two of
them, which is X & Y's.
c. By provision of law (agency, partnership, & commodatum, when death ended the legal relationships).
Examples:
X & Y have a PARTNERSHIP and they both discussed or agreed that it is not transmissible to their heirs.
Unfortunately, X died, so the partnership automatically extinguishes or ends immediately & it cannot be
inherited by the heirs of the person who died.
2ND PARAGRAPH
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.
● Only the parties (not including the stranger or third person) have the rights and obligation in their contracts.
● Contracts are only effective for contracting parties and that's what the principle of relativity means.
● Therefore, Strangers can't demand for enforcement of your contract and can't demand for cancellation of contract.
Examples:
X sold his car to Y. There was an agreement that Y not to sell it to others until full payment. Although X is still not finished paying
the car and Y sold the car to Z. Therefore, it violates the agreement.
● Y cannot cancel the contract entered into X and Z because Z was not a party to the agreement between X & Y. In the
same way, Y was not the party to the agreement between X & Z.
● The remedy of Y is to CLAIM DAMAGES against X for breach of contract because they had an agreement that it
cannot be sold to others but he sold it anyway.
CASES WHEN STRANGERS OR THIRD PERSONS AFFECTED BY A CONTRACT.

Third Person
● A stranger to the contract or It is one who has not taken part in a contract.
● As a general rule, a third person has no rights and obligations under a contract to which he is a stranger.
● He has no legal standing or capacity to demand the enforcement of a contract.
● A person who is not a party to a contract or a transaction, so he has no capacity to demand the enforcement.
EXCEPTION WHEN THIRD PERSONS MAY BE AFFECTED BY A CONTRACTS:

1. In contracts containing a stipulation in favor of a third person (stipulation pour autrui)
2. In contracts creating real rights (obligation to give a determinate or indeterminate thing)
3. In contracts entered into to defraud creditors
4. In contracts which have been violated at the inducement of the third person
5. In contracts creating “status” (status of marriage must be respected, even by strangers, & contract is in force);
6. In the quasi-contract of negotiorum gestio, the owner is bound in a proper case, by contracts entered into by
the“gestor’’ (unauthorized manager)
7. In “collective contracts” where the majority rules over the minority (e.g., collective bargaining contracts which affect
even non-union members; “suspension of payments” and “compositions”, where creditors are bound by the contracts of
the majority)
8. Where the situation contemplated obtains. The intention of this article is to protect the laborers and the materialmen
from being taken advantage of by unscrupulous contractors and from possible connivance between owners and
contractors.
STIPULATION POUR AUTRUI

It is a stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment,
provided, he communicates his acceptance to the obligor before its revocation by the obligee or the original parties.
● A contract or provision in a contract that grants a benefit on a third-party beneficiary.
● It gives the third-party beneficiary a cause of action against the promisor for specific performance.
CLASSES OF STIPULATIONS POUR AUTRUI.

1. Where stipulations are intended for the sole benefit of such a person. This corresponds almost always to the juridical
conception of a gift, it being necessary in such case to apply the rules relating to donations in so far as the form of
acceptance is concerned
2. Where an obligation is due from the promisee to the third person which the former seeks to discharge by means of such
stipulation, as, for instance, where a transfer of property is coupled with the purchaser’s promise to pay a debt owing from
the seller to a third person.
The third party is said to be a DONEE-BENEFICIARY.
● It receives the benefit of a contract between 2 other parties as a gift from 1 of the parties to the contract.
● Example, In exchange for a premium, the insurance company (promisor) assures the owner of the policy
(promisee) that their spouse (done-beneficiary) will receive a payout upon the death of the policyholder.
The third party is called CREDITOR-BENEFICIARY.

● It receives the benefit of a contract as a repayment for a debt owed by one of the parties in the contract.
● Example, if John owes Sally 100, he might enter a contract to mow his neighbor's lawn four times and have the
neighbor pay Sally for 25 after every mowing.
REQUISITES OF STIPULATION POUR AUTRUI. - in order to be valid

1. The contracting parties by their stipulation in favor of a 3rd person;
2. The contracting parties by their stipulation must have clearly & deliberately conferred a favor upon a 3rd person
3. The 3rd person must have communicated his acceptance to the obligor before its revocation by original parties
4. The stipulation should be a part and not the whole of the contract or the contract itself;
5. The favorable stipulation should not be conditioned or compensated by any kind of obligation whatever
6. Neither of the contracting parties bears the legal representation or authorization of the third party for otherwise the rules
on agency will apply.
Examples:
D owes C P10,000.00 payable after one (1) year at 14% interest. It was agreed that the interest of P1,400.00 would be given to T
(3rd person) to whom C is indebted for the same amount.
● In this case, T must communicate his acceptance to D before the revocation of the stipulation by the parties in order that
the same will be effective.
● From the moment communication of acceptance is duly made, T becomes a party to the contract.
● The promisee (C) in a contract containing a stipulation pour autrui is entitled to bring an action for its enforcement or to
prevent its breach in the same manner as the beneficiary (T) thereof.
● X owes money to Y and Y owes money to Z who is a third party. So, X will give the interest to Z who is owed by Y.
ARTICLE 1312 (2 out of 4 Exceptions of Relativity of Contacts)

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.
REAL RIGHTS
● It is the right of a person over a specific thing and It is enforceable and directed against the whole world
● It is a right of ownership or pledge of a person over a thing.
Example of Real rights:

Juan buys from Maria a parcel of land. Upon delivery, Juan has the right to possess such property.
● Such a right of possession is a real right
● All persons in the world are bound to respect Juan's right of possession.
PROPERTY REGISTRATION DECREE

It aims to strengthen the Torrens system, adopt safeguards to prevent anomalous titling of real property and streamline and simplify
registration proceedings and the issuance of certificates of title.
● So, if the property is registered PRC, you don't need the deeds to confirm your ownership.

6. In the quasi-contract of negotiorum gestio, the owner is bound in a proper case, by contracts entered into by the“gestor’’
(unauthorized manager)
7. In “collective contracts” where the majority rules over the minority (e.g., collective bargaining contracts which affect even
non-union members; “suspension of payments” and “compositions”, where creditors are bound by the contracts of the
majority)
8. Where the situation contemplated obtains. The intention of this article is to protect the laborers and the materialmen from
being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors.
Examples:
X mortgaged his land to Y. Therefore, a contract subjecting certain real properties to the payment of certain debts, registered by Y in
accordance with the Property Registration Decree. Due to the lack of money of X and still has the possession of ownership, he sold
the same land to Z.
● Although Y is not involved in the agreement between X & Z, Z will be bound by the contract between X & Y. Therefore, Y
has the right because s/he registered the payment of certain debts in accordance with the Property Registration Decree.

Creditors are protected in cases of contracts intended to defraud them.
● It refers to the right of the creditor to impugn (criticize) contracts intended to defraud them.
● Another instance where an stranger or 3rd person can interfere (makialam) with another contract
● Defrauded Creditor given by law the rights to ask for cancellation of contract between other parties.

majority)
being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors
DEFRAUD
● It means trick or deceive someone at the expense of another for personal gain.
● In the legal sense, to defraud is to commit fraud that leads to civil or criminal liability.
DEFRAUDED CREDITOR
● They are granted by law the rights to ask for cancellation of contract between other parties.
● Although he is not a party to the contract, he is given the right to impugn the contracts intended to defraud them.
Example:
X owes money to Y amounting to 1,000,000. X has the property entitled to him. He doesn't want that property to be attached even
before his due date with Y. Due to lack of money & being aware that property will be attached as payment for his debt to Y, what he
is doing is that he defrauded Y and donated his property to Z.
● Since Y serves as a Defrauded Creditor, she has the right of the creditor to impugn contracts between X & Z although
she's not involved party to that contract.
● Y is given by law the right to ask for the recession/cancellation of donation in order that she may be paid.

Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.
● Any party actually has the right to claim damages against a person who is induced to violate his contracts.
● Although he serves as a stranger or 3rd person in a contract, other parties will file a case against him.
● Whoever is injured may sue for damages, so he can claim compensation for damages.

majority)
being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors
INDUCE
It refers to where a person causes another to choose one course of conduct by persuasion or intimidation. The interference or
inducement gives rise to liabilities for damages because it violates the property rights of a party in a contract to reap the benefits that
should result therefrom.
● A promise made to another party to make them agree to a contract.
● An act or process of enticing or persuading another person to take a certain course of action.
INJUNCTION
It is the appropriate remedy to prevent a wrongful interference with contracts by strangers to such contracts where the legal remedy
is insufficient and the resulting injury is irreparable.
● A court order requiring a person to do or cease doing a specific action.
● A legal and equitable remedy that mandates an individual or other entity to either stop or start some action.
MALICE
● A legal term referring to a party's intention to do injury to another party.
● A bad will or the desire to do bad things to another person.
● Example: when you hate someone and want to seek revenge.
Example:
After agreeing to sell his parcel of land to B, S sells the land to C instead because of the inducement of D.
● In this case, B can sue D for damages.
● However, the liability of D for damages cannot be more than that of S for the latter’s violation of his contract.
● To hold D liable for damages in excess of those that can be recovered against S “would lead to a result at once grotesque and unjust.’’
● At most, D would be solidarily liable with S.
● What would be the source of the obligation of D?

His liability will be based on the theory of quasi-delict. The responsibility of two or more persons who are liable for a
quasi-delict is solidary.
ARTICLE 1315 (Consensuality & Perfection of Contracts)

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.
● The perfection of contracts by mere consent of the parties regarding the object and cost of the contract.
● COC - Consent, Object and Cause.
● Signing ISN'T LEGALLY a legal requirement in entering into a contract, the important thing is the meeting of minds.
CONSENSUALITY OF CONTRACTS
Contracts are perfected, as a general rule, by mere consent, and from that moment the parties are bound not only by 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.
● The perfection of contracts by mere consent of the parties regarding the object and cost of the contract.
● COC - Consent, Object and Cause
CONTRACTS ARE PERFECTED:
● General Rule: Principle Consensuality of Contracts
● Exceptions: Real Contracts & Formal Contracts
EFFECT OF PERFECTION OF THE CONTRACT

1. To the fulfillment of what has been expressly stipulated
Example:
Anne sold a horse to Bryan for Php 15, 000. The details of this contract as regards the place of delivery of the
horse and payment of the price, the time of delivery and payment, etc. are not included. These details are
furnished by law and have been taken up in the various provisions of the Code.
2. To all the consequences which according to their nature, may be in keeping with good faith, usage, and law.
Example
Anne agreed to sell his horse to Bryan. It was stipulated that Anne should deliver the horse to Bryan the next
day.
In this case, Anne has the obligation to deliver the horse the next day as expressly stipulated in the
contract. Anne has also the obligation to take care of the horse pending delivery and to warrant that
he has the right to sell the horse although nothing is said about the obligation in the contract as this is
in keeping with good faith, usage, and law.
ARTICLE 1316 (Consensuality & Perfection of Contracts)

Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.
● The perfection of contracts is actually the same with consent but there's some requirements added and that is the delivery
of the object of the obligation.
Example:
X borrowed from Y P5,000. As X’s security for the debt, X promised to pledge his diamond ring to Y.
● Before the delivery of the ring to Y, the contract of pledge is not yet perfected.
● If X refuses to pledge the ring, Y can demand the payment of the obligation although it is within a period.
● But Y cannot require X to deliver the ring as security because there is no real contract of pledge yet.
● There is merely a consensual contract to constitute a pledge.
● What exists, is a personal right, the right of action on the part of Y to demand the constitution of the pledge.
● Similarly, while a perfected loan contract is binding upon the parties and can give rise to an action for damages, said
contract does not, however, constitute the real contract of loan which requires the delivery of the object of the contract for
its perfection, which gives rise to obligations only on the part of the borrower.
CLASSIFICATION OF CONTRACTS ACCORDING TO PERFECTION

1. Consensual Contract
● It is perfected by mere CONSENT of the parties.
● It also says that it is perfected by mere agreement of the parties
Illustration:
When Anne (an employer) hires Bryan (an employee), as soon as both have agreed on the terms of
employment, a contract commences.
2. Real Contract
● It is perfect by DELIVERY of the parties
● It not only requires the consent of the parties, but also the delivery of the object by one party to another
● Examples: commodatum, deposit, or pledge.
Illustration:
Xian borrowed from Yanee Php 5,000. As Xian’s security for the debt, Xian promised to pledge his diamond ring
to Yanee.
Before the delivery of the ring to Yanee, the contract of pledge is not yet perfected. If Xian later on
refuses to pledge the ring, Yanee can demand the payment of the obligation although it is with a
period. But Yanee cannot require Xian to deliver the ring as security because there is no real contract
of pledge yet. There is merely a consensual contract to constitute a pledge. What exists, is a personal
right, the right of action on the part of Yanee to demand the constitution of the pledge.
3. Solemn Contract
Illustration:
STAGES IN THE LIFE OF A CONTRACT

1. Preparation or negotiation
● From the time they manifest interest in entering into a contract, leading to the perfection of the contract.
● At this stage, the parties have not yet arrived at any definite agreement.
● They are yet undergoing the preliminary steps towards the formation of a valid contract.
● Either party may stop the negotiation or withdraw an offer made
a. Preparatory step, which leads us to the perfection of a contract.
b. Bargaining point, which there's someone who offers but the other party still not agreeing (there's still
no meeting of minds)
2. Perfection or birth.
It takes place when the parties have come to a definitive agreement or meeting of the minds regarding the terms that is,
the subject matter and cause of the (consensual) contract.
● There's a meeting of minds regarding the subject matter (prestation) and the cause of the contract.
● It is from the moment when both parties have an agreement or come to agree on the terms of their contracts.
3. Consummation or termination.
This takes place when the parties have fulfilled or performed their respective obligations or undertakings under the
contract and the contract may be said to have been fully accomplished or executed, resulting in the extinguishment
thereof.
● It is the time when both parties have to perform their respective obligations
● It is the death or termination of contracts, so the contract is put to an end.
Examples
Preparation or Negotiation Perfection or Birth Consummation or Termination
On December 1, Nathaniel offered On December 2, Jeffrey is having On December 1, Nathaniel offered

Jeffrey to sell his Car for 1,000,000. doubts but talks to Nathaniel that Jeffrey to sell his Car for 1,000,000.
she will buy the Car, if Nathaniel
agrees to sell it only for 800,000.
Due to lack of money, Nathaniel
agreed to sell his car to Jeffrey for
only 800,000.
There's a bargaining or negotiation There's a meeting of minds There's a termination of contracts

process
ARTICLE 1317 (Unenforceable 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.
● An authorized contract entered with the authority of the principal.
● Contract entered into in the name of another by one who has no authority is unenforceable.
● A person is not bound by the contract of another, which he has no knowledge/he has not given his consent.
Example:
X owns a car. The car was sold by Y to Z without being authorized or without the consent of X.
● It is NOT VALID because Y is not authorized to sell the car of X.
● Therefore, Y has the right to collect payment from Z (Retroactive Effect)
REQUISITES FOR A PERSON TO CONTRACT IN THE NAME OF ANOTHER. - SA YOUTUBE

1. He must be authorized (expressly or impliedly)
2. He must have by law, a right to represent him.
3. The contract must be subsequently RATIFIED (expressly or impliedly)
4. He must act within his power. (do not sell because your only authority is to lease but you sold so you acted beyond your
power)
REQUISITES WHEN A PERSON BOUND BY THE CONTRACT OF ANOTHER . - SA BOOK

1. The person entering into the contract must be duly authorized, expressly or impliedly, by the person in whose name he
contracts or he must have, by law, a right to represent him (like a guardian or an administrator)
2. He must act within his power.

A contract entered into by an agent in excess of his authority is unenforceable against the principal, but the agent is
personally liable to the party with whom he contracted where such party was not given sufficient notice of the limits of the
powers granted by the principal.
CHAPTER 2 : ESSENTIAL REQUISITES (ARTICLE )

ARTICLE 1318 (Requisites of Contracts - COC)
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.
● There's no contract without consent, object, and cause (COC)
CLASSES OF ELEMENTS OF A CONTRACT.

1. Essential Elements
Those without which no contract can validly exist.
● It's required to have these essential elements in order to have a contract: (1) Consent; (2) Object; (3) Cause.
● They may be subdivided into:
a. Common - those present in all contracts, namely, consent, object, and cause.
● Consent - meeting of the minds of the two parties
● Object - must be definite and certain (ex. Land, or house etc)
● Cause - reason in the performance of the contract
b. Special - those not common to all contracts or those which must be present only in or peculiar
to certain specified contracts
● Form - public instrument in donation of immovable property,
● Subject-matter - (real property in antichresis, personal property in pledge)
● Consideration or Cause - (price in sale & in lease, liberality in commodatum)
2. Natural Elements
Those that are presumed to exist in certain contracts unless the contrary is expressly stipulated by the parties,
● It the the elements that are INITIALLY present in some certain contracts
● It is not required, so it may exist or not exist in any contracts.
● Through the stipulation of the parties, these elements can be REMOVED later on.
● Example: Warranty against eviction and hidden defects case of sales.
3. Accidental Elements
The particular stipulations, clauses, terms, or conditions established by the parties in their contract, for the purpose of
clarifying, restricting, or modifying its legal effects
● It the the elements that are NOT INITIALLY present in some certain contracts
● Through the stipulation of the parties, these elements can be ADDED later on.
● It is not required, so it may exist or not exist in any contracts.
● Ex. Stipulations such as interest in loan
SECTION 1 : Consent
ARTICLE 1319
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance is 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
The conformity of wills & with respect to contracts, it's the agreement of the will of one contracting party with that of another or
others, upon the object and terms of the contract.
●
REQUISITES OF CONSENT
1. It must be manifested by the meeting of the offer and the acceptance (Article 1319 - 1326)
2. The contracting parties must possess the necessary legal capacity (Article 1327 - 1329)
3. It must be intelligent, free, spontaneous, and real which is not vitiated (Article 1330 - 1346)
OFFER
It is a proposal made by one party (offerer) to another to enter into a contract. It is more than an expression of desire or hope. It is
really a promise to act or to refrain from acting on condition that the terms thereof are accepted by the person (offeree) to whom it is
made.
● IT MUST BE INTENTIONAL and CERTAIN. So when offering to sell something, you should specify the object being sold.
● It is a proposal that is initiated by one party to another to enter into a contract.
● Example: “Will you buy this watch for P1,000.00?”
ACCEPTANCE
It is the manifestation by the offeree of his assent to the terms of the offer. Without acceptance, there can be no meeting of the
minds between the parties. A mere offer produces no obligation.
● Agreeing verbally or in writing to the terms of contract, which is one of the requirements to show there's a contract.
● If there's NO ACCEPTANCE of one of the parties, there's still NO CONSENT.
ARTICLE 1321
The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.
● It emphasizes that he can specify how the other party will accept his offer.
● All the manner of acceptance wanted by someone who offered must be followed by another in order to have consent.
● If the other party failed follow the manner of acceptance wanted, the there's no chance to have a consent & contract.
ARTICLE 1322
An offer made through an agent is accepted from the time acceptance is communicated to him.
● When making an offer through an agent, it is considered accepted from the time it is communicated to the agent.
● If an offer is not communicated to the agent, automatically there's no consent and no perfected contract.
ARTICLE 1323
An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.
● If the seller dies before you accept the offer, the offer is considered as ineffective because there's no chance to have a
consent by the reason of being deceased of the seller.
ARTICLE 1326
Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears.
● You have the right to reject others because the advertisement for bidders is only an invitation to make an offer.
● Basically, the invited parties
Example: Advertisement of bidders.
S sells at a public auction a specific land. The starting bid is 1,000,000.
a. X placed a 1,100,000;
b. Y placed a 1,150,000;
c. Z placed a 1,300,000
SECTION 2: Objects of Contracts

ARTICLE 1347 (all thing, rights, & service can be the object of the contracts)
All things which are not outside the commerce of men, including future things, may be the object of a contract.
● These are the OUTSIDE OF THE COMMERCE OF MAN:
1. Property pertaining to public dominion (Sidewalks, Parks, and etc..)
2. Personal Rights (Status & Capacity of person, Honorary titles, and distinction)
3. Political rights (Right to vote)
4. Sacred or common things (air, sea, and etc..)
All rights which are not intransmissible may also be the object of contracts.
● These are the example of NOT TRANSMISSIBLE:
1. Political Right (Right to vote)
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a
contract
● It emphasizes that ALL THINGS, RIGHT, and SERVICES can be the object of contracts.
● However, no contract may be entered into upon future inheritance except in cases expressly authorized by law.
KINDS OF OBJECTS OF CONTRACTS:

1. All things
2. All Rights
3. All services
CLASSIFICATION
According to subject matter
d. Involving things (example: sales, deposit, pledge)

e. Involving rights or credits (example: usufruct, assignment of credits)
f. Involving services (example: agency, lease of services, contract of common carriage)
ARTICLE 1348 (REQUISITES - must not be impossible)

Impossible things or services cannot be the object of contracts.
OBJECT OF CONTRACTS
● It is a subject matter.
● It must not be impossible.
● All the thing, service, or right which is the object of the obligation is also the object of the contract.
IMPOSSIBLE
It must be either physically or legally impossible
a. Physically impossible: it's very unlikely that will happen.
● Absolute - it is literally no one can do it.
● Relative - it is possible in other circumstances but not in others.
b. Legally impossible: when the law itself forbids or refuses to allow.

● Contrary to Law
● Contrary to Good Customs
● Contrary to Morals
● Contrary to Public Policy and Order
RIGHTS AS OBJECT OF CONTRACT.

● As a general rule: All rights may be the object of a contract.
● Exceptions: when they are intransmissible by their nature, or by stipulation, or by provision of law.
REQUISITES OF THINGS AS OBJECT OF CONTRACT. (SA BOOK)

1. The thing must be within the commerce of men, that is, it can legally be the subject of commercial transaction
2. It must not be impossible, legally or physically.
3. It must be in existence or capable of coming into existence
4. It must be determinate or determinable without the need of a new contract between the parties
REQUISITES OF SERVICES AS OBJECT OF CONTRACT. (SA BOOK)

1. The service must be within the commerce of men;
2. It must not be impossible, physically or legally
3. It must be determinate or capable of being made determinate.
Examples of Requisites:
1. Outside the commerce of men
a. Things of public ownership
● sidewalks
● public places
● bridges
● streets, etc.
b. Things that are common to everybody

● air
● sunlight
● rain, etc.
2. Impossible, physically or legally.

a. Prohibited drugs and all illicit objects (illicit things or services are also outside the commerce of men.)
b. to kill a person,
c. to get soil from planet Jupiter
d. to construct a building in one day; etc.
3. Determinable things.
a. All the cavans of rice in a warehouse
b. All the eggs in a basket
c. My land with the smallest area
d. The land at the corner of a particular street; etc.
4. Future things or rights.

a. Things to be manufactured, raised, or acquired after the perfection of the contract
● Wine that a vineyard is expected to produce
● Wool that shall thereafter grow upon a sheep;
● Rice to be harvested next harvesting season
● Milk that a cow may yield;
● Eggs that hens may lay;
● Young animals not yet in existence, etc.
b. Future things include future rights.

● An author may assign the royalty which he expects to receive from his publisher.
5. Intransmissible rights. (Not transmissible)

a. Political rights
● The right to vote; family, marital, and parental rights
● The right to public office, or to run for public office, etc
FUTURE INHERITANCE
Future Inheritance is any property or right, not in existence or capable of determination at the time of the contract, that a person may
inherit in the future.
● As a general rule: IT CANNOT BE AN OBJECT OF CONTRACT
● Exception: UNLESS EXPRESSLY PROVIDED OR ALLOWED BY LAW (like in case of Marriage Settlement)
○ It is automatically NOT AN OBJECT OF CONTRACT.
○ Inheritance ceases to be future upon the death of decedent. Therefore, If your parents die, it's no longer a future inheritance.
○ Example: when your parents are still alive, you are not allowed to sell your inheritance or what you expect to
receive when either your mother or father dies..
REQUISITES OF INHERITANCE TO BE CONSIDERED FUTURE.

1. The succession has not yet been opened at the time of the contract;
2. The object of the contract forms part of the inheritance; and
3. The promissor has, with respect to the object, an expectancy of a right which is purely hereditary in nature.
KINDS OF IMPOSSIBILITY.
1. Physical - the thing or service in the very nature of things cannot exist (e.g., a monkey that talks) or be performed.
● Absolute. — the act cannot be done in any case so that nobody can perform it (e.g. fly like a bird, etc.)
● Relative — It arises from the special circumstances of the case or special conditions of the obligor.
● Special circumstances of the case (e.g., to make payment to a dead person)
● Special conditions or qualifications of the obligor (e.g.,to paint a portrait by a blind person, etc.)
2. Legal. — when the thing or service is contrary to law, morals, good customs, public order, or public policy.
● An act is contrary to law, either because it is forbidden by penal law (e.g., to sell prohibited drugs, etc.)
● Rule of law makes it impossible to be done (e.g., to make a valid donation of real property without a public
instrument & to make a valid will, where the testator is under 18 years of age)
ARTICLE 1349 (REQUISITES - must be determinate)

The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle
to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the
parties.
● The object of the contracts MUST BE DETERMINATE OR AT LEAST DE DETERMINABLE, without the new agreement.
● If there's a new agreement in order to determine the object of the contract, then it is AN INDETERMINATE OBJECT.
Therefore, automatically the contract is VOID!
INDETERMINATE - we consider indeterminate if there's missing in any essential elements, which is COC.
- in order to be PERFECT or VALID it needs to have essential elements, which is COC.
Example:
S sold to B all the chickens in his poultry.
● Here, the object itself (chickens) is determinate but the quantity though not yet determined can be ascertained without the
necessity of entering into a new contract.
S agreed to deliver one of his carabaos to B.

● Here, the object is determinable without the need of a new contract between the parties.
● It becomes determinate the moment it is delivered.
S binds herself to deliver a “thing’’ or “property’’ to B.

● The contract is considered as VOID because the object is not determinate as to its kind nor is it capable of being made
determinate without the need of a new or further agreement between the parties.’
SECTION 2: Cause of Contracts

ARTICLE 1350 (Cause - classification according to cause)
In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of
the benefactor.
● It empathizes that cause is the reason why we assume the obligation.
● It's the matter of viewpoint, when the subject matter for one party will be the cause or consideration for the other party.
● IT PROVIDES THE CLASSIFICATION OF CONTRACTS ACCORDING TO CAUSE.
CAUSE (CAUSA)
It is the essential or more proximate purpose or reason which the contracting parties have in view at the time of entering into the
contract or, as expressed in another case, it is the “why of the contract, the essential reason which moves the contracting parties to
enter into the contract.’’ It is the Civil Code term for CONSIDERATION in Anglo-American or common law.
● It empathizes that cause is the reason why we assume the obligation.
● It is the Civil Code term for CONSIDERATION in Anglo-American or common law.
● The essential reason which moves the parties to enter into it & justifies the creation of an obligation through their will.
CAUSE DISTINGUISHED FROM OBJECT.

In a bilateral or reciprocal contract like purchase and sale, the cause for one is the subject matter or object for the other, and vice
versa. Hence, the distinction is only a matter of viewpoint.
Example:
S sells a watch to B for P2,000.
● As far as S (vendor) is concerned, the subject matter or object is the WATCH and the cause is the price.
● As regards B (vendee), the subject matter or object is the PRICE and the cause is the watch.
● A school of thought, however, makes these distinctions.
a. The cause for S is the delivery of the PRICE and for B, the delivery of the WATCH.
b. But to both S and B, the subject matter of the transaction is the WATCH.
According to cause
d. Onerous
● One the cause of which is the undertaking or the promise of the thing or service by the other party.
● In other words, in this contract, the parties are reciprocally obligated to each other.
● Those where there's an EXCHANGE OF VALUABLE CONSIDERATION
● A contract that will cost more to fulfill than what will receive in return.
● Examples: Contract of Sales
e. Remuneratory or remunerative;
● One the cause of which is the service or benefit which is remunerated.
● Something is given for benefit or service that had been rendered previously. (Past service)
● A contract where a party gives something to another because of some service render by the other.
● Examples: Salary or Commission
f. Gratuitous or Lucrative
● One the cause of which is the mere liberality of the benefactor or giver.
● Those where one party receives NO EQUIVALENT CONSIDERATION. (Only one person benefited)
● A contract in which one party promises to do something without receiving anything in exchange.
● Examples: Gifts or Donation of land for church construction.
ARTICLE 1351 (Motive)

The particular motives of the parties in entering into a contract are different from the cause thereof.
MOTIVE
It is the purely PERSONAL or PRIVATE REASON which a party has in entering into a contract. It is different from the cause of the
contract. It embodies “a principle which is common to both Philippine law and American jurisprudence.
● It emphasizes that it is PURELY PERSONAL or PRIVATE in one party.
● The said purely personal or private reason is the motive of the party in entering into a contract.
● It is also defined as the condition of mind which incites to action
CAUSE DISTINGUISHED FROM MOTIVE.

As contradistinguished from consideration or cause, motive has been defined as the condition of mind which incites to action, but
includes also the inference as to the existence of such condition from an external fact of nature to produce such a condition. The
differences are as follows:
1. Cause is the immediate or direct reason, while motive is the remote or indirect reason;
2. Cause is always known to the other contracting party, while motive may be unknown;
3. Cause is an essential element of a contract, while motive is not;
4. The illegality of the cause affects the validity of a contract, while the illegality of one’s motive doesn't render the contract
void.
In other words,
● Cause - it is the essential reason for the contract.
- It is always the same or pare-pareho.
- Illegal cause makes the contract void
● Motive - it is the particular reason of a contracting party which does not affect the other party.
- It may vary or iba-iba.
- Illegal motives don't necessarily render the contract or transaction void. (Killing someone)
Examples:
S sells his house and lot to B for One (1) million pesos.
● For S, the cause or consideration is the One (1) million pesos.
● But his motive or private reason may be to use the money in business or to buy another house.
● The motives which impel 1 to a sale/purchase aren't always the cause of the contract as that term is understood in law.
● With one’s motives, the law can't deal in actions between the parties;
● With the consideration, the law is always concerned.
W (wife) died.
● To preclude her heirs from inheriting & to avoid payment of estate taxes, H (spouse) sold the conjugal property to B.
● The sale cannot prejudice the inheritance right of the heirs to their share of the conjugal property.
● Here, the illegal motive of H predetermined the purpose of the contract of sale rendering it null and VOID.
ARTICLE 1352 (REQUISITES OF CAUSE)

Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals,
good customs, public order or public policy.
● If there's NO EXISTING REASON or CAUSE, automatically the said contract is VOID.
● So if there's NO EXISTING REASON OR CAUSE it would really produce NO EFFECT.
REQUISITES OF CAUSE.
1. It must exist at the time the contract is entered into
● It must be present
● If there's no cause, there's a missing essential element of contract, which is COC.
2. It must be lawful (Ibid.)

● We considered to be lawful, if they AREN'T contrary to law, morals, good customs, public order or policy
3. It must be true or real.

● The contract must be true
ABSENCE OR WANT OF CAUSE

It means that there is a total lack of any valid consideration for the contract.
● If there's no cause, there's a missing essential element of contract, which is COC
● If there's NO EXISTING REASON or CAUSE, automatically the said contract is VOID.
ARTICLE 1353 (FALSITY OF CAUSE)

The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another
cause which is true and lawful.
● This provision talks about the EFFECT OF A FALSE CAUSE.
● Contract is considered as VOID, if the parties CAN'T PROVE that it's founded upon another cause that is lawful & true.
● Hidden real cause of the contract must show that it's TRUE & LAWFUL, for parties to be bound by their true agreement.
●
FALSITY OF CAUSE
It is meant that the contract states a valid consideration but such statement is not true.
● It emphasizes that contracts are considered as VALID but some statements within the contracts are NOT TRUE.
● Contract is considered as VOID, if the parties CAN'T PROVE that it's founded upon another cause that is lawful & true.
● Hidden real cause of the contract must show that it's TRUE & LAWFUL, for parties to be bound by their true agreement.
Examples:
X promised to give to Y P1,000.00 as payment for past services allegedly rendered by Y which in truth and in fact have not been
rendered; or for a carabao which unknown to X is already dead.
● Here, the cause for X, the service remunerated or the promise of Y to sell the carabao, is erroneous as it is based upon
facts believed to be existing, but really inexistent.
S sells to B a parcel of land. In the deed of sale, P100,000.00 is stated as the price of the land. If this statement is false, then there
is no contract of sale.
● However, if B can prove that the contract is founded upon another consideration, as when B has exchanged his car for the
land, then the contract of barter or exchange (not sale) shall be valid.
● In this case, the statement of the price is simulated because it is wilfully made.
● Otherwise stated, there is, in fact, a real consideration but the same is not the one stated in the contract.
ARTICLE 1354 (presumption exists that cause is lawful)

Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary
● It provides a presumption exists that cause is lawful
● It is not necessarily the cause that must be expressly stated in the contracts because it presumed by law.
● Since it's merely a presumption, there's a chance to prove or show proof that cause stated in the contracts are unlawful.
● IT'S NECESSARY THAT CAUSE MUST EXIST, BUT IT ISN'T NECESSARY TO STATE THE CAUSE IN CONTRACT
BECAUSE THE CAUSE IS PRESUMED TO EXIST AND LAWFUL.
CAUSE PRESUMED TO EXIST AND LAWFUL.

It is necessary that cause must exist, but it is not necessary to state the cause in the contract because the cause is presumed to
exist and lawful.
● The presumption is that the cause exists and is lawful unless the debtor proves the contrary.
● To overcome the presumption, the alleged lack of consideration must be shown by preponderance of evidence.
Examples:
D issued in favor of C a promissory note which recites: “Thirty days after date, I promise to pay C or order the amount of P1,000.00.”
Signed “D.”
● Although the promissory note does not mention the consideration, the law presumes that D must have received a
consideration for the debt and that the same is lawful, and furthermore, that it is sufficient or adequate.
ARTICLE 1355 (LESION & There's a fraud, mistake, or etc..)

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake
or undue influence.
LESION
It is any damage caused by the fact that the price is unjust or inadequate (di makatarungan & di sapat ang presyo). It is the injury
suffered in consequence of inequality of situation, by one party who doesn't receive the full equivalent for what he gives in a
commutative contract, like a sale.
● As a general rule: Lesion or inadequacy of cause (e.g., price of thing sold) does not of itself invalidate a contract.
● It is not because the contract may turn out to be financially disadvantageous or sold so cheap is considered as invalided.
● Exception: Lesion will invalidate a contract if there's a fraud, mistake, or undue influence and in cases specified by law.
● Aside from inadequate price for the contract, there has been also fraud, mistake, or undue influence, which is NOT VALID
● The hidden reason for the inadequate price for the contract sale was done through fraud, mistake, or undue influence.
Examples:
X sold his million worth house to Y for only 100,000.
● There is an existing sale of the contract price that is inadequate.
● However, the contract of sales remains VALID because based on article 1355 that insufficiency or inadequacy of the price
of the contract doesn't invalidate the contract.
● The sale is VALID unless the contract was done by fraud, mistake, or undue influence,
CHAPTER 3 : FORM OF CONTRACTS (ARTICLE )

ARTICLE 1356 (Forms - classification according to form)
Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity
are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a
contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in
the following article cannot be exercised.
FORM OF A CONTRACT
It refers to the manner in which a contract is executed or manifested.
FORMS OF CONTRACT.
1. The contract may be:
a. Parol or Oral
b. In writing (If in writing, it may be in a public or a private instrument)
c. Partly Oral and Partly in Writing.
2. A contract need not be contained in a single writing. It may be collected from different writings which do not conflict
with each other and which when connected, show the parties, subject matter, terms and consideration, as in contracts
entered into by correspondence.
3. A contract may be encompassed in several instruments even though every instrument ain't signed by the parties
since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument
or instruments.
4. Similarly, a written agreement of which there are:

a. 2 copies
b. 1 signed by each of the parties is binding on both to the same extent
TWO ASPECTS OF CONTRACTS.

There is no contract, says Article 1318, unless the requisites of consent, object, and cause concur. But the concurrence of these
elements in the minds of the parties without expression, will not produce a contract. Like every juristic act (i.e., act which produces
juridical effect, as lease, sale, marriage, etc.), a contract consists of two aspects
1. Intent or will
This is internal and as long as a contract exists merely as a psychological fact, it produces no legal effect, because the
law cannot take cognizance of its existence;
2. Expression of such intent or will.

It is necessary, in order that the will may produce legal effect, that it be expressed. This expression or declaration of the
will is its form. On this basis, contracts are divided into formal and informal.
According to form:
a. Formal or Solemn Contract

It is required by law for its efficacy to be in a certain specified form.
● It uses negotiable instruments.that must be in writing.
Illustration:
b. Informal or Common Contract

It may be entered into in whatever form, provided, all the essential requisites for their validity are present.
● This refers only to consensual contracts, such as the contract of sale.
● An informal contract may be oral or written
Illustration:
Contract of sales, orally or written stipulated
RULES REGARDING FORM OF CONTRACTS.

● As a general rule:
a. Contracts are binding and enforceable reciprocally by the contracting parties
b. Contracts may be the form in which the contract has been entered into provided all essential requisites (COC),
for their validity are present.
● Exceptions
a. when the law requires that a contract be in some form to be valid;
b. when the law requires that a contract be in some form to be enforceable or proved in a certain way; or
c. when the law requires that a contract be in some form for the convenience of the parties or for the purpose of
affecting third persons.
WHY CONTRACTS NEED TO BE IN CERTAIN FORMS?

1. Validity of the contract
All the contracts who haven't followed the proper formality under this, they will be considered VOID CONTRACTS.
CONTRACTS THAT NEED TO BE IN FORMS FOR VALIDITY OF CONTRACT

FORM FOR VALIDITY OF CONTRACT
Contract Formality
1 Donation of personal property whose value exceeds The donation and acceptance must be in writing.
5,000
2 Donation of real property, regardless of amount It must be in a public instrument
3 Sale of a piece of land or any interest through an The authority of agent or contract of agency must be in writing.
agent
4 Contract of antichresis. The amount of the principal and of the interest must be specified in
writing.
5 Partnership where immovables are contributed If immovables are contributed, it must be in a public instrument to
which shall be attached a signed inventory of the immovable
property contributed
6 Transfer or sale of large cattle. It must be registered (so it must be in a public instrument) and a
certificate of transfer secured (consensual, need lang ng COC)
7 Agreements regarding payment of interest in The payment of interest must be in writing; otherwise,
contracts of loans no interest is due.
8 Negotiable instruments. They must be in writing.
2. Enforceability of the contract

All the contracts who haven't followed those formalities that are required for enforceability, they will be NOT considered as
VOID CONTRACTS but they will become UNENFORCEABLE CONTRACTS.
CONTRACTS THAT NEED TO BE IN FORMS FOR ENFORCEABILITY OF THE CONTRACT

AGREEMENTS WITHIN THE SCOPE OF THE STATUTE OF FRAUDS. (Article 1403)
1 Agreement not to be performed within one year from the making thereof.
2 Promise to answer for the debt, default, or miscarriage of another.
3 Agreement in consideration of marriage other than a mutual promise to marry.
4 Agreement for sale of goods, etc. at price not less than P500.00
5 Agreement for leasing for a longer period than one year

6 Agreement for the sale of real property or of an interest therein.
7 Representation as to the credit of a third person.
8 Express trusts concerning an immovable or any interest therein.
3. Convenience of the parties

Some certain formalities are required for convenience. Therefore although the formalities haven't followed, they will be
considered as VALID and ENFORCEABLE CONTRACT.
CONTRACTS THAT NEED TO BE IN FORMS FOR CONVENIENCE OF THE PARTIES

BASED ON ARTICLE 1358: THE FOLLOWING MUST APPEAR IN A PUBLIC DOCUMENT OR INSTRUMENT
1 Acts and contracts which have for their object the creation, transmission, modifi cation or extinguishment of real rights over
immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2, and 1405;
2 The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
3 The power to administer property, or any other power which has for its object an act appearing or which should appear in a
public document, or should prejudice a third person;
4 The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five

hundred pesos must appear in writing, even a private one. But
sales of goods, chattels or things in action are governed by Ar-
ticles 1403, No. 2 and 1405.
BASED ON ARTICLE 1357: ANY PARTY WHICH ARE INVOLVED IN THESE TYPES OF CONTRACTS HAVE THE RIGHTS TO
COMPEL THE OTHER PARTY TO OBSERVE THE PROPER FORMALITY, WHICH IS IN PUBLIC INSTRUMENTS OR
DOCUMENTS.
ARTICLE 1357 (Unenforceability of the Contracts)

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.
● The law requires a document or other special form that it be in writing to be enforceable
PUBLIC INSTRUMENTS
It is required for the convenience of the parties in order that the contract may be registered in the proper registry to make effective,
as against third persons, the right acquired under such contract.
● NAKA PUBLIC NQ, WHICH IS NAKA NOTARYO NA.
● The law requires a document or other special form that it be in writing to be enforceable
● Non-compliance with the required form wouldn't affect the validity or enforceability of the contract between the parties.
● Example: The real property is required to be in a public instrument to be valid.
EXAMPLES:
S donated real property to B in a private instrument.
● The donation is void because a donation of real property is required to be in a public instrument to be valid.
● Hence, Article 1357 does not apply.
Suppose the contract is a sale of real property but it is entered into orally.
● The contract is valid but it is unenforceable because the law requires that it be in writing to be enforceable.
● Hence, Article 1357 will not also apply.
● If the price has been paid or the property has been delivered, the contract is valid and enforceable because the Statute of
Frauds applies only to executory contracts.
ARTICLE 1358 (convenience of the parties)

The following must appear in a public document: (THIS MUST BE IN PUBLIC INSTRUMENTS & NAKA NOTARYO NA)
1. Acts and contracts which have for their object the creation, transmission, modifi cation or extinguishment of real rights
over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2, and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
3. The power to administer property, or any other power which has for its object an act appearing or which should appear in
a public document, or should prejudice a third person;
4. The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of
goods, chattels or things in action are governed by Articles 1403, No. 2 & 1405.(KAHIT PRIVATE & ORALLY LANG AT MAHIRSP
NGA LANG PATUNAYAN SA COURT OF JUSTICE NA MERON KANG UTANG)
EXAMPLES OF ARTICLE 1358
1. Creation, etc. of real rights over immovable property.
As security for his debt, R mortgaged his land to E.
● This mortgage must appear in a public document.
● The extinguishment of the mortgage, upon payment of the debt by R, must appear in a public document.
● Sales of real property or an interest therein are governed by the Statute of Frauds.
2. Cession or renunciation of hereditary rights or of those of conjugal partnership of gains.

S and D are the heirs of F, their deceased father.
● S, being financially stable, renounces his share in the inheritance.
● This renunciation must appear in a public instrument.
3. Power to administer property.

P is leaving for the United States to study for two (2) years. He appoints A to manage his property.
● In this case, the authority of A to administer the property of P must appear in a public document.
4. Cession of actions or rights.

R mortgaged his land to E to secure the payment of a debt.
● This mortgage appears in a public document.
● The cession by E of his right, as mortgagee, to T, must also be in a public document.
LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC DOCUMENTS.
R.A. No. 8792 or Electronic Commerce Act (June 14, 2000)

It gives legal recognition to any kind of electronic data message and electronic document used in the context of commercial and
non-commercial activities to include domestic and international dealings, transactions, arrangements, agreements, contracts and
exchanges and storage of information.
a. Electronic data message.
Information shall not be denied validity or enforceability solely on the ground that it is in the form of an electronic data
message purporting to give rise to such legal effect, or that it is merely incorporated by reference in that electronic data
message.
b. Electronic documents.
Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing,
1. Where the law requires a document to be in writing, that requirement is met by an electronic document if the
said electronic document maintains its integrity and reliability and can be authenticated so as to be usable for
subsequent reference, in that
● The electronic document has remained complete and unaltered, apart from the addition of any
endorsement and any authorized change, or any change which arises in the normal course of
communication, storage and display; and
● The electronic document is reliable in the light of the purpose for which it was generated and in the
light of all relevant circumstances.
2. Paragraph (1) applies whether the requirement therein is in the form of an obligation or whether the law simply
provides consequences for the document not being presented or retained in its original form
3. Where the law requires that a document be presented or retained in its original form, that requirement is met by
an electronic document if
● There exists a reliable assurance as to the integrity of the document from the time when it was first
generated in its final form, and
● That document is capable of being displayed to the person to whom it is to be presented. For
evidentiary purposes, an electronic document shall be the functional equivalent of a written document
under existing laws.
The Act does not modify any statutory rule relating to the admissibility of electronic data messages or electronic
documents except the rules relating to authentication and best evidence; nor shall it apply to vary any and all
requirements of existing laws on formalities required in the execution of documents for their validity
c. Variation by agreement.
As between parties involved in generating, sending, receiving, storing or otherwise processing electronic data message or
electronic document, any provision of the Act may be varied by agreement between and among them.
CHAPTER 4: REFORMATION OF CONTRACTS
ARTICLE 1359 (meaning of 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.
● It deals with REFORMATION
● It has meeting of minds and It is what is written or stated in their written contract is not what they agreed upon
● If there's a mistake, fraud, inequitable conduct, or accident in the contract, the remedy is REFORMATION.
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.
● It deals with ANNULMENT.
● It has NO meeting of minds and It is where the consent of a party was wisated
● If one of the party's consent was wisated, the remedy is ANNULMENT
REFORMATION
It is that remedy by means of which a written instrument is amended or rectified so as to express or conform to the real agreement
or intention of the parties when by reason of mistake, fraud, inequitable conduct, or accident, the instrument fails to express such
agreement or intention.
● It is the remedy where the written instrument in the contract is made or construed as to express or conform the real
intention of the parties if ever there's a mistake, fraud, inequitable conduct, or accident, leads to the written contract of the
parties being different from its true and real intention.
● The action for reformation must be brought within a period of time that is prescribed by law. Otherwise, if we let it, the
action to file for reformation will be barred or can no longer be barred by the mere lapse of time.
● The prescriptive period for actions based upon a written contract and for reformation of an instrument is 10 YEARS under
Article 1144 of Civil Code.
REFORMATION vs. ANNULMENT DISTINGUISH
Reformation Annulment
It has a meeting of minds but what is written or stated in their It has NO meeting of minds where the consent of a party was
written contract is not what they agreed upon. wisated.
If there's a mistake, fraud, inequitable conduct, or accident in If one of the party's consent was wisated, in which the one party
the contract, the remedy is REFORMATION. isn't aware about the agreement, the remedy is ANNULMENT
Example:
S sold his land to B. It was agreed that the sale will include all the improvements. However, the contract as signed by the parties,
states that the land is being sold, excluding the improvements thereon.
● In this case, the remedy is reformation because there has been a meeting of the minds.
● But if S was selling his land “excluding” the improvements and B was buying the land “including” the improvements,
then there has been no meeting of the minds and the remedy, therefore, is annulment.
● Reformation can't be the remedy because, either way, it would not make the instrument express the real intention of
both parties.
REQUISITES OF REFORMATION.
1. There is a meeting of the minds of the parties to the contract;
2. The written instrument does not express the true agreement or intention of the parties;
3. The failure to express the true intention is due to mistake, fraud, inequitable conduct, or accident;
4. The facts upon which relief by way of reformation of the instrument is sought are put in issue by the pleadings; and
5. There is clear and convincing evidence (which is more than mere preponderance of evidence) of the mistake, fraud,
inequitable conduct, or accident.
Both parties must have executed a writing that does not reflect their actual agreement. Reformation is thus not available where no
writing exists, or a writing exists, but the parties do not intend it to express their final agreement, or no attempt is made to show any
vice of consent therein.
WHAT CONSTITUTES INEQUITABLE CONDUCT.

Inequitable conduct, to warrant relief by way of reformation, has been held to consist in doing acts, or omitting to do acts, which the
court finds to be unconscionable.
Examples:
● Taking advantage by one party of the other party’s illiteracy;
● Abusing confidence;
● Concealing what of right should have been disclosed;
● In taking advantage of a mistake of the other party, known or suspected at the time of the execution of the instrument.
● Drafting or having drafted an instrument contrary to the previous understanding of the parties and making the other party
to believe the instrument other than it actually is;
ARTICLE 1360. (Adapt the general law)

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.
● It emphasizes that the general law of reformation has a supplementary effect, it will supplement the provisions under this
civil code about the reformation. In short, we adapt the general on reformation but then in case of conflict between the
two, the who will govern here is none other than, the civil code provisions.
ARTICLE 1361. (Mutual mistakes)

When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be
reformed
● The mistake has occurred must be mutual and it must be of fact.Therefore, it must not be a mistake by law.
● If there's a mutual mistake, either of the parties may file for reformation.
● If there's a mutual mistake, it causes a failure of the instrument to disclose the real agreement of the parties, then the said
instrument may be reformed.
MUTUAL MISTAKE AS BASIS FOR REFORMATION.

1. The mistake must be of fact, for if it is one of law, the remedy is annulment
2. Such mistake must be proved by clear and convincing evidence;
3. The mistake must be mutual, that is, common to both parties to the instrument; and
4. The mistake must cause the failure of the instrument to express their true intention.
Relief by way of reformation of a written agreement will not be granted unless the proof of mutual mistake is of the clearest and the
most satisfactory character. The amount of evidence necessary to sustain a prayer for relief where it is sought to impugn a fact in a
document is always more than a mere preponderance of evidence.
Example:
S sold to B lot No. 5 which was erroneously designated as lot No. 10 in the deed of sale. Subsequently, S sold to C lot No. 10 which,
through mistake, was designated as lot No. 5 in the deed of sale. B and C occupied the lots respectively sold to them.
● It is a Mutual mistake was made in designating the property sold in written contract of sale.
● It is a simple mistake in drafting the documents of sale. Reformation is proper, there being a meeting of the minds of the
parties to their contracts. “One sells or buys property as he sees it, in its actual setting and by its physical metes and
bounds, and not by the mere lot number assigned to it in the certificate of title.”
● In this case, however, the deeds of sale need not be reformed. Having retained possession of their respective properties
conformably to the real intention of the parties, all that B and C should do is to execute mutual deeds of conveyance
ARTICLE 1362. (Unilateral mistake)

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.
● It deals with a situation where the mistake is unilateral.
● It emphasizes that one of the contracting parties engaged or made a mistake, while the other party acted fraudulently or
inequitability. So, the right to file a reformation was given to that party who committed the mistake.
UNILATERAL MISTAKE
● It occurs when only one party is mistaken as to the subject matter or the terms contained in the contract agreement.
● This type of mistake is generally more common than other types of contract mistakes, such as a mutual mistake (an error
that is shared by both parties).
MISTAKE ON ONE SIDE, FRAUD OR INEQUITABLE CONDUCT ON THE OTHER.

Under Article 1362, the right to ask for reformation is granted or was given only to the party who was mistaken in good faith. Here,
the mistake is not mutual.
● It emphasizes that one of the contracting parties engaged or made a mistake, while the other party acted fraudulently or
inequitability. So, the right to file a reformation was given to that party who committed the mistake.
Example:
S sold a parcel of land to B with the understanding that the sale was subject to S’s right to repurchase. With the help of a lawyer, B
had the deed prepared in the English language with which S was unfamiliar. The deed did not include the condition of repurchase
which fact was known to B.
Before S signed the deed, he inquired whether it contained said condition and he was told by B that it was suffi cient. S relied upon
the statement of B as to the contents and effect of the deed. Later, when S demanded the reconveyance of the property, B refused
on the ground that he was the absolute owner of the same.
● Is S entitled to reformation? YES
● Because. S was mistaken. The conduct of B amounts to fraud or unfair dealing which warrants the reformation of the
instrument.
ARTICLE 1363. (Concealment)

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.
● It emphasizes that one of the contracting parties engaged or made a mistake which the mistake is unilateral, while the
other party is guilty of concealment (hindi niya sinabi)
● In this case, only the party in good faith can ask for reformation, which does not include the party guilty of concealment
CONCEALMENT OF MISTAKE BY OTHER PARTY.

The remedy of reformation may be availed of only by the party who acted in good faith. The concealment of the mistake by the other
party constitutes fraud.
● In this case, only the party in good faith can ask for reformation, which does not include the party guilty of concealment
Example:
Mrs. Dy owed 5M to Mrs. Gong and made a promissory note that she will pay Mrs. Gong her land title in Cavite which is equivalent
to the amount that she owed. Six months after their contract was made Mrs. Dy delivered her land title to Mrs. Gong as her payment
for her debt to the latter. Mrs. Gong accepted the land title but she noticed that it was the land title of Mrs. Dy in Ilocos Norte which is
3x more than the amount that Mrs. Dy owed but she concealed it to Mrs. Dy. Therefore Mrs. Dy is entitled for the reformation of the
instrument that they used in their contract.
ARTICLE 1364. (Grounds of reformation)

When through 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.
● When through ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the
clerk or typist, the court may order that the instrument be reformed.
● Ignorance, lack of skill, negligence or bad faith must be on the part of a third person. Under the above article, neither party
is responsible for the mistake. Hence, either party may ask for reformation.
GROUNDS OF REFORMATION
1. Ignorance
2. Lack of skill
3. Negligence
4. Bad Faith on the part of the person draftiny the instrument or of the clerk or typist.
ARTICLE 1365. (Mortgage & pledge)

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.
● The intent is to have a mortgage or pledge, but the instrument they made was stated for sale.
● In this case, it can also be reformed.
● Both contracting parties agreed that one of the parties mortgaged his property in favor of the other party. However, the
instrument states that the property is sold absolutely or with a right of repurchase, In this case, it can also be reformed.
MORTGAGE OR PLEDGE STATED AS A SALE.

Under this article, the reformation of the instrument is proper, otherwise, the true intention of the parties would be frustrated. Such
true intention must prevail for the contract must be complied with in good faith.
● Both contracting parties agreed that one of the parties mortgaged his property in favor of the other party. However, the
instrument states that the property is sold absolutely or with a right of repurchase, otherwise, the true intention of the
parties would be frustrated.
ARTICLE 1366. (Reformation not allowed)

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.
CASES WHEN REFORMATION NOT ALLOWED.

1. Simple donations inter vivos where no condition is imposed.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts
it. (Art. 725.) When the donor intends that the donation shall take effect during his lifetime, it is a donation inter vivos. It is
distinguished from donation mortis causa in that this kind of donation takes effect after the donor’s death.
2. Wills
A will is an act whereby a person is permitted with the formalities prescribed by law to control to a certain degree the
disposition of his estate, to take effect after his death. (Art. 783.) Like a donation, the making of a will is a strictly personal
and a free act which cannot be left to the discretion of a third person (see Art. 784.); hence, upon the death of the testator,
the right to reformation is lost. Furthermore, a will may be revoked by the testator any time before his death and this right
is not subject to waiver or restriction. (see Art. 828.)
3. Where the real agreement is void.
If the real agreement is void, there is nothing to reform. Reformation would be useless because the real agreement being
void, it is unenforceable.
4. Where one party has brought an action to enforce the instrument.

Article 1367 is based on estoppel (Art. 1431.) or ratifi cation. (see Arts. 1392, 1396.) When a party brings an action to
enforce the contract, he admits its validity and that it expresses the true intention of the parties. The bringing of the action
is thus inconsistent with reformation. There is no prohibition against joining in one action the reformation of instrument and
its enforcement as reformed.
ARTICLE 1367. (Estoppel)

When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.
● At first, you file for enforcement or demand compliance for that instrument that has been agreed upon. Later on, you are
not allowed to file for reformation, stating the instrument no longer reflects the true agreement of both parties.
● Article 1367 is based on estoppel (Art. 1431.) or ratification. When a party brings an action to enforce the contract, he
admits its validity and that it expresses the true intention of the parties. The bringing of the action is thus inconsistent with
reformation. There is no prohibition against joining in one action the reformation of instrument and its enforcement as
reformed.
Examples:
Anna, who is in need of money, negotiated a contract of chattel mortgage with Ben using Anna’s Car for security. Through
machination perpetrated by Ben, Anna signed a document of sale believing that it was a chattel mortgage. Later Anna filed a case
against Ben for delivery of the car based on the deed of sale. The action failed. Ben can no longer seek the reformation of the
instrument to consider it a chattel mortgage. He is estopped for the law has deemed him to have waived the action for reformation.
ARTICLE 1368. (person who have right to bring an action)

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.
● If there's a mutual mistake, either party or his successors in interest can file for reformation, while the other party acted
fraudulently or concealment. So, only the injured or innocent party has the right to file a reformation.
● If by mutual mistake there in non meeting of the minds of the parties, either parties or their successor in interest or their
heir may petition the court for the reformation of the instrument. However, If mistake is not mutual, the reformation of the
instrument may be petitioned by the injured party, his heirs or assigns. An action for reformation of a contract prescribes
after ten(10) years.
Illustration
“A” entered a contract to “B” for the construction of a building. The parties agreed that the payment be made in dollars. However
what was typewritten in the contract occasioned by mistake was the peso sign. Either party or the successor in interest of A or B
may petition the court for reformation of the instrument within ten years.
PARTY ENTITLED TO REFORMATION.

1. Either of the parties, if the mistake is mutual under Articles 1361, 1364, and 1365;
2. In all other cases, the injured party, under Articles 1362, 1363, 1364, and 1365; and
3. The heirs or successors in interest, in lieu of the party entitled. (Art. 1368.)
The effect of reformation is retroactive from the time of the execution of the original instrument.
ARTICLE 1369. (Promulgation of court)

The procedure for the reformation of the instrument shall be governed by rules of court to be promulgated by the Supreme Court.
● It explains on how you file for reformation and it states that it is governed by the rules of court to br promulgated by the
supreme court. In short, it is more procedural.
PROCEDURE FOR REFORMATION.

The Rules of Court govern procedure. However, the Supreme Court has not as yet promulgated the procedure for the reformation of
instruments. (see Sec. 7, Rule 130, Rules of Court.)
As a general rule, all persons interested in the subject matter of litigation, whether it is a legal or an equitable interest should be
made parties in suits to reform written instruments, so that the court may settle all of their rights at once and thus, prevent the
necessity of a multiplicity of suits. Thus, in an action to reform a deed of sale, all parties claiming an interest in the property or any
part thereof purportedly conveyed by the instrument sought to be reformed and whose interests will be affected by the reformation of
the instrument are necessary parties to the action.
TITLE 3: NATURAL OBLIGATION (EQUITY)
ARTICLE 1423 (Civil & Natural Obligation)

Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being
based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary
fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.
CIVIL OBLIGATIONS AND NATURAL OBLIGATIONS DISTINGUISHED.

1. Civil Obligation
● It is based on POSITIVE LAW; hence, it is enforceable by court action.
● It arises from law, contracts, quasi-contracts, delicts, and quasi-delicts,
● It give the creditor right of action in courts of justice to compel their fulfillment or performance of the debtor
● One person is obliged to perform a certain action in favor of another person, such as paying money, transferring
property, performing work, rendering services, etc.
Example:
On May 5, 2020, Hans borrowed 20,000 from Andy. They agreed that payment will be on June 15, 2020. During
the agreement, Hans executed a promissory note.
● If Hans can't pay on the stated date, Andy may enforce payment by filing a court action within a
period of 10 years from the due date. Specifically on June 15, 2030.
2. Natural Obligation
● It is based on NATURAL LAW; hence, it is not enforceable by court action.
● These are based not on positive law but on EQUITY and natural law.
● When not fulfilled, it cannot be enforced in court as they are not a legal obligation.
● It does not grant such a right of action to enforce their performance.
● In case of voluntary fulfillment by the debtor, the creditor may not recover what has been delivered or rendered.
Example:
Hans obtained a loan of 60,000 from Andy. The debt, which is evidenced by the promissory note, is due on
June 15, 2020.
● No action for payment was filed in the court by andy within 10 years from such date, hence, the
prescribed. However, Hans, knowing that is prescribed, voluntarily paid Andy.
● Hands cannot recover what he had voluntary paid because although payment was no longer required,
in equity and moral justice, he still owed Andy the amount of 60,000.
EQUITY
It is a legal remedy awarded to a party in an action or lawsuit when the court finds that the plaintiff has been wronged.
VOLUNTARY FULFILLMENT
It means that the debtor complied with the same even if he knew that he could not have been legally forced to do so.
ENUMERATION NOT EXCLUSIVE.

Note that Article 1423 says “Some natural obligations, x x x.”
● This indicates that the enumeration in the Code is not exclusive.
● Thus, if the borrower pays interest agreed upon orally, the provisions on natural obligations apply. (see Art. 1960.)
● Under the law, “no interest shall be due unless it has been expressly stipulated in writing.” (Art. 1956; see Art. 1175.)
ARTICLE 1424. (Prescription)

When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has rendered.
● The above provision is called "prescribed civil obligation."
● The voluntary performance or payment by the obligor despite prescription thereof converts it to a natural obligation
● The effect of this is that the obligor can no longer recover what he has delivered or the value of the service he rendered.
REQUISITES
1. A civil obligation
2. The right of action over such civil obligation having lapsed
3. The lapse being due to extinctive prescription; and
4. Performance or payment done voluntarily.
PRESCRIPTION (PERFORMANCE AFTER CIVIL OBLIGATION HAS BEEN PRESCRIBED)

By prescription (acquisitive), one acquires ownership and other real rights through the lapse of time in the manner and under the
conditions laid down by law. In the same way, rights and actions are lost by prescription (extinctive). (Art. 1106; see Art. 1218.)
● Acquisitive prescription
It is a means of acquiring a right of ownership, or one of its dismemberments, through the effect of possession” The delay
to acquire an immovable by acquisitive prescription is ten (10) years.
● Example:
If you possess as an owner and use a part of the immovable for more than 10 years in a peaceful, continuous,
public and unequivocal manner, you could ask to be officially recognized as the owner of this part of the
immovable.
● Extinctive prescription
In clearer terms, the law sets time limits in which you must act to exercise your rights in court or to simply keep them. If
you do not exercise them in time, you risk losing them.
Examples :
When you obtain a judgment in your favor, you have ten (10) years to exercise this right. Otherwise, after that
time, your judgment can no longer be enforced against your debtor.
EXAMPLE OF PRESCRIPTION
D owes C the sum of P5,000.00 under a written contract. After 10 years, the debt of D prescribes for failure of C to file the necessary
action for the recovery of the same. (Art. 1144[1].)
● If D, knowing of the prescription, voluntarily pays C, he can't recover anymore what he has paid.
● He has the moral duty to pay his debt.
● The effect of this is that the obligor can no longer recover what he has delivered or the value of the service he rendered.
●
ARTICLE 1425. (REIMBURSE - 3RD PERSON)
When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay
because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover
what he has paid.
● It empathizes that the period to demand for payment of the debtor has ended.
● From the time when the 3rd person discovered that the debtor has a debt, the 3rd person volunteered to pay for it. Later
on, the debtor discovered the 3rd person for his debt and decided to reimburse the 3rd person. Afterwards, the debtor
discovered that it is already prescribed, so the debtor has no need whatsoever to pay what he has received not because
of the law say so, but because of equity.
REIMBURSEMENT OF THIRD PERSON FOR DEBT THAT HAS BEEN PRESCRIBED.

If a third person pays the prescribed debt of the debtor without his knowledge or against his will, the latter is not legally bound to pay
him. But the debtor cannot recover what he has paid, in case he voluntarily reimburses the third person.
Example:
In the above example, if T pays C after the debt has been prescribed without the knowledge or consent of D, but D nevertheless
reimburses T, D cannot recover what he has paid.
ARTICLE 1426. (Annulment of contract)

When a minor between eighteen and twenty-one years of age (18 - 21 y/o) who has entered into a contract without the consent of
the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the
fact that he has not been benefi ted thereby, there is no right to demand the thing or price thus returned.
● It empathizes that he can't take back what he gave back.
General Rule:
If the party a contract is not capacitated to enter into that contract, he has no right to return whatever he has received by the
incapacitated person.
Exception:
A minor once he reaches the age of majority and it has been proven that he benefited from whatever he got or received. He obliged
to give back or reimburse what has been at least to the part that he benefited from not because of the law say so, but because of
equity
RESTITUTION BY MINOR AFTER ANNULMENT OF CONTRACT.

When a contract is annulled, a minor is not obliged to make any restitution except insofar as he has been benefi ted by the thing or
price received by him. However, should he voluntarily return the thing or price received although he has not been benefi ted thereby,
he cannot recover what he has returned.
Take note that this article applies only if the minor who has entered into a contract without the consent of his parent or guardian is
between 18 and 21 years of age. The law considers that at such age, a minor has already a conscious idea of what is morally just or
unjust.
Example:
S, a minor 18 years old, sold for P100,000.00 his car to B without securing the consent of his parents. He lost P20,000.00 to a
pickpocket although he was able to deposit the P80,000.00 in a bank.
● If the contract is annulled, S is obliged to return only P80,000.00.
● However, he has the natural obligation to return P100,000.00.
● If he voluntarily returns the whole amount, there is no right to demand the same.
ARTICLE 1427. (Fungible things)

When a minor between eighteen and twenty-one years of age (18 - 21 y/o), who has entered into a contract without the consent of
the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfi llment of the obligation, there shall be no
right to recover the same from the obligee who has spent or consumed it in good faith.
● It emphasizes that he cannot take back whatever was delivered or rendered to him, which may be money or objects when
the person who received it has spent the money or consumed the object or thing in good faith not because of the law say
so, but because of equity
FUNGIBLE THINGS
● These are items that can be easily replaced with another item that is practically the same
● Often, whether or not an item is fungible will impact how damages will be calculated for breaches of contract or the
destruction of an item.
DELIVERY BY MINOR OF MONEY OR FUNGIBLE THING IN FULFILLMENT OF OBLIGATION.

By the decree of annulment, the parties, as a general rule, are obliged to make mutual restitution. However, the obligee who has
spent or consumed in good faith the money or consumable thing voluntarily paid or delivered by the minor, is not bound to make
restitution.
Although Article 1427 speaks of “fungible thing,” nevertheless it may also apply to things that are non-consumable when they have
been lost without fault of the obligee or in case of alienation by him to a third person who did not act in bad faith. The obligee shall
be liable for damages if he is guilty of fault or bad faith at the time of spending or consumption.
ARTICLE 1428. (civil obligation has failed)
When, after an action to enforce a civil obligation has failed, the defendant voluntarily performs the obligation, he cannot demand the
return of what he has delivered or the payment of the value of the service he has rendered.
● Where the plaintiff who demanded for fulfillment did not win the court case, essentially the defendant has no duty to pay.
● If the defendant pays the plaintiff, he can't take back what he gave not because of the law say so, but because of equity.
PERFORMANCE AFTER ACTION TO ENFORCE CIVIL OBLIGATION HAS FAILED.

This article contemplates a situation where a debtor, who has failed to pay his obligation, is sued by the creditor and instead of
losing the case, he has won it. If, notwithstanding this fact, the debtor voluntarily performs his obligation, he cannot demand the
return of what he has delivered or the payment of the value of the service he has rendered. He must be deemed to have considered
it his moral duty to fulfi ll his obligation.
● Since the debtor was under NO legal obligation to perform the service that the court did NOT require him to perform,
● His choice to perform becomes an act of liberality on his part that creates NOT an obligation on the part of the benefited
party to compensate.
Example:
● Arturo has failed to pay his obligation.
● Arturo is sued by Ben, the creditor.
● Arturo won the case.
● Notwithstanding this, Arturo voluntarily performs his obligation.
● Arturo CANNOT demand the return of what he has delivered OR the payment of the value of the service he has rendered.
ARTICLE 1429. (
When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will
or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer.
PAYMENT BY HEIR OF DEBT EXCEEDING VALUE OF PROPERTY INHERITED.

The heir is not personally liable beyond the value of the property he received from the decedent. (Art. 1311, par. 1.) But if he
voluntarily pays the difference, the payment is valid and cannot be rescinded by him. An heir has a moral duty to perform or pay
obligations legally contracted by his dead relatives.
Example:
Twins Julio and Julia received P50 million each as inheritance upon their father’s death. But their father was indebted to the
Empress Dowager of China in the amount of P60 million. Julio, solely and voluntarily, paid the P60 million debt of his deceased
father. Under Art. 1429, the payment is valid and cannot be rescinded by Julio.
ARTICLE 1430. (
When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the
intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the
payment is effective and irrevo-cable.
PAYMENT OF LEGACY AFTER WILL HAS BEEN DECLARED VOID.

Legacy is the act of disposition by the testator in separating from the inheritance for definite purposes, things, rights, or a defi nite
portion of his property. It may be viewed also as that same portion, or those things or special rights, which the testator separates
from his inheritance for a defi nite purpose. (6 Manresa 654.)The purpose of a legacy is to reward friends, servants and others for
services they have rendered, to give alms, etc.
● If the WILL is VOID, the LEGACY would also be VOID and the deceased is considered to have died without a will. This is
the reason for the existence of the Article.
Example
In a will defective for lack of the needed legal formalities, Xian, a friend, was given a legacy. The legacy is void, and the whole estate
should go to the intestate heirs. If however, the intestate heirs give Xian the legacy, they cannot get it back now, provided that the
debts of the deceased have been settled.

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CONTRACTS

CHAPTER 1 : GENERAL PROVISION (ARTICLE 1305 - 1317)

CONTRACT AND OBLIGATION DISTINGUISHED.

CONTRACT AND AGREEMENT DISTINGUISHED.

CHARACTERISTICS OF CONTRACTS. - MARCO

3. Mutuality of contracts. (ARTICLE 1308 - 1310)

4. Relativity of contracts. (ARTICLE 1311 - 1314)

5. Consensuality of contracts. (ARTICLE 1315- 1316)

4 KINDS OF INNOMINATE CONTRACT. (Do or Des - Give) (Facio or Facias - Do)

2. do ut facias (I give that you may do)

3. facio ut des (I do that you may give)

4. facio ut facias (I do that you may do)

According to perfection: ARTICLE 1315-1316

a. Consensual (GENERAL RULE)

c. Formal or Solemn Contract (EXCEPTION)

According to person obliged or liability

a. Valid (see Art. 1306.);

b. Rescissible (Chapter 6.)

c. Voidable (Chapter 7.);

d. Unenforceable (Chapter 8.);

e. Void or inexistent. (Chapter 9.)

VALID BINDING ENFORCEABLE

Rescissible Voidable Unenforceable Void or inexistent

This can be Ratified? Yes Yes Yes No

Remedy to avoid Rescission Annulment None None

a. Formal or Solemn Contract

b. Informal or Common Contract

According to risks or fulfillment

a. Involving things (example: sales, deposit, pledge)

According to time fulfillment

According to number of persons who participated in the drafting of contracts:

ARTICLE 1306 (Freedom or autonomy of contracts)

FREEDOM OR AUTONOMY OF CONTRACTS

CONTRACT MUST NOT BE CONTRARY TO LAW.

CONTRACT MUST NOT BE CONTRARY TO MORALS.

CONTRACT MUST NOT BE CONTRARY TO GOOD CUSTOMS.

CONTRACT MUST NOT BE CONTRARY TO PUBLIC POLICY.

ARTICLE 1307 (Nominate & Innominate Contracts)

CLASSIFICATION OF CONTRACTS ACCORDING TO ITS NAME OR DESIGNATION.

4 KINDS OF INNOMINATE CONTRACT. (Do or Des - Give) (Facio or Facias - Do)

2. do ut facias (I give that you may do)

3. facio ut des (I do that you may give)

4. facio ut facias (I do that you may do)

REASONS FOR INNOMINATE CONTRACTS

ARTICLE 1308 (Mutuality of Contracts)

X agreed to sell his car to Y and Y agreed to pay 1,000,000.

ARTICLE 1309 (Exception to Mutuality of Contracts)

ARTICLE 1310 (Exception to Mutuality of Contracts)

EFFECT WHERE DETERMINATION IS INEQUITABLE.

SOLUTIO INDEBITI - BY MISTAKE

ARTICLE 1311 (Relativity of Contacts & 1 out of 4 exceptions)

PERSONS AFFECTED BY CONTRACTS

b. By stipulation (in accordance with the principle of freedom to contract)

CASES WHEN STRANGERS OR THIRD PERSONS AFFECTED BY A CONTRACT.

EXCEPTION WHEN THIRD PERSONS MAY BE AFFECTED BY A CONTRACTS:

STIPULATION POUR AUTRUI

CLASSES OF STIPULATIONS POUR AUTRUI.