CHAPTER 1.
- The legal presumption is always on the validity
GENERAL PROVISIONS
Article 1305.
A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to
give something or to render some service.
- This article gives the definition of a contract.
- It lay emphasis on the meeting of the minds
between two contracting parties which takes
place when an offer by one party is accepted by
the other.
Contract distinguish from obligation
- Contract as ditinguish from obligation is that
contract is one of the sources of oligations.
- on the other hand, obligation is the legal tie or
relation itself that exist after a contract has been
entered into.
- Hence, there can be no contract if there is no
obligation. But an obligation may exist without
contract.
Contract is deemed perfected or given force by the law
when the components of consent, object and
consideration are present.
Illustration:
When Ben offers to sell his cake to Mona in the amount
of five hundred pesos and Mona agrees to the cost,
there is perfected contract of sale.
Stages of Making A Contract
1. Conception is the first stage where the parties
begin their initial negotiation for the formation of
the contract.
2. Perfection or Birth is the second stage. Here
the parties had a meeting of minds or mutually
agreed as to the object and consideration.
3. Consumation is the last stage which consist in
the performance of the obligation. the parties
ceased to be contractually related to one
another.
Article 1306.
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.
Freedom to contract guaranteed.
- The freedom to contract is both a constitutional
and statutory right.
- The right to enter into contracts is one of the
liberties guaranteed to the individual by the
Constitution.
- It also signifies or implies the right to choose
with whom one desires to contract.
- The Constitution prohibits the passage of any
law impairing the obligation contracts. (Art. III,
Sec. 10 thereof.)
- However, the constitutional prohibition against
the impairment of contractual obligations refers
only to legally valid contracts.
- In appropriate cases, it cannot be invoked as
against the right of the state to exercise its police
power.
- In other words, an individual does not have an
absolute right to enter into any kind of contract.
- However, because the autonomy or freedom of
contract is both a constitutional and statutory
right, to uphold the right, courts are enjoined to
move with the necessary caution and prudence
in holding contracts void.
- The binding force of a contract must be
recognized as far as it is legally possible to do
so.
of contracts.
Limitations on contractual stipulations.
- It is a fundamental requirement that the contract
entered into must be in accordance with, and not
repugnant to, an applicable statute. Its terms are
embodied in every contract. Without need for the
parties expressly making reference to it, an
existing law enters and forms part of a valid
contract.
- Police power. Public welfare is superior to
private rights. When there is no law in existence
or when the law is silent, the will of the parties
prevails unless their contract contravenes the
limitation of morals, good customs, public order,
or public policy. The policy of protecting
contracts against impairment presupposes the
maintenance of a government by virtue of which
contractual relations are worthwhile — a
government which retains adequate authority to
secure the peace and good order of society.
- Contract must not be contrary to law.
A contract intended to circumvent and violate the
law is void ab initio.
- 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. Ex. A contract to live
together without the benefit of marriage in
consideration for a sum of money is immoral.
- 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. Ex. A notarized
legal separation agreement between husband
and wife is contrary to good customs.
- 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 (well-being). Ex. A contract
legalizing adultery or concubinage.
- 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. Ex. A contract entered into by a
prosecutor not to prosecute a carnapper in
consideration for P1,000.00 is against the public
policy to punish crimes.
Article 1307.
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.
- If the first obligation is subject to a suspensive or
resolutory condition, the second obligation is
deemed subject to the same condition unless
the contrary is stipulated by the parties in their
contract.
- The reason for the rule contained in Article 1299
is that the efficacy of the new obligation depends
upon whether the condition which affects the old
obligation is complied with or not.
- If the condition is suspensive, and it is not
complied with, no obligation arises; and if it is
resolutory and it is complied with, the old
obligation is extinguished.

Article 1308.
The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of
them.
This Article stresses the mutuality of contracts–that is
both, both parties are bound. The principle is based on
the essential equality of the parties.
FACTS: Two persons entered into a contract of lease of
land. It was stipulated that at any time before the tenant
constructed any building thereon, he could cancel the
lease.
ISSUE: Is the stipulation valid?
HELD: Yes, when cancellation is made, this by itself is a
fulfillment of the provisions of a contract.
Article 1309.
The determination of the performance may be left to a
third person, whose decision shall not be binding until it
has been made known to both contracting parties.
Example: In a contract of sale, the fixing of the price and
the delivery date can be lleft to a third person.
Note: The decision binds the parties only after it is made
known to both.
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.
Article 1310.
The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is
equitable under the circumstances.
Whatever be the determination made by the third person
shall bind both parties, except when it is evidently
iniquitous, in which case the court shall decide whatever
is fair.
EXAMPLE:
Juan a tenant of a rice field of Mrs Dela Cruz was not
able to give the lease due to Mrs Dela Cruz for two
consecutive rice season. Who will decide on the case?
How do you think it will be decided? Justice or Equity?
Base on Article 1310, the Court will only be the one to
decide on the based on justice and equity. Justice
means giving each what is due but equity is a process by
which court relax the sanctions of the law for
humanitarian consideration.
Article 1311.
Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and
obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value
of the property he received from the decedent.
If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a
third person.
Heirs and assigns are liable for a contract entered into
by the decedent because generally the rights and
obligations are transmissible to them.
What a person can receive by way of inheritance, and
therefore as an heir, cannot be less than his legitime;
neither can he be obliged to pay more on an inherited
obligation than the estate that he inherited.
General rule:
Third person has no rights and obligations under a
contract to which he is a stranger.
Instances where a third person may be affected by a
contract:
- In contracts containing a stipulation in favor of a
third person (stipulation pour trui)
- In contracts creating real rights
- In contracts entered into to defaud creditors
- In contracts which have been violated at the
inducement of a third person
General Rule:
Creditors are not affected by the contracts of their
debtors.
Rules:
- Contracts made in fraud of creditors may be
rescinded (Art.1381)
- Contracts by which a debtor gratuitously
disposes of his property, or alienations made
even for a valuable consideration when a
judgment has been rendered or an attachment
has been levied are considered fraudulent
- Transfers or assignments made by an insolvent
are deemed fraudulent and should be set aside.
Example:
Don Camello owes 50,000.00 to Don Facundo. If Don
Camello dies, his daughter Carmenchu has the
obligation to pay Don Facundo but not beyond the value
of the property that she inherited from Don Camello.
Papito ordered a cake for his daughter Papita from Mrs.
Baker. Papita as the daughter of Papito may demand the
cake from Mrs. Baker.
Article 1312.
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.
Third persons bound by contracts creating real rights
General Rule
Third persons have nothing to do with contracts entered
into by other persons.
- However, third persons are bound by contracts
creating real rights when the third person comes
into possession of the object of the contract.
- A real right is binding against the whole world
and attaches to the property over which it is
exercised wherever it goes.
Example:
- Arturo leases his property to Ben.
- Ben registers such lease.
- Later, with the consent of Ben, Arturo sells the
same property to Charlie.
- Charlie, who was an outsider to the lease
contract bet. Arturo and Ben, has become the
buyer of the object of the contract of lease. He
must honor the lease contract between Arturo
and Ben.
 (1) Consensual contract - that which is perfected
by mere consent 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.

Article 1313.
Creditors are protected in cases of contracts intended to
defraud them. (2) Real contract - that which is perfected, in
addition to the above, by the delivery of the thing
Right of Defrauded Creditors subject matter of the contract.
This Article represents another instance when an
outsider can in a sense interfere with another’s contract. Illustration:
Xian borrowed from Yanee Php 5,000. As Xian’s
Example: security for the debt, Xian promised to pledge
If Leah gratuitously gives Piolo a parcel of land, said his diamond ring to Yanee.
creditors may ask for the rescission of the contract, to
the extent that they have been prejudiced. Before the delivery of the ring to Yanee, the
contract of pledge is not yet perfected. If Xian
Article 1314. later on refuses to pledge the ring, Yanee can
Any third person who induces another to violate his demand the payment of the obligation although it
contract shall be liable for damages to the other is with a period. But Yanee cannot require Xian
contracting party. 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
Liability of third person responsible for breach of
exists, is a personal right, the right of action on
contract.
the part of Yanee to demand the constitution of
- This is a rule of American law. It is also proper
the pledge.
under the general principles of the Philippine
law, because a contractual right is property.
Effect of Perfection of The Contract
- Article 1314 recognizes an instance when a
stranger to a contract can be sued for damages
From the moment the parties come to an agreement on
for his unwarranted interference with the
a definite subject matter and valid consideration they are
contract.
bound not only:
- The tort or wrongful conduct is known as
“interference with contractual relations.’’ It
(1) to the fulfillment of what has been expressly
presupposes that the contract interfered with is
stipulated
valid and the third person has knowledge of the
existence of the contract or must have known of
Example:
it after a reasonable inquiry.
Anne sold a horse to Bryan for Php 15, 000. The
- The word “induce’’ in the provision refers to
details of this contract as regards the place of
situations where a person causes another to
delivery of the horse and payment of the price,
choose one course of conduct by persuasion or
the time of delivery and payment, etc. are not
intimidation. The interference or inducement
included. These details are furnished by law and
gives rise to liabilities for damages because it
have been taken up in the various provision of
violates the property rights of a party in a
the Code.
contract to reap the benefits that should result
therefrom.
(2) to all the consequences which according to
- Injunction is the appropriate remedy to prevent
their nature, may be in keeping with good
a wrongful interference with contracts by
faith, usage, and law.
strangers to such contracts where the legal
remedy is insufficient and the resulting injury is
Example:
irreparable.
Anne agreed to sell his horse to Bryan. It was
Illustration:
stipulated that Anne should deliver the horse to
After agreeing to sell her parcel of land to Kokey,
Bryan the next day.
Princess Sarah sells the land to Cedie instead because
of the inducement of Heidi. In this case, Kokey can sue
In this case, Anne has the obligation to deliver
Heidi for damages. However, the liability of Heidi for
the horse the next day as expressly stipulated in
damages cannot be more than that of Princess Sarah for
the contract. Anne has also the obligation to take
the latter’s violation of his contract. To hold Heidi liable
care of the horse pending delivery and to
for damages in excess of those that can be recovered
warrant that he has the right to sell the horse
against Princess Sarah “would lead to a result at once
although nothing is said about the obligation in
grotesque and unjust.’’ At most, Heidi would be solidarily
the contract as this is in keeping with good faith,
liable with Princess Sarah. What would be the source of
usage, and law.
the obligation of Heidi? Her 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 1316.
Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of the
Article 1315.
object of the obligation.
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 This article makes a distinction between a contract that
consequences which, according to their nature, may be is perfected by consent or consensual or ordinary
in keeping with good faith, usage and law. contract. A real contract is those contracts that cannot be
perfected without the delivery such as commodatum,
pledge and loan.
Classifications of Contracts According to Perfection
Commodatum refers to a gratuitous loan of a movable
property which is to be returned undamaged to the
lender.

Pledge is a bailment that conveys possessory title to

property owned by the debtor to a creditor to secure
repayment of some debts.

Illustration:

When one enters into a contract of pledge, the contract

is not perfected until the object pledged to the creditor.

Supposed Mr. Lhullier wants to convert his 24 carat ring

to money because he is in dire financial constraints and
he needs cash. Thereafter, he approached Mrs.
Tambunting the cashier of ZYZ Pawnshop. In order to
constitute a contract of pledge the ring must be placed in
the possession of Mrs. Tambunting.

In real contracts delivery of the object is necessary

because without the object the other party cannot
exercise his duties under the contract.

Article 1317.
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.

Requisites for a Person to Contract in the Name of

Another
A) He must be duly authorized (expressly or
impliedly); or
B) He must have by law a right to represent him
(guardian or administrator); or
C) The contract must be subsequently RATIFIED
(expressly or impliedly).

Example of Unauthorized (a Form of Unenforceable)

Contract
In Marga’s name, but without her authorization, Cassie
sold Marga’s car to Hector. The sale of the car is
unauthorized.

Note: In the example given, mere lapse of time cannot

cure the defect; this is not the ratification required by law

EFFECT: Contract is unenforceable when it is

represented by a person who is not authorized or has no
legal representation.

REMEDY: Ratification either express or implied by the

person on whose behalf it has been executed.

EFFECT OF RATIFICATION: Ratification cleanses the

contract from all its defects from the moment the contract
was entered into.

Note: There can be no more ratification if the contract

has previously been REVOKED by the other contracting
party.
 CHAPTER 2.
ESSENTIAL REQUISITES OF CONTRACTS
Article 1318.
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.
Consent
- must be free and given by someone who is sui
juris, or one who has capacity to act.
- it must be freely given by the party and must be
an intelligent consent, the party must know what
he is consenting.
- If the consent of one party is not freely given
because such consent was obtained through
fraud, violence intimidation, undue influence, the
contract is voidable. This is when it is said that
the consent is vitiated.
- Example:
Ricky offers to buy Martin’s car. The offer is
made over the phone. Unknown to Ricky, it is
not Martin at the other end of the line, but his
younger brother Ariel who can perfectly mimick
his elder brother’s voice. Ariel accepts Ricky’s
offer, successful at imitating his elder brother’s
voice. There is no contract here, because there
was no consent on Martin’s part.
Object of a contract
- must be definite or determinate as to its kind; it
must be lawful or it must be within commence of
man. It must like wise be possible, and not in
any way contrary to good customs, morals,
public order or public policy.
- Example:
A student enrolls in a university and when asked
what course it is that she wishes to register for,
she answer “anything”. The registrar carelessly
receives the form and causes the entry of the
student’s name in the register of the university.
Again, there can be no contract, because it is
not certain what it is that the university must
teach the student or prepare her for.
Cause
- it must be true and licit. A contract with an illicit
cause produces no effect whatsoever.
- Example:
- When Marsha envies John her house, there will
be no way Marsha can have John’s house,
unless John’s donates it to her (in which case,
John’s liberality or generosity would be the
cause of the contract). For a contract to exist
between Marsha and John. Marsha must offer
John something John wishes in return (money,
or some other piece of property) which would
then be the cause of the contract.
A contract with a false cause is void unless it, and lawful
resets upon another cause which is true.
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 absolute. A qualified acceptance
constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge.
The contract, in such a case, is presumed to have been
entered into in the place where the offer was made.
Consent is giving of one’s conformity to the terms of the
contract freely and voluntarily. It is the concurrence of
the minds of the parties on the cause and subject matter
which will constitute the contract, as well as on the other
conditions and terms thereof to which they voluntarily
binds themselves to comply. Consent may be expressly
or implied.
Offer is a proposal made by one party to another to
enter into a contract. It is more than an expression of
desire or hope. It is a promise to act or to refrain from
acting on condition that the terms thereof are accepted
by the person to who it is made.
Character of the Offer
1) Certain
2) Definite
3) Concrete
Acceptance - manifestation by the offeree of his assent
to the terms of the offer
1) Absolute and not conditional
The acceptance made the party to an offer was made,
binds the offeror only from the time the offeror came to
know of the acceptance. The law pressumes that the
contract was perfected at the pace where the offer was
made, the place of origin of the conception of the
contract.
Article 1320.
An acceptance may be express or implied.
Forms of Acceptance of Offer
1) Express acceptance – may be oral or written
2) Implied acceptance – one that is inferred from
the act or conduct
Examples of Implied Acceptance:
1) Acceptance of services
2) Acceptance by promise
e.g., where a person deliver to another a certain
thing if the latter will pay a certain amount, and
the other accepts by promising to so pay accd.
to the conditions of the offer
3) Acceptance by act
e.g., where an offer is made that the offerer will
do something else, if the offeree shall do a
particular thing and both or either performed his
respective act.
Article 1321.
The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied
with.
The offer to set forth the terms of acceptance. When
these terms are set forth, the offeree, should he wish to
accept, must comply with the terms of the offeror.
Example:
Ruel the offeror offers 4 boxes of perfume to Elmo the
offeree. That Ruel gives Elmo a one day to accept or to
reject the said offer. After one day Ruel did not hear from
Elmo about the offer he made. Ruel is now free to make
the offer to somebody else.
Article 1322.
An offer made through an agent is accepted from the
time acceptance is communicated to him.
Communication of acceptance to agent.
For a contract to arise, the acceptance must be made
known to the offeror. By legal fiction, an agent is
considered an extension of the personality of his
principal. If duly authorized, the act of the agent is, in
law, the act of the principal.
Article 1322 applies only if the offer is made through the
agent and the acceptance is communicated through him.
Hence, there would be no meeting of the minds if the
principal himself made the offer and the acceptance is
communicated to the agent unless, of course, the latter
is authorized to receive the acceptance.
Illustration:
Nancy Monay of Makati is a sales agent of Camel
Homes Subdivision. As a sales agent of Camel Homes,
she offered to sell a 20-bedroom mansion inside the
subdivision to Kiss Escudero at a price of P80 million.
Kiss Escudero agrees to buy the property for the
stipulated price. The sale is valid even though the
acceptance was made with the agent.
Article 1323.
An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed.
When Offer Becomes Ineffective
An offer may be withdrawn before it is accepted. After
acceptance, the contract is already perfected.
Under Article 1323, even if the offer is not withdrawn, its
acceptance will not produce a meeting of the minds in
case the offer has already become ineffective because
of the death, civil interdiction, insanity, or insolvency of
either party before the conveyance of the acceptance to
the offeror.
Other Grounds Which Render Offer Ineffective
The above grounds are not exclusive. Thus, failure to
comply with the condition of the offer as to the time,
place, and the manner of payment, the expiration of the
period fixed in the offer for acceptance, the destruction of
the thing due before acceptance, rejection of the offer,
etc. will also render then offer ineffective and prevent the
juridical tie from being formed.
Illustration
- Death: Feona offer to sell her beach resort to
Shrek for the amount of 1.5 millon pesos but
before the day that they are going to meet up for
the payment and their contract will be made,
Feona died therefore the meeting of the mind of
the two parties became ineffective because of
the death of Feona.
- Civil Interdiction: In the preceding illustration,
supposing that Feona was sentenced for life
imprisonment because she was found guilty in
murder case and there is no acceptance had
been conveyed by Shrek before the sale,
therefore the offer made by Feona became
ineffective because her sentenced carried with
civil interdiction.
- Insanity: Same as the above illustration if
Feona became insane before Shrek accepted
her offer the contract became ineffective
because an insane person cannot give consent
to a contract.
- Insolvency: Also, if Feona was declared by the
court as an insolvent person due to her inability
or lack of means to pay one’s debt before Shrek
accepted the offer therefore the meeting of the
minds of the parties is not valid because of the
insolvency of the offeror.
Article 1324.
When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as
something paid or promised.
- This article pertain to an offer made to a
particular person and the offeree is given a
specific period within which to accept the offer.
- Under this article an offer mey be withdrawn
even if the oferree was given a period within
wich to accept. Except the offeree has paid a
consideration to support the action.
Illustration:
Lucy offers her two hectares land to Nelli for one million.
Nelli however cannot make up his mind yet as she has to
conduct her husband and request for the time.
Lucy is not under obligation to keep the offer open, she
could offer it to someone else. However, if Nelli would
like Lucyto keep the offer open. Nelli may propose to
Lucy an option contract. Under the option contract Lucy
would keep the offer open to Nelli for a specified period.
Nelli however must pay Lucy consideration to keep the
offer open. Since Lucy is contractually bound to keep the
offer open for Nelli, She cannot make the offer to
anyone.
Article 1325.
Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations
to make an offer.
Definite Offer - does not contain all the specific
particulars needed in a contract.
Example:
For Sale! 1,000 sq. meters lot with a brand new
bungalow house at Block 3 Lot 4 Sampaguita St., Sta.
Cruz, Laguna for PhP 5,000,000.00.
This is a definite offer, from which the advertiser cannot
back out, once it is accepted by another.
Mere Invitation to Make an Offer
Example:
For Sale: 500 sq. meters lot at PhP 3, 000, 000.00 to
PhP 5, 000, 000, 000. 00 at Garden Villas Park Tel 454-
5233.
This is merely clearly an invitation to make an offer,
which the advertiser ids free to accept or reject.
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.
Most advertisements are simply invitations to make an
offer and are not offers in themselves since not all the
necessary terms can fit in the advertisement.
Even if the advertisement had all the necessary terms,
it’s still an invitation to make offer since there is no
definite person to whom the offer is being made.
Example:
Christian should put up for auction one of Lalaine’s
pieces of jewelry, and announces the auction, inviting
offers. When anyone bids, he make an offer, and the
offer may be accepted or rejected.
Article 1327.
The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do
not know how to write.
Persons Who Cannot Give Consent To A contract.
- Unemancipated Minors.
o minors below 18 years of age.
o There are no more unemancipated
minors above 18 since the legal age
was reduced from 21 to 18.
o Emancipation by marriage and parental
concession had already been
eliminated.
o Children below 18 by themselves being
minors cannot enter into valid contracts.
o However, If misrepresented his age on
the contract by stating of his age, and
other party was misled, the contract
shall be binding upon him on the basis
of estoppel.
- Insane or Demented Persons
o When a person is insane or demented,
his is detached from reality.
o He does not know what he is doing.
o He cannot act with legal effects.
o Consequently, he cannot enter into valid
contracts.
o During lucid intervals, as may happen in
rare cases, they may enter into valid
contracts because at this moment, they
are sane and capable of knowing what
they are doing.
- Deaf-Mutes.
o Not all deaf-mutes are disqualified to
give consent to contracts. Only those
who do not know how to write are
disqualified.
Effects Of Contracts Entered By incapacitated Persons.
The contracts entered into by the incapacitated persons
enumerated in the law are not void. They are only
voidable if only one party cannot give his consent. But if
both parties are incapacitated to give consent, the
resulting contract is unenforceable
Cases where incapacity may be modified by law,
enabling them to give a valid consent:
1) When the contract involves the sale and delivery
of necesarries to the minor, he is bound thereby
(Art. 1489).
2) When the minor, upon reaching the age of
majority ratifies the contract he becomes bound
thereby.
3) When the contract is in the form of savings
account in the Postal Savings Bank, provided
the minor is at least 7 years of age, the same is
valid.
4) When the contract is an insurance for life, health
and accident, provided tht it be taken on his life
and beneficiary appointed is the minor’s estate
or the minor’s father, mother, husband, wife,
child, brother or sister.
5) Contract when minor misrepresented his age
and convincingly led the other party to believe in
his legal capacity.
Example:
Nena a 7yr old girl bought some lollies in 8-eleven. The
sale is valid even if Nena is a minor.
Article 1328.
Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during
a hypnotic spell are voidable.
Effects of lucid interval, drunkenness and hypnotic spell
- Lucid interval
o temporary period of sanity
o that period when a person who is
generally of unsound mind experiences
a clear understanding of things
o A contract entered into by an insane or
demented person during a lucid interval
is valid.
- Drunkenness and hypnotic spell impair the
capacity of a person to give intelligent consent.
o An otherwise capacitated individual who
enters into a contract while he is in a
state of drunkenness makes a contract
voidable since at this precise moment
he is NOT in full possession of his
mental faculties.
o He who is under hypnotic spell is said to
be in varying degrees under control and
direction of the hypnotist.
Example:
- Arturo alleges that he was drunk when he was
made to sign the Deed of Sale of his property.
- However, for drunkenness to be a ground of
voidability, he must prove that it was such as to
interfere with the normal functioning of his
rational faculties.
Article 1329.
The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be
without prejudice to special disqualifications established
in the laws.
The persons enumerated under Article 1327
- incapacitated to give consent to contracts due to
their lack of mental capacity to do so.
- deaf-mutes, insane or demented.
On the other hand, the special disqualifications
mentioned in Article 1329 refer to those explicitly
disqualified by law from entering certain contracts:
Persons enumerated in Article 1491 due to fiduciary
relationship or dur to public policy;
- Husband and wife cannot enter into contract of
donation, sale or lease with each other because
they are not allowed to donate, sell or lease
properties to one another. This includes those
who live as husband and wife without the benefit
of marriage;
- Insolvents until they are discharged;
- Non-Christians inhabitants of Mindanao and
Sulu cannot enter into contract involving real
estate without the approval of the chairman of
the Commission on National Integration.
- Incompetents who may be placed under judicial
guardianship (under Rule 92, Section 2 of the
Revised Rules of Court):
1) those suffering the penalty of civil
interdiction;
2) hospitalized lepers;
3) prodigals;
4) deaf and dumb who are unable to read and
write;
5) those of unsound mind even though they
have lucid intervals;
6) those who by reason of age, disease, weak
mind, and other similar causes, cannot
without outside aid, take care of themselves
 and manage their property, becoming
thereby an easy prey for deceit and
exploitation.
Incapacity to give consent to contracts and special
disqualifications distinguished:
Those who are incapacitated to give consent to contracts
are not prohibited to exercise their right to enter into a
contract. They can still do so through a guardian with
the approval of the court.
Those who are specially disqualified are prohibited
whether or not they have representation. They are
absolutely disqualified from entering into a contract.
The first one renders the contract voidable, while the
second renders it void.
Article 1330.
A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is
voidable.
Characteristics of consent.
In order that consent may be sufficient for purposes of
contract, it is required, not only that it exists. Aside from
the requirement that consent must be manifested by the
meeting of the offer and the acceptance (Art. 1319.),
there is no valid consent unless:
1. It is intelligent.
There is legal capacity to act. (see Arts.
13271329.) The consent must be given with an
exact notion over the thing consented to or the
matter to which it refers. In the case of a juridical
persons such as a corporation, consent may
only be given through officers duly authorized by
its board of directors;
2. It is free and voluntary.
There is no vitiation of consent by reason of
violence or intimidation (see Art. 1330.); and
3. It is conscious or spontaneous.
There is no vitiation of consent by reason of
mistake, undue influence, or fraud.
Thus, Article 1330 enumerates in a negative manner the
different requisites of consent. In addition, under Articles
1327, 1328, and 1329, the contracting parties must
possess the necessary legal capacity. (Arts. 1327-1329.)
Simulation of contract renders the apparent contract
void. (see Arts. 1345-1346.)
Vices of consent.
Aside from incapacity and simulation of contract, the
following are the causes that vitiate consent or render it
defective so as to make the contract voidable:
1. error or mistake;
2. violence or force (Art. 1335.);
3. intimidation or threat or duress (Ibid.);
4. undue influence (Art. 1337.); and
5. fraud or deceit. (Art. 1338.)
These vices are defects of the will, the existence of
which impairs the intelligence (1), freedom (2, 3, 4) and
spontaneity (5) of the party in giving consent to the
contract.
Causes vitiating consent and causes of incapacity
distinguished.
1. The former are temporary, while the latter are
more or less permanent; and
2. The first refer to the contract itself, while the
second, to the person entering into the contract.
Both make a contract voidable or annullable only
Illustration:
After threats from armed men, Jejomar Monay was
forced to sell his farmland to real estate developer
Mekeni Villar. Since the deed of sale was signed under
violence and intimidation, the acceptance of the contract
is not voluntary and is therefore voidable.
Article 1331.
In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of
the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its
correction.
Mistake or error is the false notion of a thing or a fact
material to the contract.
Nature of Mistake
1. Mistake may be of fact or of law. In general, the
mistake to which Article 1331 refers is mistake of
fact. It may arise from ignorance or lack of
knowledge.
2. The mistake contemplated by law is substantial
mistake of fact, that is, the party would not have
given his consent had he known of the mistake.
Hence, not every mistake will vitiate consent and
make a contract voidable.
Mistake of Fact to Which Law Refers
In order that mistake may vitiate consent, it must refer to:
1. the substance of the thing which is the object of
the contract; or
2. those conditions which have principally moved
one or both parties to enter into the contract; or
3. the identity or qualifications of one of the parties,
provided, the same was the principal cause of
the contract.
No. 1 above includes mistake regarding the nature of the
contract, as when the contracting parties believe that the
other is selling, when in truth and in fact, both are
buying.
Mistake of Fact Which Does Not Vitiate Consent
1. Error as regards the incidents of a thing or
accidental qualities thereof (e.g., accessibility of
a residential house to means of transportation;
maximum speed of a car), not taken as the
principal consideration of the contract, does not
vitiate consent (Art. 1331, par. 1.), unless the
error is caused by fraud of the other party.
2. Mistake as to quantity or amount does not also
vitiate consent but only gives rise to its
correction, unless it goes to the essence of the
contract.
3. Error as regards the motives of the contract
does not also vitiate consent unless the motives
constitute a condition or cause of the contract.
4. Mistake as regards the identity or qualifications
of a party does not vitiate consent for the reason
that contracts are entered into more in
consideration of the things or services which
form their subject matter rather than of persons.
The exception is when such identity or
qualifications have been the principal cause of
the contract (Art. 1331, par. 2.), as in contracts,
which have for their object obligations to do,
requiring personal qualifications of the debtor, or
involving trust and confidence, such as contracts
of partnership, agency, commodatum, guaranty
deposit, etc.
5. Error which could have been avoided by the
party alleging it, or which refers to a fact known
to him, or which he should have known by the
exercise of ordinary diligence, or which is so
 patent and obvious that nobody could have
made it, will not invalidate consent.
Examples
1. Mistake regarding object.
Ben is buying from Sarah a breeding cow but
Sarah is selling a barren cow.
2. Mistake regarding condition of the contract.
Sarah is selling his parcel of land for
P100,000.00 cash but Ben is buying the land
thinking that the price is payable in installments.
3. Mistake regarding identity or qualifications.
(a) Sarah sold his car to Ben. Sarah thought
that Ben, who is a lawyer, was a doctor. The
mistake here is not material as to avoid the
contract.
(b) Ryan donated his car to Ena. Ryan thought
that Ena was his half-sister. It turned out that
Ena is not related to Ryan. The mistake as
to the identity of Ena in this case is material
because his identity was the principal
reason or consideration for the donation.
Article 1332.
When one of the parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been
fully explained to the former.
This article was incorporated because of a belief that
there is still a fairly large number of illiterates in the
country and documents are ordinarily drawn up in
English.
As a consequence, the stronger party exploits the
weaker party in a contract. Article 1332 therefor protects
the weak and disadvantage.
Under this article the burden of proof (onus probandi) is
shifted to the stronger party to prove that the terms of the
contract were fully explained to the weaker party.
Illustration:
John and Marsha were both blind. They affixed their
thumb marks to a deed which they thought was merely a
deed of mortgage. It turned out to be a deed of sale of
their two (2) hectare land in favor of their son-in-law. The
son-in-law must prove that he did not take advantage of
his situation as a son-in-law to enrich himself at the
expense of unfortunate relatives.
Article 1333.
There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the
contract.
Knowledge of Doubt or Risk Does Not Vitiate Consent
It is to be assumed here that the party was willing to take
the risk. This is particularly true in contracts which re
evidently aleatory in nature.
Example:
Arlene bought a magic pen which was represented as it
can be used to write even underwater. Arlene also knew
that the pen’s ability was questionable, and yet Arlene
bought said pen. Here, Arlene cannot allege mistake
since she knew beforehand of the doubt, risk, or
contingency affecting the object of the contract.
Article 1334.
Mutual error as to the legal effect of an agreement when
the real purpose of the parties is frustrated, may vitiate
consent.
Requisites for the application of Article 1334.
1. The error must be mutual;
2. It must be as to the legal effect of an agreement;
and
3. It must frustrate the real purpose of the parties.
Example:
Fermin and Nicolas entered into a written contract
affecting the land belonging to Fermin, for and
consideration of Php 500,000.00. At the time the
contract was entered into, Fermin thought that he was
given Php 500,000.00 by Nicolas for the mortgage of his
(Fermin’s) land. Nicolas, on the other hand, thought that
by giving Fermin Php 500,000 he had purchased the
land. The contract is voidable and may annul in court.
However, if there has been a meeting of minds as the
object of the contract, the proper remedy is reformation
of the instrument.
Article 1335.
There is violence when in order to wrest consent, serious
or irresistible force is employed.
There is intimidation when one of the contracting parties
is compelled by a reasonable and well-grounded fear of
an imminent and grave evil upon his person or property,
or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate
consent.
Violence is external and requires the employment of
physical force which must be serious and irresistible.
Example:
If Matata Kutin signs a document because everytime he
refuses, he is hit by the butt of the gun which causes
blood to flow from his head then the contract is voidable.
Requisites for intimidation or threat:
1. Must produce a reasonable and well-grounded
fear of an evil
2. Evil must be imminent and grave
3. Evil must be upon his person or property, or that
of his spouse, descendants or ascendants.
4. It is the reason why he enters the contract.
Fear of displeasing a person to whom obedience or
respect is due does not annul a contract.
Example:
Boy Takas committed a violation of law. Boy Sumbong
threatens to report Boy Takas to the police unless the
latter gives him P5,000.00
Article 1336.
Violence or intimidation shall annul the obligation,
although it may have been employed by a third person
who did not take part in the contract.
Violence or intimidation by a third person
- Violence or intimidation may be employed by a
third person who did NOT take part in the
contract.
o However, to make the contract voidable
or annullable, it is necessary that the
violence or intimidation must be of the
character required in Article 1335.
o It is necessary that that the party
employing violence must use serious
and irresistible force.
 o Intimidation must draw from the person
thus intimidated a reasonable or well-
grounded fear of suffering an imminent
and serious evil on his person or on his
property and also on those of his
descendants or ascendants.
Examples:
- While attempting to convince Ben to sign the
Deed of Sale of his property, Arturo called on
Charlie who then intimidated Ben, saying “Sign
this or I will beat you up!”
- However, Ben is a bodybuilder while Charlie is a
90 lb man.
- From the circumstances given, the intimidation
given by Charlie does NOT reasonably draw
from Ben a well-grounded fear of suffering an
imminent and serious evil on his person.
- Deed of Sale is NOT voidable.
Article 1337.
There is undue influence when a person takes improper
advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the
confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have
been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress.
Undue influence
- The influence must be of a kind that so
overpowers and subjugates the mind of a party
as to destroy his free agency and make him
express the will of another, rather than his own.
- The circumstances to be taken into
consideration mostly deal with the relationship of
the parties involving trust and confidence.
o In some instances, the guilty party has
somehow moral ascendancy over the
aggrieved party.
- One improperly takes advantage of his relation
to another when he uses this relation to secure
the assent of the other party.
- 3 elements of undue influence
o person who can be influenced
o the improper influence was exerted
o submission to the overwhelming effect
of such unlawful conduct
Example:
- While Leon is seeking to eject Terry for failure to
pay her rent.
- Terry is in need of ₱5,000 to pay his landlord,
Leon.
- Terry tries to borrow from Charlie.
- Charlie instead tells him to sell her piano for
₱5,000.
- Terry has no one to turn to for assistance.
- If Terry does NOT want to sell the piano BUT
she is compelled to sell it BECAUSE of her
financial condition, the sale may be voided on
the ground of undue influence.
Article 1338.
There is fraud when, through insidious words or
machinations of one of the contracting parties, the other
is induced to enter into a contract which, without them,
he would not have agreed to.
Meaning of causal fraud.
- Causal fraud or dolo causante is the fraud
employed by one party prior to or simultaneous
with the creation of the contract to secure the
consent of the other.
- It is the fraud used by a party to induce the other
to enter into a contract without which the latter
would not have agreed to, taking into account
the circumstances of the case.
- The fraud must be that which determines or is
the essential cause of the contract.
- The fraud contemplated in this article and
mentioned in Article 1330 is causal fraud
involving the use of deceit or deception.
- It must be distinguished from the fraud dealt with
in Article 1170.
How causal fraud committed.
- Causal fraud may be committed through
insidious words or machinations (Art. 1338.) or
by concealment. (Art. 1339.)
- Insidious words or machinations “include false
promises, exaggerated expectations or benefits,
abuse of confidence, fictitious names, qualities,
or power; in fine, the thousand forms of fraud,
which can deceive a contracting party, producing
a vitiated consent” (8 Manresa 677.), and it is
not necessary that they constitute estafa or
partake of any other criminal act subject to the
penal law.
In order that fraud may vitiate consent and be a cause
for the annulment of a contract, the following requisites
must be present:
1. There must be misrepresentation or
concealment (Arts. 1338, 1339.) by a party prior
to or simultaneous to the consent or creation of
the contract (Caram, Jr. vs. Laureta, supra.);
2. It must be serious (Art. 1344.);
3. It must have been employed by only one of the
contracting parties. (Ibid.) Fraud committed by a
third person does not vitiate consent unless it
was practiced in connivance with or at least with
the knowledge of the favored contracting party
(see Art. 1342.);
4. It must be made in bad faith or with intent to
deceive (see Art. 1343.) the other contracting
party who had no knowledge of the fraud;
5. It must have induced the consent of the other
contracting party (Art. 1338.); and
6. It must be alleged and proved by clear and
convincing evidence, and not merely by a
preponderance thereof.
Illustration:
Petra Fig sold to Voltaire Five a house and lot,
misrepresenting that the place was accessible to means
of transportation. The sale is voidable on the ground of
fraud if Voltaire Five was induced to give his consent
because of the representation.
But if Voltaire Five purchased the property without any
inducement from Petra Fig, his mistaken belief that it
was accessible does not vitiate consent because the
error refers merely to an incidental quality or condition of
the thing. (see Art. 1331.)
Article 1339.
Failure to disclose facts, when there is a duty to reveal
them, as when the parties are bound by confidential
relations, constitutes fraud.
Fraud By Concealment
- A neglect or failure to communicate that which a
party to a contract knows and ought to
communicate constitutes concealment.
- In this case, concealment is equivalent to
misrepresentation.
- Silence or concealment by itself does not
constitute fraud.
- The concealment contemplated in Article 1339
presupposes a purpose or design to hide facts
which the other party ought to know.
- The injured party is entitled to cancel or annul a
contract whether the failure to disclose the
material facts is intentional or unintentional as
long as there is a duty to reveal or disclose them
 or according to good faith such disclosure
should be made and the other party is misled or
deceived in entering into the contract.
- If the failure is unintentional, the basis of the
action for annulment is not fraud but mistake or
error; if unintentional and there is no duty to
make the disclosure, the parties are bound by
their contract.
Example:
Xian and Yanee are partners engaged in the real estate
business. Here, the parties are bound by confidential
relations. Xian learned that Carlo was interested in
buying a certain parcel of land owned by the partnership
even for a high price. Without informing Yanee, Xian was
able to make Yanee sell to him (Xian) his (Yanee’s)
share in the partnership. Then, Xian sold the land at a
big profit.
In this case, Xian is guilty of fraudulent concealment
because he was under the duty to make disclosure of
facts having a bearing on the value of the interests of
Yanee in the partnership which were not known to
Yanee.
If the sale was at the initiative of Yanee, and Xian
unintentionally failed to inform Yanee of Carlos’s offer,
the cause for annulment is mistake or error on the part of
Yanee.
Article 1340.
The usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in
themselves fraudulent.
Usual exaggerations in trade or business known as
”tolerated fraud” are not fraudulent by themselves when
the other party has the opportunity to investigate and
know the true facts.
- It refers to misrepresentation of traders tending
to minimize the perceived defects of the thing or
service advertised for sale.
- Hence, they are tolerated for still being bearable
and excusable as long as they do not passed
beyond the line of tolerance.
- This article gives allowance for the usual
exaggerations of advertisement and the same
time cautions he vendees and purchaser to use
their common sense to know what they are
negotiating it.
- Hence, they need to remember always the
maxim “caveat emptor” – the buyer alone is
responsible for checking the quality and
suitability of goods before a purchase is made.
Illustration:
Gay sold her land with an area of sixty hectares, by
misrepresentation he lead Azzaraga to believe that the
said land contained 98 hectares and thus made it in the
deed of sale and induced the vendee to pay the price of
forty seven thousand (47,000) pesos. But before the
contract was p-erfected, Azarraga visited and examine
the area by himself and Gay does nothing to prevent
such investigation.
Latter on Azzaraga file a suit for recovery of the excess
payment for the said land because he was defrauded by
Maria Gay.
Supreme Court held no. One who contracts for the
purchase of real estate in reliance on the representations
and statements of the vendor as to its character or value
but after he has visited and examined it for himself and
hr has the means and opportunity of verifying such
statements, cannot avoid the contract on the ground that
such statements were false or exaggerated.
Article 1341.
A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied
on the former’s special knowledge.
Mere Expression of An Opinion
Example: Romeo, on buying a watch, was assured by
the seller that it was a good watch, and could run without
rewinding for one week, in the opinion of the seller. This
is a mere expression of opinion that is not fraudulent. But
if the seller was a watch expert, and the only reason why
Arlene bought the watch was the opinion of the seller,
the contract is voidable on the ground of fraud.
Problem
Rosa, desiring to buy a certain property, hired an expert
to assure its true value. But the expert’s opinion turned
out to be wrong and Rosa was, therefore misled. May
Rosa asks for the annulment of the contract?
Answer: No, because his own expert committed the
error.
Reason for the rule on Expert’s Opinion
The opinion of an expert is almost in the same category
as a fact, particularly when this expert’s knowledge is
relied upon by the other party.
Article 1342.
Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created
substantial mistake and the same is mutual.
Misrepresentation by third person
Generally, the misrepresentation of fraud employed by a
third person does not vitiate consent, Except:
a. When there is a connivance between the third
person and one of the contracting parties.
b. When it has created substantial mistake on both
parties.
Examples:
Alex is the owner of a car worth P500,000.
Alex sold it to Ben for P400,000 because Carlo
misrepresented to Alex that his car is worth P400,000
only. Alex cannot annul the contract on the ground of
misrepresentation committed by Carlo, unless it is shown
that Carlo connived with Ben in misrepresenting the
value of the car
Don Emilio is the owner of a parcel of land in Laguna.
Cardo is interested in buying a land in Laguna on which
to build a factory. Juaquin tells Don Emilio and Cardo
that the place where the land of Don Emilio is situated is
an industrial zone. If on the strength of the
representation made by Juaquin, the land is bought by
Cardo, and it turns out that place is residential zone, the
contract of sale maybe annulled because of substantial
mistake on the part of the seller and the buyer.
Article 1343.
Misrepresentation made in good faith is not fraudulent
but may constitute error.
The misrepresentation made must be unintentional.
Example:
Ginang Alahera sold Gino a diamond ring which she
believed to be a true diamond ring. It turned out that it
was not. Ginang Alahera cannot be held liable for fraud
but will be required to return Gino’s payment.
Article 1344.
In order that fraud may make a contract voidable, it
should be serious and should not have been employed
by both contracting parties.
Incidental fraud only obliges the person employing it to
pay damages.

Incidental fraud
- when there is already a pre-existing contract
entered into by the parties and it is a valid one
o and while one party is performing his
obligation, another commits the fraud
- Requisites in order that fraud may annul a
contract
1. it must be serious
2. NOT employed by both parties
o otherwise, both parties are in pari delicto
- the fraud is NOT the principal inducement that
led the other party to enter into the contract
o for without the fraud, he would still have
freely entered into the contract
o he was deceived ONLY as to the terms
of the contract
- ONLY obliges the guilty party to pay damages to
the defrauded party
Examples:
- Arturo misrepresented that he had an exclusive
franchise.
- To get from Ben a big slice in the net profits,
Arturo promised to transfer his franchise to Ben.
- The false representation did NOT vitiate Ben’s
consent.
- It was used to get his consent to a big share in
the profits.
- This is incidental fraud.
Article 1345.
Simulation of a contract may be absolute or relative. The
former takes place when the parties do not intend to be
bound at all; the latter, when the parties conceal their
true agreement.
Simulation of a contract
is the act of deliberately deceiving others, by feigning or
pretending by agreement, the appearance of a contract
which is either non-existent or concealed (1 Castan 504.)
or is different from that which was really executed.
Kinds of simulation.
1. Absolute simulation
when the contract does not really exist and the
parties do not intend to be bound at all. (Art.
1345.) Absolutely simulated or fictitious
contracts are inexistent and void.
2. Relative simulation
when the contract entered into by the parties is
different from their true agreement21 or the
parties state a false cause in the contract to
conceal their real agreement. (Art. 1345; see
Arts. 1353, 1602.) The parties are bound by their
real agreement, provided, it does not prejudice a
third person and is not intended for a purpose
contrary to law, morals, good customs, public
order, or public policy.
Illustration:
Maria Taklesa, owner of Sarap-ler Restaurant, is
indebted to Jessica Sogo. Upon learning that Jessica
Sogo is going to enforce his credit, Maria Taklesa
pretended to sell her restaurant to Jobee Lopez, her
father-in-law. Maria Taklesa did not receive a single
centavo for the deed of sale she executed and she
continued in possession of the restaurant as the contract
was merely simulated or fictitious. There is no contract of
sale in this case as the parties do not intend to be bound
at all. The sale is but a sham.
But if Maria Taklesa and Jessica Sogo entered into a
contract of mortgage for the restaurant. But wanting to
hide the mortgage, it was made to appear in the form of
a deed of sale. Here, there are two acts involved: the
ostensible act (contract of sale) and the hidden act
(contract of mortgage).
As between Maria Taklesa and Jessica Sogo, their
contract is a contract of mortgage. But to third persons,
the contract is a contract of sale. If Jessica Sogo
eventually sells the restaurant to another party, that party
will acquire ownership as both Maria Taklesa and
Jessica Sogo are in estoppel.
Article 1346. An absolutely simulated or fictitious
contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real
agreement.
Simulation of a contract is the act of deliberately
deceiving others, by feigning or pretending by
agreement, the appearance of a contract which is either
non-existent or concealed.
KINDS OF SIMULATION
1. Absolute simulation is one where the parties
do not intend to be bound by the contract. It is
not really intended to produce any legal effect,
nor does it alter the juridical situation of the
parties.
EXAMPLE:
Danny is indebted to Cathy. Upon learning that Cathy is
going to enforce his credit, Danny pretended to sell his
land to Fredo, his father-in-law. Danny did not receive a
single centavo for the deed of sale he executed and he
continued in possession of the land as the contract was
merely simulated or fictitious. There is no contract of sale
in this case.
2. Relative simulation or when the contract
entered into by the parties is different from their
true agreement or the parties state a false cause
in the contract to conceal their real agreement.
The parties are bound by their real agreement,
provided, it does not prejudice a third person
and is not intended for a purpose contrary to
law, morals, good customs, public order, or
public policy.
EFFECTS OF SIMULATION TO THIRD PERSONS
 If he is prejudiced, he may invoked the nullity of
the simulated contracts.
 If he acted in good faith, nullity cannot be
invoked against them.
EXAMPLE:
A donor is donating a property to a donee. Instead of
executing a deed of donation, the donor instead
executed a deed of sale to conceal the donation
intended.
Reason for the invalidity of absolutely simulated
contracts- lack of true consent, and its prejudice to a
third person and is generally fraudulent.
 SECTION 2.
OBJECT OF CONTRACTS
Article 1347. All things which are not outside the
commerce of men, including future things, may be the
object of a contract. All rights which are not
intransmissible may also be the object of contracts.
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.
The object of a contract is its subject matter. It can be a
thing, right or service arising from a contract.
If the object of the contract is a thing, it should be within
the commerce of man that its alienation is not restricted
by law. Accordingly, property of public dominion such as
roads, plazas, foreshore lands are outside the commerce
of man as the law restricts their alienation.
A future thing may be the object of contract. Thus a
composer or author can sell an intellectual work which
he intends to compose or write even before the work is
actually composed or written.
Not all rights may be the object of contracts but only
transmissible rights. The right to vote which is political in
nature, marital rights which are personal, right to receive
future support and similar others cannot be the subject of
contract being in transmissible rights. While future
inheritance is a future thing it cannot be the subject of a
contract. The reason is that future inheritance is just an
inchoate right which comes into realization only after the
death of the predecessor. Its amount cannot be exactly
determined until the final settlement of the estate.
Any partition agreement of the estate of the living person
by the supposed heirs are void. but partition made by the
decedent himself of his estate during his lifetime is valid.
In case of marriage settlement future inheritance may be
the object of donation.
Article 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the existence
of the contract, provided it is possible to determine the
same, without the need of a new contract between the
parties.
DETERMINATION OF QUANTITY
Once the object is determinate or a specific thing no
need for a new or further agreement between the
parties, but when the obligation consists in the delivery
of a generic or indeterminate thing, whose Quality and
circumstances have not been stated, There is a need of
a new or further agreement between the parties.
Determinate or specific thing are particularly or
physically segregated others of the same class.
Examples:
1. The t-shirt levi’s i am wearing
2. The toyota car with plate No. AST 143 2016
Generic or Indeterminate thing
1. A brand new t-shirt
2. A 2016 toyota car
Examples
Mr. Bean binds himself to deliver one of his horse to Mr.
Tan.
Here, the object is determinable without the need of a
new contract between the parties and it becomes
determinate the moment it is delivered.
If the subject matter of the agreement is a parcel of
agricultural land owned by Mr. Bean and Mr. Bean
happens to own many agricultural lands, the contract is
void, if the particular land sold cannot be determined
without a new or further agreement between the parties.

Illustration:

Alfonso agreed to sell to Maria Clara the red wines that

his three (3) hectare vineyard may produce in payment
of his authorized capital stock to Maria Clara for the
corporation they are forming. Under the law said contract
is valid although the red wine is not yet in existence.

Article 1348. Impossible things or services cannot be

the object of contracts.

Impossibility may be:

a) because of the nature of the transaction or
because of the law;
b) absolute (no one can do it);
c) relative ( the particular debtor cannot comply).

Note: Generally, the impossibility referred to by the law

is absolute impossibility.

Impossible things
1. Before I can give you one million pesos, you
must fly above like an eagle without any device.
2. The carpenter was obliged to stop the
construction of road near the mountain because
of the presence of landslide and heavy storm.
 SECTION 3.
CAUSE OF CONTRACTS
Article 1350. In onerous contracts the cause is
understood to be, for each contracting party, the
prestation or promise of a thing or service by the other;
in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor.
Kinds of contracts which regards to cause:
1. Onerous - the cause is the mutual undertaking
or the promise each contracting party makes
2. Remuneratory - the cause is the service or
benefit for which the remuneration is given.
3. Gratuitous - cause is the pure liberality of the
benefactor
Cause is the essential or more proximate purpose which
the contracting parties have in view at the time of
entering into a contract.
Example:
Casio sold a watch to Timex for Php 5,000.00.
The cause for Timex is the delivery of the watch, for
Casio it is the delivery of the Php 5,000.00 and the
subject matter is the watch.
Article 1351. The particular motives of the parties in
entering into a contract are different from the cause
thereof.
Cause distinguished from motive
Motive
̶ the purely personal/private reason which a party
has in entering into a contract
̶ the condition of the mind which incites to action
̶ the remote/indirect reason
̶ the particular reason of a contracting party which
does NOT affect the other party
̶ may be unknown
̶ NOT an essential element of a contract
̶ the illegality of which does NOT render the
contract void
Cause
̶ the immediate/direct reason which moves the
contracting parties to enter into the contract and
justifies the creation of an obligation through
their will
̶ always known to the other contracting party
̶ an essential element of a contract
̶ the illegality of which affects the validity of a
contract
GENERAL RULE
The motive does NOT affect the validity NOR existence
of the contract
EXCEPTION
The motive may be considered the cause when such
motive predetermines the cause of the contract,
̶ i.e., it is made the condition for the efficacy of
the contract,
̶ or is founded on a fraudulent purpose to
prejudice third persons
EXAMPLE:
Sugar sells her house and lot to Ben for ₱1M.
̶ For Sugar, the cause or consideration is the
₱1M.
̶ Her motive or private reason may be to use the
money in business or to buy another house.
In case Sugar’s motive in selling her property is to
defraud Charlie, a creditor, Charlie may ask for the
rescission of the sale.
Article 1352. Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good customs,
public order or public policy.
Requisites of cause.
1. It must exist at the time the contract is entered into
2. It must be lawful
3. It must be true or real
Effect of absence of cause.
Absence or want of cause means that there is a total
lack of any valid consideration for the contract.
Effect of illegality of cause.
Illegality of cause implies that there is a cause but the
same is unlawful or illegal. The cause is unlawful if it is
contrary to law, morals, good customs public order, or
public policy. Contracts with unlawful cause are also null
and void.
(1) A promise of marriage based upon carnal
connection
(2) The sale made by a husband in favor of concubine
after he had abandoned his family and left the
conjugal home is null and void, being subversive
of the stability of the family which public policy
cherishes and protects.
(3) A contract whereby a person accused of a crime
obliges himself to give a sum of money in
consideration of the promise on the part of the
obligee to refrain from testifying against him is
void because the purpose is to stifle criminal
prosecution and this is against public policy.
(4) A promissory note is void ab initio and no cause of
action for collection can arise from it where the
consideration for it is to influence public officers in
the performance of their duties which is contrary to
law and public policy.
Illustration:
The administrator of the estate of Leila de Singko
brought an action against the heirs of Jonel Mapagmahal
to declare null and void a deed of sale purportedly
executed by Leila de Singko in favor of Jonel
Mapagmahal for P10 million. When the deed of sale was
executed, Leila de Singko was almost 100 years old and
was in a weak condition. Jonel was only the driver of
Leila with a monthly salary of P15,000. In this case, at
the time of the sale Jonel could not have raised the
amount of P10 million as consideration of the land
supposedly sold to him by Leila de Singko, therefore the
sale is null and void.
Article 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that
they were founded upon another cause which is true and
lawful.
EFFECT OF FALSITY OF CAUSE
By falsity of cause is meant that the contract states a
valid consideration but such statement is not true. A
false cause may be erroneous or simulated. The first
always produces the inexistence of a contract. If the
cause is false, the contract is rendered void because the
same actually does not exist. The second does not
always produce this effect, because it may happen that
the hidden but true cause is sufficient to support the
contract. If the parties can show that there is another
cause and that said cause is true and lawful, then the
parties shall be bound by their true agreement.

ILLUSTRATION
Problems
Sandra sells to Ben a parcel of land. In the deed of sale,
P100,000.00 is stated as the price of the land. If this a. The guardian of Julius sold Julius’
statement is false, then there is no contract of sale. mansion worth PhP 100 million for PhP
50 million. May the contract be
However, if Ben can prove that the contract is founded rescinded on the ground of lesion?
upon another consideration, as when Ben has
exchanged his car for the land, then the contract of Answer: Yes, such a case is expressly
barter or exchange (not sale) shall be valid. In this case, provided for by the law as one of the
the statement of the price is simulated because it is contracts that may be rescinded on the
wilfully made. Otherwise stated, there is, in fact, a real ground of lesion.
consideration but the same is not the one stated in the
contract. b. Jofrey sold his mansion worth P50
million to John for only P30 million
Article 1354. Although the cause is not stated in the because Jofrey did not know the true
contract, it is presumed that it exists and is lawful, unless value of the house. May the contract of
the debtor proves the contrary. sale be rescinded?

For the convenience of the parties and of the courts it is
better that the cause or consideration be stated in the
contract. However, in the event that the contract does
not state its cause, the presumption of the law operates
that the cause exists and is lawful, unless the debtor
proves the contrary.
Illustration:
Doming issued in favor of Carlo a promissory note which
recites:
“Thirty days after date, I promise to pay Carlo or order
the amount of one thousand pesos (1,000).”
Although the promissory note does note does not
mention the consideration the law presumes that Doming
must have received a consideration for the debt and the
same is lawful.
Article 1355. 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.
Answer: No. As a rule lesion or inadequacy
of price, by itself, does not invalidate a
contract. But if Jofrey had sold it only for
this amount because of fraud or mistake or
undue influence, the contract may be
annulled. Said the Court: Whether or not
the price paid for the house was adequate
need not be discussed for even granting
that it was inadequate, that would not
invalidate the sale. The fact that the bargain
was a hard one coupled with mere
inadequacy of a price when both parties are
in a position to form an independent
judgment concerning the transaction is not
sufficient ground for the cancellation of a
contract.”
Lesion as Evidence of Vitiated Consent
Lesion may be Evidence of the presence of fraud,
mistake, or undue influence.

Lesion is inadequacy of cause, like an insufficient price

for a thing sold.

General Rule
Lesion or inadequacy of price does not invalidate a
contract.

Exceptions

1. Together with lesion, there has been:

1.1 Fraud
1.2 Mistake
1.3 undue influence

2. In cases expressly provided by law ( in the

following, the contracts may be rescinded):

2.1 “Those which are entered into by guardians

whenever the wards they represent suffer
lesion by more than one-fourth of the value of
the things which are the objects thereof.”

2.2 “Those agreed upon in representation of

absentees, if the latter suffer the lesion stated
in the preceding number.”

2.3 Partition among co-heirs, when anyone of them

received things with a value less by at least
one-fourth than the share to which he is
entitled.