ELEMENTS OF A CONTRACT
CONTRACTS
(Arts.
DEFINITION
Art. 1305 A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the
other, to give something or to render some service.
This definition emphasizes the meeting of minds between two
contracting parties which takes place when one party’s offer is
accepted by the other.
CONTRACT vs. OBLIGATION AND AGREEMENT
Contract is one of the sources of the obligations while
Obligation, on the other hand, is the legal tie or relation itself
that exists after a contract has been entered into. Hence,
contract will not exist if there is no obligation to begin
with but an obligation may exist even without a contract.
In addition, contracts are agreements enforceable through legal
proceedings while those agreements which cannot be enforced
by action in the courts of justice are mere moral or social
agreements. An agreement is broader than a contract because
the former may not have all the elements of a contract.
Thus, all contracts are agreements but not all agreements
are contracts.
1. Essential Elements - those, without which, there can be
no contract. (ex: consent, object, cause or consideration)
2. Natural Elements - exist as part of the contract
even if the parties do not provide for them, because the
law, as suppletory to the contract, creates them. (ex:
warranty against eviction and against hidden defects in
the contract of sale)
3. Accidental Elements - agreed upon by the
parties and which cannot exist without being stipulated.
(ex: stipulation to pay interest)
FREEDOM & LIMITATIONS ON CONTRACTUAL
STIPULATIONS
Art. 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.
The right to enter into contract is one of the liberties
guaranteed to the individual by the Constitution (Art. III, Sec.
10 thereof) but this refers only to legally valid contracts.
Limitations on Contractual Stipulations: (LMGPP)
1. Should not be contrary to law;
2. Should not be contrary to morals;
3. Should not be contrary to good customs;
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 4. Should not be contrary to public order;
5. Should not be contrary to public policy;
◎ The contracts of the parties must conform with the law
in force at the time the contract was executed.
◎ A penalty clause providing for the payment of 30%
per annum in case of delay after the maturity of a loan was
held immoral inequitable, shocking to the human
conscience, and void.
CHARACTERISTICS (PRINCIPLES) OF A CONTRACT
1. Obligatory Force – the contract is regarded as the law
between the parties and should be complied with in good faith.
2. Mutuality - validity and performance of the contractual
stipulations cannot be left to the will of only one of the parties.
By the mutuality of contracts, both parties are bound to comply
with the provisions of the contract. The principle is based on the
essential equality of the parties. It is repugnant to bind one
party, and yet leave the other free.
◎ The rule that the obligation of contracts should not be
impaired is not absolute. Thus, the free exercise of religious
beliefs is superior to contractual rights. An example is the
belief of a religious sect that its members should not join a
labor organization or participate in a collective bargaining
agreement.
3. Relativity – As a general rule, contracts are binding
only between the PARTIES, their ASSIGNS, and HEIRS,
except:
a. Intransmissible Contracts:
 Purely personal contracts (e.g. death of a partner
generally dissolves the contract of partnership);
 Very nature of obligation that requires special
personal qualifications of the obligor;
 Payment of money debts not transmitted to the heirs
but to the estate or the property left by the decedent.
b. Contract in the name of another
As a general rule, person is not bound by the contract of
another of which he has no knowledge or to which he
has not given consent.
This contract is unenforceable unless it is ratified.
CLASSIFICATION OF CONTRACTS
1. According to subject matter:
a. Things (like Sale)
b. Services (like agency, lease of services, a contract of
common carriage
c. Rights or credits (provided these are transmissible,
like a contract of usufruct, or assignment of credits)
2. According to name
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a. Nominate Contracts - that which has a specific
name or designation in law.
 If a person pays rents in consideration of the use of the
property, then it is contract of lease.
 If a person borrows purely sum of money to the creditor,
it is regarded as contract of loan.
 If a person buys a particular things to the buyer for a
definite price, it is a contract of sale.
b. Innominate Contracts - that which has no specific
name or designation in law.
 Do ut facias (I give that you may do)
 Facto ut des (I do that you may give)
 Facto ut facias (I do that you may do)
◎ If an attorney renders legal services for a close friend,
the former can still charge attorney’s fees even in the
absence of any agreement thereon. This is because of the
innominate contract of facio ut des (I do that you may give)
which, in turn, is based on the principle that one cannot
unjustly enrich himself at another’s expense.
3. According to perfection
a. Consensual Contract - that which is perfected by
mere consent (e.g. sale, lease, agency). They are
perfected from the moment there is agreement (consent) on
the subject matter, and the cause or consideration.
Art.1315 Contracts are perfected by mere consent,
and from that moment, the parties are bound not only
to 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.
b. Real Contract - that which is perfected by the
delivery of the thing subject matter of the contract (e.g.
depositum, pledge, commodatum)
Art.1316 Real contracts, such as deposit, pledge
and commodatum, are not perfected until the delivery
of the object of the obligation.
c. Solemn Contract - that which requires compliance
with certain formalities prescribed by law, such
prescribed form being thereby an essential element thereof
(e.g. donation of real property which must be in a public
instrument, otherwise unenforceable) (see Art. 1356)
STAGES OF CONTRACTS
1. Preparation or Negotiation - This includes all the steps
taken by the parties leading to the perfection of the contract.
(i.e., mere inquiry as to the price of the property or manner of
payment, without any close deal between the parties)
2. Perfection or Birth - This is when the parties have
come to a definite agreement or meeting of the minds
regarding the subject matter and cause of the contract. (i.e.,
when the both parties agree for the definite price of the
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particular thing or when the offer by one party is accepted, (c) In contracts entered into to defraud creditors
expressly or impliedly by the other party) (Art.1313); and

The parties are bound to the fulfillment of what has been
EXPRESSLY STIPULATED (Art. 1315, Civil Code), and
compliance thereof must be in GOOD FAITH) (Art. 1159, Civil
Code)
3. Consummation or Termination - This is when the
parties have performed their respective obligations and the
contract may be said to have been fully accomplished or
executed, resulting in the extinguishment or termination
thereof. (i.e., delivery of the thing in favor of the buyer;
transfer of ownership to the buyer)
THIRD PERSON IN A CONTRACT
As a general rule, a third person has no rights and obligations
under a contract since he has taken no part in a contract and is,
therefore, a stranger to it.
Exceptions - There are cases, however, when third persons
may be affected by a contract. Among such cases are the
following:
(a) In contracts containing a stipulation in favor of a third
person (stipulation pour autrui) (Art.1311, par.2);
(b) In contracts creating real rights (Art.1312);
(d) In contracts which have been violated at the
inducement of a third person (Art.1314).
ESSENTIAL REQUISITES OF
CONTRACTS
Art. 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.
A. CONSENT
Art. 1319. Consent is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
1. Consent - is the conformity or occurrence of wills (offer and
acceptance) and with respect to contracts, it is the agreement
of the will of one contracting party with that of another or
others, upon the object and terms of the contract.

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It presupposes legal capacity of the parties. (must be of legal
age and not insane)
(a) If there is absolutely no consent, there is no contract. The
agreement may be considered inexistent or non-existent or
VOID. (The same rule applies in the case of absolutely
simulated contract, one where the parties never intended to be
bound by the stipulations thereof.)
(b) If there is consent, but the same is defective or there is
vice of consent (vitiated consent) such as error, fraud, or
undue influence, etc., the contract is not void; it is merely
VOIDABLE, or valid until annulled.
Offer - is a proposal made by one party to another to enter
into a contract.
Acceptance - 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. (Art.1305)
Example: X offered to sell Z a particular house for P
3,000,000.00. Before Z could consent, X withdrew the
offer. Was X allowed to do so?
ANS: Yes, because there was NO meeting of the minds
yet, hence no contract had been perfected.
The Civil Code does not define who has/have capacity. It
defines on the contrary who have no capacity, by which it can
be inferred that capacity is the general rule; the burden of
proof is on the party who asserts incapacity.
WHO CANNOT GIVE CONSENT:
Art.1327 The following cannot give consent to a
contract:
1. Unemancipated minors;
2. Insane or demented persons;
3. Deaf-mutes who do not know how to write.
When offer and/or acceptance is made:
1. During a lucid interval: VALID (sane)
2. In a state of drunkenness: VOIDABLE (there is consent
but defective because of error or mistake)
3. During a hypnotic spell: VOIDABLE (there is consent
but defective because of undue influence)
The consent must be INTELLIGENT, FREE, SPONTANEOUS
AND REAL
Art.1330 A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud
is VOIDABLE.
Characteristic of consent:
1. It is intelligent - there is capacity to act (Art.1327-1329);
2. It is free and voluntary - there is no vitiation of consent by
reason of violence or intimidation (Art.1330); and
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3. It is conscious or spontaneous - there is no vitiation of
consent by reason of mistake, undue influence, or fraud.
Effect of Defective Consent: Contract is VIODABLE
(Art.1330)
2. Violence/Force and Intimidation/Threat
Example: If a hospitalized leper or a very old man has
not been placed under guardianship, may he still enter
into a binding contract?
ANS: Yes, because he would still be presumed
capacitated to enter into a contract (although classified
as an incompetent). Of course, if it can be shown that
intelligent consent was absent, the contract can be
considered VOIDABLE.
VICES OF CONSENT
1. Error or Mistake (Art.1331)
Mistake as contemplated here is a mistake of fact which
may arise from ignorance or lack of knowledge of a
certain. It must be 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.
Error of law is mistake as to the existence of a legal
provision or as to its interpretation or application.
General Rule: Ignorance of the law excuses no one
from compliance therewith. (Art.3)
Exception: Mutual error of law under Art.1334 which
states that Mutual error as to the legal effect of an
agreement when the real purpose of the parties is
frustrated, may vitiate consent.
Art.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 grace
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.
(a) Violence or force requires the employment of
physical force. To make consent defective, the force
employed must be either serious or irresistible. In either
case, consent is not free. Such force must be the
determining cause in giving consent to the contract.
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 (b) Intimidation or threat need not resort to
physical force since intimidation is internal while violence
is external. To vitiate consent, the following requisites
must be present:
i. It must produce a reasonable* and well-grounded fear of
an evil;
ii. The evil must be imminent and grave;
iii. The evil must be upon his person* or property, or that of his
spouse, descendants, or ascendants; and
iv. It is the reason why he enters into the contract.
* “Reasonable Fear”- fear that must be commensurate
with the threat.
* “Person” - not limited to life and physical integrity but
also includes liberty and honor
Art.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.
3. Undue Influence (Art.1337) There is UNDUE INFLUENCE
when a person takes improper advantage of his power
over the will of another, depriving the latter of a
reasonable freedom of choice. The following
circumstances shall be considered:
(a) Confidential, family, spiritual and other relations
between the parties;
(b) Mental weakness or ignorance; or
(c) Financial distress of the person alleged to have been
unduly influenced.
4. Fraud or Deceit (Art.1338) There is FRAUD when,
through insidious words or machinations* of one of the
contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed
to.
Kinds of Fraud
(a) Causal Fraud - The fraud committed by one party
before or at the time of the celebration of the contract
to secure the consent of the other. It may be
committed through insidious words or machinations*
or by concealment.
”Insidious words or machinations” include
any misrepresentation in words or actions done
with a fraudulent purpose.
(b) Incidental Fraud - That fraud that does not have such a
decisive influence and by itself cannot cause the giving of
consent, but only refers to some particular or accident of the
person employing it to pay damages.
General Rule: Fraud by third person does not vitiate the
contract.
Exceptions:
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 i) If third person is in collusion with one of the parties, he is
considered an accomplice to the fraud and contract
becomes VOIDABLE.
ii) If third person is not in connivance with any of the parties
but leads them both into error (mutual error), the consent
is vitiated, contract is VOIDABLE.
SIMULATION OF CONTRACTS
Declaration of a fictitious will, deliberately made by agreement
of the parties in order to produce, for the purposes of deception
the appearance of a juridical act which does not exist or is
different from that which was really executed.
Kinds and Effects of Simulated Contracts
(a) Absolute - Takes place when the parties do not intend to
be bound at all. An absolutely simulated or fictitious contract
is void.
and
(b) Relative - Takes place when the parties conceal their true
agreement. A relatively simulated contract is valid, provided:
i. Does not prejudice a third person; and
ii. Not intended for any purpose contrary to law, morals,
good customs, public order or public policy.
B. OBJECT OF CONTRACTS
The object of a contract is its subject matter. (Art.1318 [2])
In reality, the object of every contract is the obligation created.
But since a contract cannot exist without an obligation, it may
be said that the thing, service, or right which is the object of
the obligation is also the object of the contract.
Requisites of Things as Object of Contract
(1) The thing must be within the commerce of men, that is, it
can legally be the subject of commercial transaction
(Art.1347); i.e., moon, sun, planet, public property
(2) It must not be impossible, legally or physically (Art.1348);
(3) It must be in existence or capable of coming into existence
(see Arts.1461,1493,1495); and
(4) It must be determinate or determinable without the need of
a new contract between the parties. (Art.1349, 1460, par.2)
Requisites of Services as Object of Contract
(1) The service must be within the commerce of men;
(2) It must not be impossible, physically or legally (Art.1348);
(3) It must be determinate or capable of being made
determinate. (Art.1318[2], 1349)
What may not be the Object of Contracts
(1) Contrary to law, morals, good customs, public policy or
public order;
(2) Indeterminable as to their kind;
(3) Outside the commerce of man;
(4) Intransmissible rights;
(5) Future inheritance, except when authorized by law
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No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
(i) The succession must not have been opened at the time
of the contract
(ii) Exception to “future things”
(6) Impossible things or services
C. CAUSE OF CONTRACTS
Cause is the essential or more proximate purpose which
contracting parties have in view at the time of entering into
the contract.
Requisites of Cause: Existing, True and Licit or legal
Defective Causes and their Effects
Absence of cause or if cause is unlawful: the contract is
void or non-existent.
Art.1352 Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is unlawful
if it is contrary to law, morals, good customs, public
order or public policy.
Statement of a false cause in the contract: VOID if there is
no other true and lawful cause.
Art.1353 The Statement of a false cause in contracts
shall render them VOID, if it should not be proved that
they were founded upon another cause which is true and
unlawful.
Lesion or inadequacy of cause: VALID unless fraud, mistake
or undue influence is present.
Art.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.
◎ The inadequacy of the price would not invalidate the
sale when both parties are in a position to form an
independent judgment concerning the transaction, and
therefore shall not be a sufficient ground for the cancellation
of a contract.
FORM OF CONTRACTS
Art.1356 Contracts shall be obligatory in whatever form
they may have been entered into, provided all the
essential requisites for their validity are present.
However, when the law requires that a contract 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.
First sentence: Principle of Obligatory Force of Contracts
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Second sentence: Solemn Contracts
Last sentence: Effect if the form prescribed by law is not
complied with, the contract is
UNEFORCEABLE.
General Rule - Contracts are binding and, therefore,
enforceable to the contracting parties, whatever may be the
form in which the contract has been entered into, provided all
the three essential requisites for their validity are present.
Exceptions - The form, however, is required in the following
cases:
(i) When the law requires that a contract be in some form to
be valid;
(ii) When the law requires that a contract be in some form
to be enforceable or proved in a certain way; or
(iii) 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. (Art.1356)
FORM FOR VALIDITY OF CONTRACT
There are rare cases when the law requires that a contract be
in certain form for the validity of the contract.[NOTE: If the
form is not complied with, Art. 1457 of the Civil Code cannot be
availed of.]
1. Donation of Movable (Art.748)
2. Donation of Immovable (Art.749)
3. Sale of piece of land through an agent (Art.1874)
4. Contract of antichresis; amount of principal and of the
interest (Art.2134)
5. Partnership: immovable property or real rights are
contributed (Art.1771)
6. Partnership: Inventory of immovable property contributed
(Art.1773)
7. Chattel mortgage (Art.2140)
Art.1358 The following must appear in public document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment
or real rights over immovable property; sales of real
property or of an interest therein are governed by
Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal partnership
of gains;
(3) The power to administer property, or any other
power which has for its object an act appearing or which
should appear in a public document, or should prejudice
a third person;
(4) The cession of actions or rights proceeding from an
act appearing in a public document.
All other contracts where the amount involved exceeds
five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in
action are governed by Articles 1403, No. 2 and 1405.
Form for Convenience
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The necessity for the public document in the contracts
enumerated here is only for convenience, not for validity or
enforceability.
Problem: A loan was contracted orally. If the amount is P1000,
may the lender recover the sum lent?
ANS: Yes, because although the law says that contracts
involving more than P500 must appear in writing, even a
private one, still this requirement is only for convenience, not
for validity.
Presumption of the Validity of a Public Instrument
A recital in a public instrument celebrated with all the legal
formalities under the safeguard of a notarial certificate is
evidence against the parties and a high degree of proof is
necessary to overcome the legal presumption that such recital
is true.
REFORMATION OF INSTRUMENTS
Reformation 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.
Purpose: In order that the intention of the contracting parties
may be expressed.
REQUISITES OF REFORMATION
(1) Meeting of minds of the parties;
(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 of the mistake,
fraud, inequitable conduct, or accident.
CASES WHERE NO REFORMATION IS ALLOWED
(1) Oral contracts - there is nothing to reform at all.
(2) Art. 1366 There shall be no reformation in the
following cases:
a. Simple donations inter vivos wherein no condition
is imposed;
b. Wills;
c. When the real agreement is void.
 Donation inter vivos – Donation which takes effect
during the lifetime of the donor;
 Donation mortis causa – Donation which takes effect
after the death of the decedent.
INTERPRETATION OF CONTRACTS
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Art.1370 If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former.
RULES FOR INTERPRETATION OF CONTRACTS
1. The language of the contract shall be interpreted in its
literal sense, provided the terms thereof are clear and
unequivocal.
2. However, the manifest intention of the parties shall
prevail in case of conflict with the words and clauses of a
written contract.
It is a cardinal rule in the interpretation of contracts that the
intention of the contracting parties should always prevail
because their will has the force of law between them.
(Art.1159)
RULES IN CASE DOUBT IS IMPOSSIBLE TO SETTLE
(1) Gratuitous contract - If the doubts refer to incidental
circumstances of a gratuitous contract (Art.1350), such
interpretation should be made which would result in the least
transmission of rights and interests.
(2) Onerous Contract - If the contract in question is onerous
(Art.1350), the doubt should be settled in favor of the
greatest reciprocity of interests.
(3) Principal object of the contract - If the doubt refers to
the principal object of the contract and such doubt cannot be
resolved thereby leaving the intention of the parties unknown,
the contract shall be null and void.
RESCISSIBLE CONTRACTS
(Art.1380-Art.1389)
Art.1380 Contracts validly agreed upon may
be rescinded in the cases established by law.
A. Definition
Rescissible Contracts - are valid and enforceable because all
the essential requisites of a contract exist but by reason of
injury or damage to one of the parties or to third persons, such
as creditors, the contract may be rescinded.
Rescission - is a remedy granted by law to the contracting
parties and sometimes even to third persons in order to secure
reparation of damages caused them by a valid contract, by
means of the restoration of things to their condition in which
they were prior to the celebration of said contract.
B. Requisites of Rescission:
(1) Valid contract (Art.1380);
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(2) Lesion or pecuniary prejudice to one of the parties or to a
third person (Art.1381);
(3) The rescission must be based upon a case especially
provided by law (Arts. 1380, 1381, 1382.);
(4) No other legal remedy to obtain reparation for the damage
(Art.1383);
(5) Party seeking for rescission must be able to return what he
is obliged to restore (Art.1385 par.1);
(6) Object of the contract must not legally be in the possession
of third persons who did not act in bad faith (Ibid., par. 2);
and
(7) Period for filing the action must not have lapsed or
prescribed (Art.1389)
Example:
Kara sues Mia for the recovery of a parcel of land. In this case,
the land is a “thing under litigation.” If, during the pendency of
the case, Mia sells the land to a third party without the approval
of Kara or of the court, the sale is rescissible at the instance of
Kara in case she wins in her suit for the recovery of said land
unless the third party is in legal possession of the land in good
faith.
Mutual Dissent:
Question: Suppose the parties to a contract mutually agreed
to cancel the contract, is this “rescission” properly so -called?
ANS: No. Of course, in a loose sense “rescission” may be used
here. But strictly speaking, this is “mutual backing out,” and
not the rescission referred to in Art. 1380 of the new Civil Code.
In mutual withdrawal, it is the will of the parties that
constitutes the basis, whereas in rescission (properly called), it
is the law that constitutes the basis.
C. Nature of Rescission
Rescission is not a principal remedy. It is only subsidiary,
meaning that it can be availed of only if the injured party
proves that he has no other legal means aside from rescinding
the contract to obtain redress for the damage caused.
Question: Is the remedy of rescission subsidiary in nature?
ANS: Yes, for it cannot be instituted except when the party
suffering damage has no other legal means to obtain
reparation for the same.
Extent of Rescission
The entire contract need not be set aside by rescission if the
damage can be repaired or covered by partial rescission. The
rescission shall only be to the extent of the creditor's
unsatisfied credit. The policy of the law is to preserve or respect
the contract, not to extinguish it.
Example:
(1) Gino, the guardian of Mia, a minor was authorized by the
court to sell two parcels of land valued at P200,000.00 each.
Gino sold the two properties to Bitoy for only P200,000.00.
In this case, the entire contract need not be rescinded.
Rescission may properly be applied only to one parcel to cover
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the damage caused by Gino. But if Gino or Bitoy is willing to
pay the difference of P200,000.00, rescission is precluded.
(2)Gardo is the guardian of Myrna, a minor. Gardo sells the
₱20,000-worth property of Myrna only ₱15,000. Here, the
contract of sale CANNOT be rescinded because the lesion is NOT
more than 1/4, UNLESS the contract of sale is approved by the
court.
HOWEVER, if the property is sold for less than ₱15,000, Myrna
can rescind the sale by proper action in court upon reaching the
age of majority.
CASES OF RESCISSBLE CONTRACTS
(1) Contracts entered into in behalf of wards. — A ward is
a person under guardianship by reason of some incapacity. As a
rule, the powers of the guardian with respect to the property of
the ward are limited to mere acts of administration.  action to rescind in fraud of creditors is known as accion
EXAMPLE:
Gina is the guardian of Wendell (ward). Gina sells the property
of Wendell worth 20M for only 14M. The contract of sale can be
rescinded because the lesion is more than one-fourth. Wendell
can rescind the sale by proper action in court upon reaching the
age of majority.
(2) Contracts agreed upon in representation of
absentees. — An absentee is a person who disappears from
his domicile, his whereabouts being unknown, and without
leaving an agent to administer his property. Likewise, the
absentee must suffer lesion by more than one-fourth of the
value of the property object of the contract to entitle him to the
remedy of rescission.
EXAMPLE:
Wendell, the owner of a resort in Laguna, left his property
without notice and without leaving a representative to take care
of his property.
Bea, a family friend, volunteered in taking over Wendell’s
business. Due to a storm, Wendell’s business is greatly affected
due to destruction of some of the buildings of the resort
and needs additional funds to recover from such distress. Bes
decided to sell one property of Wendell worth 15M and sold it
for only 10M. When Wendell returned, Wendell can rescind the
contract of sale made by Bea because the lesion is more than
one-fourth.
(3) Contracts undertaken in fraud of creditors. — The
pauliana. Here, the remedy of rescission may be availed of by a
third person. Such contracts are usually made without the
knowledge of the creditors.
EXAMPLE:
Gina made a donation of a parcel of land to Wendell. Before the
date of the donation, Gina had contracted several debts. With
the donation to Wendell, the remaining property of Gina is not
sufficient to pay all her debts. The donation can be rescinded
because the alienation is presumed in fraud of creditors.
(4) Contracts which refer to things under litigation. — In
No. (3), the purpose of the remedy is to secure the payment of
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an existing credit of a third person against a party to a contract
sought to be rescinded. Here, the purpose is to make effective
the claim of a party litigant over a thing under litigation which
was the object of a contract entered into by the other party
with another person.
EXAMPLE:
Sandy sues Ben for the recovery of a parcel of land. In this
case, the land is a “thing under litigation.”
If, during the pendency of the case, Ben sells the land to Cathy
without the approval of Sandy or of the court, the sale is
rescissible at the instance of Sandy in case she wins in her suit
for the recovery of said land unless Cathy is in legal possession
of the land in good faith.  Sandy, however, may protect his
right by filing a notice of lis pendens.  In addition to these presumptions, the design to defraud
D. When remedy of rescission is NOT allowed:
(1) If the party who demands rescission cannot return what he
is obliged to restore under the contract (Art.1385 par.1)
(2) If the property is legally in the possession of a third person
who acted in good faith (Ibid. par.2)*
*The remedy in such a case would be to demand indemnity
for damages from the person who caused the loss. (Ibid. par.
3)
E. Badges of Fraud:
Art.1387 All contracts by virtue of which the debtor
alienate property by gratuitous title are presumed to
have been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all debts
contracted before the donation.
Alienation by onerous title are also presumed
fraudulently when made by person against whom some
judgment has been rendered in any instance or some
writ of attachment has been rendered in any instance or
some writ of attachment has been issued. The decision
or attachment need not refer to the property alienated,
and need not have been obtained by the party seeking
the rescission.
creditors may be proved in any other manner recognized
by the law of evidence.
EXAMPLES: 
(1) Alienation by gratuitous title. — Princess Sarah made a
donation of a parcel of land to Becky. Before the date of the
donation, Princess Sarah had contracted several debts. With the
donation to Becky, the remaining property of Princess Sarah is
not sufficient to pay all her debts.
Under the first paragraph, the donation is presumed to be
fraudulent unless proved otherwise.
(3) Alienation by onerous title. — (a) Suppose in the preceding
example, the contract is a sale. Under the second paragraph,
the sale to Becky is not presumed fraudulent. The creditors of
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Princess Sarah must show that the conveyance will prejudice
their rights.
However, the presumption of fraud will arise in case the sale
was made by Princess after some judgment has been rendered
against him or some writ of attachment has been issued against
him.
(c) Suppose again that Cedie, a creditor of Princess Sarah, has
obtained a judgment or writ of attachment in his favor. Then
Princess sold to Heidi another parcel of land which has not been
levied upon or attached. The sale to Heidi is also presumed
fraudulent because the law says “the decision or attachment
need not refer to the property alienated.”
(c) Becky is another creditor of Princess Sarah. Does she have
the right to rescind the sale to Heidi? Yes, because the law says
that “the decision or attachment . . . need not have been
obtained by the party seeking the rescission.”
F. Period for Filing Action for Rescission:
General Rule: The action to claim for rescission must be
commenced within 4 years from the date the contract was
entered into.
Exception:
i. For persons under guardianship, the period shall begin from
the termination of incapacity; and
ii. For absentees, from the time the domicile is known.
(Art.1389)
Question: Six years after a rescissible contract was made,
action was brought for its rescission. The person who asked for
the rescission was neither a ward nor an absentee at the time
of the transaction of the rescissible contract. Will rescission
still be allowed?
ANS: No, the rescission will no longer be allowed because the
action has already prescribed. “The action to claim rescission
must be commenced within four years.”
Question: When Pedro was 13 years old, he was under a
guardian who sold, in his behalf but without judicial authority,
the harvest in the farm that Pedro owns, and in so doing the
ward suffered a lesion of more than one-fourth of the property.
How many years will be given Pedro to rescind the contract?
ANS: Pedro will be given four years after reaching the age of
majority (the time the guardianship ceases); hence, before
reaching 22 years of age, the former ward should already have
sued for the rescission of the contract.
G. Who Can Bring the Action?
(a) The injured party (or the defrauded creditor).
(b) His heir or successor-in-interest.
(c) Creditors of (a) and (b) by virtue of Art. 1177 of the Civil
Code.
VOIDABLE CONTRACTS
(Art.1390-Art.1402)
A. DEFINITION
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Voidable Contracts - are valid until annulled unless there has
been ratification. In a voidable contract, the defect is caused by
vice of consent.
Voidable Contract Not Void Ab Initio
A contract where consent is vitiated, such as by violence or
intimidation, is not void ab initio but only voidable, and is
binding upon the parties unless annulled by proper action in
court.
Annulment - is a remedy provided by law, for reason of public
interest, for the declaration of the inefficacy of a contract based
on a defect or vice in the consent of one of the contracting
parties in order to restore them to their original position in
which they were before the contract was executed.
B. Grounds for Annulment (Declaration of Nullity)
(a) incapacity to give consent
(b) vitiated consent
Example:
If a house is built with conjugal funds on the husband's lot, the
house and the lot will be both considered conjugal, with the
husband becoming the creditor of the conjugal partnership to
the extent of the value of the lot. Should the husband sell the
house and lot without his wife's consent, the sale would be
voidable.
C. Period for Filing action for Annulment:
Art.1391 The action for annulment shall be brought
within four years.
This period shall begin:
In cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the
discovery of the same.
And when the action refers to contracts entered into by
minors or other incapacitated persons, from the time the
guardianship ceases.
The 4 year period for bringing an action for annulment of a
voidable contract is reckoned:
(1) In case of intimidation, violence, or undue influence, from
the time the intimidation, etc., ceases.
(2) In case of mistake or fraud, from the time it is discovered
since before the time of discovery, the innocent party is
unaware of the reason which renders the contract voidable and
can't be exempted to bring the action in court.
(3) In the case of contracts entered into by minors or
incapacitated persons, from the time the guardianship ceases.
An incapacitated person has no capacity to sue.
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 Article 1392. Ratification extinguishes the action to
annul a voidable contract.
Ratification means that one voluntarily adopts some defective
or unauthorized act or contract which, without his subsequent
approval or consent, would not be binding on him.
It cleanses the contract from all its defects from the moment it
was constituted. Hence, the action to annul is extinguished.
Examples:
i. A minor bought a parcel of land, but sold the same, after
reaching 21 years of age, to a 3rd person.
ii. Use of the proceeds by a person who had been previously
intimidated into selling his property.
iii. If Marimar, an insane person, entered into a contract with
a carpenter to repair the roof of her house, this contract
can be annulled as it has been entered into by a person
who is incapacitated. However, Marimar is Senyora
Santibanez’s ward, Senyora Santibanez can make an
express or tacit ratification of the repair, especially if it will
redound to the benefit of her incapacitated ward.
D. Effects of Annulment:
Duty of mutual restitution upon Annulment:
(Art.1398)
(1) If the contract is annulled, the parties, as a general rule,
must restore to each other (a) the subject matter of the
contract with its fruits and (b) the price thereof with legal
interest.
(2) In personal obligations (Art.1156) where the service had
already been rendered, the value thereof with the
corresponding interest, is the basis for damages (par.2)
recoverable from the party benefited by the service.
Examples:
i. If a sale of land is annulled, the seller must return the
purchase price with legal interest and the buyer must
return the land with its fruits.
ii. Sugar sold her plow carabao to Ben. On the petition of
Sugar, the contract was annulled by the court. BUT the
carabao died in the possession of Ben through his fault.
Ben must pay the value of the carabao at the time of its
death, with interest from the same date. If the carabao
had given birth, the young must also be delivered as the
fruit of the said animal.
E. Effect of Loss Through Fortuitous Event
Question: Suppose the innocent party cannot restore because
of a loss through a fortuitous event, may he still compel the
other to return what he had given?
ANS: It would seem that the answer is NO, because before
annulment, the contract is valid, and the innocent party, being
the owner of the thing lost by fortuitous event, must bear the
loss. There is however an exception, and it occurs when he
offers to give the value of the thing. He must be allowed this
remedy; otherwise, he would be in a worse position than one
who had destroyed the thing through his fault. Once he
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exercises this remedy, he can recover from the other what has
been previously given.
UNENFORCEABLE CONTRACTS
(Art.1403-Art.1408)
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(1) Those entered into in the name of another person by
one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be
performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of
such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
(f) A representation as to the credit of a third person.
(3) Those where BOTH parties are incapable of giving
consent to a contract.
A. DEFINITION
Unenforceable Contracts - cannot be sued upon or enforced
unless they are ratified. An unenforceable contract occupies an
intermediate ground between a voidable and void contract.
Binding Force of Unenforceable Contracts - While
rescissible and voidable contracts are valid and enforceable
unless they are rescinded or annulled, unenforceable contracts,
although valid are unenforceable unless they are ratified.
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B. Kind of Unenforceable Contracts:
Under Art. 1403, the following contracts are unenforceable:
(1) Those entered into in the name of another by one
without, or acting in excess of, authority (unauthorized
contracts);
(2) Those that do not comply with the Statute of Frauds;
and
(3) Those were both parties are incapable of giving.
Unauthorized Contracts - those entered into in the name of
another person by one who has been given no authority or
legal representation or who has acted beyond his powers.
Example:
Without Pedro's authority, his brother, Juan, sold his car, in
Pedro's name, to Maria. The contract is unauthorized and
cannot and cannot affect Pedro unless Pedro ratifies it expressly
or implicitly, as by accepting the proceeds of the sale.
Example:
A compromise agreement signed in behalf of the client by his
lawyer who did so without authorization of said client is merely
unenforceable (not void) and may, therefore, be ratified by
said party expressly or implicitly.
C. Modes of Ratification under the Statute
(1) By failure to object to the presentation of oral evidence
to prove the contract. The failure to so object amounts to a
waiver and makes the contract as binding as if it has been
reduced to writing.
(2) By acceptance of benefits under the contract. In this
case, the contract is no longer executory and, therefore, the
Statute does not apply.
Unless otherwise provided by law, a contract is obligatory in
whatever form it is entered into, provided all the essential
requisites are present. When a verbal contract has already been
completed, executed or partially consummated, its
enforceability will not be barred by the Statute of Frauds, which
applies only to an executory agreement.
D. Contracts where BOTH parties are incapacitated
Art.1406 In a contract where both parties are incapable
of giving consent, express or implied ratification by the
parent, or guardian, as the case may be, of one of the
contracting parties shall give the contract the same
effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the
case may be, of both contracting parties, the contract
shall be validated from the inception.
When unenforceable contract becomes voidable or valid
 Where both parties to a contract are incapable of giving
consent,
i. The contract is unenforceable.
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 ii. HOWEVER, if the parent OR guardian of either party, OR
if one party after attaining/regaining capacity, ratifies the
contract, it becomes VOIDABLE.
 If the ratification is made by the parents or guardians of
both contracting parties, or by both contracting parties after
attaining/regaining capacity,
i. The contract is VALIDATED, and
ii. Its validity retroacts to the time it was entered into.
Example:
(1) Mary and John, both 16 years old, entered in a contract of
sale. The contract is unenforceable since both parties cannot
give consent. Now, suppose the guardian or parent of Mary
ratifies expressly or impliedly the said contract of sale, it
becomes voidable, that is valid until annulled by the guardian
or parent of John. However, if the guardian or parent of John
also ratifies it, the contract is validated right from the time it
was first entered into.
(2) Emilia is a minor child of Arturo and Teresita. Arturo died.
Teresita, as the natural guardian of Emilia, entered into a deed
of extrajudicial partition and sale, conveying the inheritance of
Emilia. Emilia was NOT a party to the contract, never ratified
the deed, and, in fact, questioned its validity. The contract is
unenforceable, NOT voidable.
Article 1408. Unenforceable contracts cannot be assailed
by third persons.
Right of third persons to assail an unenforceable
contract.
Strangers to a voidable contract cannot bring an action to annul
the same (see Art. 1397.); neither can they assail a contract
because of its unenforceability. The benefit of the Statute can
only be claimed or waived by one who is a party or privy to the
oral contract, not by a stranger. An action for rescission may be
brought by a third person.
EXAMPLE:
Manny Pakyawan owns a parcel of land, which is under the
possession of and being used by Sunny Angora as grazing land
for native ducks for his balot business.. Under a verbal contract,
Manny Pakyawan sold the land to real estate developer Mekeni
Villar. In an action for ejectment by Mekeni Villar against Sunny
Angora, the person in possession, the latter cannot set up the
defense of the Statute of Frauds because he is a third party to
the contract.
VOID OR INEXISTENT
CONTRACTS
(Art.1409-Art.1422)
Art.1409 The following contracts are inexistent and void
from the beginning:
1. Those whose cause, object or purpose is contrary to
law, morals, good customs, public order, or public
policy;
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 2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the
time of the transaction;
4. Those whose object is outside the commerce of
men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to
the principal object of the contract cannot be
ascertained;
7. Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right

to set up the defense of illegality be waived.
A. DEFINITION

Void or Inexsitent Contracts - are absolutely null and void.

Void contracts have no effect at all and cannot be ratified.

Characteristics of a void or inexistent contract:

(1) Generally, it produces no effect whatsoever;

(2) It cannot be ratified (Art.1409, par.2);
Examples:
(3) The right to set up the defense of illegality cannot be
waived;
(1) Those whose cause, object or purpose is contrary to
(4) The action or defense for the declaration of its
law, morals, good customs, public order or public policy;
inexistence does not prescribe (Art.1410);
(5) The defense of illegality is not available to third persons
 Contrary to Law
whose interests are not directly affected (Art.1421); and
An agreement whereby Anna is to render service as a servant
(6) It cannot give rise to a valid contract (Art. 1422).
to Ben without compensation as long as Anna has not paid his
debt is reprehensible and censurable.
VOID AND VOIDABLE CONTRACTS DISTINGUISHED

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  Contrary to Morals
A contract, whereby Anna promised to live as the common-law
wife of Ben without the benefit of marriage in consideration of
P50,000.00, is immoral and, therefore, void.
 Contrary to Good Customs
Anna entered into a contract whereby Anna binds herself to
slap his father. This contract is void because it is against the
good custom of showing respect to our parents.
 Contrary to Public Order
A stipulation in a contract of lease whereby the landlord can use
force to eject the tenant in case of failure of the latter to pay
the rent agreed upon is void as being against public order.
 Contrary to Public Policy
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 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 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.
(2) Those which are absolutely simulated or fictitious;
Anna is indebted to Ben. Upon learning that Ben is going to
enforce her credit, Anna pretended to sell her land to Felimon,
his father-in-law. Anna did not receive a single centavo for the
deed of sale she executed and she continued in possession of
the land 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.
(3) Those whose cause or object did not exist at the time
of the transaction;
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 statement
is false, then there is no contract of sale.
(4) Those whose object is outside the commerce of men;
If the object is outside the commerce of man, such as sidewalks
or public plazas or public bridges, they cannot be the object of
contracts of alienation (but may be the object, for example, of
a contract for repair).
(5) Those which contemplate an impossible service;
If a blind man enters into a contract which requires the use of
his eyesight, the contract is void although in this particular
case, we have only a relative impossibility. This is because
here, the relative impossibility is not merely temporary.
(6) Those where the intention of the parties relative to
the principal object of the contract cannot be
ascertained;
Anna sold his land to Ben. Anna has many lands. It cannot be
determined which land was intended by the parties to be the
subject of the sale.
Page 23 of 25
Therefore, the contract shall be null and void and it is as if the D. Rules where contract is illegal and the act does NOT
parties have not entered into any contract at all. constitute a criminal offense:
(7) Those expressly prohibited or declared void by law.
Contracts upon future inheritance except in cases expressly 1. When the parties are both in pari delicto and the
authorized by law. cause of contract is unlawful or forbidden but no
criminal offense.
B. Imprescriptibility of action or defense
Example:
If a contract is void, a party thereto can always bring a court X agreed to live as the common law wife of Y in
action to declare it void or inexistent; and a party against consideration of the promise on the part of Y to donate a land
whom a void contract is sought to be enforced, can always raise to X. In this case, the promise of Y has for its consideration an
the defense of nullity, despite the passage of time. (Art.1410) immoral act which does not constitute a crime. Hence, there
can be no recovery by one against the other or they cannot ask
C. Rules where contract is illegal and the act constitutes the fulfillment of others promise.
a criminal offense:
2. When only one party is guilty:
The rule of In Pari Delicto-in equal fault; a universal doctrine
which holds that no action arises, in equity or at law, from an 1. The guilty party loses what he has given by reason of the
illegal contract. contract;
2. The guilty party cannot ask for the fulfillment of the
The rule that parties to an illegal contract will not be aided by other’s undertaking;
law. This rule adopts the principle of “One who seeks equity 3. The innocent party cannot be compelled to comply with
and justice must come to court with clean hands”. his promise.
4. The innocent party cannot be compelled to comply with
Example: his promise.
If the two parties complain to a judge of the non-performance
of a contract by the other, the judge could refuse to provide Example:
remedy to either of them because of in pari delicto: a finding In the preceding example, X was only a minor(16years old) at
that they were equally at fault in causing the contract’s breach. the time of the contract and Y was a married man of mature
This rule adopts the principle of “One who seeks equity and years and experience, the principle of in pari delicto is not
justice must come to court with clean hands”. applicable. Y cannot recover the land given by him nor demand
the performance of X’s undertaking if the latter has not yet

Page 24 of 25
complied with her promise. However, X may recover whatever
property she may have given by virtue of the contract without
any obligation to comply with her promise.

Article 1421. The defense of illegality of contract is not

available to third persons whose interests are not
directly affected.

Third persons are NOT allowed to bring an action to annul OR

assail a voidable and unenforceable contracts.

HOWEVER, if the contract is illegal OR void, even a third person

may avail of the defense of illegality or set up its illegality as
long as his interest is directly affected by the contract.

Example:
Harold sold his parcel of land to his wife, Margarita. Under the
law, husband and wife CANNOT sell property to each other.
Such sale is illegal and void.

If Charlie, a third person, became a creditor of Harold before

the transaction, he can question the sale for the reason that his
right OR interest is directly affected. HOWEVER, if he became a
creditor after the transfer, the defense of illegality is NOT
available to him.

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