INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September

2019]
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MODULE 9
CONTRACTS
WEEK 8 – 19 September 2019 (Thursday)

CONTRACTS

❶ CONCEPT OF CONTRACTS. – As defined under 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.”
⮲ To better understand the definition, let us recall the
definition of an obligation under Article 1156 that, “(A)n obligation is a
juridical necessity to give, to do, or not to do. We said that the definition
of an obligation under Article 1156 refers specifically to civil obligations,
and not to moral, divine or natural obligations, which cannot be legally
enforced in court by the creditor or active subject.

⮲ From the definition of a contract above, we can assume

the following :

(a) There are at least two parties involved in a contract – an active

subject (creditor) and a passive subject (debtor).
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(b) An obligation is created because the passive subject promises to

the active subject the performance of a prestation, either to give
something (“to give”), or to render some service (“to do” or “not to do”).
(c) By agreement between the parties, a civil obligation is created.
At this point, we make a distinction between an agreement and a contract.
If two parties agree on the performance of a moral or social obligation,
there is an agreement but there is no contract. However, if the parties
agree on the performance of a civil obligation (Art. 1156), the result is a
contract which is legally enforceable in court.

AGREEMENT: D and C agreed that they will go to mass every

Sunday at the St. Therese Chapel in Villamor, Pasay for 10
consecutive Sundays.

CONTRACT: D and C agreed that if D will hear mass for 10

consecutive Sundays at the St. Therese Chapel, C will give D
P100,000.00. Here, we have a contract which gives rise to a
conditional obligation. If D performs his obligation, C will be
obliged to give D P100,000.00. If C does not comply with his
obligation as agreed upon, D’s obligation will not arise.

(d) A contract gives rise to an obligation between the parties to the

contract. Hence, there can be no contract if there is no obligation.
However, can a party have an obligation even without a contract? YES.
As we have previously studied in Article 1157, contract is only one of
the sources of an obligation. Thus, we are reminded that even without the
debtor’s knowledge or consent (i.e., even without a previous contract
entered into with the active subject), he will be liable for reimbursement
arising from quasi-contract (Art. 1160) if he has been benefited at the
expense of another.
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❷ WHAT ARE THE BASIC PRINCIPLES GOVERNING

CONTRACTS? –

(a) Autonomy or Liberty of Contracts (Art. 1306, NCC)

(b) Mutuality of Contracts (Art. 1308, NCC)
(c) Consensuality of Contracts (Art. 1315, NCC)
(d) Relativity of Contracts (Art. 1311, NCC)
(e) Obligatory Force of Contracts (Art. 1159, NCC)

❸ Autonomy or Liberty of Contracts - The principle of

autonomy of contracts is stated in Article 1306. Thus,

“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.”

⮲ By this principle, the parties to a contract are given the

freedom to agree on any terms or stipulations in their contract. The only
limitation is that the agreement should not be illegal (i.e., contrary to law,
morals, good customs, public order, or public policy). The contracting
parties must respect the law which is considered as an essential part of
every contract.

⮲ Example of a contract which is contrary to law. A and B

entered into a contract. It was agreed that A will give B P500,000.00 if B
will steal the pet lion of C. It was also agreed that A will give an advance
payment of P250,000.00, and the balance will be given to B when B
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delivers the lion to A. As agreed upon, B stole the lion from the residence
of C. However, B was apprehended by the police authorities before he
could deliver the lion to A.
Question: Since B failed to deliver the lion to A as agreed upon, can A file
an action in court against B for the recovery of the P250,000.00 advanced
to B?

Answer: NO. The prestation of B in the parties’ contract is to steal the

lion of C. Stealing is unlawful. Hence, the contract is illegal and cannot be
given effect. If A files an action for recovery of the P250,000.00 from B on
the basis of their contract, both of them will be put on trial for the crime of
robbery or theft.

⮲ Example of a contract which is contrary to morals and

good customs. – Joe is a 40-year old bachelor. Jane is an 18-year old
student who has been compelled to obtain a leave of absence from school
last semester because her parents could no longer afford to pay her
tuition. On 2 June 2019, Joe promised to give Jane P1M if Jane will live
with him as his wife for 6 months without the benefit of marriage. Jane
agreed. On 6 June, however, Jane informed Joe that she was backing
out from their agreement because she had already found an employer
who was willing to help her with her studies. Joe was upset. He filed an
action against Jane for specific performance (to compel her to comply with
her obligation) and for damages.

Question: Is the contract valid? Can Jane be compelled to comply with

her promise under the agreement?

Answer: It is stated that by the autonomy of contracts, the parties are

free to establish any stipulation in their contract as they may consider
convenient to them. In this case, however, to compel a woman to cohabit
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with a man (not her husband) is contrary to morals. The contract of Joe
and Jane is, therefore, void for being immoral and cannot be enforced.

⮲ Example of a contract which is contrary to public order

or public policy. – O is the owner of an apartment. T is interested in
leasing or renting the apartment of O. The parties enter into a contract
with the following stipulations, among others:

1. O obliged to lease his apartment to T for 2 years.

2. T promised to pay a monthly rental of P10,000.00.
3. Should T fail to pay his monthly rentals, T must
leave the apartment.
4. If after failure to pay rentals T refuses to leave the
apartment, O will ask his 2 wrestler brothers (each
weighing 500 pounds) to drag T out of the apartment
never to be seen again.
Both O and T agreed to these provisions in their lease contract.

Question: Assuming that T later on fails to pay his monthly rentals, can O
enforce term No. 4 in their agreement considering that T had agreed to the
stipulation?

Answer: NO. While the other terms in the parties’ contract is lawful and
valid, term No. 4 cannot be enforced by O for being against public order.
The proper recourse of O is not to use physical force on T to leave the
apartment. What O should do is to file an action for ejectment in court
against T. O must first secure a final judgment from the court ordering T to
vacate the premises. Then the sheriff of the court will carry out the final
order of ejectment (an order to compel the tenant to leave the property
being leased).
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❹ Mutuality of Contracts – By this principle, no party to a

contract can renounce or violate the law of the contract without the
consent of the other. The principle of mutuality of contracts is stated in
Article 1308, viz:

“The contract must bind both contracting parties, its validity or

compliance cannot be left to the will of one of them.”

⮲ Example of the principle of mutuality. S promised to sell

his car to B, an interested buyer. It was agreed that S will determine the
price of the car and inform B about it on the same day that S will deliver
the car. The following day, S went to the house of B and delivered the car.
S was also collecting from B the purchase price of P3.5M which is what S
had decided.
Question: Can S compel B to accept delivery of the car and to pay the
purchase price of P3.5M?
Answer: NO. There is here no valid contract. A contract is a meeting of
the minds and, therefore, there must be mutual consent. The contract
does not bind both contracting parties because the determination of the
purchase price of the car was left to the sole determination of S. Of
course, if B decides to accept delivery and agrees to the purchase price of
P3.5M upon delivery, there is now a meeting of the minds and the contract
of sale is perfected.

❺ Consensuality of Contracts – Under the principle of

consensuality of contracts, it is stated that contracts are perfected by
mere consent (Article 1315, NCC). Before we start discussing this
principle, let us take a quick look at the essential requisites of a contract.
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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.

Example: S agreed to sell his BMW car to B for P6M.

(1) The object is the delivery of the car.
(2) The cause or consideration is the payment of the purchase price
of P6M.
(3) There is consent because both parties agree as to the object and
the cause of the sale.

Effect of lack of any one of the requisites: The contract will be void and
cannot be enforced.

We also need to take a look into the three stages in the life of a contract.

Stages in the life of a contract.

(1) Conception (Preparation or negotiation) – This includes all the
negotiations or steps taken by the parties leading to the perfection of the
contract. At this stage, the parties have not yet arrived at any definite
agreement.
(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 (Art. 1319, NCC). At this stage, there is already a
concurrence of all the essential elements or requisites of a contract.
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(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.
Example: S advertised his BMW car for sale at P6M.
(1) Stage of Conception – B goes to S and offers to buy the BMW car for
P5M. S is willing to sell at P5.8M. B again makes another offer to buy
at P5.5M. Here, the parties are still negotiating.
(2) Stage of Perfection – S agrees to B’s offer of P5.5M. Here, the
contract is perfected. There is already a mutual agreement as to the
object and the cause of the sale.
(3) Stage of Consummation – S delivers the BMW car to B. B then pays S
the P5.5M purchase price. Here, the parties comply with their
respective prestations under the contract. It is in this stage that the
obligations of the parties are completely extinguished.

Effect of perfection of a contract: It is only after perfection of a contract

that the following will arise:
(a) the obligation of the debtor to perform the prestation and/or to
pay for damages.
(b) the right of the creditor to compel performance of the obligation
and/or claim for damages.

⮲ A contract is thus only perfected after concurrence of all

the three essential requisites of consent, object and cause, or C-O-C .

⮲ Now we go back to the principle of consensuality.

Contracts are perfected by mere consent. In other words, if all the
requisites of C-O-C are present, a contract is already perfected. This is,
however, only the GENERAL RULE because some contracts need more than
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mere consent for their perfection. We can understand this better by

examining the three (3) kinds of contracts according to perfection
outlined below.

⮲ Classification of contracts according to perfection :

(a) Consensual contract – This kind of contract is perfected by mere

consent. As long as there is C-O-C, the contract is perfected.

🞈 Example : A contract of sale is an example of a consensual contract.

On 25 January 2019, S promised to sell his car to B for P3M. It was
agreed by the parties that delivery of the car and payment of the purchase
price was to be made on 31 January 2019. On 31 January 2019, S
refused to deliver the car stating that he had changed his mind about
selling his car.
Question: Was there here a perfected contract of sale between S and B?
Answer : YES. As of 25 January 2019, there was already a perfected
contract of sale because as of that date there was already consent on the
part of both contracting parties, there was an object (the promise to deliver
the car), and there was a cause (the promise to pay the P3M purchase
price). Since there was already a perfected contract, both S and B are
bound to the fulfilment of their respective obligations under the contract.
Therefore, S can no longer back out from his obligation of delivering the
car to B, unless he is willing to be liable for damages to B for breach of
contract (Art. 1170, NCC).

(b) Real contract – This kind of contract is perfected by the delivery of

the thing subject matter of the contract. In other words, mere consent is
not enough. There is an additional requisite for the perfection of the
contract – that is, delivery of the object of the contract. C-O-C-D
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🞈 Example : As stated in Article 1319, a contract of pledge is one

example of a real contract. – On 5 January 2019, D borrowed
P200,000.00 from C due for payment on 4 July 2019. To secure the loan,
D promised C that he will deliver his Rolex watch valued at P250,000.00 to
C the following day. D, however, failed to deliver the watch, and C
eventually forgot about it. On maturity date, D could not pay his
P200,000.00 debt to C. C then demanded that D deliver the watch so that
C may sell the watch at public auction, and use the proceeds from the sale
to cover the P200,000.00 loan of D.
Question: Was there here a perfected contract of pledge between D and
C? Can C compel D to deliver the Rolex watch so that it may be sold at
public auction to pay for the indebtedness?
Answer : NO. The purpose of a contract of pledge (which is merely an
accessory contract to the principal contract of loan) is to secure the
payment of the loan by the debtor. Under the contract of pledge, the
creditor is given the right to sell the thing pledged at public auction, if the
debtor fails to pay the principal obligation on maturity date. In this case, D
never delivered the Rolex watch to C until the debt already matured. In
other words, since pledge is a real contract, it will be perfected (the
contract will be born) only if the thing object of the contract is delivered to
the creditor. Since there was no delivery of the Rolex watch, there was no
perfected contract of pledge between D and C. (Remember that for the
perfection of a real contract, in addition to the three essential requisites
of consent, object and cause, there must be delivery of the object or
subject matter of the contract.) Therefore, on maturity date, if D fails to pay
his obligation, C will have no right to demand the delivery of the Rolex
watch for purposes of selling it at public auction. It is as if C agreed to the
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contract of loan without security. The proper recourse of C is to file an

action in court for the collection of the P200,000.00 unpaid obligation of D.

(c) Solemn or formal contract – This kind of contract is perfected after

compliance with certain formalities prescribed by law. Just like in real
contracts, mere consent is not enough. There is an additional requisite for
the perfection of this kind of contract – that is, compliance by the parties
with the formalities required by law for its validity or effectiveness.
C-O-C-F

🞈 Example : A contract of donation of real property is an example of a

solemn contract. Article 749 requires that for a contract of donation of
real property to be valid, it must be in a public instrument. – On 5
January 2019, Don donated to Des a 1000 square-meter house and lot
located in Manila. Don and Des then drafted and signed a “Deed of
Donation”. After two years, Don died leaving as sole heir his only son,
Andy. Andy now wants to recover the house and lot from Des.
Question: Was there a perfected contract of donation between Don and
Des? Can Andy recover the property from Des?
Answer: The contract of donation is an example of a solemn contract
which requires a specific form for the validity of the contract. In other
words, without the specific form required by law for its perfection, the
contract will be lacking one essential requisite which is form. Article 749
of the Civil Code requires that for the contract of donation to be valid, it
must be executed by the parties in a public instrument. In other words, it is
not enough that the parties draft and sign the document. (This is a private
document only.) After signing the written contract of donation, the parties
must have the document notarized by a lawyer. (The private document of
donation is now converted into a public document.) In this case, the
contract of donation between Don and Des was made only in a private
document. Therefore, there was no contract of donation perfected
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between Don and Des. The property may still be recovered from Des by
Andy who is the rightful heir of the property left by his father Don.
❻ Relativity of Contracts – Under the principle of relativity of
contracts, it is stated that contracts take effect only between the parties,
their assigns and heirs (Article 1311). This means that only the parties,
their assigns and heirs can have rights and obligations under the contract.
Strangers to a contract cannot be made liable for damages under the
contract. Neither can strangers claim benefits under the contract.

🞈 Example No. 1: Contracts take effect only between the parties. On 5

January 2019, S promised to sell his BMW car to B for P2M. The delivery
of the car and payment of the purchase price was set on 15 January
2019. On 15 January 2019, S delivered the car but B paid only P1.5M of
the purchase price. B promised to deliver the balance of the purchase
price to S the following day. B, however, failed to pay despite repeated
demands from S. When M, the mother of S, heard about what happened,
M filed a case against B in court for collection of the balance of
P500,000.00.
Question: Will the action for collection filed by M against B prosper?
Answer : NO. M has no legal standing to file the action for collection
against B. Under the principle of relativity of contracts, the contract takes
effect only between the parties. Even if M is the mother of S, M is a
stranger to the contract of sale between S and B. Hence, M cannot claim
any rights under the contract by collecting the balance of the purchase
price which B failed to pay. Only S is the proper party to file the collection
case against B.

🞈 Example No. 2: Contracts can also bind the assigns of the parties. In
the example above, let us assume that S specifically authorized his
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mother M to collect the purchase price of the car, and to file an action for
collection in case of non-payment.
Question: This time, will an action for collection filed by M against B
prosper?
Answer: YES. This time, since M has been specifically authorized and
allowed by her son to collect the purchase price and file an appropriate
action against B, the action for collection will prosper. This is because M
is now an assignee or authorized representative of S who can legally act
in behalf of S.

🞈 Example No. 3: Contracts have also binding effect on the heirs of the
parties. This is only possible if one of the parties to a contract dies
before the maturity date of the obligation. – D borrowed P2M from C due
on 30 December 2018. On 30 November 2018, D died of a heart attack
leaving his only son S an inheritance amounting to P1.5M. S is a
multimillionaire with total assets valued at P890M.
Question: Can C collect the obligation from S? If so, how much?

Answer : YES. By the principle of relativity, since D is already dead, the

contract can be made to bind the son S. When we say, however, that the
contract will bind even the heirs, what the law actually means is not the
heir personally, but the estate of the deceased (the contracting party who
died). Hence, if D died without leaving any inheritance to S, S cannot be
made personally liable for the obligation of D even if D was his father. In
this case, C may recover from S, but only to the extent of whatever S
inherited from D – that is, P1.5M. Under the last sentence of the first
paragraph of Article 1311, “(T)he heir is not liable beyond the
value of the property he received from the decedent.” Of
course, since S is a multimillionaire, if he considers it his moral obligation
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to pay the entire debt of his father, he is not legally prohibited from doing
so.

❼ Obligatory Force of Contracts – Under the principle of

the obligatory force of contracts, it is stated that “Obligations arising from
contracts have the force of law between the contracting parties and should
be complied with in good faith.” (Art. 1159) From the moment a contract
is perfected, “the parties are bound not only to the fulfilment 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. (Art. 1315)

🞈 Example: S agreed to sell his horse to B. It was stipulated that S

should deliver the horse after two days. In this case, S has the obligation
to deliver the horse after two days as agreed upon in the contract. While
waiting, since it was not part of the agreement, S did not feed the horse
anymore. Also, since it was not part of the agreement, S did not let the
horse stay in the stable anymore. After two days, the horse fell ill and
died. The veterinarian said that the horse catched a deadly virus while
soaked in heavy rains two nights before the delivery date.
Question: Was S obliged to feed the horse and provide adequate shelter
to it considering that it was never stipulated in the parties’ contract?

Answer : YES. Pending delivery of the object of a contract, the debtor is

obliged to take care of the thing to be delivered with the proper diligence
of a good father of a family (Art. 1163). Hence, S had the obligation to
feed the horse, and provide it adequate shelter before the appointed
delivery date even if nothing is said about the obligation in his contract
with B as this is in keeping with good faith, usage, and law.
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❽ FORM OF CONTRACTS –

(a) Meaning of “form of contracts”. – The form of a contract refers to

the manner in which a contract is executed or manifested.

(b) What are the different forms in which a contract may be

executed:

(b.1) A contract may be executed orally, or in writing.

(b.2) If in writing, the contract may either be made in a :

(b.2.1) Private instrument – where the parties put down in writing all the
terms and conditions of their contract, and sign it; or
(b.2.2) Public instrument – A private instrument becomes a public
instrument if it is notarized by a lawyer.

(c) What are the two (2) classifications of contracts according to

form?

(c.1) Informal or Common Contracts – Informal or common

contracts are contracts which do not need a specific form in order to be
valid and enforceable.

⮲ The first sentence of Article 1356 states that,

“Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are
present.” This means that as long as there is consent, object, and cause,
a contract is perfected, and becomes binding on both parties to the
contract. This, however, refers only to consensual contracts which are
perfected by mere consent.
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🞈 Example: S orally sold to B a Parker pen for P450.00. Is the sale valid
even if not in writing?
Discussion: A contract of sale is a consensual contract, and is perfected
by mere consent. Therefore, even if orally made, the contract of sale
between S and B is valid and enforceable.

⮲ Consensual contracts are, therefore, informal contracts

and do not need any specific form for their validity.

⮲ Real contracts (Art. 1316), cannot be perfected by mere

consent, but need delivery (in addition to consent, object, and cause) for
the perfection of the contract. Real contracts are also classified as
informal or common contracts because, just like consensual contracts,
they do not need any specific form for their validity.

🞈 Example: D borrowed P200,000.00 from C due on 30 August 2019.

Since C required security for the loan, D delivered to C his Rolex watch
valued at P300,000.00. On maturity date, D failed to pay his obligation.
Hence, C caused the sale of the Rolex watch at public auction so that C
may recover the P200,000.00 obligation of D from the proceeds of the
auction sale. Is there here a perfected contract of pledge even if it was
not made in writing?
Discussion: There are two (2) separate contracts between D and C in
this case.
① the principal contract of loan, where D is obliged to pay the
P200,000.00 to C on 30 August 2019; and
② the accessory contract of pledge, under which C has the right to sell
the thing pledged (the Rolex watch) at public auction IF there is failure on
the part of D to pay his obligation on 30 August 2019.
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The contract of loan is a consensual contract, and the contract of pledge

is a real contract. Therefore, both the contract of loan (perfected by mere
consent) and the contract of pledge (perfected by the delivery of the object
of the contract) between D and C are valid even if they were not executed
in writing because both are informal or common contracts.

(c.1) Formal or Solemn Contracts – Formal or solemn contracts are

required by law to be in a specified form to be valid and enforceable.

⮲ The second sentence of Article 1356 states that,

“However, when the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable.”

⮲ The second sentence of Article 1356 states the

exception to the general rule stated in the first sentence of Article 1356
- that contracts become valid and binding even if not made in writing. This
is because the second sentence emphasizes that when the law requires a
specific form, that form should be strictly followed. If the required form is
not followed, the contract becomes either void or unenforceable.

🞈 Example of a contract when form is required for validity. - Dondi

verbally donated his house and lot to Donna. Donna accepted the
donation. Is the donation valid?
Discussion: NO. A contract of donation is a formal or solemn contract.
Under Article 749 of the Civil Code, it is required that donations of real
property be made in a public instrument. In this case, since the contract
was verbally made, the donation is void.

🞈 Example of a contract when form is required for enforceability. - S

verbally agreed to sell his land to B for P2M. Delivery date and payment
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was set by the parties on 15 September 2019. On 15 September 2019, B

demands for the delivery of the lot but S refuses to comply. May S be held
liable by B for damages under their contract of sale?
Discussion: NO. The contract of sale between S and B in this case is
unenforceable and cannot be enforced by the party who claims a right
under the contract (the active subject) because it was not made in writing.
Under Article 1403, No. 2(e), when the object of a contract of sale is
real property, the law requires that it be made in writing (at least in a
private instrument) in order that it will be enforceable even only between
the contracting parties. If not made in writing, it cannot be enforced if the
party obliged (the passive subject) denies the existence of the contract.
It is important to note, however, that while a contract of sale of real
property is not enforceable if not in writing , it is a valid contract. Since it
is a valid contract, it can still be enforced later on should the party obliged
(the passive subject) admit the existence of the contract (ratify the
contract) even if it was only orally made.

❾ THE FOUR KINDS OF DEFECTIVE CONTRACTS –

(a) RESCISSIBLE CONTRACTS. – Contracts subject to rescission are

valid contracts between the parties, but by reason of economic injury or
damage to one of the parties, or to third persons such as creditors, the
contract may be rescinded.
⮲ An action for rescission must be commenced within four years
(Art. 1389, NCC).

⮲ Under Art. 1381, the following contracts are rescissible:

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① Contracts which are entered into by guardians whenever the wards

whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object of the contract.
🞈 Example: Thelma is the guardian of Jim, a minor, who is
the owner of a lot valued at P4M. On 15 January 2019, two days after Jim
turned 16, Thelma sold the subject lot to Ben for only P2.5 million. By
reason of the sale, Jim suffered damages (lesion) amounting to P1.5
million, which is more than one-fourth (1/4) of the value of the lot. Upon
reaching the age of majority, Jim’s remedy will be to file an action in court
to rescind the sale made by Thelma to Ben on the ground that, by such
sale of the property by his guardian, he suffered lesion by more than one-
fourth of the value of his lot.

② Contracts agreed upon in representation of absentees, if the

absentees suffer the lesion stated in the preceding number.
🞈 Example: On 20 December 2014, Abby boarded the M/V
Doña Paz bound for Manila. The following day, the vessel was reported
to have sunk in the waters of Mindoro. Abby was not among the
passengers who were rescued. Abby had a 500 square-meter lot in
Bulacan worth P2M. On 16 January 2018, the sister of Abby, Aisha, sold
the lot to Efren for P1.2M. On 10 December 2018, Abby suddenly
appeared in their home in Bulacan. She was rescued by officers of the
Philippine Coast Guard from an abandoned island near Taiwan. When
Abby learned about the sale of her lot, she filed an action for rescission of
the contract of sale between Aisha and Efren.
Question: Is the contract of sale rescissible?
Answer: YES. This case involves the sale of the property of an absentee
by a representative. The absentee suffered lesion by more than one-
fourth of the property amounting to P800,000.00 (P2M – P1.2) by reason
of the contract of sale. Therefore, as soon as Abby appeared, she has the
right to file an action for rescission of the contract of sale on the ground of
lesion.
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③ Contracts undertaken in fraud of creditors when the latter cannot in

any other manner collect the claims due them.
🞈 Example: Denzel owes Jennifer P5 million due for
payment on 30 August 2019. On 15 June 2019, Denzel had sold his only
remaining asset, a 1000 square-meter lot in Cebu City, to Trina, who was
aware that Denzel’s purpose was to evade his obligation to Jennifer. On
31 August 2019, Denzel was insolvent and had no other properties with
which to pay for his debt to Jennifer. Under the facts, Jennifer can file an
action for the rescission of the contract of sale between Denzel and Trina,
the same having been undertaken by Denzel to defraud Jennifer. If
Jennifer’s action is granted by the court, and the sale is rescinded,
ownership of the lot will be revested in Denzel. The property will then be
made to answer for Denzel’s obligation.

④ Contracts which refer to things under litigation if they have been

entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority.
🞈 Example: Heart sued Chiz to recover some pieces of
jewelry. While the case was pending, Chiz, without the approval of the
court or of Heart, sold the jewelry to Tara. Tara was a buyer in bad faith
since she was aware that the jewelry was the subject of litigation in court
between Heart and Chiz. Under the facts, the sale to Tara is rescissible at
the instance of Heart if Heart obtains a favorable judgment against Chiz in
the original case she filed.

(b) VOIDABLE CONTRACTS. – Contracts subject to annulment are also

valid and binding between the parties until annulled, unless there has
been ratification. Unlike in a rescissible contract which requires economic
injury or damage to one of the parties, in a voidable contract, the defect is
caused by a vice of consent.
⮲ An action for annulment must be commenced within four years
(Art. 1391, NCC).
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⮲ Under Art. 1390, the following contracts are voidable, even

though there may have been no damage to the contracting parties:

① Contracts where one of the parties is incapable of giving consent to a

contract, i.e., one of the parties to the contract is incapacitated.
② Contracts where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.

(c) UNENFORCEABLE CONTRACTS. – In these cases, there is a valid

contract between the parties, but neither can compel the other to perform
the obligation. The rule is that the contract must not have been performed
or consummated yet, either on one or both sides. For once there is
performance, even on only one side, the contract is taken out of the rules
governing unenforceable contracts.
⮲ Under Art. 1403, the following contracts are
unenforceable, unless they are ratified:

① Unauthorized contracts or those entered into in the name of

another person by one (a) who has been given no authority or legal
representation, or (b) who has acted beyond his powers.
🞈 Example: Owen is the owner of a BMW car. Without his authority, his
daughter Odessa, sold the BMW car to Benjie for P5 million. Odessa
represented to Benjie that she was authorized by her father to sell the car.
Odessa and Benjie then agreed that delivery of the car as well as
payment of the purchase price will be made on 15 September 2019.
Question: On 15 September 2019, can Benjie compel Owen to deliver the
car as earlier agreed upon?
Answer: In this case, since the sale was undertaken by Odessa without
the authority of Owen, the contract of sale is unenforceable; hence,
Odessa cannot bind Owen to the contract. Owen cannot be compelled to
deliver the car to Benjie. If Benjie files an action to compel performance of
the obligation, the court will dismiss the case on the ground that Benjie’s
action is grounded on a contract which is unenforceable by action.
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② Contracts that do not comply with the Statute of Frauds.

③ Contracts where both parties are incapable of giving consent
to a contract.
🞈 Example: Francis, 17 years old, promised to sell to 16 year-old Rachel
his mountain bike for P150,000.00. In this case, if Francis later on refuses
to honor his promise and denies that he ever made a promise to sell the
mountain bike, Rachel will not be able to enforce their agreement by an
action in court since the contract is unenforceable. This is true even if the
parties put their agreement down into writing. What is material here is not
the form of the contract, but the capacity of the contracting parties.

⮲ Agreements that are unenforceable for failure to comply

with the statute of frauds. – The Statute of Frauds provides that an
agreement shall be unenforceable by action, unless such is in writing, and
subscribed by the party charged, or by his agent. Evidence, therefore, of
the agreement cannot be received by the court without the writing, or a
secondary evidence of its contents.
Under Article 1403, No. 2, the following contracts must
be in writing and must comply with the Statute of Frauds to be enforceable
between the parties:

① An agreement which is to be executed or consummated after

one (1) year from the date of perfection of the contract.
🞈 Example: On 1 September 2019, Sally entered into a contract with
Brian for the sale of her car to him. Delivery of the car and payment of the
purchase price was set on 5 September 2020. This contract must be in
writing to be enforceable because the execution or consummation of the
contract is set on a date more than a year from the perfection of the
contract.

② A special promise to answer for the debt, default or

miscarriage of another.
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🞈 Example: Dennis borrowed money from Carina with Gorio as

guarantor. As guarantor, Gorio obliges himself to answer for the
obligation to Carina, if Dennis is not able to pay the debt on maturity date.
This promise of Gorio to answer for the default of Dennis must be in
writing, so that Gorio can be held liable by Carina if Dennis fails to pay his
obligation on due date.

③ An agreement made by reason of marriage other than a

mutual promise to marry.
🞈 Example: Martin agrees to build a house for Wilma’s parents worth
P10M if she will marry him. If Wilma subsequently marries Martin, she
cannot oblige Martin to make good his promise to build a house for her
parents if their agreement was not made in writing.

④ An agreement for the sale of personal property where the

consideration is P500 or more, unless there has been partial delivery or
payment.
🞈 Example: Sylvia and Barry entered into a verbal contract for the
sale of a pair of silver earrings for P500.00. Delivery and payment was set
on 30 October 2019. IF on due date Sylvia does not deliver, Barry cannot
compel her to do so even if he is willing to pay because the contract falls
under the Statute of Frauds, and must be in writing to be enforceable
between the parties. ASSUME THAT on due date Sylvia makes, and Barry
accepts, delivery of the silver earrings. Later, Sylvia files an action to
compel Barry to pay the purchase price of P500.00. This time, Barry will
be obliged to pay. Barry cannot set up the defense that Sylvia cannot
enforce their agreement for not having been made in writing. This is
because there has already been delivery of the object of the contract, and
by accepting the pair of earrings, Barry in effect admits the existence of
the agreement.
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⑤ An agreement for the lease of real property where the term is

more than one year.
🞈 Example: On 15 January 2019, Orly agreed to lease his building to
Tirso for a period of two (2) years starting 15 February 2019, until 14
February 2021. On 15 February 2019, if Orly does not allow Tirso to take
possession of the leased property as agreed upon, Tirso cannot legally
compel Orly to do so if their lease contract is not in writing.

⑥ An agreement for the sale of real property or of an interest

therein.
🞈 Example: Isko and Bernie entered into a verbal contract for the sale of
a parcel of land. Delivery and payment was set on 30 October 2019. On
30 October, if Isko changes his mind about the sale, Bernie cannot sue
Isko to compel the latter to perform his obligation under the contract of
sale which was not put in writing; hence, unenforceable.

⑦ A representation as to the credit of a third person.

🞈 Example: Delfino is applying for a loan with Cielo. Before she
releases the money, Cielo asks Ramiro about the credit standing of
Delfino. Ramiro orally assures Cielo that Delfino is solvent, and has good
credit reputation. On the basis of this representation, Cielo extends a loan
to Delfino. However, it turns out that Ramiro made a false representation
as to Delfino’s credit standing because Delfino defaulted in his obligation
to Cielo on due date. In this case, if the representation of Ramiro as to
Delfino’s credit standing was not made in writing, Cielo cannot hold
Ramiro liable for damages for such misrepresentation.

(d) VOID CONTRACTS. – A void contract is inexistent from the

beginning. In contemplation of law, there is no contract between the
parties. A void contract cannot be ratified the reason being that the defect
of the contract is permanent.
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⮲ Under Art. 1409, the following contracts are inexistent

and void from the beginning:

① Contracts whose cause, object or purpose is contrary to law,

morals, good customs, public order or public policy (e.g., a contract for the
sale of shabu).

② Contracts which are absolutely simulated or fictitious.

🞈 Example: Darius is indebted to Carrie. Upon learning that Carrie is
going to enforce her credit, Darius pretended to sell his land to Larry, his
father-in-law. Darius did not receive a single centavo for the transaction
from Larry, and Darius continued in the possession of the land, since the
contract was merely simulated or fictitious. There is no contract in this
case as the parties did not intend to be bound by the sale at all.

③ Contracts whose cause or object did not exist at the time of

the transaction (e.g., a contract for the sale of future inheritance, but sale
of hereditary rights is valid).

④ Contracts whose object is outside the commerce of men.

(Example: For a monthly consideration of P1,000.00, Lala obliged herself
to rent out to Ling the side walk outside her store to serve as Ling’s
parking space.)

⑤ Contracts which contemplate an impossible service.

(Example: Kiko promised to deliver to Zsazsa a mermaid from the San
Juanico Strait.)

⑥ Contracts where the intention of the parties relative to the

principal object of the contract cannot be ascertained. (Example: Dolphy
promised to sell to Panchito his BMW car. Dolphy, however, has five
BMW cars. Since it cannot be ascertained based on the parties’ contract
which car Dolphy is selling, the parties’ contract of sale is void.)
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⑦ Contracts expressly prohibited or declared void by law.

❿ THE “PARI DELICTO” DOCTRINE – Generally, parties to a void

agreement cannot expect the aid of the law; the courts leave them as they
are, because they are deemed in pari delicto or “in equal fault.” In pari
delicto is a “universal doctrine which holds that no action arises, in equity
or at law, from an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or
the money agreed to be paid, or damages for its violation; and where the
parties are in pari delicto, no affirmative relief of any kind will be given to
one against the other.

* * * END * * *
HAPPY READING & LEARNING! 

SOURCES of NOTES:

The discussions outlined in this module have been

collectively lifted from the cases cited and
commentaries made by the authors in the references
cited below:

1. Virgilio P. Alconera. Obligations and Contracts (Quezon City:

Central Book Supply, Inc., 2009).

2. Hector S. De Leon. The Law on Obligations and Contracts

(Manila: Rex Book Store, 2011).
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September
2019]
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3. Ruperto G. Martin. Introduction to Philippine Laws (Manila:

Premium Book Store, 1986).

4. Rolando A. Suarez. Introduction to Law (Manila: Rex Book

Store, Inc., 2017).

FOOD FOR THOUGHT

“Develop a passion for learning.

If you do, you will never cease to grow.”
Anthony J. D’Angelo