CONTRACTS The contracts are regulated by the agreement of the contracting
1.2.1 General Provisions
1.2.1.1 Definition
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 (Article 1305)
Criticisms in the definition provided under Art. 1305:
1. “to give something or to render some service” – connotes that
obligation not to do is not covered, which is wrong.
Eg. Contract not to put up a fence or not to sell products of a competitor
company, or in the case of Honda cars prohibiting conversion of the cars to
taxicabs
2. “whereby one binds himself” – connotes that only one is obligated,
which is wrong as well. Most of the contracts are actually reciprocal
or bilateral
3. “Two persons” – connotes that a contract cannot be perfected if there
is only one person, which is wrong. Auto-contracts although such
person represent different interests
1.2.1.2 Classification
The following may be mentioned:
(1) According to name or designation:
(a) Nominate; and
Those which have their own individuality and are regulated by special
provisions of law (sale, lease)
(b) Innominate. (see Art. 1307.) (2)
Those which lack individuality and are not regulated by special
provisions of law
1. Do ut des – I give that u give
2. Do ut facias – I give that u do
3. Facio ut des – I do that u give
4. Facio ut facias – I do that you do
Do ut des is, however, no longer an innominate contract. It has
already been given a name of its own, i.e., barter or exchange. (Art.1638.)
parties, by the general provisions or principles of obligations and contracts,
by the rules governing the most analogous nominate contracts, and by the
custom of the place
Reasons and basis for innominate contracts.
The impossibility of anticipating all forms of agreement on one hand,
and the progress of man’s sociological and economic relationship on the
other, justify this provision. (8 Manresa 623-625.) A contract will not,
therefore, be considered invalid for failure to conform strictly to the standard
contracts outlined in the Civil Code provided it has all the elements of a valid
contract. (Arts. 1318, 1356.)
Innominate contracts are based on the well-known principle that “no
one shall unjustly enrich himself at the expense of another.” (Cor-pus vs.
Court of Appeals, 98 SCRA 424 [1980].)
Rules governing innominate contracts.
Innominate contracts shall be governed by:
(1) the agreement of the parties;
(2) the provisions of the Civil Code on obligations and contracts;
(3) the rules governing the most analogous contracts; and
(4) the customs of the place.
ILLUSTRATIVE CASES:
1. Services were rendered and accepted without any contract.
Facts: On various occasions, X rendered services to Y as an interpreter of
English. No written contract was entered into between the parties for the
employment of X as interpreter. There was no evidence as to whether X’s
services were solicited, by Y or whether they were offered to Y, but there
was no question X rendered and Y accepted the benefits of the services.
Issue: Is Y under obligation to pay X just compensation for the services?
Held: Yes. It was with the express or tacit consent of Y that X rendered him
services as interpreter. As it did not appear that X rendered the same-
gratuitously, Y has the duty to pay X just compensation therefore by virtue of
the innominate contract of facio ut des implicitly established. The obligations
arising from the contract are reciprocal and apart from the general provisions
with respect to contracts and obligations, the special provisions concerning
contracts for lease of services (Arts. 1689-1731.) are applicable by analogy.
(Perez vs. Pomar, 2 Phil. 682 [1903].)
Note: When a person does not expect to be paid for his services there
cannot be a contract implied in fact to make compensation for said services.
In the same manner, when the person rendering services has renounced his
fees, the services are not demandable obligations. (Aldabavs. Court of
Appeals, 27 SCRA 263 [1969].) On the other hand, where a person fails to
render the services paid for, he is under obligation to return the amount paid.
(Sta. Ana Hardware & Co. vs. “Y’’ ShippingCorp., 64 SCRA 654 [1975].)
Art. 1307
An attorney-client relationship can be created by implied
agreement, as when the attorney actually rendered legal services for a
person who is a close friend. The absence of express contract for attorney’s
fees is no argument against their payment which may also be justified by
virtue of the nominate contract of
facio ut des. (Corpus vs. Court of Appeals, 98SCRA 424 [1980].)
2. Agreement whereby a person would pay the indebtedness of the
mortgagor in consideration of the use of the mortgaged property until
reimbursement of the amounts paid.
Facts: After the extrajudicial foreclosure by DBP (mortgagee) and sale of the
mortgaged lands to it, but within the one (1) year redemption period, R
(mortgagor) entered into a contract with B entitled “Deed ofSale with
Assumption of Mortgage’’ under which R sold the lands to Band the latter
assumed the mortgage indebtedness. In another document, R was given the
option to repurchase the property. B took possession of the property,
introduced improvements thereon, and appropriated the produce to himself.
R demanded an accounting of the income of the property, alleging
that the true intent of the parties in executing the contracts in question was to
create an equitable mortgage. (see Arts. 1602-1605.)
Issue: What contract was entered into by the parties?
Held: In the light of the foreclosure proceedings and sale of the properties x x
x as well as other relevant facts and circumstances x xx, the true intention of
the parties is that B would assume and pay the indebtedness of R to DBP,
and in consideration therefor, B was given the possession, the enjoyment,
and use of the lands until R can reimbursefully B the amounts paid by the
latter to DBP.
The agreement is one of those innominate contracts under Article130
7 of the new Civil Code whereby R and B agreed ‘to give and to do certain
rights and obligations respecting the lands and the mortgage debts of R
which would be acceptable to the bank, but partaking of the nature of
antichresis insofar as the principal parties (R and B) are concerned.’’
(Dizon vs. Gaborro, etc. and Development Bank of the Phils., 83 SCRA
688[1978].)
(2) According to perfection:
(a) Consensual; and
Those which are perfected by mere consent\agreement of the
contracting parties
(b) Real. (see Arts. 1315, 1316.) (3)
Those which require not only the consent of the parties for their
perfection, but also the delivery of the object by one party to the other.
(commodatum, deposit, pledge)
- or that which is perfected, in addition to the above, by the delivery of
the thing subject matter of the contract (e.g., depositum, pledge,
commodatum)
(c.) Formal
– those which require a certain form for its validity. E.g., antichresis
(3) According to cause:
(a) Onerous;
Those in which each of the parties aspires to procure for himself a
benefit through giving of an equivalent or compensation
- or one the cause of which, for each contracting party, is the prestation
or promise of a thing or service by the other. In other words, in this contract,
the parties are reciprocally obligated to each other
- such as a contract of sale, barter, lease and simple loans or mutuum
with stipulation for interest.
(b) Remuneratory or remunerative; and
- or one the cause of which is the service or benefit which is
remunerated. The purpose of the contract is to reward the service that had
been previously rendered by the party enumerated; and
 - where one prestation is given for a benefit or service that had been - where both parties are reciprocally obligated, e.g., lease (where the
rendered previously. lessor is obliged to allow the use of the thing and the lessee is obliged to
pay rent) and sale (where the buyer is obliged to pay the price and the
(c) Gratuitous. (see Art. 1350.) (4) seller obliged to deliver the thing) (ARTS. 1642, 1458)
Those in which one of the parties proposes to give to the other a
benefit without any equivalent or compensation (7) According to risk
- or one the cause of which is the mere liberality of the benefactor or (a) Commutative
giver, such as commodatum; pure donation; guaranty or suretyship unless (e.g.,sale, lease), when the undertaking of one party is considered the
there is a stipulation to the contrary (Art.2048.), mortgage given by a third equivalent of that of the other; and
person to secure an obligation of a debtor (see Art. 2085, last par.) unless a - where the parties contemplate real fulfillment, therefore, equivalent
consideration is paid for such mortgage values (presumably) are given, such as sales (where the price is presumably
the equivalent of the thing to be delivered) or lease (where the rental
(4) According to form: payments is presumably the value of use of the thing)
(a) Informal or common; and
- or that which may be entered into whatever form, provided, all the (b) Aleatory
essential requisites for their validity are present. (Art. 1356.) This refers only (e.g.,insurance, sale of a hope), when it depends upon an uncertain
to consensual contracts (Art.1356.), such as the contract of sale. An informal event or contingency both as to benefit or loss.
contract may be oral or written; and - where the fulfillment of the cause as to one party is dependent upon
chance, such as an insurance contract (where the payment will depend on
(b) Formal or solemn. (see Art. 1356.) the happening of the event insured against)
or that which is required by law forits efficacy to be in a certain
specified form. (8) According to liability:
(a) Unilateral
(5) According to obligatory force:
(e.g., commodatum, gratuitous deposit), when it creates an obligation
(a) Valid (see Art. 1306.);
on the part of only one of the parties; and
(b) Rescissible (Chapter 6.);
(c) Voidable (Chapter 7.);
(b) Bilateral
(d) Unenforceable (Chapter 8.); and
(e.g., sale, lease), when it gives rise to reciprocal obligations for both
(e) Void or inexistent. (Chapter 9.)
parties. The kind of contract entered into is not determined, however, by the
(6) According to person obliged: name or title given to it by the parties but by its nature or character as
(a) Unilateral; and determined by principles of law (Article 1371)
Those which give rise to an obligation for only one of the parties
(commodatum, gratuitous contract) (9) According to dependence to another contract:
- only one party is obliged. E.g., guaranty and pledge. (ARTS. 2047, (a) Preparatory
2093) (e.g.,agency, partnership), when it is enteredinto as a means to an
end;
(b) Bilateral. (see Art. 1191.) - a contract is a means to achieving an end, such as an option
Those which give rise to reciprocal obligations for both parties (Lease, contract, a contract of partnership and that of agency.
obligated,
allow
wherethe
- sale) both
use
e.g.,
parties
oflease are
(where
reciprocally
the to
(b) Accessory
(e.g.,mortgage, guaranty), when it is dependent on another contract it
secures or guarantees for its existence and validity; and
- those which cannot stand on its own and are dependent upon
other contracts for its validity. E.g., guaranty, suretyship, mortgage, and
antichresis.
(c) Principal
(e.g.,sale, lease), when it does not depend for its existence and
validity upon another contract but is an indispensable condition for the
existence of an accessory contract
- a contract which can stand on its own, such as a contract of sale,
barter, lease, loan.
(10) According to subject matter
(a) Thing
(b) Right
(c) Service
1.2.1.3 Stages of contract
a. Negotiation (Preparation or Conception or Generacion)
- is the first stage of contract that involves preliminary negotiations
and bargaining, discussion of terms and conditions, with no arrival yet of a
definite agreement.
- Here the parties are progressing with their negotiations; prior to the
arrival on a definite agreement. Here is where the parties provide for their
offers and bargain with each other.
b. Perfection or birth stage
- is the second stage of contract when there is meeting of minds
between the parties on a definite subject matter and valid cause.
- When the parties have already came to a definite agreement and all
the essential elements are present (which includes form or delivery in some).
c. Termination or consummation stage
- is the last stage of contract when the contract has been fulfilled
resulting in its accomplishment
- The terms of the contract have already been performed.
1.2.1.4 Freedom to Contract (establish stipulations) and limitation
Freedom to contract guaranteed.
The freedom to contract is both a constitutional and statutory right.
The right to enter into contracts is one of the liberties guaranteed to the
individual by the Constitution. It also signifies or implies the right to choose
with whom one desires to contract. The Constitution prohibits the passage of
any law impairing the obligation contracts.(Art. III, Sec. 10 thereof.)
However, the constitutional prohibition against the impairment of
contractual obligations refers only to legally valid contracts. (San Diego vs.
Mun. of Naujan, 107 Phil. 118 [1960].) In appropriate cases, it cannot be
invoked as against the right of the state to exercise its police power.
In other words, an individual does not have an absolute right to enter
into any kind of contract. (Lozano vs. Martinez, 146 SCRA 323[1986].)
However, because the autonomy or freedom of contract is both a
constitutional and statutory right, to uphold the right, courts are enjoined to
move with the necessary caution and prudence in holding contracts void.
(Gabriel vs. Mateo, 71 Phil. 497 [1941]; GSIS vs.Province of Tarlac, 417
SCRA 60 [2003].) The binding force of a contract must be recognized as far
as it is legally possible to do so. (Lopez vs.Vda. De Cuaycong, 74 Phil. 601
[1944]; Heirs of Late Spouses A and EBalite vs. Lim, 446 SCRA 56 [2004].)
The legal presumption is always the validity of contracts.
Limitations on contractual stipulations.
There are limitations to the freedom to contract.
(1) Law.
— It is a fundamental requirement that the contract entered into must be
in accordance with, and not repugnant to, an applicable statute. Its terms are
embodied in every contract. Without the need for the parties to expressly
making reference to it, an existing law enters and forms part of a valid
contract; it thus sets limits
(Maritime Co. of the Phils. vs. Reparations Commission, 40 SCRA 70 [1971];
see TaurusTaxi Co., Inc. vs. Capital Insurance & Surety Co., Inc., 24 SCRA
454[1968]; Roman Environmental Dev’t. Corp. vs. Court of Appeals,
167SCRA 540 [1988]; Cuyco vs. Cuyco, 487 SCRA 673 [2006].), counter-
balancing the principle of autonomy of contracting parties in Article 1306.
(Pakistan International Airlines Corp. vs. Ople, 190 SCRA 90 [1990].)
The parties to a contract are charged with knowledge of the existing
law at the time they enter into the contract and at the time it is to become
operative, and a person is presumed to be more knowledgeable about the
law of his country than an alien. (Communication Materialsand Design, Inc.
vs. Court of Appeals, 260 SCRA 673 [1996].)
Where a contract is entered into by the parties on the basis of
the law then obtaining, the repeal or amendment of said law will not affect
the terms of the contract, nor impair the rights of the parties hereunder. This
rule applies even if one of the contracting parties is the government.
(Recaña, Jr. vs. Court of Appeals, 349 SCRA 24 [2001].) Laws in force at the
time the contract was made generally govern its interpretation and
application. (Banco Filipino Savings and Mortgage Bank vs. Ybañez,445
SCRA 482 [2004].)
(2) Police power.
Public welfare is superior to private rights. When there is no law in
existence or when the law is silent, the will of the parties prevails unless their
contract contravenes the limitation of morals, good customs, public order, or
public policy. The policy of protecting contracts against impairment
presupposes the maintenance of a government by virtue of which contractual
relations are worthwhile— a government that retains adequate authority to
secure the peace and good order of society. In short, all contractual
obligations are subject— as an implied reservation therein — to the possible
exercise of the police power of the state.
Otherwise, important and valuable reforms may be precluded by the
simple device of entering into contracts for the purpose of doing that which
otherwise may be prohibited. Far from being an impairment of contractual
obligations, the exercise of such power constitutes, therefore, a mere
Enforcement of one of the conditions deemed imposed in all contracts.
(Central Bank of the Phil. vs. Cloribel, 44 SCRA 307 [1972]; Anucension vs.
National Labor Union, 80 SCRA 350 [1977]; see also Allied Investigation
Bureau, Inc. vs. Ople, 91 SCRA 265 [1979].)
The Supreme Court has held that a contract between the school and the
student imbued as it is, with public interest, is not an ordinary contract,
abandoning an earlier ruling
(in Alcaraz vs. PSBA, 161 SCRA523 [1990].) that enrollment of a student is a
semester-to-semestercontract and the school may not be compelled to
renew the contract, by recognizing instead the right of a student to be
enrolled for theentire period required in order to complete his course. (Non
vs. DamesII, 185 SCRA 523 [1990]; Isabelo, Jr. vs. Perpetual Help College
of Rizal,Inc., 227 SCRA 591 [1993].)
1.2.1.5 Person bound
1.2.2 Essential Requisites
Elements of a contract
Essential – those without which the contract cannot exist, i.e., Consent,
object, consideration. In some contracts, form and delivery is essential too
Natural – those which exist as part of the contract even if the parties do not
stipulate it because the law is deemed written therein.
Example: Warranty against eviction in a contract of sale or the warranty
against hidden defects.
Accidental – those which are agreed upon by the parties ad which cannot be
stipulated.
Example: stipulation for interest
1.2.2.1 Consent
This signifies the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. In other words, this
signifies the concurrence of the will of the two contracting parties with
respect to the object and cause which shall constitute the contract.
Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract
1.2.2.1.1 Requisites
Offer and Acceptance
• The offer must be certain
• The acceptance must be absolute
• A qualified acceptance constitutes a counter-offer
• An acceptance may be express or implied
• The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
Cognition Theory vs. Manifestation Theory:
a. Cognition Theory – follows that the acceptance takes effect from the
time the offeror knew (or has knowledge) of the acceptance of the
offeree.
 b. Manifestation Theory – on the other hand, follows that the
acceptance will take effect once it is manifested by the offeree.
In the Philippines, we abide by the Cognition Theory, since Art. 1319
provides that: “Acceptance made by letter or telegram does not bind the
offeror except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the offer
was made.” Intervening events: An offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed.
Option Agreement: When the offeror has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
Advertisements: Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to make an offer.
Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder unless the
contrary appears.
SITUATIONS CONCERNING CONSENT OF THE PARTIES:
a. Both parties gave consent their consent as to the essential elements
of the contract – the contract is valid.
b. Simulation: when one or both the parties did not intend to be bound
by the contract (absolute simulation), the same is void. Otherwise, if
the parties merely conceal their true agreement (relative simulation),
they shall be bound by their real agreement.
1.2.2.1.2 Capacitated persons
c. Incapacity of one of the parties:
Kinds of Capacity:
i. Juridical capacity - is the fitness to be the subject of legal relations, is
inherent in every natural person, and is lost only
through death.
If incapacity pertains to juridical capacity the contract is void.
ii. Capacity to act (or legal capacity) - is the power to do acts with legal
effect, is acquired and may be lost.
If incapacity pertains to the capacity to act or legal capacity, it can be:
i. Absolute Incapacity – the party cannot give consent in any contract,
with anyone, in whatever capacity, over
anything.
The following cannot give consent to a contract:
a. Unemancipated minors;
b. Insane or demented persons (except if consent is given during lucid
interval);
c. Deaf-mutes who do not know how to write; and
d. Drunks or hypnotized.
e. Persons suffering from civil interdiction
f. Incompetents under guardianship
Here the contract would be voidable as to the party who is incapacitated.
Those who are “incompetent” under the Rules of Court who may be placed
under guardianship:
a. Those suffering civil interdiction
b. Hospitalized lepers
c. Prodigals
d. Deaf and dumb who are unable to read and write
e. Those of unsound mind even though they have lucid intervals
f. Those who by reason of age, disease, weak mind, and other similar
causes, cannot without outside aid, take care of themselves and manage
their property, becoming thereby an easy prey for deceit and exploitation.
Note that these people (save for those suffering the penalty of civil
interdiction) can still enter into contracts if not
placed under guardianship. However, it can still be proven that intelligent
consent was not given and thus, may
still render the contract voidable.
ii. Relative Incapacity – a person may be prohibited from entering specific
contracts or that in a contract, he may be
prohibited in a certain capacity, e.g., prohibited to be the buyer, or to specific
things, or to specific persons.
Examples:
•An alien is prohibited under the Constitution from acquiring private lands.
EXCEPT: when acquired through (1) succession; or (2) sale of residential
land to a former natural-born Filipino citizen.
•Husbands and wives cannot enter into a contract of sale, unless they
agreed to a Separation of Property
marital property regime or they have been legally separated.
d. Both are incapacitated: the contract is unenforceable.
Exceptions to the rule that a contract entered into by an emancipated minor
without the consent of the parent is voidable
a. When the contract entered into by a minor who misrepresented his age,
applying the doctrine of estoppels. (Mercado vs Espiritu, 37 Phil 125)
b. Where the contract involves the sale and delivery of necessaries to the
minor (Art 1489, par 2 NCC)
c. Where it involves a natural obligation and such obligation is voluntarily
fulfilled by the minor, provided that such minor is 18 and 21 years of age
(Arts 1426, 1427 NCC)
d. When it is marriage settlement or a donation by reason of marriage,
provided that the minor is between 20 and 21 if male, or between 18 and 21
if female. (Art 120, 128 NCC)
Persons prohibited from entering into a contract
a. Insolvents before they are discharged by the insolvency Court.
Under the Insolvency Law (Act No. 1956), they cannot encumber,
alienate or otherwise dispose of their properties.
b. Non-Christians of Mindanao, Sulu, Mountain Province and Nueva
Vizcaya.
Under the Revised Administrative Code (145-146) they cannot sell property
without the written approval of the provincial governor or his representative.
This rule is still intact under RA 3872, although the sale is now subject to the
Approval of Chairman of the Commission on National Integration.
c. Husband and Wife.
Under the NCC, as a general rule, they are prohibited from donating
or selling property from each other during the marriage.
d. Persons who are prohibited from giving each other any donation or
advantage.
Under NCC they are prohibited in entering into a contract of Universal
Partnership.
e. Persons holding a fiduciary relation with respect to certain properties.
Thus under Art. 1491 of the NCC, the following cannot acquire by purchase,
even at public or judicial auction, in person or through the mediation of
another person, to wit:
1. The guardian – the property of the person or persons who may be
under his guardianship.
2. Agents – The property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given.
3. Executors and administrators – the property of the estate under
administration
4. Public Officers and Employees – the property of the State or of any
subdivision thereof, or of any government owned and controlled corporation,
or institution, the administration of which has been entrusted to them. This
prohibition shall apply to judges and government experts who in any manner
whatsoever, take part in the sale.
5. Justices, Judges, Prosecuting Attorneys, Clerks of Superior and
inferior courts and other officers and employees connected in the
administration of justice. – the property and the rights in litigation or levied
upon on execution before court within whose jurisdiction of territory they
exercise their respective function. This prohibition shall apply to lawyers with
respect to properties and rights which may be the object of the litigation they
are handling by virtue of their profession.
6. Any other persons specially disqualified by law.
Distinction between “incapacity to enter into a contract” and “prohibition to
enter into a contract”
incapacity to enter into a contract prohibition to enter into a
contract
1. Incapacity restrains the exercise 1. Prohibition retrains the right to
of the right to contract, meaning, contract itself. The disqualified
they could still enter into contracts, persons cannot enter to contracts
provided the contract they enter into
are coupled with the consent of
their parents or guardian.
. 2. The incapacity if based upon 2. Prohibition is based on public
subjective circumstance of certain policy and morality
persons which compel the law to
suspend for a definite or indefinite
period their right to contract.
 3. The contract entered into by 3. The contract entered into by
persons incapacitated to enter into persons prohibited to enter
contract is voidable. contracts is void.
1.2.2.1.3 Vices of Consent
e. Both parties gave their consent, but such consent was vitiated:
Two (2) kinds of vice of consent
1. Vices of the Will – comprehends mistake, violence, intimidation, undue
influence, and fraud.
2. Vices of Declaration – comprehends all forms of simulated contracts.
Vices of consent: would render the contract voidable.
a. Mistake
It may entail a misappreciation of facts or a mistake of law.
The following mistakes will make the contract voidable:
i. If the mistake pertains to the object of the contract;
ii. If the mistake pertains to the conditions which have principally moved one
or both parties to enter into the contract.
iii. Mistake as to the identity or qualifications of one of the parties when such
identity or qualifications have been the principal cause of the contract.
iv. Mutual error as to the legal effect of an agreement when the real purpose
of the parties is frustrated, may vitiate consent.
Mistake does NOT vitiate consent:
i. Mistake or error as to motive
ii. A simple mistake of account – which shall give rise to its correction only
iii. If the party alleging it knew the doubt, contingency or risk affecting the
object of the contract.
b. Violence - when in order to wrest consent, serious or irresistible force
is employed.
- Serious and irresistible force was employed in order to wrest consent
c. Intimidation - when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse,
descendants, or ascendants, to give his consent.
- One of the parties is compelled to enter into a contract or to give
consent by reason of a reasonable and well-grounded fear of an imminent
and grave evil upon his person or property, or upon the person or property of
his spouse, descendants or ascendants.
To 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.
d. Undue Influence - when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of
choice.
The following circumstances shall be considered: the confidential, family,
spiritual, and other relations between the parties, or the fact that the person
alleged to have been unduly influenced was suffering from mental weakness,
or was ignorant or in financial distress.
There is an undue influence when a person takes improper advantage of
his power over the will of another, depriving the latter a reasonable freedom
of choice. The following circumstances shall be considered: the confidential,
family, spiritual, and other relations between the parties or the fact that a
person alleged to have been unduly influenced was suffering from mental
weakness or was ignorant or in financial distress.
e. 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.
The use of insidious words or machinations by one of the contracting
parties, in order to induce the other party to enter into a contract, which
without such words, the other party would not have agreed thereto
In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
There is NO vitiation of consent on the grounds of fraud in the following
instances:
i. Failure to disclose facts, when there is NO duty to reveal them. But if there
is a duty to reveal them, failure to
disclose the facts constitutes fraud as when the parties are bound by
confidential relations.
ii. The usual exaggerations in trade, when the other party had an opportunity
to know the facts.
iii. A mere expression of an opinion does not signify fraud; UNLESS made by
an expert and the other party has relied
on the former's special knowledge
iv. Misrepresentation by a third person does not vitiate consent; UNLESS
such misrepresentation has created
a substantial mistake and the same is mutual.
v. Misrepresentation made in good faith is not fraudulent but may constitute
error.
Two (2) kinds of Fraud
1. Dolo Causante or Causal Fraud
It refers to those deceptions or misrepresentations of a serious character
employed by one party without which the other party would not have entered
into a contract The fraud is serious in character to the effect that it may
render the contract entered into as VOIDABLE.
2. Dolo Incidente or Incidental Fraud
It refers to the incidental deceptions or misrepresentation employed by
one party without which the other party would still have entered into a
contract. Since it is not used primarily to induce the other party to enter into
a contract, its effect is not so serious by may render the party who employed
the fraud liable for damages.
VICES OF DECLARATION
SIMULATIONS OF CONTRACT
Simulations of Contract may either be Absolute or Relative.
ABSOLUTE
The simulation is ABSOLUTE when there is a colorable contract but it
has no substance as the contracting parties do not intend to be bound by the
contract at all. This renders the contract void which may be subject for
annulment.
e.g. When a debtor simulates the sale of his properties to a friend in order to
prevent their possible attachment by creditors.
RELATIVE
It is relative when a person conceals a donation by simulating a sale
of property to the beneficiary for a fictitious consideration. This may serve as
a ground for an action for reformation of the contract.
1.2.2.2 Objects of Contracts
Object (Subject Matter) of the Contract: is really to create or to end
obligations, which, in turn, may involve things, rights or services.
It pertains to the thing, right or object which is the subject matter of
the obligation which is created or established.
Requisites:
a. The thing, right or service must be within the commerce of man;
b. It must be transmissible;
c. It must be licit. It must not be contrary to law, morals, good customs, public
order, or public policy;
d. It must not be impossible; It should exists at the moment of the celebration
of the contract or at least, it can exist subsequently or in the future.
e. It must be determinate as to its kind or determinable without the need of a
new contract or agreement.
Things, rights or services which cannot be the objects of a contract
1. Things which are outside the commerce of men
2. Intransmissible rights
3. Future Inheritance except in cases expressly authorized by law
4. Impossible Things or services
5. Services which are contrary to law, morals, good customs, public order
and public policy
6. Objects which are not determinable as to their kind.
Future Inheritance: cannot be the subject matter of a valid contract. This is
because the seller owns no inheritance while his predecessor lives. Public
policy demands that if you’re going to sell, you have the right to do so, but
not necessarily requiring that the seller is the owner.
1.2.2.3 Cause of considerations of contracts
Cause is the essential or impelling reason why a party assumes an
obligation.
It is the “why” of the contract or the essential reason which moves the
contracting parties to enter into a contract. It is the immediate, direct and
most proximate reason which explains and justifies the creation of an 2. The cause is the objective or the 2. The psychological or the
obligation through the will of the contracting parties juridical reason of the contract personal reason
3. They can affect the validity of the 3. Motives cannot affect the validity
a. Onerous – for each contracting party, the prestation or promise of a thing contract of the contract
or service by the other;
b. Gratuitous or Contract of pure Beneficience – mere liberality of the
benefactor 4. OTHER ESSENTIAL ELEMENTS:
c. Remuneratory – service or benefit already rendered.
Real Contracts: are those which are perfected by delivery, thus, delivery is
Rules on Cause: an essential element to its perfection. Real
a. Contracts without cause, or with unlawful cause, produce no effect contracts include:
whatever. The cause is unlawful if it is contrary to law, morals, good customs, 1.Deposit
public order or public policy 2.Pledge
b. The statement of a false cause in contracts shall render them void, if it 3.Commodatum
should not be proved that they were founded upon another cause which is 4.Simple Loan or Mutuum
true and lawful.
c. Although the cause is not stated in the contract, it is presumed that it Formal Contracts: where the execution of the required formality is also an
exists and is lawful, unless the debtor proves the contrary. essential element for perfection.
d. As a rule, the inadequacy of the price will not affect the contract. Except:
1.2.3 Forms of Contracts
(1)When expressly provided by law, e.g., rescissible contracts; GENERAL RULE: no form is required for the validity or perfection of a
(2)When there has been fraud, mistake or undue influence. contract.
e. The particular motives of the parties in entering into a contract are different Exceptions: Formalities required for VALIDITY:
from the cause thereof. 1.Donations of real property which requires a public instrument.
2.Donations of personal property which exceeds P5,000 which requires that
Exception: if it predominates the purpose of the party to enter into a contract. the donation be written.
E.g., sale to defraud creditors. 3.Stipulation to pay interests on loans or for the use of money, which must be
in writing.
Requisites of a valid cause: 4.Sale or transfer of large cattle which requires that it be in a public
1. The cause should be in existence instrument, registered and that there should be a certificate of transfer.
2. It should be licit or lawful
5.Contribution of real property in a partnership, which requires that there be
3. The cause should be true
an inventory attached to a public instrument.
Note: if the contract has no cause, or even if it has, if the cause should be
Formalities required for ENFORCEABILITY (STATUTE OF FRAUDS):
illicit or unlawful, the rule is that it shall not produce any effect whatsoever, it
The following are unenforceable, unless they are in writing, or some note or
is inexistent or void from the beginning.
Distinction between cause of a contract and motives of contracting parties memorandum and subscribed by the party charged, or by his agent:
Cause of a contract Motives of contracting parties
1.An agreement that by its terms is not to be performed within a year from
1. Direct or Proximate reason of a 1. Indirect or remote reason
the making thereof;
contract
2.A special promise to answer for the debt, default, or miscarriage of
another;
3.An agreement made in consideration of marriage, other than a mutual
promise to marry;
4.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;
5.An agreement of the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;
6.A representation as to the credit of a third person.
Formalities required for CONVENIENCE: to bind third persons, the following
are required to appear in a public instrument:
1.Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales
of real property or of an interest therein a governed by the Statute of Frauds.
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.
Remedy to require a specific form:
If the law requires a document or other special form if the contract is
VALID and ENFORCEABLE, as in the acts and contracts required to appear
in a public instrument for convenience (where the requirement that they must
be in writing for validity, if applicable, is met), the contracting parties may
compel each other to observe that form, once the contract has been
perfected.
1.2.4 Reformation of instruments/contracts
Reformation: is the remedy by means of which a written instrument is made
or construed so as to express or conform to the true intention of the parties
when some error or mistake has been committed.
Requisites:
1.There is a meeting of the minds;
2.There is a written instrument; and
3.The written instrument does not reflect the true intention of the parties.
When may reformation be had:
1. Mutual mistake of the parties. If one party was mistaken and the other
acted fraudulently or inequitably in such a way that the instrument does not
show their true intention, the former may ask for the reformation of the
instrument
2. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from
the former.
3. Ignorance, lack of skill, negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist.
4. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property
is sold absolutely or with a right of repurchase.
Who can ask for reformation:
1. If the mistake was mutual, reformation may be ordered at the instance of
either party or his successor in interest;
2. Otherwise, the injured party, or his heirs and assigns.
No reformation is allowed:
a. Simple donations inter vivos wherein no condition is imposed;
b. Wills;
c. When the real agreement is void.
Likewise, when one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
CONTRACT OF ADHESION
A contract whereby the terms are prepared by only one party while
the other party merely affixes his signature signifying his adhesion thereto
1.2.5 Interpretation of contracts
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. (1281)
Primordial Consideration: is the intention of the parties. Such that even if the
terms of the contract are clear, but does not reflect the intention of the
parties, it is the intention which would prevail.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
(1282)
Contemporaneous and Subsequent Acts: may be considered to determine if
the parties’ intentions are different from the clear words of the agreement.
In a case where a Deed of Assignment was issued as payment for the
obligation of the debtor in an indemnity agreement by way of dacion en
pago, the debtor thereafter made subsequent installment payments and
executed a mortgage, the SC held that clearly the subsequent acts of the
debtor do not reflect his claim that the deed of assignment was by dacion en
pago. The deed of assignment was a form of security for the indemnity
agreement.
Specific rules in interpretation of contracts:
1.However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree.
2.If some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render
it effectual.
3.The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them
taken jointly.
4.Words which may have different significations shall be understood in that
which is most in keeping with the nature and object of the contract.
5.The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
6.The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity
When none of the above rules will apply:
When it is absolutely impossible to settle doubts by the rules established in
the preceding articles, and the doubts refer to incidental circumstances of:
1.a gratuitous contract - the least transmission of rights and interests shall
prevail.
2.If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a way
that it cannot be known what may have been the intention or will of the
parties, the contract shall be null and void. (Art. 1378)
1.2.6 Defective contracts
1.2.6.1 Rescissible
A rescissible contract is a contract which is valid because it contains
all of the essential requisites prescribed by law, but which is defective
because of the injury or damage either of the contracting parties or to third
persons, as a consequence of which it may be rescinded by means of a
proper action for rescission in courts.
Rescission: is a process designated to render inefficacious a contract
validly entered into and normally binding, by reason of external conditions,
causing an economic prejudice to a party or his creditors.
This is the remedy granted by law to the contracting parties or to the
third persons, to secure the reparation of damages caused to them by a
contract, even if the same should be valid, by means of restorations of things
to their condition prior to the celebration of the contract
Resolution: is the proper term for “rescission” which is a remedy under Art.
1911 in reciprocal obligations. Unlike the proper rescission for rescissible
contracts, resolution is a primary remedy which can be availed of by the
parties and does not require lesion as a ground therefor but will require non-
performance or non-fulfillment of the obligation or when there is substantial
breach.
Rescissible Contracts:
Art. 1381. The following contracts are rescissible:
(1) Those 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 thereof;
 (2) Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those 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;
(5) All other contracts specially declared by law to be subject to rescission.
(1291a)
(6) Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were effected
are also rescissible.
Lesion – is the damage or injury to the party asking for rescission, which
represents the difference between the price and the actual value of the
property. Lesion, as a ground for rescission must be MORE THAN ONE-
FOURTH of the value
Requisites before a contract may be rescinded on the ground of lesion
1. The contract must be entered into by a guardian in behalf of his ward, or
by legal representative in behalf of the absentee;
2. The ward or the absentee has suffered lesion by more than one-fourth of
the value of the thing which is t he object thereof;
3. The contract must be entered into without court approval;
4. There must be no other legal means for obtaining reparation for the lesion;
5. The person bringing the action must be able to return whatever he may be
obliged to restore;
6. The object of the contract must not be legally in the possession of the
third person who did not act in bad faith.
Requisites before a contract entered into in fraud of creditors can be
rescinded
1. There must be a credit existing prior to the celebration of the contract;
2. There must be a fraud, or at least the intent to commit fraud, to the
prejudice of the creditor seeking the rescission;
3. The creditor cannot in any other manner collect the credit;
4. The object of the contract must not be legally in the possession of the
third person who did not act in bad faith.
Badges of fraud
1. The fact that the cause or consideration of the conveyance is inadequate.
2. A transfer made by a debtor after suit has been begun and while it is
pending against him
3. A sale on credit by an insolvent debtor;
4. Evidence of large indebtedness or complete insolvency
5. The transfer of all or nearly all of his property by a debtor, especially when
he is insolvent or greatly embarrassed financially;
6. The fact that the transfer is made between father and son, when there are
present others of the above circumstances;
7. The failure of the vendee to take exclusive possession of all the property.
In fraud of creditors: which is properly termed “accion pauliana,” through
which the creditor can interfere and have the contract entered into by the
debtor rescinded. This presupposes that the creditor cannot in any other
manner collect the claims due. Thus, if the debtor entered into a contract of
sale with a third person in order to have enough money to pay the creditor,
the latter cannot rescind such contract of sale since the sale was precisely
entered into to pay him his due.
Things under litigation: is rescissible whenever entered into without the
knowledge and approval of:
a.The litigants; or
b.Competent judicial authority (such as the court under which the thing is
subject to litigation).
Other contract subject to rescission under the law:
a.Rights of an unpaid seller;
b.In obligations to deliver a specific thing, where the same deteriorates with
the fault of the debtor before the suspensive condition is fulfilled (or
suspensive term arrives);
c.Lesion of at least one-fourth in partition.
d.In sale of real estate for a certain price per unit of measure and the real
estate delivered is deficient by more than 1/10 or when the buyer would not
have entered into the contract knowing the actual area of the real estate.
e. Payments made in a state of insolvency for obligations whose fulfillment
the debtor could not be compelled at the time they were effected.
Rescission as a remedy:
a. The action for rescission is subsidiary; it cannot be instituted except when
the party suffering damage has no other legal means to obtain reparation for
the same
b. Rescission shall be only to the extent necessary to cover the damages
caused
c. Restitution - rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its
interest.
d. It can be carried out only when he who demands rescission can return
whatever he may be obliged to restore
e. Rescission shall not take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad
faith. In which case, indemnity for damages may be demanded from the
person causing the loss.
f. If the sale of the property of the guardian or the absentee is approved by
courts, rescission is not an available remedy.
Presumption of Fraud:
a. Alienations by gratuitous title: 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.
b. Alienations by onerous title: presumed fraudulent when made by persons
against whom some judgment 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.
Whoever acquires in bad faith the things alienated in fraud of creditors shall
indemnify the latter for damages suffered on account of the alienation,
whenever, due to any cause, it should be impossible for him to return them.
Prescriptive Period: the action to claim rescission must be commenced
within 4 years. For persons under guardianship and for absentees, such four
year period shall begin upon termination of the ward’s incapacity or when the
absentee’s domicile is known.
a. On account of lesion – counted from the time of the termination of the
incapacity of the ward, or from the time the domicile of the absentee is
known
b. On account fraud – from the time of the discovery of fraud
Sale of land, 4 years is counted from the time of registration: When a
transaction involves registered land, the four-year period fixed in Article
1391 within winch to bring an action for annulment of the deed, shall
be computed from the registration of the conveyance.
The registration of the document is constructive notice of the conveyance to
the whole world. (HSBC vs. Pauli)
1.2.6.2 Voidable
Voidable Contracts: are those which are valid until they have been annulled
by proper action in court. However, they are likewise subject to ratification to
cure the defect.
Those in which all of the essential elements for validity are present,
but the element of consent is vitiated either by lack of legal capacity of one of
the contracting parties, or by mistake, violence, intimidation, undue influence
or fraud.
The following are voidable contracts:
a.Those where one of the parties is incapable of giving consent;
b.Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
c.Those entered into by those hypnotized or under a state of drunkenness
1.2.6.3 Unenforceable
1.2.6.4 Void and inexistent
Prescriptive Period: shall be four years. Ground Counted from: Intimidation,
violence or undue influence The defect of the consent ceases Mistake or
fraud Discovery Minority or incapacity Guardianship ceases Ratification:
extinguishes the action to annul a voidable contract. a.Ratification may be
effected by the guardian of the incapacitated person b.It does not require the
conformity of the contract party who has no right to bring the action for
annulment. c.It cleanses the contract from all the defects from the moment it
was constituted. d.It may be done: i.Expressly – either oral or written; or
ii.Tacitly (impliedly) – when the reason which renders the contract voidable
has ceased, the person who has a right to invoke annulment should execute
an act which necessarily implies an intention to waive such right.
Annulment: renders the contract non-existing, as if it was never entered into.
a.Only the injured party (the victim, whether principal or subsidiary party)
may ask for annulment. b.Creditors of the injured party cannot ask for the
annulment of the contract for they are not parties thereto. c.In case of
minority, and the minor misrepresents his age, and the other party was led to
believe the same, there can be no annulment, for here, the minor would be
estopped. d.Those who are capacitated cannot allege the incapacity of those
with whom they contracted with nor those who exerted intimidation, violence
or undue influence, or employed fraud, or caused mistake.
e. Effects of loss of the thing: i.The action for annulment of contracts shall
be extinguished when the thing which is the object thereof is lost
through the fraud or fault of the person who has a right to institute the
proceedings. ii.If the right of action is based upon incapacity, the loss of the
thing shall not be an obstacle to the success of the action, unless said loss
took place through the fraud or fault of the incapacitated person. f.Effects of
annulment: i.Generally, the parties are obliged to restore to each other the
things which have been the subject matter of the contract, with their fruits
and the price with its interest. ii.In obligations to render service, the value
thereof shall be the basis for damages. iii.In case of incapacity, the person
incapacitated is not obligated to make any restitution except insofar as he
has been benefited by the thing or price received by him. iv.Whenever the
person who is obliged to return the thing cannot do so because it has been
lost through his fault, he shall return: 1)the fruits received and 2)the value of
the thing at the time of loss 3)with interest from the same date. v.When one
party does not return what is due him by virtue of the annulment, he cannot
compel the other to comply what is incumbent upon him.
3.UNENFORCEABLE CONTRACTS Unenforceable contracts – are those
which have no effect until they are ratified. Kinds of Unenforceable
Contracts: a.Unauthorized contracts – those entered into in the name of a
person by one who has been given no authority or legal representation, or
who has acted beyond his powers.ill b.Those that do not comply with the
Statute of Frauds – these are agreements that are required to be in writing in
order to avoid fraud. Statute of Frauds: in order to be enforceable, the
following must be in writing, or in some note or memorandum: i.An
agreement that by its terms is not to be performed within a year from the
making thereof. ii.A special promise to answer for the debt, default, or
miscarriage of another; iii.An agreement made in consideration of marriage,
other than a mutual promise to marry; iv.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; v.An agreement of the leasing for a longer period
than one year, or for the sale of real property or of an interest therein. vi.A
representation as to the credit of a third person. Rules Applicable to Statute
of Frauds: a.It applies only to executory contracts, and not those which have
been partially or completely executed. b.The list is exclusive, that is, it
applies only to the agreements or contracts enumerated above. c.The
defense of Statute of Frauds may be waived. d.The Statute of Frauds is a
personal defense, that is, an agreement infringing it cannot be assailed by
third persons. e.If oral evidence is presented to prove the agreement, and
the other does not object thereto, there is deemed a waiver of the defense of
Statute of Frauds. The same is true if the other party has already accepted
the benefits of the contract. c.Those where both parties are incapable of
giving consent. 4.VOID OR INEXISTENT Void Contracts are those
which are either inexistent (as when the required formalities are not
complied with for its perfection, which produces no legal effects), or illegal
or illicit. 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; (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. Rules Applicable: a.The action or
defense for the declaration of the contract as inexistent does not prescribe.
b.The contract cannot be ratified. c.The defense of illegality of contract is not
available to third persons whose interests are not directly affected Legal
Effects of a Void Contract: GENERAL RULE: It cannot give rise to valid
subsequent contracts if the same are based on it. Generally, produces no
effect and no action to declare them void is needed. EXCEPTIONS: a.When
money is paid or property delivered for an illegal purpose, the contract may
be repudiated by one of the parties before the purpose has been
accomplished, or before any damage has been caused to a third person. In
such case, the courts may, if the public interest will thus be subserved, allow
the party repudiating the contract to recover the money or property. b.Where
one of the parties to an illegal contract is incapable of giving consent, the
courts may, if the interest of justice so demands allow recovery of money or
property delivered by the incapacitated person.
 order to avoid fraud.
e.Effects of loss of the thing:
i.The action for annulment of contracts shall be extinguished when the Statute of Frauds: in order to be enforceable, the following must be in writing,
thing which is the object thereof is lost or in some note or memorandum:
through the fraud or fault of the person who has a right to institute the i.An agreement that by its terms is not to be performed within a year from the
proceedings. making thereof.
ii.If the right of action is based upon incapacity, the loss of the thing shall not ii.A special promise to answer for the debt, default, or miscarriage of another;
be an obstacle to the success of the iii.An agreement made in consideration of marriage, other than a mutual
action, unless said loss took place through the fraud or fault of the promise to marry;
incapacitated person. iv.An agreement for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos, unless
f.Effects of annulment: the buyer accept and receive part of such goods and chattels, or the
i.Generally, the parties are obliged to restore to each other the things which evidences, or some of them, of such things
have been the subject matter of the in action or pay at the time some part of the purchase money; but when a
contract, with their fruits and the price with its interest. sale is made by auction and entry is
ii.In obligations to render service, the value thereof shall be the basis for made by the auctioneer in his sales book, at the time of the sale, of the
damages. amount and kind of property sold, terms
iii.In case of incapacity, the person incapacitated is not obligated to make of sale, price, names of the purchasers and person on whose account
any restitution except insofar as he has the sale is made, it is a sufficient
been benefited by the thing or price received by him. memorandum;
iv.Whenever the person who is obliged to return the thing cannot do so v.An agreement of the leasing for a longer period than one year, or for the
because it has been lost through his fault, he sale of real property or of an interest
shall return: therein.
1)the fruits received and vi.A representation as to the credit of a third person.
2)the value of the thing at the time of loss
3)with interest from the same date. Rules Applicable to Statute of Frauds:
v.When one party does not return what is due him by virtue of the annulment, a.It applies only to executory contracts, and not those which have been
he cannot compel the other to comply partially or completely executed.
what is incumbent upon him. b.The list is exclusive, that is, it applies only to the agreements or contracts
enumerated above.
3.UNENFORCEABLE CONTRACTS c.The defense of Statute of Frauds may be waived.
d.The Statute of Frauds is a personal defense, that is, an agreement
Unenforceable contracts – are those which have no effect until they are infringing it cannot be assailed by third persons.
ratified. e.If oral evidence is presented to prove the agreement, and the other does
not object thereto, there is deemed a
Kinds of Unenforceable Contracts: waiver of the defense of Statute of Frauds. The same is true if the other party
a.Unauthorized contracts – those entered into in the name of a person by has already accepted the benefits
one who has been given no authority or of the contract.
legal representation, or who has acted beyond his powers.ill
b.Those that do not comply with the Statute of Frauds – these are c.Those where both parties are incapable of giving consent.
agreements that are required to be in writing in
4.VOID OR INEXISTENT
Void Contracts are those which are either inexistent (as when the
required formalities are not complied with for its
perfection, which produces no legal effects), or illegal or illicit.
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;
(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.
Rules Applicable:
a.The action or defense for the declaration of the contract as inexistent does
not prescribe.
b.The contract cannot be ratified.
c.The defense of illegality of contract is not available to third persons whose
interests are not directly affected
Legal Effects of a Void Contract:
GENERAL RULE: It cannot give rise to valid subsequent contracts if the
same are based on it. Generally, produces no effect
and no action to declare them void is needed.
EXCEPTIONS:
a.When money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties
before the purpose has been accomplished, or before any damage has been
caused to a third person. In such case,
the courts may, if the public interest will thus be subserved, allow the party
repudiating the contract to recover the
money or property.
b.Where one of the parties to an illegal contract is incapable of giving
consent, the courts may, if the interest of justice
so demands allow recovery of money or property delivered by the
incapacitated person.
c.When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designated for the
protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered.
d.In case of a divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced.
Illegal Contracts: can either be that which involves a criminal offense or
where there is no criminal offense.
a.When there is a criminal offense and both parties are at fault/guilty (in pari
delicto) they shall have no shall have no
action against each other; they shall both be prosecuted; the effects of the
crime shall be confiscated in favor of the
government.
b.When there is no criminal offense, same rights as to recovery, except no
prosecution will be involved. As such, if both
are at fault, no recovery can be made by either. But if only one party is at
fault, the innocent party may demand the
return of what he has given, without any obligation to comply with his
promise.