CONTRACTS

(ARTICLE 1305-1422)
Article 1305 - Article 1315

Reporter: Yessha Jane B. Magdaraog

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.
Is it necessary that a contract must be in
writing?
On 8 September 2023 Nobita ordered
and paid dorayaki with Shizuka to be
delivered on 10 September 2023 for
Doraemon's birthday.
Contract and obligation distinguished
•Contract is one of the sources of obligations.

•Obligation is the legal tie or relation itself

that exists after a contract has been entered
into.
Hence, there can be no contract if there is no
obligation. But an obligation may exist without
a contract.
Contract and agreement distinguished

•All contracts are agreements

•Not all agreements are contracts

Therefore, all contracts are agreements but
not all agreements are contracts.
ARTICLE 1306

The contracting parties may establish such

stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not
contrary to law, morals, good customs, public
order, or public policy.
Erik Vicencio knew that he was going to fail Mr.
Cruz's subject. Therefore, he went to his office to ask
what he can do to pass his subject. Mr. Cruz stated
that for Erik to pass he must perform immoral
conducts with him.
Juan de la Cruz bought the votes of his
neighbors in order for him to win the position
as Barangay Captain.
ARTICLE 1307

Innominate contracts shall be regulated by the

stipulations of the parties, by the provisions of
Titles I and II of this Book, by the rules governing
the most analogous nominate contracts and by the
customs of the place.
CLASSIFICATION OF CONTRACTS

(1)Nominate contract or that which has a specific

name or designation in law (e.g., commodatum,
lease, agency, sale, etc.)
(2) Innominate contract or that which has no
specific name or designation in law.
KINDS OF INNOMINATE CONTRACT

(1)do ut des (I give that you may give)

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

(3) facto ut des (I do that you may give)

(4)facto ut facias (I do that you may do)

ARTICLE 1308

The contract must bind both contracting parties,

its validity or compliance cannot be left to the will
of one of them.
Ogie agreed to sell his house to Jack for
₱500,000. Jack, on the other hand, also agreed
to buy Ogie's house with the price they both
agreed upon.
ARTICLE 1309

The determination of the performance may be left

to a third person, whose decision shall not be
binding until it has been made known to both
contracting parties.
Alvin sold his land to Simon. It was agreed that
Theodore, a real estate appraiser, would be the
one to determine the reasonable price of the
land.
ARTICLE 1310

The determination shall not be obligatory if it is

evidently inequitable. In such case, the courts
shall decide what is equitable under the
circumstances.
Alvin and Theodore came to an agreement
whereby Theodore would receive 20% of the
₱500,000 that Alvin would receive from
Simon if he could raise the land's price to
₱500,000 from its initial value of ₱250,000.
ARTICLE 1311

Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property
he received from the decedent.
If a contract should contain some stipulation in favor of a third person,
he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third
person.
Analyn Santos is indebted to Zoe Tanyag in
the amount of ₱500,000.
•NOT TRANSMISSIBLE BY NATURE

Jack will paint a portrait for Rose.

•NOT TRANSMISSIBLE BY STIPULATION

If Jack and Rose both acknowledged that their contract will only take effect
between the two of them.

•NOT TRANSMISSIBLE BY PROVISION OF LAW

A partnership between Jack and Rose.

Andrea owes Ricci ₱10,000 payable after one year
at 12% interest. It was agreed that the interest of
₱1,200 would be given to Leren to whom Ricci is
indebted for the same amount.
ARTICLE 1312

In contracts creating real rights, third persons who

come into possession of the object of the contract are
bound thereby, subject to the provisions of the
Mortgage Law and the Land Registration laws.
A real right is binding against the whole world
and attaches to the property over which it is
exercised wherever it goes.
Chloe mortgaged her land in favor of Angela as a
security for her debt. The mortgage is duly
registered in the Registry of Property. Later on,
Chloe sold the same land to Bernard.
ARTICLE 1313

Creditors are protected in case of contracts intended

to defraud them.
Shaira is indebted to Christy in the amount of
₱500,000. Shaira sells her land to Leon in order
that Christy may not attach the land in the
payment of her debt and Shaira has no other
property.
Article 1314.

Any third person who induces another to violate his contract

shall be liable for damages to the other contracting party.
Tom is a well-known actor who has a one-year
contract with 123 Studio. He is not allowed to
date anyone while he is under contract with 123
Studio. However, Tom was induced by his friend
Jerry to breach the agreement without good
reason. Later on, Tom got his girlfriend Toodles
Galore pregnant.
ARTICLE 1315

Contracts are perfected by mere consent, and from

that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but
also to all the consequences which, according to
their nature, may be keeping with good faith, usage
and law.
 EFFECT OF PERFECTION OF THE
CONTRACT
(1)to the fulfillment of what has been expressly stipulated

Betty sold an Arabian horse to Barbie for ₱1,000,000.

(2) to all the consequences which according to their nature, may

be in keeping with good faith, usage, and law.

Betty agreed to sell her Arabian horse to Barbie. It was stipulated

that

Betty should deliver the horse to Barbie the next day.

Article 1316 - Article 1326

Reporter: Aradyl R. Medilo

 Characteristics of a Contracts
1. Mutuality of Contract (Art. 1308, 1309, 1310)

2. Autonomy/Liberty of Contract (Art. 1306)

3. Relativity of Contract (Art. 1311, 1312, 1313, 1314)

4. Consensuality of Contract (Art. 1315, 1316)

5. Obligatory Force of Contract (Art. 1159)

ART. 1316.

Real contracts, such as deposit, pledge and

commodatum, are not perfected until the delivery
of the object of the obligation.
 Kinds or Classification of Contracts
According to Perfection or Formation

1. Consensual (by consent)

- perfected by mere agreement of the parties.
• Freight contracts
• Sale of goods
• Services agreements

2. Real (by delivery)

- requires not only the consent but also the delivery of the object.
• Deposit
• Pledge
• Commodatum
3. Formal or Solemn (by specific forms)
- requires special formalities for a contract to be perfected.
These formalities may include written documentation,
signatures, notarization, or other legal requirements.

• Marriage contract
• Real Property Deeds
• Donation
ART. 1316.

Real contracts, such as deposit, pledge and

commodatum, are not perfected until the delivery
of the object of the obligation.

Pledge
- is a bailment that conveys
possessory title to property
owned by a debtor (the
pledgor) to a creditor (the
pledgee) to secure
repayment for some debt or
obligation and to the mutual
benefit of both parties.
Example:
Lira needs to borrow some
money to start a small business in
Lireo, and she approaches her
friend Imao for a loan. However,
Imao is hesitant to lend her the
money without any security. To
secure the loan, Lira agrees to
pledge her valuable jewelry as
collateral.
Deposit
A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of
returning the same. (Art. 1962)

Commodatum
By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; (Article 1933)
Example situation of Commodatum:

Kathryn needs a car to attend a special event out of town, but her own car is undergoing repairs. Her friend
Alden offers to lend her his car for the weekend. They enter into a commodatum agreement where Alden,
the bailor, lends his car to Kathryn, the bailee, for temporary use and enjoyment.

Perfection of the Contract:

The commodatum agreement is not perfected until Alden physically delivers his car to Kathryn for her
use. Once Kathryn takes possession of the car, the commodatum contract is considered complete.
 Stages in the life of a contract.
A contract undergoes three (3) distinct stages. They are:

1. Preparation
2. Perfection
3. Consummation
ART. 1317.
No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to
represent him.

A contract entered into in the name of another by one who has

no authority or legal representation, or who has acted beyond
his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting
party.
ART. 1317.
(par1)
No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to
represent him.

Example:

Daedalus owns a motor, Icarus sold his father’s motor to

King Mino without being authorized.
ART. 1317.
(par2)
A contract entered into in the name of another by one who
has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other
contracting party.
Requisites for a person to contract in the name of another

• He must be authorized (expressly or Impliedly)

• He must have the law, a right to represent him
• A contract must be subsequently ratified (expressly or Impliedly)
• He must act within his power
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.
1. Consent of the contracting parties;

All parties involved in the contract must freely and voluntarily

agree to the terms and conditions without any form of coercion
or undue influence. Consent must be given by individuals with
the legal capacity to enter into contracts.
2. Object certain which is the subject matter of the contract;

The contract must have a specific and determinate subject matter

that is being agreed upon by the parties. The subject matter must
be capable of being transferred, delivered, or performed.
3. Cause of the obligation which is established.

The cause or consideration of the contract refers to the reason

why the parties are entering into the agreement. There must be
a lawful reason or purpose for the contract, such as a promise,
benefit, or performance.
ART. 1319.

Consent is manifested by the meeting of the offer and the

acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.

Acceptance made by letter or telegram does not bind the

offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
 First Paragraph Example (Offer and Acceptance)

Hermes offers to sell Pandora’s Box to Ara for $77,000. He specifies in the offer
that Ara must accept by signing a contract and delivering the payment at his house
by 7:00 AM tomorrow.

Ara accepts the offer without any changes. She signs the contract and delivers
the payment to Hermes's house by the specified time.
ART. 1319.

Consent is manifested by the meeting of the offer and the

acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.

Acceptance made by letter or telegram does not bind the

offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
 Second Paragraph Example (Acceptance via Letter)

Ara sends her acceptance letter to Hermes's house, but Hermes hasn't
received or read the letter yet. In this case, Ara's acceptance doesn't bind
Hermes until he becomes aware of it.

Once Hermes receives and reads Ara's letter, the contract is presumed to
have been formed at the location where Hermes made the offer, which is
his house.
ART. 1320.

An acceptance may be express or implied.

ART. 1321.

The person making the offer may fix the time, place,
and manner of acceptance, all of which must be
complied with.
Example:

Eros wants to sell his arrow to Athena. Eros sends Athena a message stating, "I offer to sell you
my arrow for $80,000. You must accept this offer by signing the agreement at my palace by
5:00 PM tomorrow.“

In this scenario:

The offer: Eros offers to sell his car for $80,000.

Conditions: Eros specifies that Athena must accept the offer by signing the agreement.
Time: Eros sets the deadline for acceptance by 5:00 PM tomorrow.
Place: Eros specifies that the acceptance must occur at his palace.
ART. 1322.

An offer made through an agent is accepted from the

time acceptance is communicated to him.
Example:

Faye authorized Acer, the Agent to sell her painting for $100,000 to Yoko.
ART. 1323.

An offer becomes ineffective upon the death, civil interdiction,

insanity, or insolvency of either party before acceptance is
conveyed.
Death - contracts requires the mutual consent of both parties, and the death of
one party prevents this mutual agreement from occurring.

Civil Interdiction - deprives individuals of parental rights, guardianship,

marital authority, and the right to manage and dispose of property. It is an
accessory penalty for those sentenced to death commuted to life
imprisonment, reclusion perpetua, or reclusion temporal.

Insolvency – insolvent (unable to pay debts)

Insanity - insane, mentally incapacitated

ART. 1324.

When the offerer has allowed the offeree a certain period

to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as
something paid or promised.
Example:

Dazz offers to sell his bike to Joy for $1,000 and gives her 7 days to
accept the offer.
During this period, Joy considers the offer but does not immediately accept
it.
On the fourth day, John changes his mind and decides not to sell the car
anymore.
He must communicate this withdrawal to Sarah before she accepts the
offer.
However, if Joy pays Dazz $100 as consideration to keep the offer open
for 7 days,
Dazz cannot withdraw the offer before the weekends, regardless of
whether Joy accepts it or not, because the consideration (the $100) makes
the option irrevocable for that period.
ART. 1325.

Unless it appears otherwise, business advertisements of

things for sale are not definite offers, but mere invitations to
make an offer.
 Example:

The owner puts up a sign in front of a plot of land that says,

"FARM LOTS FOR SALE" This sign is an invitation for people to
inquire about buying a farm. It doesn't mean that every lot is
immediately up for sale at a fixed price.

When interested buyers contact the owner, they can discuss which
lots are available, their sizes, prices, and any other details. The
buyers can then make offers based on their preferences and budget.

Contact 09998765453
ART. 1326.

Advertisements for bidders are simply invitations to

make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary
appears.
Example:

A local government agency is planning to build a new community park.

They issue an advertisement inviting construction companies to submit
bids for the project. Several companies, including Company X, Company
Y, and Company Z, respond to the advertisement with their proposals.

Company X submits the lowest bid, offering to complete the project for
$500,000.

Company Y submits a bid of $550,000, slightly higher than Company X.

Company Z submits the highest bid at $600,000.

Article 1327 - Article 1337

Reporter: Nadine Vargas

ARTICLE 1327

The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how
to write.39
 Reason for Disqualification

These are the person
who have not yet reach
the age of majority and
are still subject to a
parental authority.
A minor can be
emancipated by
marriage, attainment of
the age of majority, or
by parental or judicial
authority.

UNEMANCIPATED MINORS
 INSANE OR DEMENTED PERSONS

 The insanity must exist at the time of contracting.

Unless proved otherwise, a person is presumed sane.

 Even if a person had already declared insane, this does

not necessarily mean that at the time of contracting,
said person was still insane.
ARTICLE 1328

Contracts entered into during a lucid interval are

valid. Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable
ARTICLE 1329

The incapacity declared in Article 1327 is subject to the

modification determined by law, and is understood to be without
prejudice to special disqualifications established in the laws.
 INCAPACITY DECALRED IN ARTICLE 1327 SUBJECT TO MODIFICATION

• A minor, 18 years
• When such old above may
necessaries such as contract for life,
food, are sold and health and accident
• A contract is valid
delivered to a insurance,
if entered into
minor or other provided, the
through a guardian
person without insurance is taken
or legal
capacity to act, he on his life, the
representative.
may pay a beneficiary
reasonable prize appointed is the
therefor. minor’s estate or
the minor’s family
INCAPACITY DECALRED IN ARTICLE 1327 SUBJECT TO MODIFICATION

• A contract is valid
• A contract is valid where a minor
where the minor between 18 and 21
who was near years of age
majority age voluntary pays a
sum of money or
misinterpreted his
delivers a fungible
actual age and thing in fulfillment
convincingly led of his obligation
the other party to thereunder and the
believe In his legal oblige has spent or
capacity. consumed it in good
faith.
FOR EXAMPLE:

Mark, a 15 years old, was able to convince john (20 years old ) that he
(mark) is of legal age and so they both entered a contract.
OTHER SPECIAL DISQUALIFICATIONS MAY BE PROVIDED BY
LAW;

1. Under the Rules of Court, the following are considered

incompetents and maybe placed under guardianship:
a) Persons suffering the accessory penalty of civil interdiction
b) Hospitalized lepers;
c) prodigals (spendthrifts);
d) Deaf and dumb who are unable to read and write;
e) Those who are unsound of 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
ARTICLE 1330

A contract where consent is given through mistake, violence,

intimidation, undue influence, or fraud is voidable.
THERE IS NO VALID CONSENT UNLESS:

 It is intelligent
 It is free and voluntary
 It is conscious or spontaneous

VICES OF CONSENT:

 Error or mistake
 Violence or force
 Intimidation or threat
 Undue influence
 Fraud
FOR EXAMPLE:
Jacob and Juliet went on a drinking session. By the time Juliet became
drunk, Jacob ask Juliet if she would like to buy his car. Juliet agrees.

Yes sure!
Do you Hic!
want to buy
my car?
ARTICLE 1331

In order that mistake may invalidate consent, it should refer

to the substance of the thing which is the object of the
contract, or to those conditions which have principally
moved one or both parties to enter into the contract. Mistake
as to the identity or qualifications of one of the parties will
vitiate consent only when such identity or qualifications have
been the principal cause of the contract. A simple mistake of
account shall give rise to its correction.
 NATURE OF MISTAKE

 the mistake
 Mistake  the mistake
contemplated
may be of may be
by law is
fact or of unilateral or
substantial
law bilateral
mistake of fact
 MISTAKE REGARDING THE OBJECT

For example:

Frieza is buying from son Goku a dragon balls, but son Goku is selling a
normal ball.
 MISTAKE REGARDING CONDITION OF THE CONTRACT

For example:
Mrs. Wicket is selling her town house for 2 million but Mr. Bean is buying
the town house thinking that the price is payable in installments

installment!
 MISTAKE REGARDING IDENTITY OR
QUALIFICATIONS
For example:
Princess Sofia donated her anklet to princess amber. Princess Sofia thought
that Princess Amber was her half-sister but it turned out that Princess Amber
is not related to Princess Sofia
 MISTAKEOF FACT THAT DOES NOT VITIATE
CONSENT
MISTAKE REGARDING THE INCIDENTS OF A
THING OR ACCIDENTAL QUALITIES
For example:
Plankton wants to buy a house that can overlook through the sea and it just
happened that Sponge bob is selling a house that can overlook the sea. When
Plankton bought the house he didn’t expect the accessibility of the house and the
parking station is bad.
 MISTAKE REGARDING MOTIVES OF THE
CONTRACT
For example:
Bubbles sold her apartment for her friend Blossom for 500 thousand, her
motive is to use the money to start a business.
MISTAKE WHICH COULD HAVE BEEN AVOIDED

Refers to a fact known to him or which he should have known by

the exercise of ordinary diligence or which is so obvious that
nobody could have made it.
 TWO EFFECT OF MISTAKE ACCOUNT

WHERE MISTAKE IS SIMPLE – A SIMPLE

MISTAKE OF ACCOUNT OR CALCULATION
DOES NOT AVOID A CONTRACT BEACASE IT
DOES NOT AFFECT ITS ESSENTIAL
REQUISITES. THE EEFECT IS MERELY IN THE
COMPUTATION OF THE ACCOUNT OR
AMOUNT WHICH CAN BE CORRECTED.
For example:
Dora sold to Boots a parcel of land with an area of 567 square
meters at 415 per square meter. In the document of sale, the
purchase price stated is 285,305 pesos when it should be 235, 305
pesos.

Php 285,000.00

Php 235.305.00
 TWO EFFECT OF MISTAKE ACCOUNT

WHERE MISTAKE IS GROSS – WHERE THE

MISTAKE WAS SO GROSS THAT IT WAS
CLEARLY APPARENT TO ONE PARTY AND
THEREFORE, WOULD BE IMPOSSIBLE TO
ESCAPE HIS NOTICE, SAID PARTY CANNOT
AVOID THE LIABILITY ON THE GROUND OF
MISTAKE IN COMPUTATION.
 For example:
Tarzan sold to Jane a parcel of land for 235,305 pesos stated as
having an area of 567 square meters but with an actual area of only
467 square meters.

467 square meter

567 square
CANCEL! meter

Php 235,000.00
ARTICLE 1332

When one of the parties is unable to read, or if the contract is

in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the
terms thereof have been fully explained to the former.
 GENERAL RULE

THE PRESUMPTION ONE ALWAYS ACT WITH DUE

CARE AND SIGNS WITH ALL KNOWLEDGE AND
UNDERSTANDING OF THE CONTENT AT THE SAME.

If one party can’t understand or can’t read a contract he alleged that

the document is fraud and mistake. The other party will imposing the
contract where he should explain in another party all the terms that
they used in the contract and to prove that there has no fraud\ mistake
in the contract.
 FOR EXAMPLE:
Glenda is blind, as a contract of mortgage but actually a deed of
sale and later on she alleged a fraud or a mistake, grandma who
imports the contract must comply to the article 1332, if she
enabled to, then the contract will be annulled.

FRAUD!

COMPLY TO THE ARTICLE 1332

ARTICLE 1333
There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
EFFECT OF KNOWLEDGE RISK

if a party has the knew beforehand the doubt,

contingency, or risk; affecting the object of
the contract, it is to be assumed that he was
willing to take chances and cannot, therefore,
claim mistake.
FOR EXAMPLE:

Mulan bought a parcel of land from Pinocchio who informed her before
the contract was perfected that the land was involved in a litigation in
which Merida is the claimant.

Parcel of land Sell the land

Bought the land claimant

ARTICLE 1334

Mutual error as to the legal effect of an agreement when the real

purpose of the parties is frustrated, may vitiate consent.
 MISTAKE OF LAW
which arises from an ignorance of some
provisions of law, or from an erroneous interpretation of its meaning.

EFFECT OF MISTAKE OF
LAW
As a rule, mistake of law does not invalidate consent because
ignorance of the law excuses no one from compliance therewith
REQUISITES FOR THE APPLICATION OF ARTICLE
1334.
(1) The error must be mutual;

(2) It must be as to the legal effect of an agreement; and

(3) It must frustrate the real purpose of the parties.

FOR EXAMPLE:

Nobita borrows Php 10,000.00 from Doraemon. As security for the debt, it
was agreed that Nobita should mortgage his parcel of land in favor of
Doraemon. However, the document as written is one of antichresis, the parties
erroneously believing that it has the same effect as a mortgage.

Php 10,000.00
ARTICLE 1335

There is violence when in order to wrest consent, serious or

irresistible force is employed. There is intimidation when one
of the contracting parties is compelled by a reasonable and
well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent. To
determine the degree of the intimidation, the age, sex and
condition of the person shall be borne in mind. A threat to
enforce one’s claim through competent authority, if the claim is
just or legal, does not vitiate consent.
VIOLENCE INTIMIDATION

- PHYSICAL - MENTAL/
FORCE/ MORAL
PHYSICAL COERCION
COERCION

- EXTERNAL - 0INTERNAL
DAMAGE DAMAGE
 REQUISITES OF
VIOLENCE

Employment The reason

of serious or why the
irresistible contract was
force entered into
FOR EXAMPLE:

Maria did not want to sign a contract, but Pedro pointed a knife
at her neck and it caused her to bleed.
 REQUISITES OF INTIMIDATION

 It must produce a reasonable and well-grounded fear of an

evil;

 The evil must be imminent and grave;

 The evil must be upon his person or property, or that of his

spouse, descendants, or ascendants; and

 It is the reason why he enters into the contract

FOR EXAMPLE:

SAKURAGI OWES PHP 5,000.00 TO RUKAWA.

Php 5,000
ARTICLE 1336

Violence or intimidation shall annul the obligation, although it

may have been employed by a third person who did not take part
in the contract
ARTICLE 1337

There is undue influence when a person takes improper advantage

of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall
be considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the person alleged to
have been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress.
FOR EXAMPLE:

Belle a tenant, is in need of php 5000 to pay Snow White, her landlord
who is seeking to eject her for failure to pay the rents. Belle tried to
borrow from Beast but the latter instead tells her to sell her piano for Php
5000.

I need Php Sell your

5000 piano
Article 1138 - Article 1346

Reporter: Rene Soqueron Facundo II

ARTICLE 1338

There is fraud when, through insidious words or

machinations of one of the contracting parties, the
other is induced to enter into a contract which,
without them, he would not have agreed to.
 KINDS OF FRAUD

1.Casual Fraud

2. Incidental fraud
KINDS OF FRAUD

1.Casual Fraud

is the fraud committed by one party before or at the time of celebration

of the consent of the contract so as to secure the consent of the other.
Example:

Ivan offered to sell to Lara a ring claiming that

the stone on the ring is a diamond. Ivan knows
that it is not diamond but ordinary glass.
KINDS OF FRAUD

2. Incidental fraud

it is fraud committed at the time of the performance of the obligation or

after the valid has been entertained to.
Example:

Gohan sold to Bedjita a house and lot, misrepresenting

that the place was accessible to means of
transportation.
ARTICLE 1339

Failure to disclose facts, when there is a duty to

reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
FRAUD BY CONCEALMENT

A neglect or failure to communicate that which a

party to a contract knows and ought to communicate
constitutes concealment. In this case, concealment is
equivalent to misrepresentation.
EXAMPLES:
Xian and Yassi are partners engaged in the real estate
business. Here, the parties are bound by confidential
relations. Xian learned that Carlo was interested in buying a
certain parcel of land owned by the partnership even for a
high price. Without informing Yassi, Xian was able to make
Yassi sell to him (Xian) his (Yassi) share in the partnership.
Then, Xian sold the land at a big profit.
ARTICLE 1340

The usual exaggerations in trade, when the other

party had an opportunity to know the facts, are not
in themselves fraudulent.
Usual exaggerations in trade.

It is the natural tendency for merchants and traders to

resort to exaggerations in their attempt to make a sale at
the highest price possible. When the person dealing with
them had an opportunity to know the facts, the usual
exaggerations in trade are not in themselves fraudulent.
ARTICLE 1341

A mere expression of an opinion does not signify

fraud, unless made by an expert and the other
party has relied on the former’s special
knowledge.
EXPRESSION OF OPINION
To constitute fraud, the misrepresentation must refer to facts,
not opinions. Ordinarily, a mere expression of an opinion
does not signify fraud. In order that it may amount to fraud,

The following requisites must be present:

(1) It must be made by an expert
(2) The other contracting party has relied on the expert’s
opinion; and
(3) The opinion turned out to be false or erroneous
Example:
Felix, a farmer, found a ring. He does not
know anything about precious stones. He sells
the ring to Ben honestly believing, and telling
Ben, that it is a diamond ring.
ARTICLE 1342

Misrepresentation by a third person does not

vitiate consent, unless such misrepresentation has
created substantial mistake and the same is
mutual.
Fraud by a third person.
A third person has no connection with a contract.
Consequently, a misrepresentation by him does not
vitiate consent. A party should not be made to suffer
for the imprudence of another in believing the fraud
of a third person. The presumption is that both
contracting parties are acting in good faith.
Example:
Sarrah bought the land of Ben for P2,000.00 per
square meter. The reasonable price of lands in
the same vicinity is P3,000.00 per square meter
but Ben sold it only for P2,000.00 per square
meter because Carlo had deceived him
regarding its market value.
ARTICLE 1343

Misrepresentation made in good faith is not

fraudulent but may constitute error.
Effect of misrepresentation made in good faith.

If the misrepresentation is not intentional but made

in good faith it is considered a mere mistake or error.
Fraud is definitely more serious than mistake; hence,
the party guilty of fraud is subject to greater liability.
Example:
Felix, a farmer, found a ring. He does not know
anything about precious stones. He sells the
ring to Ben honestly believing, and telling Ben,
that it is a diamond ring.
ARTICLE 1344

In order that fraud may make a contract voidable,

it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person
employing it to pay damages.
TWO KINDS OF FRAUD IN MAKING OF A CONTRACT

(1) causal fraud

(2) incidental fraud

Kinds of fraud in the making of a contract

1. Causal fraud (dolo cuasante)

or fraud employed to secure the consent of the
other party, which is a ground for the annulment of a
contract although it may also give rise to an action
for damages;
REQUISITES OF CAUSAL FRAUD

1. It should be serious.

2. It should not have been employed by both contracting

parties, i.e., they should not be in pari delicto.

3. It should not have been known by the other contracting

party.

4. It should be invoked by the proper party

Example:
Peter sold to Allan a parcel of land
representing was absolutely free from liens and
encumbrances Allan gave his consent on faith
of Peter representation. Then when the sale
was registered, it was found that a lis pendens
notice was annotated.
Kinds of fraud in the making of a contract

2. Incidental fraud (dolo incidente)

or fraud likewise employed to secure the consent of the
other party but which only renders the party who employs
it liable for damages.
Example:
Mara enter into a contract to deliver 500 cavan
of rice to Clarra with a price per cavan of 1300
pesos. Marra delivered 300 cavans but without
withheld the delivery of the remaining stating
that the price went up and priced the rice to
1600pesos per cavan.
ARTICLE 1345

Simulation of a contract may be absolute or

relative. The former takes place when the parties
do not intend to be bound at all; the latter, when
the parties conceal their true agreement.
The requisites for simulation are:

(a) an outward declaration of will different

from the will of the parties

(b) the false appearance must have been

intended by mutual agreement; and

(c) the purpose is to deceive third persons.

ARTICLE 1346

An absolutely simulated or fictitious contract is

void. A relative simulation, when it does not
prejudice a third person and is not intended for
any purpose contrary to law, morals, good
customs, public order or public policy binds the
parties to their real agreement.
.
KINDS OF SIMULATION

(1) Absolute simulation

(2) Relative simulation

Kinds of simulation
1. Absolute simulation or when the contract does not
really exist and the parties do not intend to be bound
at all. Absolutely simulated or fictitious contracts are
inexistent and void and are not susceptible of
ratification. The parties may recover from each other
what they may have given under the “contract.’’
Example:
David is indebted to Carlo. Upon learning that Carlo
s going to enforce his credit, David pretended to sell
his land to Ferdinand, his father-in-law. David did
not receive a single centavo for the deed of sale he
executed and he continued in possession of the land
as the contract was merely simulated or fictitious.
Kinds of simulation

2. Relative simulation or when the contract entered into

by the parties is different from their true agreement or
the parties state a false cause in the contract to conceal
their real agreement. The parties are bound by their real
agreement, provided, it does not prejudice a third person
and is not intended for a purpose contrary to law, morals,
good customs, public order, or public policy.
Example:
Carlo and David entered into a contract
of mortgage. But wanting to hide the
mortgage, it was made to appear in the
form of a deed of sale.
There 2 Juridical acts involved in Simulation.

1. Ostensible act - it is the apparent but fictitious document or

conduct executed by the parties. It always void.

2. Hidden act – it is the true or real agreement contemplated by

the parties. It is valid it is not contrary to law morals, good customs,
public order, or public policy.
Article 1347 - Article 1355
Reporter: Ma Nerissa Montemayor
ARTICLE 1347

All things which are not outside the commerce of men,

including future things, may be the object of a contract.
All rights which are not intransmissible may also be the
object of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be
the object of a contract.

.
OBJECT OF CONTRACT REQUISITE

1. Things or service must be within the commerce of

men

2. It must be transmissible

3. It must be not contrary to law, moral, good customs,

public order or public policy
FUTURE INHERITANCE

is any property or right, not in existence or

capable of determination at the time of the
contract, that a person may inherit in the future.

.
 ARTICLE 1348

Impossible things or services cannot be the object

of contracts.

.
ARTICLE 1349

The object of every contract must be determine as to

its kind. The fact that the quantity is not determinate
shall not be an obstacle to the existence of the contract.
Provided it is possible to determine the same, without
the need of a new contract between the parties

Example:
Jacob promise sarah to deliver one of his car.
Jacob promise sarah to deliver his december 2020
harvest.
.
ARTICLE 1350

In onerous contracts the cause is understood to

be, for each contracting party, the prestation
or promise of a thing or service by the other;
in remuneratory ones, the service or benefit
which is remunerated; and in contracts in pure
beneficence, the mere liberality of the
benefactor.
Cause is the essential or more proximate purpose or reason
which the contracting parties have in view at the time of
entering into the contract.

Cause distinguished from object

In a bilateral or reciprocal contract like purchase and sale, the cause for one is the subject matter or
object for the other, and vice versa. Hence, the distinction is only a matter of viewpoint.

EXAMPLE: Shiela sells a watch to Bernard for P2,000.

 Classification of cause of contracts are:
1. Onerous - In this contract, the parties are reciprocally obligated to each other.

2.. Remuneratory – The cause of which is the service or benefit that is being
remunerated. The purpose of the contract is to reward the service that had been
previously rendered by the party remunerated.

3. Gratuitous – The cause of which is the mere liberality of the benefactor or giver.
ARTICLE 1351

The particular motives of the parties in

entering into a contract are different from
the cause thereof.

Example:
Jacob buy a gun to kill Sarah.
Cause distinguished from motive.

1. Cause is the immediate or direct reason, while motive is the

remote or indirect reason;

2. Cause is always known to the other contracting party, while

motive may be unknown;

3. Cause is an essential element of a contract, while motive is not;

4. The illegality of the cause affects the validity of a contract,

while the illegality of one’s motive does not render the contract
void.
ARTICLE 1352

Contracts without cause, or with unlawful cause,

produce no effect whatever. The cause is unlawful
if it is contrary to law, morals, good customs,
public order or public policy.
.
REQUISITE OF CAUSE

1. It must exist at the time the contract is entered into.

2. It must be lawful.

3. It must be true or real.

ARTICLE 1353

The statement of a false cause in contracts shall

render them void, If it should not be proved that
they were founded upon another cause which is
true and lawful.
 Example:

Sarah sells to Jacob a parcel of land. In the deed of sale,

P100,000.00 is stated as the price of the land. If the
statement is false, then there is no contract of sale.
ARTICLE 1354

Although the cause is not stated in the contract, it

is presumed that it exists and is lawful, unless the
debtor proves the contrary.
 Example:

“Fifteen days after date, I promise to pay Jacob or order the

amount of Php 10,000.00.”

Signed

“Sarah”
ARTICLE 1355

Except in cases specified by law, lesion or

inadequacyof cause shall not invalidate a contract,
unless there has ben fraud, mistake or undue influence.

Meaning of Lesion.
Lesion is any damage caused by the fact that the price
is unjust or inadequate.
 Example:

Jacob sold his million worth house to Sarah for only

100,000.00.