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CHAPTER 3 Forms ART. 1356. Contracts shall be obligatory, in whate er !orm they may ha e been entere" into, #ro i"e" all the essential re$%isites !or their ali"ity are #resent. Howe er, when the law re$%ires that a contract be in some !orm in or"er that it may be ali" or en!orceable or that a contract be #ro e" in a certain way, that re$%irement is absol%te an" in"is#ensible. &n s%ch cases, the right o! the #arties state" in the !ollowing articles cannot be e'ercise". (en. R%le) Whatever may be the form in which the contract may have been entered into, it shall be obligatory #ro i"e" all the essential re$%isites !or its ali"ity are PRE*E+T. Ex. Contract of partnership, although entered verbally, is obligatory.1 E'ce#tions) ,-%ra"o. 1. When the law requires that the contract must be in a certain form in order to be valid. 2. When the law requires that the contract must be in a certain form in order to be enforceable. ,Cag%ioa. 1. hose where the form is required for the validity of the contract. a. !onations of real property require a public document and donations of movables worth more than "#,$$$ b. ransfer of large cattle c. %ale of land through an agent d. &nterests in loan e. "rincipal interest in antichresis f. Contract of partnership to which a real property or real rights are contributed g. 'egotiable instruments 2. (. hose where form is required for the purpose of proving the existence of the contract. hose where the form is required for the purpose of ma)ing the contract effective against third persons. 1. hese contracts may be classified as follows* Contracts which must appear in writing a. !onations of personal property whose value exceeds five thousand pesos2 b. %ale of a piece of land or any interest therein through an agent( c. +greements regarding payment of interest in contracts of loan, d. +ntichresis# Contracts which must appear in a public document a. !onations of immovable propertyb. "artnerships where immovable property or real rights are contributed to the common fund. Contracts which must be registered a. Chattel /ortgages0 b. %ales or transfers of large cattle1

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Formalities !or en!orceability +ccording to olentino, the formalities may be classified into three groups* 1. hose which are required for the validity of the contract ad esentia, ad solemnitatem /. hose required to ma)e the contract effective as against third parties1$ 3. hose required for the purpose of proving the existence of the contract Form o! Contracts Re$%ire" by 0aw 1. hose which are necessary for the convenience of the contracting parties or for the efficacy of the contract11 2. hose which are necessary for the validity of the contract

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Formalities !or ali"ity

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Obligations and Contracts 1E Reviewer Page |$ San Beda College of Law (.

hose which are necessary for the enforceability of the contract122 Re!ormation13 3 the remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mista)e has been committed. Re$%isites) 1. 2. (. here must be a meeting of the minds of the contracting parties heir true intention is not expressed in the instrument %uch failure to express their true intention is due to mista)e, fraud, inequitable or accident

ART. 1351. &! the law re$%ires a "oc%ment or other s#ecial !orm, as in the acts an" contracts en%merate" in the !ollowing article, the contracting #arties may com#el each other to obser e the !orm, once the contract has been #er!ecte". This right may be e'ercise" sim%ltaneo%sly with the action %#on the contract. ART. 1352. The !ollowing m%st a##ear in a #%blic "oc%ment) 1. Acts an" contracts which ha e !or their ob3ect the creation, transmission, mo"i!ication or e'ting%ishment o! real rights o er immo able #ro#erty4 sales o! real #ro#erty or o! an interest therein are go erne" by Articles 1563, +o. / an" 15654 /. The cession, re#%"iation or ren%nciation o! here"itary rights or o! those o! the con3%gal #artnershi# o! gains4 3. The #ower to a"minister #ro#erty, or any other #ower which has !or its ob3ect an act a##earing or which sho%l" a##ear in a #%blic "oc%ment, or sho%l" #re3%"ice a thir" #erson4 5. The cession o! actions or rights #rocee"ing !rom an act a##earing in a #%blic "oc%ment. All other contracts where the amo%nt in ol e" e'cee"s !i e h%n"re" #esos m%st a##ear in writing, e en a #ri ate one. 7%t sales o! goo"s, chattels or things in action are go erne" by Articles 1563, +o. / an" 1565. CHAPTER 5 REF8R9AT&8+ 8F &+*TR:9E+T* Art. 135;. <hen, there ha ing been a meeting o! the min"s o! the #arties to a contract, their tr%e intention is not e'#resse" in the instr%ment #%r#orting to embo"y the agreement, by reason o! mista=e, !ra%", ine$%itable con"%ct or acci"ent, one o! the #arties may as= !or the re!ormation o! the instr%ment to the en" that s%ch tr%e intention may be e'#resse". &! mista=e, !ra%", ine$%itable con"%ct, or acci"ent has #re ente" a meeting o! the min"s o! the #arties, the #ro#er reme"y is not re!ormation o! the instr%ment b%t ann%lment o! the contract.

Rationale) he doctrine of reformation of instrument is based on 4ustice and equity. &t would be un4ust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties. >istinction !rom ann%lment o! contracts) 5eformation of instruments presupposes a perfectly valid contract in which there has already been a meeting of the minds of the contracting parties, while annulment of contracts are based on a defective contract in which there has been no meeting of the minds because the consent of one or both of the contracting parties has been vitiated. Art. 1366. The #rinci#les o! the general law on the re!ormation o! instr%ments are hereby a"o#te" inso!ar as they are not in con!lict with the #ro isions o! this Co"e. Art. 1361. <hen a m%t%al mista=e o! the #arties ca%ses the !ail%re o! the instr%ment to "isclose their real agreement, sai" instr%ment may be re!orme". Re$%isites o! mista=e15) 1. he mista)e is one of fact 2. &t is common to both parties (. he proof of mutual mista)e must be clear and convincing 9ista=e o! !act ? the written evidence of agreement includes something which should not be there, or omits from such instrument something that should be there6 it simply sets forth something different from what is intended.
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Stat/te of fra/ds

Cag/ioa 00. "#) ,olentino 00. ""+

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Art. 136/. &! one #arty was mista=en an" the other acte" !ra%"%lently or ine$%itably in s%ch a way that the instr%ment "oes not show their tr%e intention, the !ormer may as= !or the re!ormation o! the instr%ment. Art. 1363. <hen one #arty was mista=en an" the other =new or belie e" that the instr%ment "i" not state their real agreement, b%t conceale" that !act !rom the !ormer, the instr%ment may be re!orme". Art. 1365. <hen thro%gh the ignorance, lac= o! s=ill, negligence or ba" !aith on the #art o! the #erson "ra!ting the instr%ment or o! the cler= or ty#ist, the instr%ment "oes not e'#ress the tr%e intention o! the #arties, the co%rts may or"er that the instr%ment be re!orme". Art. 1365. &! two #arties agree %#on the mortgage or #le"ge o! real or #ersonal #ro#erty, b%t the instr%ment states that the #ro#erty is sol" absol%tely or with a right o! re#%rchase, re!ormation o! the instr%ment is #ro#er. Art. 1366. There shall be no re!ormation in the !ollowing cases) ,1. *im#le "onations inter i os wherein no con"ition is im#ose"4 ,/. <ills4 ,3. <hen the real agreement is oi". Art. 1361. <hen one o! the #arties has bro%ght an action to en!orce the instr%ment, he cannot s%bse$%ently as= !or its re!ormation. Rationale) &t is because there has been an election as between inconsistent remedies, one in affirmance of the written contract and the other in disaffirmance. he party suing under the written contract may be said to have ratified the same. Art. 1362. Re!ormation may be or"ere" at the instance o! either #arty or his s%ccessors in interest, i! the mista=e was m%t%al4 otherwise, %#on #etition o! the in3%re" #arty, or his heirs an" assigns. Art. 136;. The #roce"%re !or the re!ormation o! instr%ment shall be go erne" by r%les o! co%rt to be #rom%lgate" by the *%#reme Co%rt. CHAPTER 5 &+TERPRETAT&8+ 8F C8+TRACT* Art. 1316. &! the terms o! a contract are clear an" lea e no "o%bt %#on the intention o! the contracting #arties, the literal meaning o! its sti#%lations shall control. &! the wor"s a##ear to be contrary to the e i"ent intention o! the #arties, the latter shall #re ail o er the !ormer. R%le in inter#retation o! contracts) he intention of the contracting parties should always prevail because their will has the force of law between them. 7urado stressed that the cardinal rule in statutory construction should be followed in interpreting contracts. &f the terms of contracts are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed. Art. 1311. &n or"er to 3%"ge the intention o! the contracting #arties, their contem#oraneo%s an" s%bse$%ent acts shall be #rinci#ally consi"ere". (eneral r%le) !ocuments are interpreted in the precise terms in which they are expressed, but the courts, in the exercise of their sound discretion, are called upon to admit and simultaneous circumstantial evidence necessary for their interpretation with the purpose of ma)ing the true intention of the parties prevail. Art. 131/. Howe er general the terms o! a contract may be, they shall not be %n"erstoo" to com#rehen" things that are "istinct an" cases that are "i!!erent !rom those %#on which the #arties inten"e" to agree. &n the construction of an instrument, when a general and a particular provision are inconsistent 1#, the latter is paramount to the former. + particular intent will control a general one that is inconsistent with it. R%les in inter#reting contracts when the terms are im#ro#er)16 1. &f the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 2. &n order to 4udge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.
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Stat/tor1 Constr/ction Cag/ioa

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(. + particular intent will control a general one that is inconsistent with it. Art. 1312. <hen it is absol%tely im#ossible to settle "o%bts by the r%les establishe" in the #rece"ing articles, an" the "o%bts re!er to inci"ental circ%mstances o! a grat%ito%s contract, the least transmission o! rights an" interests shall #re ail. &! the contract is onero%s, the "o%bt shall be settle" in !a or o! the greatest reci#rocity o! interests. &! the "o%bts are cast %#on the #rinci#al ob3ect o! the contract in s%ch a way that it cannot be =nown what may ha e been the intention or will o! the #arties, the contract shall be n%ll an" oi". Art. 131;. The #rinci#les o! inter#retation state" in R%le 1/3 o! the R%les o! Co%rt shall li=ewise be obser e" in the constr%ction o! contracts. CHAPTER 6 RE*C&**&70E C8+TRACT* Classes o! >e!ecti e contracts) 1. 5escissible contracts there is damage or in4ury to one of the contracting parties or to third persons considered valid and enforceable until they are rescinded by a competent court he action for rescission may prescribe 'ot susceptible of ratification /aybe assailed only by a contracting party +ssailed directly but not collaterally 2. 8oidable contracts here is vitiation of consent or legal incapacity of one of the contracting parties Considered valid and enforceable until they are annulled by a competent court he action for annulment may prescribe /ay be assailed only by a contracting party /ay be assailed directly or collaterally 9nenforceable contracts he contract is entered into in excess or without any authority, or does not comply with the %tatute of :rauds, or both contracting parties are legally incapacitated Cannot be enforced by a proper action in court

Art. 1313. &! some sti#%lation o! any contract sho%l" a"mit o! se eral meanings, it shall be %n"erstoo" as bearing that im#ort which is most a"e$%ate to ren"er it e!!ect%al. Art. 1315. The ario%s sti#%lations o! a contract shall be inter#rete" together, attrib%ting to the "o%bt!%l ones that sense which may res%lt !rom all o! them ta=en 3ointly. + contract cannot be interpreted by parts, but should be construed as a whole1. in relation to one another. Art. 1315. <or"s which may ha e "i!!erent signi!ications shall be %n"erstoo" in that which is most in =ee#ing with the nat%re an" ob3ect o! the contract. When there is doubt as to the meaning, it should be determined by a consideration of the general scope and the purpose of the instrument in which it occurs. 10 Art. 1316. The %sage or c%stom o! the #lace shall be borne in min" in the inter#retation o! the ambig%ities o! a contract, an" shall !ill the omission o! sti#%lations which are or"inarily establishe". Art. 1311. The inter#retation o! obsc%re wor"s or sti#%lations in a contract shall not !a or the #arty who ca%se" the obsc%rity. R%les in inter#reting contracts where there are omissions)1; 1. he usage or customs of the place shall be borne in mind in order to fill in such omissions2$ R%les to !ollow where terms are "o%bt!%l) /1 1. he various stipulations shall be interpreted together 2. &f some stipulations of any contract should admit of several meanings, it shall be understood as having that import which is most adequate to render it effectual. (. he usage or customs of the place shall be borne in mind in order to fill in such omissions.
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2d. 2d. Cag/ioa %rt. 1(#* S/0ra. 1)

Obligations and Contracts 1E Reviewer Page |" San Beda College of Law
1. ;iet tin gi chua, vao day coi di http*<<www.freewebtown.com<gaigoisai gon< mif there was total or partial pe ;iet tin gi chua, vao day coi di http*<<www.freewebtown.com<gaigoisai gon< contract under no. 1 or ( of +rt. 1,$(, may prescribe %usceptible of ratification /ay be assailed only by a contracting party /ay be assailed directly or collaterally 2. (. ,. #. heir defect consists in in4ury or damage either to one of the contracting parties or to third persons. ;efore rescission, they are valid and, therefore, legally effective. hey can be attac)ed directly only, and not collaterally. hey can be attac)ed only by either by a contracting party or by a third person who is in4ured or defrauded. hey are susceptible of convalidation only by prescription, and not by ratification.

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8oid or inexistent contracts =ne or some of the essential requisites of a valid contract are lac)ing either in fact or in law !o not produce any legal effect he action for declaration of nullity or inexistence or the defense of nullity or inexistence does not prescribe 'ot susceptible for ratification /ay be assailed not only by a contracting party but even by a third person whose interest is directly affected /ay be assailed directly or collaterally

Conce#t o! rescission) 5escission is a remedy granted by law to the contracting parties, and even to third persons, to secure the reparation of damages caused to them by a contract, even if the same should be valid, by means of the restoration of things to their condition prior to the celebration of the contract. Rescission "isting%ishe" !rom resol%tion) Rescission he action may be instituted not only by a party to the contract, but by even a third party. here are several causes or grounds such as lesion, fraud and others expressly specified by law. here is no power of the courts to grant an extension of time for performance of the obligation so long as there is ground for rescission +ny contract, whether unilateral or reciprocal, may be rescinded Resol%tion &nstituted by a party to the contract. he only ground is failure of one of the parties to comply with what is incumbent upon him he law expressly declares that courts shall have a discretionary power to grant an extension for performance provided that there is 4ust cause =nly reciprocal contracts may be resolved

Art. 1326. Contracts ali"ly agree" %#on may be rescin"e" in the cases establishe" by law. Rescissible contracts ? a contract which is valid because it contains all the essential requisites prescribed by law, but which is defective because of in4ury or damage to either of the contracting parties or to third persons, as a consequence of which it may be rescinded by a means of a proper action for rescission. > + remedy to ma)e ineffective a contract validly entered into and which is therefore obligatory under the normal conditions by reason of external causes resulting in a pecuniary pre4udice to one of the contracting parties or their creditors.22

olentino discussed rescission in reciprocal obligations and gave the following similarities and differences* *imilarities ;oth presupposes contracts validly entered into and existing ;oth require mutual restitution when declared proper

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3/ci/s Scaevola 4Cagi/oa5

Article 1;11

Cha#ter 6

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/ay be demanded only by a party to the contract. /ay be denied by the court when there is sufficient reason to 4ustify extension of time he only ground for rescission is non> performance +pplies only to reciprocal obligations /ay be demanded by a third person pre4udiced by the contract 'ot applicable in this chapter here are various reasons +pplicable to both unilateral and reciprocal obligations. #. -. he person bringing the action must be able to return whatever he may be obliged to restore he ob4ect of the contract must not be legally in the possession of a third person who did not act in bad faith

0esion @ he in4ury suffered, in consequence of inequality of situation, by one who does not receive the full equivalent of what he gives in a commutative contract. Ain"s o! rescissible contracts by reason o! lesion) 1. hose entered into by guardians whenever the wards whom they represent suffer lesion by more than one>fourth of the value of the thing 2. hose agreed upon in representation of absentees (. "artition of inheritance where an heir suffers lesion of at least one>fourth of the share to which he is entitled. Contracts in Fra%" o! Cre"itors 1. here must be a credit existing prior to the celebration of the contract 2. here must be a fraud, or at least, the intent to commit fraud, or at least, the intent to commit fraud to the pre4udice of the creditor see)ing the rescission (. he creditor cannot in any other legal manner collects his credit ,. he ob4ect of the contract must not be legally in the possession of a third person who did not act in bad faith P%r#ose) o guarantee an existing credit 7urado relates this with accion pauliana 2,, and in order that such contract be rescinded, the following requisites must first concur* 1. he plaintiff as)ing for rescission has a credit prior to alienation 2. he debtor has made a subsequent contract conveying a patrimonial benefit to a third person (. he creditor has no legal remedy to satisfy his claim ,. he act being impugned is fraudulent #. he third person who received the property conveyed has been an accomplice in the fraud (eneral r%le) he rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and this must be proved as one of the bases of the 4udicial pronouncement setting aside the contract.
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Art. 1321. The !ollowing contracts are rescissible) 1. Those which are entere" into by g%ar"ians whene er the war"s whom they re#resent s%!!er lesion by more than one@!o%rth o! the al%e o! the things which are the ob3ect thereo!4 Those agree" %#on in re#resentation o! absentees, i! the latter s%!!er the lesion state" in the #rece"ing n%mber4 Those %n"erta=en in !ra%" o! cre"itors when the latter cannot in any other manner collect the claims "%e them4 Those which re!er to things %n"er litigation i! they ha e been entere" into by the "e!en"ant witho%t the =nowle"ge an" a##ro al o! the litigants or o! com#etent 3%"icial a%thority4 All other contracts s#ecially "eclare" by law to be s%b3ect to rescission.

/. 3. 5.

5.

(ro%n"s !or rescission/3) 1. ?esion or pre4udice 2. :raud or bad faith (. %pecial cases governed by special provisions @+rts. 1101, 1111, 1#2-, 1#(0, 1#,2, 1##-, 1#-. and 1-#1$ Re$%isites) 1. he contract must have been entered into by a guardian in behalf of his ward or by a legal representative in behalf of an absentee 2. he ward or absentee must have suffered lesion of more than one> fourth of the value of the property which is the ob4ect of the contract (. he contract must have been entered into without 4udicial approval ,. here must be no other legal means for obtaining reparation for the lesion

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Cag/ioa

%rt. 1('1

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Fra%" as a gro%n" !or rescission)/5 1. hose underta)en in fraud of creditors a. here must be an existing credit b. hat said credit existed prior to the contract to be rescinded c. here is existence of fraud or that the debtor has the intention to in4ure by acting )nowingly and in bad faith d. hat the creditor cannot in any other way recover the credit 2. hose which refer to things under litigation if they have been entered into by defendant without the )nowledge and approval of the litigants or of competent 4udicial authority. (. "ayments made in a state of insolvency Art. 132/. Payments ma"e in a state o! insol ency !or obligations to whose !%l!illment the "ebtor co%l" not be com#elle" at the time they were e!!ecte", are also rescissible. Re$%isites) 1. hat it must have been made in a state of insolvency 2. hat the obligation must have been one which the debtor could not be compelled to pay at the time such payment was effected. &nsol ency ? a financial situation of the debtor by virtue of which it is impossible for him to fulfill his obligations. Art. 1323. The action !or rescission is s%bsi"iary4 it cannot be instit%te" e'ce#t when the #arty s%!!ering "amage has no other legal means to obtain re#aration !or the same. 5escission is not a principal remedy. &t is only subsidiary, meaning that it can be availed of only if the in4ured party proves that he has no other legal means aside from rescinding the contract to obtain redress for the damage caused. E!!ects o! the s%bsi"iary nat%re o! rescission) 1. he 4uridical concept of rescission in relation to nullity is a subsidiary one 2. &n its economic aspect, rescission is li)ewise subsidiary since the creditor cannot avail of the remedy unless he can show that he cannot collect his credit in any other way (. &n its remedial aspect, it is li)ewise subsidiary since the creditor must exhaust all other remedies.
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1325. Rescission shall be only to the e'tent necessary to co er the "amages ca%se". he rescission shall only be to the extent of the creditor2s unsatisfied credit. he policy of the law is to preserve or respect the contract, not to extinguish it. Art. 1325. Rescission creates the obligation to ret%rn the things which were the ob3ect o! the contract, together with their !r%its, an" the #rice with its interest4 conse$%ently, it can be carrie" o%t only when he who "eman"s rescission can ret%rn whate er he may be oblige" to restore. +either shall rescission ta=e #lace when the things which are the ob3ect o! the contract are legally in the #ossession o! thir" #ersons who "i" not act in ba" !aith. &n this case, in"emnity !or "amages may be "eman"e" !rom the #erson ca%sing the loss. he following should be returned to each other when the court declares a contract rescinded* 1. he ob4ect of the contract with its fruit 2. he price thereof with legal interest Rescission is not allowe" on the !ollowing) 1. he remedy of rescission cannot be availed of if the party who demands rescission cannot return what he is obliged to restore under the contract. 2. &f the property is legally in the possession of a third person who acted in good faith. Art. 1326. Rescission re!erre" to in +os. 1 an" / o! Article 1321 shall not ta=e #lace with res#ect to contracts a##ro e" by the co%rts. Art. 1321. All contracts by irt%e o! which the "ebtor alienates #ro#erty by grat%ito%s title are #res%me" to ha e been entere" into in !ra%" o! cre"itors, when the "onor "i" not reser e s%!!icient #ro#erty to #ay all "ebts contracte" be!ore the "onation. Alienations by onero%s title are also #res%me" !ra%"%lent when ma"e by #ersons against whom some 3%"gment has been iss%e". The "ecision or attachment nee" not re!er to the #ro#erty alienate", an" nee" not ha e been obtaine" by the #arty see=ing the rescission.

Cag/ioa

Obligations and Contracts 1E Reviewer Page |' San Beda College of Law
&n a""ition to these #res%m#tions, the "esign to "e!ra%" cre"itors may be #ro e" in any other manner recogniBe" by the law o! e i"ence. Pres%m#tion o! !ra%") Caguioa enumerated the possible existence of fraud may be determined through the following* 1. Competent evidence of actual fraud 2. "resumptions Circ%mstances "enominate" by co%rts as ba"ges o! !ra%") 1. he fact that the consideration of the conveyance is fictitious or inadequate 2. + transfer made by a debtor after suit has begun and while it is pending against him (. + sale upon credit by an insolvent debtor ,. he transfer of all his property by a debtor @especially when insolventA #. he fact that the transfer is made between father and son, when there are present some or any of the above circumstances -. he failure of the vendee to ta)e exclusive possession of all the property .. &t was )nown to the vendee that the vendor had no properties other than that sold to him Art. 1322. <hoe er ac$%ires in ba" !aith the things alienate" in !ra%" o! cre"itors, shall in"emni!y the latter !or "amages s%!!ere" by them on acco%nt o! the alienation, whene er, "%e to any ca%se, it sho%l" be im#ossible !or him to ret%rn them. &! there are two or more alienations, the !irst ac$%irer shall be liable !irst, an" so on s%ccessi ely. 0iability o! ac$%irers in ba" !aith) 1. &f the first transferee acted in good faith, then the action for rescission is barred. 2. he first transferee be in bad faith, then rescission is allowable and he shall return the property or be liable for damages if ever he cannot return the property (. &f the first transferee acted in bad faith but the subsequent transferee acted in good faith, the rescission is barred and the creditor is only entitled for indemnity for damages. ,. &f both acted in bad faith, then rescission will prosper. Art. 132;. The action to claim rescission m%st be commence" within !o%r years. For #ersons %n"er g%ar"ianshi# an" !or absentees, the #erio" o! !o%r years shall not begin %ntil the termination o! the !ormerCs inca#acity, or %ntil the "omicile o! the latter is =nown. Perio" !or !iling action !or rescission) (eneral R%le) he action to claim rescission must be commenced within four years from the date the contract was entered into. E'ce#tions) 1. 9nder guardianship 3 the period shall begin from the termination of incapacity 2. +bsentees 3 from the time the domicile is )nown Persons entitle" to bring action) 1. he in4ured party 2. Bis heirs, assigns or successors in interest (. he creditors of the above entitled to subrogation CHAPTER 1 D8&>A70E C8+TRACT* Art. 13;6. The !ollowing contracts are oi"able or ann%llable, e en tho%gh there may ha e been no "amage to the contracting #arties) ,1. Those where one o! the #arties is inca#able o! gi ing consent to a contract4 ,/. Those where the consent is itiate" by mista=e, iolence, intimi"ation, %n"%e in!l%ence or !ra%". These contracts are bin"ing, %nless they are ann%lle" by a #ro#er action in co%rt. They are s%sce#tible o! rati!ication. +%llity/6 @ imperfection of a contract derived from determinate vices of capacity or of consent of the parties which gives rise to an action of annulment which if exercised successfully produces the destruction of the act with retroactive effect. Doi"able contracts ? those which possess all the essential requisites of a valid contract but one of the parties is incapable of giving consent, or consent is vitiated by mista)e, violence, intimidation, undue influence or fraud. > hey are considered valid and binding unless annulled by a proper action in court. > =nce ratified, it becomes binding and can no longer be annulled. Ain"s o! oi"able contracts)
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Cag/ioa

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+ny contract is voidable if the defect is caused by either* 1. 2. ?egal incapacity to give consent 8iolation of consent, where the vitiation is done by mista)e, violence, intimidation, undue influence or fraud 2. (. ,. he confirmation should be effected by the person who is entitled to do so under the law2. &t should be effected with )nowledge of the vice or defect of the contract.20 he cause of the nullity or defect should have already disappeared.

Note: &t is essential that 8+0E 8+E of the parties be incapacitated, because if both of them are incapacitated, the contract is not voidable but unenforceable. Ann%lment ? a remedy provided by law, for reason of public interest, for the declaration of the inefficacy of a contract based on a defect or vice >isting%ishe" !rom rescissible contract) Doi"able Contract Rescissible Contract he defect is intrinsic he defect is external he contract is voidable he contract is rescissible even without damage or due to damage or pre4udice pre4udice. to either one of the parties or a third person. &t is based on the law. ;ased on equity. %usceptible to ratification 'ot susceptible to ratification Can only be invo)ed by a Can be invo)ed by either contracting party party or a third person who is pre4udiced. Art. 13;1. The action !or ann%lment shall be bro%ght within !o%r years. This #erio" shall begin) &n cases o! intimi"ation, iolence or %n"%e in!l%ence, !rom the time the "e!ect o! the consent ceases. &n case o! mista=e or !ra%", !rom the time o! the "isco ery o! the same. An" when the action re!ers to contracts entere" into by minors or other inca#acitate" #ersons, !rom the time the g%ar"ianshi# ceases. Art. 13;/. Rati!ication e'ting%ishes the action to ann%l a oi"able contract. Rati!ication ? the act or means by virtue of which efficacy is given to a contract which suffers from a vice of curable nullity. Re$%isites) 1. he contract should be tainted with a vice which is susceptible of being cured.

=n the other hand, Caguioa enumerated the following instances when ratification is not applicable* 1. When there is ratification, express or implied 2. When the action to annul has prescribed (. When the thing which is the ob4ect of the contract is lost through fraud or fault of the person entitled to the proceeding ,. he minor is barred by estoppels because of misrepresentation of his age Art. 13;3. Rati!ication may be e!!ecte" e'#ressly or tacitly. &t is %n"erstoo" that there is a tacit rati!ication i!, with =nowle"ge o! the reason which ren"ers the contract oi"able an" s%ch reason ha ing cease", the #erson who has a right to in o=e it sho%l" e'ec%te an act which necessarily im#lies an intention to wai e his right. Art. 13;5. Rati!ication may be e!!ecte" by the g%ar"ian o! the inca#acitate" #erson. Art. 13;5. Rati!ication "oes not re$%ire the con!ormity o! the contracting #arty who has no right to bring the action !or ann%lment. Art. 13;6. Rati!ication cleanses the contract !rom all its "e!ects !rom the moment it was constit%te". E!!ects o! rati!ication) 1. 5atification extinguishes the action to annul a voidable contract.21 2. 5atification cleanses the contract from all its defects from the moment it was constituted. Art. 13;1. The action !or the ann%lment o! contracts may be instit%te" by all who are thereby oblige" #rinci#ally or s%bsi"iarily. Howe er, #ersons who are ca#able cannot allege the inca#acity o! those with whom they contracte"4 nor can those who e'erte" intimi"ation, iolence, or %n"%e in!l%ence, or em#loye" !ra%", or ca%se" mista=e base their action %#on these !laws o! the contract. Persons who can instit%te an action)
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Obligations and Contracts 1 E R e v i e w e r P a g e | 1+ San Beda College of Law

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hose who have an interest in the contract he victim and not the party responsible for the vice must be the person who must assert the same.($ the the the its

%nless sai" loss too= #lace thro%gh the !ra%" or !a%lt o! the #lainti!!. R%le where loss is "%e to !a%lt o! #lainti!!) &f the loss is due to fraud of the party who is entitled to institute the proceedings, the action for annulment shall be extinguished through either of the following modes* 1. "rescription 2. 5atification (. ?oss of the thing which is the ob4ect of the contract through the fraud or fault of the person entitled to institute the action. Art. 156/. As long as one o! the contracting #arties "oes not restore what in irt%e o! the "ecree o! ann%lment he is bo%n" to ret%rn, the other cannot be com#elle" to com#ly with what is inc%mbent %#on him.

Art. 13;2. An obligation ha ing been ann%lle", contracting #arties shall restore to each other things which ha e been the s%b3ect matter o! contract, with their !r%its, an" the #rice with interest, e'ce#t in cases #ro i"e" by law.

&n obligations to ren"er ser ice, the al%e thereo! shall be the basis !or "amages. R%le in Ann%lment o! contract) 9pon annulment, the contracting parties should be restored to their original position by mutual restitution. Art. 13;;. <hen the "e!ect o! the contract consists in the inca#acity o! one o! the #arties, the inca#acitate" #erson is not oblige" to ma=e any restit%tion e'ce#t inso!ar as he has been bene!ite" by the thing or #rice recei e" by him. (eneral R%le in case o! inca#acity) When the defect of the contract consists in the incapacity of one of the contracting parties, the incapacitated is not obliged to ma)e any restitution except insofar as he has been benefited by the thing or price received by him. Art. 1566. <hene er the #erson oblige" by the "ecree o! ann%lment to ret%rn the thing cannot "o so beca%se it has been lost thro%gh his !a%lt, he shall ret%rn the !r%its recei e" an" the al%e o! the thing at the time o! the loss, with interest !rom the same "ate. R%le when loss is "%e to !a%lt o! "e!en"ant) Be shall return the fruits received and the value of the thing at the time of the loss with interest from the same date. Art. 1561. The action !or ann%lment o! contracts shall be e'ting%ishe" when the thing which is the ob3ect thereo! is lost thro%gh the !ra%" or !a%lt o! the #erson who has a right to instit%te the #rocee"ings. &! the right o! action is base" %#on the inca#acity o! any one o! the contracting #arties, the loss o! the thing shall not be an obstacle to the s%ccess o! the action,
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CHAPTER 2 :+E+F8RCEA70E C8+TRACT* ,n. :nen!orceable contract ? are those which cannot be enforced by a proper action in court, unless they are ratified, because, either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both contracting parties do not possess the required legal capacity. Classes o! %nen!orceable contract) 1. hose contracts entered into in the name of another person by one without any authority or in excess of his authority. /. hose which do not comply with the %tatute of frauds 3. hose where both contracting parties are legally incapacitated. Characteristics) 1. hey cannot be enforced by a proper action in court(1 2. hey are susceptible of ratifications(2 (. hey cannot be assailed by third persons(( :nen!orceable Contract Cannot be enforced by a
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Rescissible Contract Can be enforced, unless

,!is is based on t!e 0rinci0le t!at 6 whoever goes to court must do so with clean hands.

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Obligations and Contracts 1 E R e v i e w e r P a g e | 11 San Beda College of Law

proper action in court. %usceptible of ratification Cannot be assailed by a third person rescinded 'ot susceptible of ratification Can be assailed by a third person who are pre4udiced ,!. A re#resentation as to the cre"it o! a thir" #erson. ,3. Those where both #arties are inca#able o! gi ing consent to a contract. Contracts witho%t or in e'cess o! a%thority) 7urado discussed that this )ind of contract was already provided by the old law to be a )ind of void contract, although susceptible of ratification. +nd the following principles are applicable* 1. 'o one may contract in the name of another without being authoriCed by the latter or unless he has a right to represent him. &f he is duly authoriCed, he must act within the scope of his powers. 2. + contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, is unenforceable. his principle is reiterated in the law on agency. (. Bowever, such contract may be ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revo)ed by the other contracting party. *tat%te o! !ra%" > &t was enacted for the purpose of preventing fraud > &t is required that the contract be in writing and subscribed by the party charged or by his agent. > &n case of non>compliance, the contract is unenforceable by action. > Classes covered* 1. +n agreement that by its terms is not to be performed within a year from the ma)ing thereof. 2. + special promise to answer for the debt, default or miscarriage of another. (. +n agreement made in consideration of marriage, other than a mutual promise to marry. ,. +n agreement for the sale of goods, chattels, or things in action, at a price not less than five hundred pesos. #. +n agreement for the leasing of real property for a longer period than one year, or for the sale of real property or an interest therein. 9o"e o! rati!ication) 1. :ailure to ob4ect to the presentation of oral evidence to prove the same 2. +cceptance of benefits under them

Art. 1563. The !ollowing contracts are %nen!orceable, %nless they are rati!ie") ,1. Those entere" into in the name o! another #erson by one who has been gi en no a%thority or legal re#resentation, or who has acte" beyon" his #owers4 ,/. Those that "o not com#ly with the *tat%te o! Fra%"s as set !orth in this n%mber. &n the !ollowing cases an agreement herea!ter ma"e shall be %nen!orceable by action, %nless the same, or some note or memoran"%m, thereo!, be in writing, an" s%bscribe" by the #arty charge", or by his agent4 e i"ence, there!ore, o! the agreement cannot be recei e" witho%t the writing, or a secon"ary e i"ence o! its contents) ,a. An agreement that by its terms is not to be #er!orme" within a year !rom the ma=ing thereo!4 ,b. A s#ecial #romise to answer !or the "ebt, "e!a%lt, or miscarriage o! another4 ,c. An agreement ma"e in consi"eration o! marriage, other than a m%t%al #romise to marry4 ,". An agreement !or the sale o! goo"s, chattels or things in action, at a #rice not less than !i e h%n"re" #esos, %nless the b%yer acce#t an" recei e #art o! s%ch goo"s an" chattels, or the e i"ences, or some o! them, o! s%ch things in action or #ay at the time some #art o! the #%rchase money4 b%t when a sale is ma"e by a%ction an" entry is ma"e by the a%ctioneer in his sales boo=, at the time o! the sale, o! the amo%nt an" =in" o! #ro#erty sol", terms o! sale, #rice, names o! the #%rchasers an" #erson on whose acco%nt the sale is ma"e, it is a s%!!icient memoran"%m4 ,e. An agreement o! the leasing !or a longer #erio" than one year, or !or the sale o! real #ro#erty or o! an interest therein4

Obligations and Contracts 1 E R e v i e w e r P a g e | 1$ San Beda College of Law

Art. 1565. :na%thoriBe" contracts are go erne" by Article 1311 an" the #rinci#les o! agency in Title F o! this 7oo=. Art. 1565. Contracts in!ringing the *tat%te o! Fra%"s, re!erre" to in +o. / o! Article 1563, are rati!ie" by the !ail%re to ob3ect to the #resentation o! oral e i"ence to #ro e the same, or by the acce#tance o! bene!it %n"er them. Art. 1566. <hen a contract is en!orceable %n"er the *tat%te o! Fra%"s, an" a #%blic "oc%ment is necessary !or its registration in the Registry o! >ee"s, the #arties may a ail themsel es o! the right %n"er Article 1351. Art. 1561. &n a contract where both #arties are inca#able o! gi ing consent, e'#ress or im#lie" rati!ication by the #arent, or g%ar"ian, as the case may be, o! one o! the contracting #arties shall gi e the contract the same e!!ect as i! only one o! them were inca#acitate". &! rati!ication is ma"e by the #arents or g%ar"ians, as the case may be, o! both contracting #arties, the contract shall be ali"ate" !rom the ince#tion. Art. 1562. :nen!orceable contracts cannot be assaile" by thir" #ersons. CHAPTER ; D8&> A+> &+EF&*TE+T C8+TRACT* Doi" or ine'istent contracts ? one which lac)s absolutely either in fact or in law one or some of the elements which are essential for its validity > 8oid contracts refer to those where all of the requisites of a contract are present, but the cause, ob4ect or purpose is contrary to law, morals, good customs, public order and public policy. he concept of pari delicto is applicable. 7urado said that there can still be legal effect on this )ind of contract. > &nexistent contract, on the other hand, refers to those where one or some or all of the essential requisites for the validity of a contract are lac)ing. he concept of pari delicto is not applicable and no legal effect may be produced. Doi" or ine'istent contract "roduces no effect !efect consists in absolute Rescissible contract &t is valid unless rescinded !efect consists in lesion or lac) in fact or in law of one or some essential elements of a contract he nullity or inexistence of the contract is based on the law. it is a sanction. &t is imprescriptible. Cannot be assailed by a third person @nullity or inexistenceA Doi" or ine'istent contract "roduces no effect 'ot susceptible to ratification &t is imprescriptible. !efense is available to third person whose interests are directly affected damage to one of the contracting parties or a third person ;ased on equity. &t is only a remedy. "rescriptible /ay be assailed by a third person affected or damaged

Doi"able Contract ;inding unless annulled %usceptible to ratification "rescriptible !efense not applicable to third persons.

Doi" or ine'istent contract &n reality, there is really no contract 'ot susceptible ratification. to

:nen!orceable contract here is a contract but is unenforceable by a court action unless ratified. %usceptible to ratification Cannot be assailed by a third person

Can be assailed by a third person whose interests are directly affected

Art. 156;. The !ollowing contracts are ine'istent an" oi" !rom the beginning) ,1. Those whose ca%se, ob3ect or #%r#ose is contrary to law, morals, goo" c%stoms, #%blic or"er or #%blic #olicy4 ,/. Those which are absol%tely sim%late" or !ictitio%s4 ,3. Those whose ca%se or ob3ect "i" not e'ist at the time o! the transaction4 ,5. Those whose ob3ect is o%tsi"e the commerce o! men4 ,5. Those which contem#late an im#ossible ser ice4 ,6. Those where the intention o! the #arties relati e to the #rinci#al ob3ect o! the contract cannot be ascertaine"4 ,1. Those e'#ressly #rohibite" or "eclare" oi" by law.

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These contracts cannot be rati!ie". +either can the right to set %# the "e!ense o! illegality be wai e". Characteristics) 1. hey produce no legal effect 2. 'ot susceptible to ratification (. he right to set up the defense of inexistence cannot be waived or renounced ,. he action is imprescriptible #. he absolute nullity of a contract cannot be invo)ed be a person whose interests are not directly affected. Ain"s o! oi" contracts) 1. hose which lac) an essential element or requisite for a valid contract a. hose defective for want of consent as those which are absolutely simulated or fictitious b. hose defective for want of ob4ect such as those where ob4ect did not exist at the time of the transaction c. hose defective for want of cause 2. hose contracts which are illegal (. hose contracts which are expressly prohibited by law ,. hose declared void by law Art. 1516. The action or "e!ense !or the "eclaration o! the ine'istence o! a contract "oes not #rescribe. Art. 1511. <hen the n%llity #rocee"s !rom the illegality o! the ca%se or ob3ect o! the contract, an" the act constit%tes a criminal o!!ense, both #arties being in #ari "elicto, they shall ha e no action against each other, an" both shall be #rosec%te". 9oreo er, the #ro isions o! the Penal Co"e relati e to the "is#osal o! e!!ects or instr%ments o! a crime shall be a##licable to the things or the #rice o! the contract. This r%le shall be a##licable when only one o! the #arties is g%ilty4 b%t the innocent one may claim what he has gi en, an" shall not be bo%n" to com#ly with his #romise. E'ce#tions to the conce#t o! #ari "elicto) 1. "ayment of usurious interest. &n such case, the law allows the debtor to recover the interest paid in excess of that allowed by the 9sury ?aws, with interest thereon from the date of payment. 2. "ayment of money for an illegal purpose, where the party who paid or delivered repudiates the contract before the purpose has been accomplished, or before any damage has been done to a third person. "ayment of money or delivery of property by an incapacitated person. +greement which is illegal but is merely prohibited by law. "ayment of any amount in excess of the maximum price of any article or commodity fixed by law. Contract whereby a laborer underta)es to wor) longer than the maximum number of hours fixed by law. Contract whereby a laborer accepts a wage lower than the minimum wage fixed by law.

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Art. 151/. &! the act in which the %nlaw!%l or !orbi""en ca%se consists "oes not constit%te a criminal o!!ense, the !ollowing r%les shall be obser e") ,1. <hen the !a%lt is on the #art o! both contracting #arties, neither may reco er what he has gi en by irt%e o! the contract, or "eman" the #er!ormance o! the otherCs %n"erta=ing4 ,/. <hen only one o! the contracting #arties is at !a%lt, he cannot reco er what he has gi en by reason o! the contract, or as= !or the !%l!illment o! what has been #romise" him. The other, who is not at !a%lt, may "eman" the ret%rn o! what he has gi en witho%t any obligation to com#ly his #romise. R%les in case o! illegal contracts) 1. Where both parties are in pari delicto, neither party may recover what he has given by virtue of the contract nor enforce performance from the other. 2. Where both parties are in delicto but not in pari delicto, the guilty party cannot recover what he has given by virtue of the contract nor enforce the performance of the contract. Art. 1513. &nterest #ai" in e'cess o! the interest allowe" by the %s%ry laws may be reco ere" by the "ebtor, with interest thereon !rom the "ate o! the #ayment. Art. 1515. <hen money is #ai" or #ro#erty "eli ere" !or an illegal #%r#ose, the contract may be re#%"iate" by one o! the #arties be!ore the #%r#ose has been accom#lishe", or be!ore any "amage has been ca%se" to a thir" #erson. &n s%ch case, the co%rts may, i! the #%blic interest will th%s be s%b ser e", allow the #arty re#%"iating the contract to reco er the money or #ro#erty.

Obligations and Contracts 1 E R e v i e w e r P a g e | 1& San Beda College of Law

Art. 1515. <here one o! the #arties to an illegal contract is inca#able o! gi ing consent, the co%rts may, i! the interest o! 3%stice so "eman"s allow reco ery o! money or #ro#erty "eli ere" by the inca#acitate" #erson. Art. 1516. <hen the agreement is not illegal #er se b%t is merely #rohibite", an" the #rohibition by the law is "esignate" !or the #rotection o! the #lainti!!, he may, i! #%blic #olicy is thereby enhance", reco er what he has #ai" or "eli ere". Art. 1511. <hen the #rice o! any article or commo"ity is "etermine" by stat%te, or by a%thority o! law, any #erson #aying any amo%nt in e'cess o! the ma'im%m #rice allowe" may reco er s%ch e'cess. Art. 1512. <hen the law !i'es, or a%thoriBes the !i'ing o! the ma'im%m n%mber o! ho%rs o! labor, an" a contract is entere" into whereby a laborer %n"erta=es to wor= longer than the ma'im%m th%s !i'e", he may "eman" a""itional com#ensation !or ser ice ren"ere" beyon" the time limit. Art. 151;. <hen the law sets, or a%thoriBes the setting o! a minim%m wage !or laborers, an" a contract is agree" %#on by which a laborer acce#ts a lower wage, he shall be entitle" to reco er the "e!iciency. E'ce#tions to the r%le o! in Pari >elicto) 1. Where the contract is absolutely simulated 2. Where both parties are not guilty to the same degree, recovery is allowed to the party with lesser guilt, provided no third person is pre4udiced (. Where plaintiff can establish his case without revealing the illegal nature of the transaction ,. &n null and void sale of homestead #. Where one of the parties to an illegal contract is incapable of giving consent -. Where an agreement is not illegal per se but merely prohibited of law is designed for the protection of the plaintiff .. Where contract s for an illegal purpose but one party has repudiated the contract before accomplishment of purpose or damage is caused to third persons 0. :or protection of wea)er party, such as those in violation of the maximum price law 1. &n contracts covered by the 9sury ?aw 1$. !isbarment proceedings Art. 15/6. &n case o! a "i isible contract, i! the illegal terms can be se#arate" !rom the legal ones, the latter may be en!orce". Art. 15/1. The "e!ense o! illegality o! contract is not a ailable to thir" #ersons whose interests are not "irectly a!!ecte". Art. 15//. A contract which is the "irect res%lt o! a #re io%s illegal contract, is also oi" an" ine'istent.