II.

CONTRACTS
(Read Arts. 1305-1422)
A. General Provisions

1.

Definition
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.

Balane: thinks that the definition in Art. 1305 is inaccurate.

The term persons should be substituted by the term parties.
Also, contracts may be multilateral; there can be more than 2
parties involved (i.e. partnership).
SANCHEZ-ROMAN: a juridical convention manifested in
legal form, by virtue of whc one or more parties bind
themselves in favor of one another or others, or reciprocally, to
d fulfillment of a prestation to give, to do or not to do.
Tolentino: Contracts w/reciprocal s excluded by d def.
Q: An agreement was made betw. A & B. Was a
created?
A: NN. Agreement to go to church together is not a .
Q: May a be perfected as to an Agreement no to
do? YES
EX: not to engage in business (provided not in perpetuity)

government-owned or controlled corporation, or

institution, the administration of which has been
intrusted to them; this provision 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 EEs connected with the
administration of justice, the property and rights in
litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise
their respective functions; this prohibition includes
the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which
may be the object of any litigation in which they may
take part by virtue of their profession;
(6) Any others specially disqualified by law.
Baviera:

Nos. 1-3 are voidable contracts; Nos. 4-6 are

void contracts.

The reason why those enumerated under Art.

1491 have relative incapacity to enter into a contract of
sale is that they possess a fiduciary relationship w/ the
owner of the properties mentioned, such that the law
prevents them fr. being tempted to take advantage of
their positions.

Q: MAYDeed of sale signed by only 1 party?

A: Yes, in auto

The prohibition rests on the fact that greed

might get the better of loyalty. The law does not trust
human nature to resist the temptations likely to arise
out of the antagonism between the interest of the seller
& the buyer.

AUTO-CONTRACT:

Is a executed by one person only, but in

such execution he represents at least 2 parties;

1.

Executed by one person, either:

when a person in his capacity as rep, of

himself, or
2.
when as a rep of 2 diff persons he brings abt
a bet his principals by ing w/himself
GR: valid, exc. 1491.
EX: of AGENCY (Read art. 1890)
Article 1890. If the agent has been empowered to borrow
money, he may himself be the lender at the current rate of
interest. If he has been authorized to lend money at interest, he
cannot borrow it without the consent of the principal.

Agent can be lender but he may not be

the borrower.
& In Sales (art. 1491): one party can never validly give
consent.
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person
or through the mediation of another: (CAPACITY TO BUY
OR SELL)
(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 intrusted 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 EEs, the property of the
State or of any subdivision thereof, or of any

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An agent who has renounced the agency & is a

judgment creditor of his principal may acquire the
latters property in a public sale.

The prohibition against lawyers is intended to

curtail any undue influence the lawyer may have over
his client on account of their confidential association.
Such sales are void & cannot be ratified. Public interest
& public policy remain paramount & do not permit
compromise & ratification.
Q: When is a thing deemed to be the subject of
litigation?

Not only if there is some contest or litigation

in court, but also fr. the moment it becomes subject to
judicial action.

Contingent fee- not contrary to law as it will

encourage the lawyer to work harder to win the case in
order to earn the said fee. thus, it is to the clients
advantage. But the court may reduce the fee is found to
be unconscionable.
(ON LEASE OF RURAL AND URBAN LANDS)
Article 1646. The persons disqualified to buy referred to in
articles 1490 and 1491, are also disqualified to become lessees
of the things mentioned therein
TOLENTINO:

All s under 1491 are void by reason of PP

In Code of commerce, (Art.267) a

commission agent w/o permission of principal
cannot buy for himself or for another, nor to sell what
he ought to buy.
(2) ELEMENTS OF CONTRACTS

a)
b)
c)

ESSENTIAL
NATURAL
ACCIDENTAL

(a) Essential Elements

The essential elements are those without

which there can be no contract. (indispensable
rqmts.)

These elements are, in turn, subdivided into:

1.)

common (communes) those which are

present in all contracts, such as consent, object
certain, and cause;

2.)

special (especiales) are present only in

certain contracts, such as delivery in real contracts,
or form in solemn ones.

3.)

extraordinary (especialissimos)
are
those which are peculiar to a specific contract (i.e.
price in sales).
(b) NATURAL ELEMENTS

those which are derived from the nature of

the contract and ordinarily accompany the same.

They are presumed by law, although they can

be excluded by the contracting parties if they so
desire.
i. right to resolve (Art. 1191)
ii. warranties in sales contracts, implied

(c) Accidental Elements

The accidental elements are those which

exist only when the parties expressly provide
for them for the purpose of limiting or modifying the
normal effects of the contract (i.e. conditions, terms,
modes)
Q: Stipulation as to interest in a of Loan, what
kind of ?
A: Accidental; Interest must always be expressed/written to be
given effect.
BATCHELDER vs CB 44 SCRA 45:

B. GOVERNING LAW / JURISDICTION:

1307 - innominate Cs governed by:
i. Stipulation of parties
Law on ObliCon
Analogous contracts
Customs

1370

intention
of
parties;
contemporaneous & subseq. Acts

based

on

Q: What may not be SM of of Sale?

A: service
Q: that is perfected at the negotiation stage?
A: Option a preal

(1)
(2)

Consensuality;
Autonomy;

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Obligatory Force
Relativity

(1) CONSENSUALITY OF CONTRACTS

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.
Article 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.
Consent vitiated voidable
If by Rep authority is void unenforceable
Q: How is consent given?
A: by a mtg of the offer and acceptance, upon the
thing whc is to constitute the and as to the cause.

(a) those entered into in the name of another person

by one who has been given no authority or legal
representation, or who has acted beyond his powers
(r/t Art.1317)
CONTRACT OF ADHESION:

Where one party has already prepared the

form of a , containing stips. he desires, and he
simply asks the other party to agree to them if he
wants to continue w/d ;

The party who adheres to the is in reality

free to reject it entirely, but if he does, he consents;

RATIO: Monetary Boards do not create s bet. CB &

dollar earner.

C.
CHARACTERISTICS
CONTRACTS:

Mutuality;

The following contracts are unenforceable unless they are

ratified (Art. 1403):

Q: Is warranty a natural of ? Not always

A: only implied warranty are natural, not express ones

ii.
iii.
iv.

(3)
(4)
(5)

PRINCIPLES

OF

In case of doubt in interpretation of stip in

, such will be construed vs. d party who prepared
such stip.
Q: of adhesion is being disputed on the ground of lack of
consent of the other party. Is this tenable?
A: SC held no, is valid. (Ong Yiu v. CA)
REPUBLIC v, PLDT, 26 SCRA 620
RATIO: Freedom of parties to stipulate Parties can
not be coerced to enter into a contract where no agreement is
had between them as to the principal terms and conditions of
the contract. Freedom to stipulate such terms and conditions
is of the essence of our contractual system, and by express
provision of the statute, a contract may be annulled if tainted
by violence, intimidation, or undue influence (Articles
1306, 1336, 1337, CC).

CORPUS v. CA, 98 SCRA 424

RATIO:
An atty-client rel. can be created by implied
agreement, as when the atty. Actually rendered
legal services for a person who is a close friend.
The of such a person to pay attys fees is based on

8.

the law of s concept of facio ut des (I do and you

give).

to pay money for an immoral cause i.e.

commit a crime; bribe a public ofc; marry; testify
in court.

(2) AUTONOMY OF CONTRACTS:

Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.

CUI V. ARELLANO [112 PHIL 135 (1961)]

Ex: unconscionable/usurious interest (Jurado)

STIPULATION CONTRARY TO P.P.

autonomy of will; Liberty of s/Freedom to

contract

CONSTI
Non-impairment Clause,
legisture nor Courts may not prescribe the terms of a
legal , \freedom to w/o prior restraint;

Parties may freely stipulate (as long as not

contrary to L/M/GC/PO/PP) but the juridical
relations created by their & the rts & s arising
therefrom are det. By Law; (Ex: a Pacto de Retro Sale
may be construed by court to be loan w/mortgage
after looking at the substance of d & not merely its
form or name.

RATIO:
STIPULATION WHEREBY STUDENT
CANNOT TRANSFER TO ANOTHER SCHOOL W/O
REFUNDING SCHOLARSHIP CASH, NULL AND
VOID.
Scholarships are awarded in recognition of
merit & NOT to keep students in school to bolster
prestige. As for the Def., scholarship award is a business
scheme designed to increase the business potential of an
educational institution.

Freedom to limited by the common good

(Police Power)

EX: a PN whc constitute a gambling debt is

unenforceable

Compromise Agreement approved by court,

where a grantee of public land promised to sell to
another, within the 5-yr prohibitory period, even if
sale was made after such period and was approved by
Sec. of Agric. is null and VOID ab initio. (Zambales v.
CA)

SAURA v. SINDICO, 107 PH 336

STIPULATION CONTRARY TO P.P.
RATIO:
Among those that may not be the subject
matter (object) of contracts are certain rights of
individuals, which the law and public policy have
deemed wise to exclude from the commerce of man.

Limitations in Freedom to Contract:

In Agency, a stipulation which excludes one or more partners
from any share in the profits or losses is void. (Article 1799)
In Pledge/mortgage The creditor cannot appropriate the
things given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void. (Article
2088)
Article 2130. A stipulation forbidding the owner from
alienating the immovable mortgaged shall be void.

Parties may not Agree on a ceiling price of

mortgaged prop.in execution b/c such shd be made to
d highest bidder (Warner v, Jaucian); nor stipulate
that upon non-payment, creditor may approp.
Mortgaged prop. Upon himself this is called pactum
commisorium, contrary to Art. 2088.

There are certain matters where man,

by nature must have freedom of decision, thus
may not validly be bound by al , such as:
1. promise to marry or not, to secure legal sep,
or to adopt a child;
2. promise to change citizenship, professions,
religion or domicile;
3. promise not to hold public ofc, or limit perf
or ofc duties;
4. promise to join a poli.party or separate fr it.

5.
6.
7.

not to engage in work, labor;

to vote for a candidate,
to do, at the risk of life,

LEAL v. IAC, 155 SC 394

RATIO:
Contracts
are
generally
binding between the parties, their assigns and heirs;
however, under Art. 1255 of the Civil Code of Spain,
which is applicable in this instance, pacts, clauses,
and conditions which are contrary to public order
are null and void, thus, without any binding effect.
Annotations on title:
prohibition to sell
property to third parties whc is indefinite &
unlimited as to time, whc shall continue to be
applicable beyond the lifetime of the original parties
to the , is a nullity.
Redemption:
Right to redeem must be
expressly stipulated in the of sale to have legal
existence.

(3) MUTUALITY PRINCIPLE:

The contract must bind both contracting

parties; its validity or compliance cannot be left to
the will of one of them (Art. 1308).

The determination of the performance may be left to a

3rd person, whose decision shall not be binding until it has been
made known to both contracting parties (Art. 1309).

The determination shall not be obligatory if it is

evidently inequitable. In such case, the courts shall decide
what is equitable under the circumstances (Art. 1310).

An example of a determination made by a 3rd person

(Art. 1309) is the fixing of the price by the 3rd person.

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The contract may be revoked if there is mutual

dissent.

The condition can never depend solely upon the will

of the debtor. If the condition depends solely on the will of the
debtor, the obligation is void (Art. 1182).

mutuality of contracts ordained in Article 1308 of the

Civil Code.
Escalation clauses are valid stipulations in
commercial contracts to maintain fiscal stability
and to retain the value of money in long term
contracts.

The obligation is void because there is no vinculum

juris. The creditor could never compel the debtor to perform
the . (potestative suspensive that depends on sole
will of Db)
Q: A stip. That may be terminated by 1 party,
valid?
A: Yes, does not violate mutuality, b/c the latter
pertains to validity/performance, not termination
(Philbanking v. Lui She)
ACCELERATION CLAUSE
EX: In of Sale by Installment basis
Upon non-payment of amort., the whole balance will
automatically be due, or rescind.
ESCALATION CLAUSE

Advancing maturity under certain conditions

are valid (Insular Bank vs. Salazar)

It is provided by the parties, to adjust

compensation/consid. upon the happening of an
event.

Limitation of CCs liability for loss of

passengers baggage that was under declared by the
latter, valid. (Ong Yiu v. CA)

Escalator clause
Valid if not potestative solely on the will of one of the
parties (violates mutuality)
EX:
of Loan/ of WORK/service/projectindependent ing
Q: w/o de-escalation clause, will still be valid?
A: yes; only the escalation clause will not be
given effect
BANCO FILIPINO SAVINGS VS NAVARRO, 152 SC
346 (87)
RATIO:
A contract which embodies an
Escalation Clause authorizing automatic increase in
interest rates in the event a law increasing the
lawful rates of interest that may be charged, does
not incl. a CB Circular, whc, although having the
face & effect of law, is not strictly a statute or a law.
An Escalation Clause to be valid must include
a de-escalation clause. There can be an inc. in int.
if incd. by law or by the Monet.Board; in order for
such stip. To be valid, it must incl. a provision for the
reduction of the stipd. interest in the event that the
applicable maximum rate of int. is reduced by law or
by the MB.

FLORENDO VS CA, 265 SC 678 (96)

RATIO:
A contract containing a condition which
makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is
void
The unilateral determination and imposition
of increased interest rates by the herein respondent
bank is obviously violative of the principle of

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4. OBLIGATORY FORCE OF CONTRACTS:

Obligations arising from contracts have the force of
law between the parties and should be complied with
in good faith (Art. 1159)
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 in
keeping with good faith, usage and law (Art. 1315).
GEN RULE: Contracts are perfected by mere consent the
principle of consensuality (Art. 1315)
EXCEPTION: Real contracts, such as deposit, pledge, and
commodatum are not perfected until the delivery of the object
of the obligation (Art. 1316)
Q: Perfection of goes into what principle?
A: Obligatory force of , when parties became bound
Donation of immovables (Art. 749)
The donation must be in a public instrument.

The acceptance must either be in the same public

instrument or in a different public instrument.
Acceptance shall not take effect unless it is done
during the lifetime of the donor.
If the acceptance is made in a separate public
instrument, the donor shall be notified thereof in an
authentic form, and this step shall be noted in both
instruments
5. RELATIVITY OF CONTRACTS
GEN RULE: The contract is binding only upon the parties
and their successors (Art. 1311).

However, if the contract is purely personal

(intuitu personae), then the contract will not bind
assigns and heirs. (intransmissible rts.)
Tol: GR: Rts. & s under a are transmitted to the heirs of
the parties. Heirs cant be considered as 3P, bec. there is
privity of interest bet. them & their predecessor.
Q: Who are bound by s?
A: parties/successors-in-int/ heirs/assigns
GR: Under the Principle of Privity of s, assigns &
heirs are bound
EXC: intransmissible rts or s created by law/
nature / stip
Intransmissible s: those w/c are purely personal, either by
(1)
provision of law, such as in cases of
partnership & agency / usufructuary rts;

(2)

by the very nature of the s arising therefr.,

such as those requiring special personal qualifications
of the obligor; of service, det;

(3)

or by stip of parties i.e. pacto de retro sale

where only the party may redeem not anyone else

(SPA) Acceptance by 3P: no particular form.

Before acceptance, the ing parties, by mutual agreement, may
modify the or revoke it.
(SPA) Since 3Ps rt. is based directly on the , it is also subj. to
all defenses available v. the , such as those affecting its validity.
Bav: A consignee, though not strictly a party in the of
transpo, can sue, on the , the common carrier.
Reason: There is a stip. in his favor.

In Art. 1314, Any 3P who induces another to

violate his shall be liable to the other contracting
party.

Tol:
Reqs. of axn under this article:

existence of a valid

knowledge by 3P of s existence

interference by 3P in the al relation w/o

legal justification

Whatever may be the char. of the liability w/c

a stranger to a may incur by advising or assisting one
of the parties to evade perf., such stranger cant become
more extensively liable in damages for non-perf. of the
than the party in whose behalf he intermeddles.

To hold the stranger liable for damages in

excess of those that could. be recovered v. the
immediate. party would. lead to results grotesquely
unjust.

the
vendor-aretro against the transferee of the vendee (Art. 1608).

In contracts creating real rights, 3 rd 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 (Art. 1312) purchaser in good
faith
VELASCO VS CA, 95 SC 616
RATIO:
In the Deed of Quitclaim in question
wherein Laigo Realty waived in favor of GSIS its
rts in favor of the subdivision in question arising
out of its devt and assumed to pay the claims of any
contractor, material furnisher, lot buyer, etc.
having connection w/the said devt, the GSIS was
not relieved of any liability to pet. For cost of
materials & labor the latter incurred in bldg the
subdv houses if Laigo is unable to pay them.
(Solidary liability of Principal ER, w/job contractor
when EEs wages not paid.)
Kauffman v. National Bank, 42 Phil 182
RATIO: A stipulation in favor of a 3P cannot be revoked by the
obligated party alone, w/o the conformity of the other
contracting party.
BONIFACIO BROS. V. MORA, 20 SCRA 261

RATIO: CONTRACTS TAKE EFFECT ONLY BET. THE

PARTIES THERETO.

FLORENTINO V. ENCARNACION
RATIO:
A stipulation pour autrui is a stipulation in favor of a
third person conferring a clear and deliberate favor
upon him, and which stipulation is merely a part of a
contract entered into by the parties, neither of whom
acted as agent of the third person, and such third
person and demand its fulfillment provoked that he
communicates his to the obligor before it is revoked

3Ps liability. is solidary w/ non-perf.. party,

bec. he commits a tortuous act or a q-delict.

BAL:
EXCEPTION: 3 parties are affected by the contract in
the following instances and can take appropriate
action:

(i) accion pauliana (Art. 1177)

A rescissory action involving a contract in fraud of

creditors.

Creditors are protected in cases of contracts intended

to defraud them (Art. 1313).
(ii) accion discreta (Arts. 1652, 1729)

A direct (not
subrogatory) action by the creditor against his debtors
debtor, a remedy which gives the creditor the prerogative
to act in his own name, such as the actions of the lessor
against the sublessee (Art. 1652);

the laborer of an
independent contractor against the owner/principal ER
(Art. 1729);

bern.carrasco

principal

2nd par. permits a 3P to avail himself of a benefit extended to him

by its terms. Doctrine of stipulations pour autrui (SPA).
Requisites of SPA:
(1)
stip. in favor of 3P
(2)
stip. shld. be a part, not the whole, of the
(3)
clearly & deliberately conferred by ing
parties
(4)
not be conditioned or compensated by any
kind of whatever
(5)
3P must have communicated his acceptance
to obligor before revocation
(6)
neither of the ing parties bears the legal
representation or authorization of the 3P

the

against the subagent (Art. 1893); and

The acceptance does not have to be in any particular

form, even when the stipulation is for the third person an act of
liberality or generosity on the part of the promisor or promise.
It need not be made expressly and formally.
Notification of acceptance, other than such as is involved in the
making of demand, is unnecessary.
The requisites are:
(1) that the stipulation in favor of a third person should be a
part, not the whole, of the contract;
(2) that the favorable stipulation should not be conditioned
or compensated by any kind of obligation whatever; and
(3) neither of the contracting bears the legal represented or
authorization of third person.
While a stipulation in favor of a third person
has no binding effect in itself before its acceptance by
the party favored, the law does not provide when the
third person must make his acceptance. As a rule,
there is no time at such third person has after the
time until the stipulation is revoked.
BANK OF AMERICA vs. IAC

RATIO:
Contract between foreign bank &
local bank asking the latter to pay an amount to a
beneficiary, is a SPA.

MARIMPERIO vs. CA
RATIO: A party who has not taken part in the
cannot sue or be sued for the performance or
cancellation thereof, unless he has a real interest
affected thereby.
In a of sublease, the personality of the
lessee does not disappear & the sublease generally
does not have any direct action against the owner of
the premises as lessor.

DAYWALT VS CORP DE PP AGUSTINOS

RATIO:
Whatever may be the character of the
liability which a stranger to a contract may incur by
advising or assisting one of the parties to evade
performance, there is one proposition upon which
all must agree. This is, that the stranger cannot
become more extensively liable in damages for the
nonperformance of the contract than the party in
whose behalf he intermeddles.

GILCHRIST vs. CUDDY

RATIO:
One
who
wrongfully
interferes in a contract between others, and, for the
purpose of gain to himself induces one of the parties
to break it, is liable to the party injured thereby; and
his continued interference may be ground for an
injunction where the injuries resulting will be
irreparable
HELD:
Injunction is the proper remedy to prevent a
wrongful interference with contract by strangers to
such contracts where the legal remedy is insufficient
and the resulting injury is irreparable.

towards the celebration of another subsequent

contract (i.e. partnership, agency).
b. principal
A principal contract is one which can
subsist independently from other contracts and
whose purpose can be fulfilled by themselves (i.e.
sales, lease).
c. accessory
An accessory contract is one which can
exist only as a consequence of, or in relation with,
another prior contract (i.e. pledge, mortgage).
2. According to Perfection
a. consensual
A consensual contract is one which is
perfected by mere agreement of the parties (i.e.
sales, lease).
b. real

A real contract is one which requires not

only the consent of the parties for their
perfection, but also the delivery of the object by
1 party to the other (i.e. commodatum, deposit,
pledge).
3) According to their Form or solemnity:
a. Common or informal
An informal contract is one which does not
require some particular form (i.e. loan, lease).
b. Special or formal
A formal contract is one which requires some
particular form (i.e. donation, chattel mortgage).
4) According to Purpose
a. transfer of ownership (i.e. sale)
b. conveyance of use (i.e. commodatum)
c. rendition of service (i.e. agency)
5) According to the Nature of the Obligation

EST. OF K.H. HEMADY vs. LUZON SURETY

RATIO:
A party's contractual rights and
obligations are transmissible to the successors.

SO PING BUN vs. CA

RATIO:
Where there was no malice in the
interference of a contract, and the impulse behind
one's conduct lies in a proper business interest
rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is
financially interested, and such interest motivates
his conduct, it cannot be said that he is an officious
or malicious intermeddler
D. CLASSIFICATION OF CONTRACTS
1. ACCORDING TO DEGREE OF DEPENDENCE
a. preparatory
A preparatory contract is one which has
for its object the establishment of a condition in
law which is necessary as a preliminary step

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a. bilateral

A bilateral contract is one which gives rise to

reciprocal obligations for both parties (i.e. sale,
lease).
b. unilateral
A unilateral contract is one which gives rise
to an obligation for only 1 of the parties (i.e.
commodatum, gratuitous deposit).
6) According to Cause
a. onerous

An onerous contract is one in which each of

the parties aspires to procure for himself a benefit
through the giving of an equivalent or
compensation (i.e. sale).
b. gratuitous
A gratuitous contract is one in which one of
the parties proposes to give to the other a benefit
without any equivalent or compensation (i.e.
commodatum).

7) According to Risk
a. commutative
A commutative contract is one in which
each of the parties acquires an equivalent of his
prestation and such equivalent is pecuniarily
appreciable and already determined from the
moment of the celebration of the contract (i.e.
lease).
b. aleatory

An aleatory contract is one in which each

of the parties has to his account the acquisition of
an equivalent prestation , but such equivalent,
although pecuniarily appreciable, is not yet
determined, at the moment of the celebration of
the contract, since it depends upon the happening
of an uncertain event, thus charging the parties
with the risk of loss or gain (i.e. insurance).
8) According to Name
a. nominate
A nominate contract is one which has a
name and is regulated by special provisions of
law (i.e. sale, lease)
b. innominate
An innominate contract is one does not
have a name and is not regulated by special
provisions of law.
Innominate contracts shall be regulated by
the
1) stipulations of the parties,
2) provisions of obligations and contracts,
3) rules governing the most analogous nominate
contracts, and
4) customs of the place (Art. 1307).

4 Classes of Innominate Contracts

i. I do, you do
ii. I do, you give
iii. I give, you do
iv. I give, you give

9) According to Subject Matter

a. thing (i.e. sale, deposit, pledge)
b. right
c. service (i.e. agency, lease of services)
E. STAGES OF CONTRACTS
1. NEGOTIATION

Preparation, conception, or generation,

which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties
CONTRACT OF OPTION:
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.
Art. 1479. A promise to buy & sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct fr. the price.

bern.carrasco

Article 1482. Whenever earnest money is given in a contract of

sale, it shall be considered as part of the price and as proof of the
perfection of the contract.
Bav: The parties could stipulate otherwise & that the earnest
money will be forfeited, as in the CAB

When there is a right of first refusal, at the

time the offer is made, the owner still has not yet
decided to sell, but in case he does, the holder of the
right has the priority to accept it. Distinguished fr. an
option to sell, where there is a continuing offer to sell
on the part of the owner.

SANCHEZ VS. RIGOS

As Justice Bengzon explained, an option is
unilateral; a promise to sell at the price fixed whenever
the offeree should decide to exercise his option w/in the
specified time. After accepting the promise & before he
exercises his option, the holder of the option is not bound to
buy. He is free either to buy or not to buy later...however, upon
accepting herein petitioners offer, a bilateral promise to sell &
to buy ensued, & the resp. ipso facto assumed the obligation of
a purchaser. He did not just get the right subsequently to buy
or not to buy. It was not a mere option then; it was a bilateral
of sale.
If the option is given w/o a consideration, it is a mere
offer of a contract of sale, w/c is not binding until accepted. If
however, acceptance is made before a w/drawal, it
constitutes a binding of sale, even though the
option was not supported by a sufficient
consideration.
BAVIERA:
Q: Distinguish between Art. 1479 & 1324?
1479
1324
Applies if has NOT beenThis is the GENERAL RULE
ACCEPTED
on
CONTRACTS:
If
ACCEPTED, the agreement
A consideration other thanbecomes BINDING (WON
the purchase price isthere is a consideration
required to make theother than the purchase
unilateral promise binding price)

In order that a unilateral promise may

be binding upon the promissor, Art. 1479
requires the concurrence of the condition that
the promise be supported by a consideration
distinct fr. the price. Accordingly, the
promisee cannot compel the promisor to
comply w/ the promise, unless the former
establishes the existence of said distinct
consideration. The promisee has the burden of
proving such consideration. (Cronco v. Tuazon)
Conventional Redemption
Art. 1601. Conventional redemption shall take place when the
vendor reserves the right to repurchase the thing sold, w/ the
obligation to comply w/ the provisions of Art. 1616 & other
stipulations w/c may have been agreed upon.
Art. 1616. The vendor cannot avail himself of the right of
repurchase w/o returning to the vend the price of the sale , & in
addition:
(1) The expenses of the contract, & any other legitimate
payments made by reason of the sale;
(2) The necessary & useful expenses made on the thing sold.

Baviera:
In an equitable mortgage, the property must still
first be foreclosed before ownership passes to the seller.
Distinguished fr. a pacto de retro sale, where ownership already
passes to the buyer upon perfection of the contract, but if the
right to redeem is exercised, then ownership reverts to the seller.
Pacto de retro, or conventional redemption, is
favored by creditors, bec. it does away w/ the necessity of a
foreclosure, in case the debtor fails to pay the loan. All that the
creditor has to do is to execute an affidavit consolidating
ownership in himself & register the same in the Register of
Deeds. The price in a pacto de retro sale is naturally lesser than
that in an absolute sale, bec. the sale is subject to a resolutory
condition, & also to facilitate redemption. Thus, the mere fact
that the price is not the true value of the property does not justify
the conclusion that the contract is one of mortgage.

If the seller wants to redeem, he must

give the buyer the price the expenses of the
contract any other legitimate payments made
by reason of the sale the necessary expenses
made on thing sold.
Equitable Mortgage
Art. 1602. The contract shall be presumed to be an equitable
mortgage in any of the following cases:
(1) When the price of the sale w/ right to repurchase is unusually
inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to repurchase
another instrument extending the period of redemption or
granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase
price;
(5) When the vendor binds himself to pay the taxes on the thing
sold;
(6) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent or otherwise
shall be considered as interest w/c shall be subject to usury laws.
Art. 1603. In case of doubt, a contract purporting to be a sale w/
right to repurchase shall be construed as an equitable mortgage.
Paras:

An equitable mortgage is one w/c, though

lacking in some formality or other requisites demanded
by law, reveal an intention of the parties to charge a
real property as security for a debt & constrains nothing
impossible or contrary to law.
Art 1606. The right referred to in Art. 1601, in the absence of an
express agreement, shall last four years fr. date of the contract.
Should there be an agreement, the period cannot exceed ten
years.
However, the vendor may still exercise the right to repurchase
w/in thirty days fr. the time final judgment was rendered in a
civil action on the basis that the contract was a true sale w/ right
to repurchase.
Baviera:
An agreement to repurchase becomes an option to buy
when entered into after the time to redeem stipulated in a pacto
de retro sale had already expired, bec. then the vendee a retro
became absolute owner of the thing sold, & the subsequent grant
of the right to repurchase is a new agreement. But where the
period to repurchase has not expired, & another agreement is
entered into granting the vendor a retro the right to repurchase
the object of the contract at any time, the subsequent agreement
is not a promise to sell but is an extension of the period to
redeem, w/c cannot exceed 10 years.

bern.carrasco

Reason for the 10-year limitation: A pacto de retro is a

suspension of title, & it is against public interest to permit such
uncertainty to continue for a long time.
Counting of 4-year period: From the execution of the
contract. But if the right is suspended by agreement that it shall
be exercised only after a certain time or condition arises, then
the period shall be counted only fr. the time such right could be
exercised, but not exceeding 10 years fr. execution.
Not sufficient that a vendor a retro manifests his desire to
redeem.
This must be accompanied by an actual or
simultaneous tender of payment of the redemption price. But if
vendee refuses, then vendor may file a suit against him &
consign the amount in court.
2. PERFECTION

Perfection or birth of the contract, which

is the moment when the parties come to agree on the
terms of the contract;

GEN RULE: Contracts are perfected by mere

consent the principle of consensuality (Art. 1315);

EXCEPTION:
Real contracts, such as
deposit, pledge, and commodatum are not perfected
until the delivery of the object of the obligation (Art.
1316)
3. PERFORMANCE
4. CONSUMMATION

Consummation or death, which is the

fulfillment or performance of the terms agreed upon
F. ESSENTIAL ELEMENTS OF CONTRACTS:
1. CONSENT of the contracting parties:
Consent is the manifested by the meeting of offer and
acceptance upon the thing and the cause which are to
constitute the contract (Art. 1319, 1st par).
Elements of Consent:
a. plurality of subjects
b. capacity (legal)
c. intelligent and free will
d. express or tacit manifestation of the will
e. conformity of the internal will and its manifestation
CONSENT is the concurrence of wills of the offerer & the
acceptor as to the thing & the cause whc constitute a contract
OFFER manifestation of a willingness to enter into a bargain
so made as to justify another in understanding that his assent
to that bargain is invited & will conclude it.
Offer negotiation imperfect promise policitation
No acceptance no concurrence of wills no consent no !
Contract to Sell is a bilateral , where there is merely an
offer by one party; w/o acceptance on the other party, no
consent. (Salonga v. Farrales, July 10, 1981);
An offer is a unilateral proposition which 1 party makes to the
other for the celebration of a contract.
Requisites of Offer:
1.
definite
The offer must be definite, so that upon acceptance,
an agreement can be reached on the whole contract.

2.

complete
The offer must be complete, indicating with sufficient
clearness the kind of contract intended and definitely
stating the essential conditions of the proposed
contract as well as the non-essential ones desired by
the offeror.
3.
intentional
An offer without seriousness, made in such manner
that the other party would not fail to notice such lack
of seriousness, is absolutely without juridical effects
and cannot give rise to a contract (i.e. must not be
made in jest, or a prank).
Acceptance must be affirmatively and clearly made & must be
evidenced by some acts or conduct communicated to offeror,
either in formal or informal manner, & may be shown by
conduct, acts, words, by accepting party that clearly manifest
the intention to buy or sell. (Art. 1319; Adelfa Properties v. CA)
Requisites of Acceptance:
1. unequivocal
2. unconditional
o
If the acceptance is qualified, then that is a
counter-offer.
o
An amplified acceptance may or may not be
an acceptance of the original offer. It depends on the
circumstances.
o
For example, A is selling 1000 kgs. of
cement. B says he wants to buy 2000 kgs of cement.
There is no acceptance of the offer if B will only buy
2000 kgs and nothing less.
Manifestation of Acceptance:
o
An acceptance may be express or implied
(Art. 1320).
o
Silence is ambiguous. One must look at the
circumstances to determine if the silence is a form of
acceptance.
o
A
and B are own stalls which sell rice. C delivers 1000
kgs of rice to A every Sunday. If A is not there, C just
leaves it to As assistant. C tries to do business with B.
B is not there though. C leaves rice with Bs assistant.
B does not call C. Both A and B are silent. A
acceptance the rice because of the arrangement. If A
did not want to accept the rice, then A should have
called. Bs silence is not acceptance.
Q: Could there be a perfected contract in a unilateral promise
to sell?
A: Yes, a perfected contract of option is an accepted
unilateral promise whc specifies the thing to be sold and the
price to be paid, when coupled with a valuable
consideration distinct and separate from the price.
(Art. 1324)
OPTION is a contract granting a privilege to buy or sell at a
determined price w/in an agreed time (Ang Yiu Asuncion v.
CA, Dec. 2, 1994)
COGNITION Theory
Acceptance made by letter of telegram does not bind the offer
except from the time it came to his knowledge (Art. 1319, 2nd
par).

This is known as the Cognition Theory

If the parties are face to face, then there is no problem

since there is no time gap.

The problem arises when there is a time gap. Under

Art. 1319, there is perfection of the contract when there is
knowledge of the other partys acceptance/. This has serious
consequences.

bern.carrasco

For example, the offer was made in Davao on Feb. 1.

The offer was sent through mail which is received in
Manila on Feb. 5. On the same day, the offer is accepted.
Mail is sent to Davao on Feb. 5 signifying acceptance. On
Feb. 8, the party in Manila becomes insane. On Feb.13 the
mail reaches Davao. According to Prof. Balane, under Art.
1323, there is no contract since there was no contractual
capacity.

Offers Through Agents

An offer made through an agent is accepted from the

time acceptance is communicated to him (Art. 1322).
Effect of Death, Insanity

An offer becomes ineffective upon the death, civil

interdiction, insanity or insolvency of either party before
acceptance is conveyed (Art. 1323).
Withdrawal of the Offer

When the offerer has allowed the offeree a cetain

period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when
the option is founded upon consideration, something paid or
promised (Art. 1324).
EX: A offers to B by mail on Feb.1 The offer reaches
B on Feb. 5. B accepts via mail. The mail reaches A
on Feb. 8. On Feb. 8, A also decides to withdraw the
offer. Which will take effect? If the mail of B reaches
A first, then A cannot withdraw the offer. The
problem here is evidentiary.

Art. 1324 is related to Art. 1479, par. 2. They actually

say the same thing.
EX: B offers to sell a car to J for P300,000. J needs to think
about it, and so J asks for 30 days. J pays B earnest money
worth P5,000.
The payment of P5,000 is a distinct
consideration from the price of the car. This distinct
consideration of P5,000 is payment for the 30 days. J is paying
for time. The option contract is separate from the contract of
sale. B cannot sell the car to anybody else within that 30 day
period.
EX: B offers to sell a car to J for P300,000. J needs to think
about it, and so J asks for 30 days. J does not pay B for time,
but B promises to give J 30 days. In this case there is no option
contract. However, in Sanchez v. Rigos, the SC said that even if
there was no option contract, B must still communicate the
withdrawal of the offer to J. If B does not communicate his
withdrawal, that is tantamount to a continuing offer. Prof.
Balane does not agree with this. According to him, if there is
no valid option contract, there should be no continuing offer.
According to Prof. Balane, the SC should have explained that.
EX: B offers to sell a car to J for P300,000. J needs to think
about it, and so J asks for 30 days. J pays earnest money worth
P5,000. J decides to buy the car within 30 days. The car is not
sold to anybody else. B does not want to sell the car to J. J can
sue B for specific performance compel B to sell him the car.
EX: B offers to sell a car to J for P300,000. J needs to think
about it, and so J asks for 30 days. J pays earnest money worth
P5,000. J decides to buy the car within 30 days. Before J is
able to buy the car, B sells the car to X. J can sue B for
damages. J cannot sue for specific performance since the car
has been sold to an innocent purchaser.
A right of first refusal vs. option contract:
right of first refusal
option contact
right to have first opportunity tolimits the promissors power to

purchase or the right to meetrevoke an offer

any other offer
not covered by the Civil Code Art. 1324, CC
In Equatorial v. Mayfair theIn Ang Yu v. CA, the SC said
right of first refusal was violatedthat an action for specific
when the vendor sold the objectperformance will not lie against
to another person - an action for the promissor.
However, a
specific performance may becomplaint under Art. 19 for
filed.
damages may be filed if the
actions of the promissor are
whimsical.
RIGHT OF FIRST REFUSAL
The basis of the right of first refusal must be the current
offer to sell of the seller or offer to purchase of any
prospective buyer. Only after the optionee fails to
exercise its right of first priority under the
SAME terms & w/in the period contemplated,
could the owner validly offer to sell the
property to a 3rd person, again, under the
same terms as offered to the optionee.
(PARANAQUE KINGS ENTERPRISES vs. CA)

SANCHEZ V. RIGOS
It should be noted that:
1. Art. 1324 applies to s in general, whereas the 2nd par
of Art. 1479 refers to "sales" in particular, &, more specifically,
to an "accepted unilateral promise to buy or to sell." Art.
1479 is controlling in the case at bar.
2. In order that said unilateral promise may be binding upon
the promisor, Art. 1479 requires the concurrence of a
condition, namely, that the promise be "supported by a
consideration distinct fr. the price. In other words, the
promise, even if accepted, may be w/drawn if there is no
consideration distinct fr. the price. (SW Sugar case)

In a right of first refusal, there is no definite offer

since the vendor has to option of deciding not to sell the object.
Also, in a right of first refusal, there is no need for a separate
consideration. In an option contract, there is a definite offer.
According to Prof. Balane, the right of first refusal is inferior to
an option contract since there is no definite offer. Prof. Balane
does not understand why an action for specific performance is
allowed in violations of rights of first refusal but not in the case
of option contracts when the object is sold to another person.
Why is the SC giving greater legal effect to a right of first
refusal which is more tentative? Also, where the SC get these
rules since the right of first refusal is not covered by the Civil
Code.
ADVERTISEMENTS:
Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere invitations to
make an offer (Art. 1325)
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 (Art.
1326).

Most advertisements are simply invitations to make

an offer and are not offers in themselves since not all the
necessary terms can fit in the advertisement.

Even if the ad had all the necessary terms, its still an

invitation to make offer since there is no definite person to
whom the offer is being made (public offer).
Simulated Contracts

bern.carrasco

a. Absolutely Simulated (contrato simulado)

Absolute simulation of a contract takes place when the
parties do not intent to be bound at all (Art. 1345).
EX: X pretends to sell his car to avoid tax liability.
However X has no real intention to sell the car.
An absolutely simulated or fictitious contract is void (Art.
1346)
b. Relatively Simulated (contrato disimulado)
Relative simulation of a contract takes place when the
parties conceal their true agreement (Art. 1345).

In a relatively simulated contract, the parties enter

into a contract but disguise it as another.
EX: X has many creditors, and they are going after Xs
car. X cannot donate his car to Y since the creditors
will just resort to accion pauliana. So, X antedates a
contract of sale, selling his car to Y, except that Xs
intention is to donate his car to Y.

A relatively simulated contract, when it does not

prejudice a 3rd 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 (Art. 1346).

The law will apply the rules of the true contract and
not the ostensible contract.
Article 37. Juridical capacity, which is the fitness to be the
subject of legal relations, is inherent in every natural person
and is lost only through death.
Capacity to act, which is the power to do acts with legal
effect, is acquired and may be lost.
Article 38. Minority, insanity or imbecility, the state of
being a deaf-mute, prodigality and civil interdiction
are mere restrictions on capacity to act, and do not exempt the
incapacitated person from certain obligations, as when the
latter arise from his acts or from property relations, such as
easements.
Article 39. The following circumstances, among others,
modify or limit capacity to act: age, insanity, imbecility,
the state of being a deaf-mute, penalty, prodigality,
family relations, alienage, absence, insolvency and
trusteeship. The consequences of these circumstances are
governed in this Code, other codes, the Rules of Court, and in
special laws. Capacity to act is not limited on account of
religious belief or political opinion.
Article 739. The following donations shall be void:
(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the
same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife,
descendants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee;
and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action.
Article 1476. In the case of a sale by auction:
xxx
(4) Where notice has not been given that a sale by
auction is subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself
or to employ or induce any person to bid at such sale

10

on his behalf or for the auctioneer, to employ or

induce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or
any person employed by him. Any sale contravening
this rule may be treated as fraudulent by the buyer.

prohibition shall also apply to persons living together as

husband and wife without a valid marriage.

Article 1490. The husband and the wife cannot sell property
to each other, except:

Art. 124. The administration and enjoyment of the conjugal

partnership shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which
must be availed of within five years from the date of the
contract implementing such decision.

(1) When a separation of property was agreed upon in

the marriage settlements; or
(2) When there has been a judicial separation of
property under article 191.
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person
or through the mediation of another:
(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 intrusted to them, unless the consent of the principal has
been given;
(3) Executors and administrators, the property of the estate
under administration;

Section 5. Administration of the Conjugal Partnership

Property

In the event that one spouse is incapacitated or

otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers
of administration. These powers do not include disposition or
encumbrance without authority of the court or the written
consent of the other spouse. In the absence of such authority or
consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a continuing
offer on the part of the consenting spouse and the third person,
and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors.
EMANCIPATION AND AGE OF MAJORITY

(4) Public officers and employees, the property of the State or

of any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner
whatsoever, take part in the sale;

Art. 234. Emancipation takes place by the attainment of

majority. Unless otherwise provided, majority commences at
the age of twenty-one years.

(5) Justices, judges, prosecuting attorneys, clerks of superior

and inferior courts, and other officers and employees
connected with the administration of justice, the property and
rights in litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession;

(2) By the recording in the Civil Register of an

agreement in a public instrument executed by the
parent exercising parental authority and the minor at
least eighteen years of age. Such emancipation shall
be irrevocable.

Emancipation also takes place:

(1) By the marriage of the minor; or

[RA No. 6809]

Republic Act No. 6809, which reduced the

age of majority to eighteen (18) years was
approved only on 13 December 1989 and became
effective two weeks after publication in two
newspapers of general circulation.

(6) Any others specially disqualified by law

Art. 1533 (par.5).
The seller is bound to exercise
reasonable care and judgment in making a resale, and subject
to this requirement may make a resale either by public or
private sale. He cannot, however, directly or indirectly buy the
goods.
Article 1646. The persons disqualified to buy referred to in
articles 1490 and 1491, are also disqualified to become lessees
of the things mentioned therein
Article 1782. Persons who are prohibited from giving each
other any donation or advantage cannot enter into universal
partnership.
Article 1409. The following contracts are inexistent and void
from the beginning:
xxx
(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.
Article 5. Acts executed against the provisions of mandatory
or prohibitory laws shall be void, except when the law itself
authorizes their validity.
[FC: E.O. 209]
Art. 87. Every donation or grant of gratuitous advantage,
direct or indirect, between the spouses during the marriage
shall be void, except moderate gifts which the spouses may give
each other on the occasion of any family rejoicing. The

bern.carrasco

1987 CONSTITUTION: ARTICLE XII - NATIONAL

ECONOMY AND PATRIMONY
Section 7. Save in cases of hereditary succession, no private
lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands
of the public domain.
Section 8. Notwithstanding the provisions of Section 7 of this
Article, a natural-born citizen of the Philippines who has lost
his Philippine citizenship may be a transferee of private lands,
subject to limitations provided by law.
2. OBJECT certain which is SM of

The object of the contract is the prestation. Thus, it is

always the conduct which is to be observed. It is not a concrete
object like a car. In a contract of sale, the object is the delivery
of the object and not the object itself.

The provisions on object however blur the distinction

between the object of the contract, the prestation, and the
object of the prestation. According to Prof. Balane, these
provisions are not fatal though.
Requisites of Object:

1.

the object must be within the commerce of man,

either already existing or in potency (Art. 1347)

11

Within the commerce of man means that

the object is capable of appropriation and
transmission;

the immediate and most proximate purpose of the

contract;

the essential reason which impels the contracting

parties to enter into it and which explains and justifies
the creation of the obligation through such contract;

The cause is different from consideration.

The term in potency means that the

object will come into existence in the future;

Generally, in reciprocal contracts particularly

sales, the sale of future things is allowed. For
example, it is possible to sell the future harvest of a
farm.

The coming into being of the future thing is a

suspensive condition.

Emptio rei speratae is a conditional sale.

There is a suspensive condition. If the future thing
does not come into existence, then there is no contract
of sale.

Requisites of Cause:
1. it must exist
2. it must be true
3. it must be licit

Emptio spei is the sale of a hope. Even if

the future thing does not materialize, the buyer must
pay since the buyer is taking a chance. (i.e. sale of
lotto ticket). Hope is a present thing.
Some future things are not allowed to be
objects of the prestation. The law does not allow
contracts on future inheritance.
the object must be LICIT, or not be contrary to law,
morals, good customs, public policy or public order (Art.
1347)

3.

the object must be possible (Art. 1348)

If the object is impossible, then the contract

is void for lack of cause;

Art. 1348 does not talk of supervening

impossibility which is a mode of extinguishment;

Impossibility under Art. 1348 must be actual

and contemporaneous with the making of the
contract.

4.

the object must be determinate as to its kind and

determinable as to its quantity (Art. 1349)

The object need not be individualized.

must be determinate as to its kind or species;

It

The quantity of the object may be

indeterminate, so long as the right of the creditor is
not rendered illusory.

5.

the object must be transmissible

This is actually a redundancy since this is

already in the requisite of being within the commerce
of man.
3. CAUSE of the :

The cause of a contract is the why of the contract;

bern.carrasco

Cause is different from motive.

Cause is the proximate why while motive is the
ultimate why;
EX: A wants to sell his house for P60 M because A is
moving to Canada. B is willing to buy the house for
P60 M. In this case, the cause for A is the P60 M
while the cause for B is the house. As motive is to
dispose of the house which he does not need since A is
going to Canada.

2.

Consideration in the Anglo-American sense must

always be valuable or capable of pecuniary estimation.
Cause, on the other hand, need not be material at all,
and may consist in a moral satisfaction for the
promissor.

Like failure of or lack of object, the failure of cause has

an effect on the contract. If there is no cause or
the cause is illegal, then the contract is void.

This is unlike the lack of consent. When consent is

lacking, the contract is not void. The contract is
merely voidable.

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 of pure
beneficence, the mere liberality of the benefactor.
[GR] Failure of motive as a general rule does not
affect the contract.
[EXC] Motive affects the contract when:
1. the motive becomes a suspensive condition; or
2. the realization of the motive is the cause for the
contract and there is an intervening serious mistake of
fact

In onerous contracts, the cause is the

prestation or promise of a thing or service by the other
party.

It has been held that, as a mortgage is an

accessory contract, its cause or consideration is the
very cause or consideration of the principal contract,
from which it receives its life, and without which it
cannot exist as an independent contract (China Bank
v. Lichauco).

In remuneratory contracts, the cause is the

service or benefit which is remunerated .

A remuneratory contract is one where a

party gives something to another because of some
service or benefit given or rendered by the latter to the
former, where such service or benefit was not due as a
legal obligation.

In gratuitous contracts, the cause is the

mere liberality of the benefactor.

12

Article 1351. The particular motives of the parties in entering

into a contract are different from the cause thereof.
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.
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.
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.
Article 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless there
has been fraud, mistake or undue influence.
4. Delivery for real contracts
5. Form for formal contracts
Art. 1356. Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present. However, when the law requires
that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that
requirement is absolute & indispensable.
Tolentino
Art. 1356 provides for TWO CASES where form is absolute &
indispensable, namely:
(1)
When the form is essential to the validity of
the ;
(2)
When the is unenforceable unless it is in a
certain form, such as those under the Statute of
Frauds (SOF)
GR: A having the essential requisites of Art. 1318 will be valid
as between the parties whatever the form it may have been
entered into;
Requisites under Art. 1318
1. Consent of the contracting parties
2. Object certain w/c is the subject matter of
litigation
3. Cause of the obligation w/c is established
The formalities required by law
three groups:

are classified into

(1) ad esentia, ad solemnitatem those w/c are required for the

validity of the ;
(2) those required to make the effective as against 3rd parties,
such as those mentioned in Arts. 1357 & 1358;
(3) formalities ad probationem those required for the
purpose of proving the existence of a , such as those provided
in the SOF
ONG YIU v CA
Ong may not have signed the ticket nevertheless, he is
bound by such stipulation the same being part of the contract
of carriage, valid & binding upon the passenger regardless of
lack of knowledge or assent.
It is a contract of adhesion wherein one party
imposes a ready made contract for the other party,
the place ticket in CAB. Such contracts are not
entirely prohibited. The one who adheres to the
contract is free to reject it entirely, if he adheres he
give consent.

RATIO:
Only an absolute or unqualified acceptance
of a definite offer manifests the consent necessary
to perfect a contract (Article 1319, New Civil Code).
Once a contract is shown to have been
consummated or fully performed by the parties
thereto, its existence and binding effect can no
longer be disputed.
TANG v CA
RATIO:
Art. 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.
The obligation to show that the terms of the
contract had been fully explained to the party who
is unable to read or understand the language of the
contract, when fraud or mistake is alleged,
devolves on the party seeking to enforce it.

CARIO v CA
RATIO:
Contracts whc are absolutely simulated or
fictitious are inexistent and null & void ab initio.

LAGUNZAD v GONZALES
RATIO:
Duties must comply w/s entered into
where provisions thereof are not contrary to
L/M/GC/PO/PP.

G. FORM OF CONTRACTS: 1356-1358

CHAPTER 3 - Form of Contracts
Article 1356. Contracts shall be obligatory, in whatever form
they may have been entered into, provided all the essential
requisites for their validity are present. However, when the law
requires that a contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable. In such
cases, the right of the parties stated in the following article
cannot be exercised. (1278a)
Article 1357. If the law requires a document or other special
form, as in the acts and contracts enumerated in the following
article, the contracting parties may compel each other to
observe that form, once the contract has been perfected. This
right may be exercised simultaneously with the action upon the
contract. (1279a)
Article 1358. The following must appear in a public
document:
(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 are governed by articles 1403, No.
2, and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;

WELDON v CA

bern.carrasco

13

(4) The cession of actions or rights proceeding from an act

appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But
sales of goods, chattels or things in action are governed by
articles, 1403, No. 2 and 1405.
NOTE: Purpose of form in Art. 1358 is to prejudice or to affect
third persons.
1. GEN RULE: (any) There is no need for a specific
form, but there must still be some manifestation of
consent
EXCEPTION: When the written form is required

4.

In so far as the donor is concerned, the

donation is not accepted unless he/she is notified of
such acceptance.
Art. 748. x x x If the value of the personal property donated
exceeds five thousand pesos, the donation & the acceptance shall
be made in writing. Otherwise, the donation shall be void.
[Tolentino, RE 748]
A donation of personal prop. exceeding P5 thou in
value must ALWAYS be made in writing, & accepted
also in writing.

The document of donation & the acceptance need not

be public instruments but may simply be private
documents.

When the value does not exceed P5 thou, a donation

may be mare orally or in writing.

If donation is made orally, there must be simultaneous

delivery.

If there is no simultaneous delivery, the donation is

void unless made in writing. BUT in this case, the law
does not require that that when the donation is made in
writing, the acceptance should also be in writing.

2. SPECIAL FORM
a) for validity
If it not written, the same is void.
Examples are donations (Arts. 748, 749),
antichresis (Art. 2134),

interest in a loan (Art. 1956),

sale of land by an agent (Art. 1874),
contribution of immovables in a partnership (Art.
1773)

Art. 749. In order that the donation of an immovable may be

valid, it must be made in a public document, specifying therein
the property donated & the value of the charges w/c the donee
must satisfy.
The acceptance may be made in the same deed of donation or in
a separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor
shall be notified thereof in an authentic form, & this step shall be
noted in both instruments.
Tolentino:
If the donation of an immov was not made in a public
instrument, the donee cannot bring an action to compel
the donor to execute a public instrument of donation
under Art. 1357.

Art. 1357 applies only to s w/c validly exist, & cannot

be held applicable to a case where the form is required
in order to make it valid

Tolentino
Art. 1356 provides for TWO CASES where form is absolute &
indispensable, namely:

1)

When the form is essential to the validity of

the

2)

When the is unenforceable unless it is in a

certain form, such as those under the Statute of Frauds
(SOF)
GENERAL RULE: A having the essential requisites of Art.
1318 will be valid as between the parties whatever the form it
may have been entered into
Requisites under Art. 1318
1.
Consent of the contracting parties
2.
Object certain w/c is the subject matter of
litigation
3.
Cause of the obligation w/c is established
Tolentino:

A donation of personal prop. exceeding P5 thou in

value must ALWAYS be made in writing, & accepted
also in writing.

The document of donation & the acceptance need not

be public instruments but may simply be private
documents.

it has been accepted in a public

instrument---whether in the deed of donation itself
or on a separate public instrument. Solemn words of
acceptance are not necessary.

When the value does not exceed P5 thou, a donation

may be made orally or in writing.

2.

If
donation
is made orally, there must be
simultaneous delivery.

If there is no simultaneous delivery, the donation is

void unless made in writing. BUT in this case, the law
does not require that that when the donation is made
in writing, the acceptance should also be in writing.

A public instrument is not necessary in cases of

onerous donations bec. they are governed by the rules
on contracts.

Title to immov prop. does not pass fr. the donor to the
donee until & unless:

1.

The donor was duly notified thereof--Necessary that formal notice is given to the donor & the
fact that due notice has been given must be noted in the
instruments containing the offer to donate & that
showing the acceptance. Then & only then is the
donation perfected

3.

The acceptance must be made during

the life of the donor; if not made before the donors
death, it is w/o effect.

bern.carrasco

14

Instances when the law requires to be in a certain

form to be valid:
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property
is not made, signed by the parties, & attached to the public
instrument.
Art. 1984. The depositary cannot demand that the depositor
proves his ownership of the thing deposited.
Nevertheless, should he discover that the thing has
been stolen & who its true owner is, he must advise the latter of
the deposit.
If the owner, in spite of such information, does not
claim it w/in the period of one month, the depositary shall be
relieved of all responsibility by returning the thing
deposited
to the depositor.
If the depositary has reasonable grounds to believe that
the thing has not been lawfully acquired by the depositor, the
former may return the same.
Art. 2134. The amount of the principal & of the interest shall be
specified in writing; otherwise, the contract of antichresis shall
be void.
Art. 83---Family Code
These donations are governed by the rules on ordinary
donations established in Title III of Book III of the Civil Code,
insofar as they are not modified by the following articles.
(b) for enforceability
NOTE: *** This list is EXCLUSIVE (Art. 1403, below)
[BAVIERA]

When the law states in writing, this need

not be a public document.

It is sufficient that it was SIGNED by the party

sought to be charged
Instances when the law makes
unenforceable if it is not written: (SOF)

contract

(a) an agreement that by its terms is not to be

performed within a year from the making thereof
(Art. 1403 (a))
[BAVIERA] rationale of this: bec. of memory lapse
Tolentino: The time begins fr. the day the is entered into, &
not fr. the time that performance of it is entered upon;

It must appear that the parties intended when they

made the that it should not be performed w/in a
year.

Where no time is fixed by the parties for performance,

& there is nothing in the agreement itself to show that it
cannot be performed w/in a year according to its terms
& the understanding of the parties, the agreement is
NOT w/in the SOF.

(b) a special promise to answer for the debt,

default or miscarriage of another (Art. 1403 (b))
BAVIERA:
contracts

Examples of this are guaranty & surety

Tolentino:
This has been defined as an undertaking by a
person, not before liable, for the purpose of securing or
performing the same duty for w/c the original debtor continues
to be liable.
The test as to whether a promise is w/in the
statute has been said to lie in the answer to the
question whether the promise is an original or a
collateral one:

bern.carrasco

PROMISE IS ORIGINALPROMISE IS COLLATERAL

OR INDEPENDENT
If the promisor becomesIf the promise is collateral to the
primarily liable for theagreement of another & the
payment of a debt, thepromisor becomes thereby merely a
promise is not w/in thesurety, the promise falls w/in the
statute
SOF & hence, it should be in writing
(c)
an agreement made in consideration of
marriage, other than a mutual promise to marry
(Art. 1403 (c))
BAVIERA: Examples of this would be a marriage settlement,
donation propter nuptias

A mutual promise to marry, whether or not in writing,

is unenforceable bec. it is a personal act.

Tolentino: When the marriage is a mere incident, & not the

end to be attained by the agreement, the contract is not in
consideration of marriage, & oral evidence can prove the
agreement

Even when marriage is a consideration, but in

addition thereto, there is some other consideration
sufficient to support the oral agreement, this may be
proved by w/o a writing.
(d) an agreement for the sale of goods, chattels or things in
action, at a price not less than P500, unless the buyer accepts
and receives part of such goods and chattels, or the evidence,
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 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 (Art. 1403 (d))
BAVIERA: Choses in action refer to incorporeal property
Tolentino: The requirement of a written instrument or a memo
for sales of personal prop. for a price not less than P500, covers
both TANGIBLE & INTANGIBLE personal prop.

To bring a sales transaction w/in the

operation of the SOF, the price of the prop. sold
must be at least P500.

A for the sale of goods, chattels or

things in action is removed fr. the operation of
the SOF where the buyer ACCEPTS &
RECEIVES part of such goods & chattels.

Neither will the SOF apply where there

has been part payment of the purchase price.

Evidence to prove an oral of sale of

real estate must be disregarded if timely
objections are made to its introduction.

A consummated sale of real prop. is not

covered by the SOF.
(e) an agreement of lease for a period of more than
1 year, or the sale of real property or of an interest
therein (Art. 1403 (e))
(f) a representation as to the credit of a 3rd person
(Art. 1403 (f))
Tolentino:

15

The representations are limited to those w/c

operate to induce the person to whom they are made to
enter into contractual relations w/ the third person, but
not to those representations tending to induce action
for the benefit of the person making them.
BAVIERA:Q: What is the ratio for the SOF?
A: To prevent fraud. The problem w/ oral contracts is
that they are easy to fabricate & perjure the witnesses.
Q: An oral contract for the lease of property for 2
years. What is the status of the K?
A: Enforceable for the 1st year, unenforceable for the
2nd year
Q: An oral K for the sale of land. The buyer suffered
damages when the seller refused to comply w/ his
promise even if the buyer offered to pay. B consigned
the payment. So whats up?
A: Acceptance of benefits (even if it was just an earnest
money) takes it away w/in the ambit of the Statute of
Frauds. To allow a K w/c has been partially performed
to become unenforceable would be to allow a party to
perpetrate fraud.
Q: When is there a waiver of the SOF?
A: In the ff. instances:

When there has been acceptance of benefits

When there is failure to object to the

introduction of oral evidence
Q: Seller has advertised a specific object for sale. A
buyer comes to buy (sus...eh ano pa nga bang
ginagawa ng buyer?). Seller says Bukas ka na lang
bumalik, alas 7:00 na eh! To show good faith, buyer
deposits P500.00 as earnest money. Is the sale
enforceable even if theres no compliance w/ the SOF?
A: OO naman.

(g) no express trusts concerning an immovable or

any interest therein may be proved by parol
evidence (Art. 1443)
BAVIERA:

This provision is not very clear as to the

meaning of parol. Strictly, parol evidence rule
presupposes a written agreement. It is much better to
make it unenforceable.
Pertinent Family Code Provisions
Art. 77. The marriage settlements & any modification thereof
shall be in writing, signed by the parties & executed before the
celebration of the marriage. They shall not prejudice third
persons unless they are registered in the local civil registry where
the marriage contract is recorded as well as in the proper
registries of property.
Art. 83. These donations are governed by the rules on ordinary
donations established in Title III of Book III of the Civil Code,
insofar as they are not modified by the following articles.
LAO SOK v. SABAYSABAY, 138 SC 135
RATIO:
Perfected - where the ER offered the EEs
payment of separation pay whc offer was
unconditionally accepted, a was perfected; s
tho orally made are binding on the parties.

GALLARDO v. IAC, 155 SC 134

RATIO:
Registration of a private deed of sale by the
RD is unauthorized and does not lend validity to
the defective private doc of sale; Rt of a vendee of
regd prop in a private doc.

[Tolentino]
Rationale of the SOF: Oral contracts lead to fraud in the
fulfillment of obligations, or to false testimony.

SOF applies only to EXECUTORY & not to completed

or executed s.

A falling under the SOF cannot be proved w/o the

writing or a memorandum thereof.

SOF simply provides for the manner in w/c s under it

shall be proved. It does not make such Ks invalid if not
executed in writing, but only makes ineffective the
action for specific performance.

Where one party has entirely performed his under an

oral , equity would agree that all evidence be
admitted to prove the alleged agreement. Performance
takes it out of the operation of the statute.

During trial, if the parties to the action make no

objection to the admissibility of oral evid to support the
covered by the statute, & thereby permits such to
be proved orally, it will be just as binding upon the
parties as if it had been reduced to writing.

In order that a NOTE/MEMORANDUM shall meet the

requirements of the SOF, it must contain:
the names of the parties
the terms & conditions of the agreement
a description of the subject matter sufficient to render it
capable of identification
the date & place of the making of the agreement
signature of the party assuming the obligation

bern.carrasco

C. For Greater Efficacy or Convenience or for

Registrability the following must 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 governed by Arts. 1403 (2) and 1405

2.

the cession, repudiation or renunciation of

hereditary rights or of those of the conjugal partnership of
gains

3.

the power to administer property, or any other power

which has for its object an act appearing or which should
appear in a public document, or should prejudice a 3 rd
person

4.

the cession of actions or rights proceeding from an

act appearing in a public document
Contracts enumerated in Art. 1358 are valid as between the
contracting parties even when they have not been
reduced to public or private writings.

Except in certain cases where public

instruments and registration are required for the
validity of the contract itself, the legalization of a
contract by means of a public writing and its entry in
the register are not essential solemnities or requisites
for the validity of the contract as between the

16

contracting parties, but are required for the purposes

of making it effective as against 3rd person.

instrument has made a mistake and the other knows it

and conceals the truth from him.

Art. 1357 gives the contracting parties the

coercive power to reciprocally compel the execution of
the formalities required by law, as soon as the
requisites for the validity of the contracts are present.
H. Reformation of Instruments

Once the minds of the contracting parties meet, a

valid contract exists, whether the agreement is reduced to
writing or not. There are instances however, where in
reducing their agreements to writing, the true intention of
the contracting parties are not correctly expressed in the
document, either by reason of mistake, fraud, inequitable
conduct or accident. It is in such cases that reformation of
instruments is proper. The action for such relief rests on
the theory that the parties came to an understanding, but
in reducing it to writing, through mutual mistake, fraud or
some other reason, some provision was omitted or
mistakenly inserted, and the action to change the
instrument so as to make it conform to the contract agreed
upon.

The mistake of 1 party must refer to the

contents of the instrument and not the subject mater
or the principal conditions of the agreement. In the
latter case, an action for annulment is the proper
remedy.

If 2 parties agree upon the mortgage or

pledge of real property or personal property, but the
instrument states that the property is sold absolutely
or with a right of repurchase, reformation is proper.
c) the proof of mutual mistake must be clear and
convincing
Limitations of Reformation:
1. Reformation is not proper in the following cases:
a) simple donations inter vivos wherein no condition
is imposed;
b) wills
c) when the real agreement is void

Reformation Distinguished from Annulment

Reformation
Annulment
presupposes that there is a valid if the minds of the parties did
existing contract between thenot meet, or if the consent of
parties, and only the documenteither one was vitiated by
or instrument which was drawnviolence or intimidation or
up and signed by them does notmistake or fraud, so that no real
correctly express the terms ofand valid contract was made
their agreement
gives life to it upon certaininvolves a complete nullification
corrections
of
the
contract
while
reformation gives life to it upon
certain corrections.

2. Who may ask for reformation

a) If the mistake is mutual, reformation may be
ordered at the instance of either party or his
successors in interest
b) If the mistake is not mutual, reformation may
be ordered upon petition of the injured party or his
heirs and assigns
3. Effect of enforcing an action

When one of the parties has brought an

action to enforce the instrument, he cannot
subsequently ask for its reformation.

Operation and Effect of Reformation

GR: Reformation relates back to, and takes effect from the
time of its original execution, especially as between the
parties.
Requisites of Reformation:
1. there must have been a meeting of the minds upon
the contract
2.
the instrument or document evidencing the
contract does not express the true agreement between
the parties
3.
the failure of the instrument to express the
agreement must be due to mistake, fraud, inequitable
conduct or accident
Requisites of Mistake:
a) that the mistake is one of fact
o
Whenever an instrument is drawn with the
intention of carrying an agreement previously made,
but which, due to mistake or inadvertence of the
draftsman or clerk, does not carry out the intention of
the parties, but violates it, there is a ground to correct
the mistake by reforming the instrument.
b) that it was common to both parties

A written instrument may be reformed where

there is a mistake on 1 side and fraud or inequitable
conduct on the other, as where 1 party to an

bern.carrasco

I. Interpretation of Contracts: (1370-1379)

Where the parties have reduced their contract into

writing, the contents of the writing constitutes the sole
repository of the terms of the agreement between the parties.
Whatever is not found in the writing must be understood as
waived and abandoned. Generally, therefore, there can be no
evidence of the terms of the contract other than the contents of
the writing, unless it is alleged and proved that the intention of
the parties is otherwise.

When the terms of the agreement are so clear and

explicit that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.

When the true intent and agreement of the parties is

established, it must be given effect and prevail over the bare
words of the written agreement.

In order to judge the intention of the contracting

parties, their contemporaneous and subsequent acts shall be
principally considered.

When a general and a particular provision are

inconsistent, the particular provision will control.

Where the instrument is susceptible of 2

interpretations, 1 which will make it invalid and illegal, and
another which will make it valid and legal, the latter
interpretation should be adopted.

17

In the construction of an instrument where there are

several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all.

When there is doubt as to the meaning of any

particular language, it should be determined by a consideration
of the general scope and purpose of the instrument in which it
occurs.

An instrument may be construed according to usage

in order to determine its true character.

The party who draws up a contract in which obscure

terms or clauses appear, is the one responsible for the
obscurity or ambiguity; they must therefore be construed
against him.

When it is absolutely impossible to settle doubts by

the rules established in the preceding articles, and the doubts
refer to incidental circumstances of a gratuitous contract, the
least transmission of rights and interest shall prevail. 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.
J. Kinds of Contracts as to Validity:
1. Valid and Binding
2. Valid but defective
a. rescissible (1380-89; 1191)
b. voidable
(1390-1402; 1327-28; 1330)
c. unenforceable
(1403-1408; 1317; 1878)
3. Void or inexistent (1409-1422; 1318; 1353; 1378; 1491;
1898)
DEFECTIVE CONTRACTS:

1.

Rescissible Contracts

A rescissible contract is a contract which is valid

because it contains all the essential requisites prescribed by
law, but which is defective because of injury or damage to
either of the contracting parties or to 3 rd persons, as a
consequence of which it may be rescinded by means of a proper
action for rescission.

Rescission is a remedy granted by law to the

contracting parties, and even to 3rd 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.
Requisites of Rescission:
a) the contact must be a rescissible contract under
Art. 1381 or Art. 1382:
The following contracts are rescissible i.
those entered into by guardians whenever the
whom they represent suffer lesion by more than of
the value of things which are the object thereof (Art.
1381 (1))

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Rescission shall not take place with respect to

contracts approved by the court (Art. 1386).

As a rule, when a guardian enters into a contract

involving the disposition of the wards property, the
guardian must secure the approval of the guardianship
court. A guardian is only authorized to manage the estate
of the ward. A guardian has no power to dispose of any
portion of the estate without approval of the court. If
more than acts of mere administration are involved,
judicial approval is necessary.

In case of sale, mortgage, or other encumbrance

of any portion of the estate which does not have judicial
approval is an unenforceable contract (Art. 1403 (1)).

Therefore, Art. 1381 (1) is limited to contracts

which constitute mere acts of administration (i.e. the
purchase of equipment for the cultivation of lands,
purchase of materials for repair of buildings, etc.).
Lesion is very difficult to apply in practice
For example, A is the agent of B. B owns land worth P10 M. A
sells the land for P7 M. From the facts, the lesion suffered by B
is 30%. In practice, are you sure that P10 M is the fair market
value of the land. What if the situation is urgent and that
property must be disposed of right away?
Another example, A is the agent of B. B owns land worth P10
M. C wants to buy the land. C is willing to pay P 7 M lump
sum payment. D is willing to pay P 10 M but on installments.
ii. those agreed upon in representation of absentees,
if the absentee suffers lesion by more than of the
value of things which are the object thereof (Art. 1381
(2))

Rescission shall not take place with respect to

contracts approved by the court (Art. 1386).

As a rule, when the legal representative of an absentee

enters into a contract involving the disposition of the
absentees property, he must secure the approval of the
court.

A legal representative is only authorized to manage

the estate of the absentee. He has no power to dispose of
any portion of the estate without approval of the court. If
more than acts of mere administration are involved,
judicial approval is necessary.

In case of sale, mortgage, or other encumbrance of

any portion of the estate which does not have judicial
approval is an unenforceable contract (Art. 1403 (1)).

The
refore, Art. 1381 (2) is limited to contracts which constitute
mere acts of administration (i.e. the purchase of
equipment for the cultivation of lands, purchase of
materials for repair of buildings, etc.).
iii. those undertaken in fraud of creditors when the
creditors cannot in any other manner collect the
claims due them (Art. 1381 (3))

This is an exception to the principle of relativity of

contracts.

Creditors, after having pursued the property in

possession of the debtor to satisfy their claims may
exercise all the rights and bring all the actions of the latter

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for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor
may have done to defraud them (Art. 1177).

Creditors are protected in cases of contracts intended

to defraud them (Art. 1313).

The following provision in sales are examples of

rescissible contracts declared by law Arts 1526, 1534,
1538, 1539, 1540, 1556, 1560, 1567, 1659.

payments made in a state of insolvency for obligations

to whose fulfillment the debtor could not be compelled at
the time they were effected (Art. 1382)

In determining whether or not a certain conveyance is

fraudulent, the question in every case is whether the
conveyance was a bona fide transaction or trick and
contrivance to defeat creditors, or whether it conserves to
the debtor a special right.

(1)

(2)

All contracts by virtue of which the debtor alienates

property by gratuitous tile are presumed to have been
entered into in order to defraud creditors, when the donor
did not reserve sufficient property to pay all debts
contracted before the donation (Art. 1387, 1st par).

Alienations by onerous title are also presumed

fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ
of attachment has been issued.
The decision or
attachment need not refer to the property alienated, and
need not have been obtained by the party seeking the
rescission (Art. 1387, 2nd par).
Badges of Fraud:

1.

the fact that the consideration of the

conveyance is inadequate

2.

a transfer made by a debtor after suit has

begun and while it is pending against him

3.

a sale upon 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 any of the
above circumstances

7.

the failure of the vendee to take exclusive

possession of all the property
iv. 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 (Art. 1381 (4))

Art. 1381 (4) refers to a contract executed by

the defendant in a suit involving the ownership or
possession of a thing, when such contract is made
without the knowledge and approval of the plaintiff or
court.

As in the case of a contract in fraud of

creditors, the remedy of rescission in this case is given
to a 3rd person who is not a party to the contract. The
purpose is to protect the plaintiff.
v. all other contracts specially declared by law to be
the subject of rescission (Art. 1381 (5))

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the person asking for rescission must

have no other legal means to obtain
reparation for the damages suffered by him
(Art. 1383);
the person demanding rescission must
be able to return whatever he may be obliged
to restore if rescission is granted (Art. 1385, 1st
par)

This requisite is only applicable if the one

who suffers the lesion is a party to the contract.

This requisite does not apply when a

defrauded creditor resorts to accion pauliana.
(3) the things which are the object of the
contract must not have passed legally to the
possession of a 3rd person acting in good faith
(Art. 1385, 2nd par)

Whoever acquires in bad faith the things

alienated in fraud of creditors, shall indemnify the
latter for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them (Art. 1388,1 st par).

If there are 2 or more alienations,the 1 st

acquirer shall be liable 1st, and so on successively (Art.
1388, 2nd par).
(4) the action for rescission must be brought
within the prescriptive period of 4 years (Art.
1389)
Art. 1191. The power to rescind obs. Is implied in reciprocal
ones, in case on of the obligors should not comply w/ what is
incumbent upon him.
The injured party may choose between the fulfillment & the
rescission of the ds., w/ the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The ct. shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be w/o prejudice to the rts of third persons
who have acquired the thing, in accordance w/ Arts. 1385 & 1388
& the Mortgage Law.
Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the 1st infractor shall be equally
tempered bye the cts. If it cannot be det. Which of the parties 1 st
violated the K, the same shall be deemed extinguished, & each
shall bear his own damages.
[Tolentino]
Similarities between Rsn under Art. 1191 & Art. 1380+:
(1) both presuppose s validly entered into & existing, &
(2) both require mutual restitution when declared proper.
Differences:
(1) Rsn under 1191 may be demanded only by party to the ,
under 1380+ by 3P prejudiced by the ;
(2) Rsn under 1191 may be denied when there is sufficient reason
to justify extension of time to perform, under 1380+ such reason
does NOT affect rt. To ask for Rsn;

19

(3) Non-perf. is the only grd. For Rsn under 1191, while there
are various reasons of equity as grds. under 1191 applies only to
recip. ds. where one party has not performed, while under
1380(+) ob. May be unilateral or reciprocal & even when K has
been fulfilled.

2. VOIDABLE Contracts
A voidable contract is a contract in which all of the
essential elements for validity are present, but the
element of consent is vitiated either by lack f legal
capacity of 1 of the contracting parties or by mistake,
violence, intimidation, undue influence, or fraud.
Voidable contracts are binding unless they are annulled
by a proper action court. They are susceptible to
confirmation.
There is a difference between confirmation and ratification:

Confirmation is the process of curing the defect of a

voidable contract.

Ratification is the process of curing contracts which

are defective because they were entered into without
authority.
The following contracts are voidable or annullable,
even though there may have been no damage to the
contracting parties:
a. those where one of the parties is incapable of
giving consent to a contract.
The following cannot give consent to a contract (Art. 1327):
i. unemancipated minors

Where necessaries are sold and delivered to a

minor or other person without capacity to act, he
must pay a reasonable price therefore.

Necessaries include everything that is

indispensable for sustenance, dwelling, clothing, and
medical attendance.

Contracts effected by minors who have

already passed the age of puberty and adolescence
and are near the adult age, when they pretend to have
already reached the age of majority, while in fact they
have not, are
valid, and cannot be permitted
afterwards to excuse themselves from compliance
with obligations assumed by them or seek their
annulment. This is in consonance with the rules of
estoppel. (Mercado v. Espiritu).

However in Braganza v, De Villa, the SC

said that the misrepresentation of an incapacitate
person does not estop him from denying that he was
of age, or from asserting that he was under age, at the
time he entered into the contract. According to Prof.
Balane, this view is very logical. If the minor is too
young to enter into contracts, he is too young to be
estopped.
ii. insane or demented persons, and deaf mutes who
do not know how to write

Contracts entered into during a lucid interval are

valid. Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable (Art. 1328).
iii. those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud

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A contract where consent is given through mistake,

violence, intimidation, undue influence or fraud is voidable
(Art. 1330).
a) mistake
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 (Art. 1331, 1st par).
Mistake as to the identity or qualification of one of the parties
will vitiate consent only when such identity or qualifications
have been the principal cause of the contract (Art. 1331, 2nd
par).
A simple mistake of account shall give rise to its correction
(Art. 1331, 3rd par).
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 (Art.
1332).
There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract (Art.
1333)
Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent
(Art. 1334).
Misrepresentation by a 3rd person does not vitiate consent,
unless such misrepresentation has created substantial mistake
and the same is mutual (Art. 1342).
Misrepresentation made in good faith is not fraudulent but
may constitute error (Art. 1343).
b) violence
There is violence when in order to wrest consent, serious or
irresistible force is employed (Art. 1335, 1st par).
Violence shall annul the obligation, although it may been
employed by a 3rd person who did not take part in the contract
(Art. 1336).
Requisites of Violence:
i. irresistible physical force is employed
ii. the force is the determining cause for giving consent
c) intimidation
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 (Art. 1335, 2nd par).
Requisites of Intimidation:
i. the threat must be the determining cause for giving
consent
ii. the threatened act is unjust and unlawful

A threat to enforce ones claim through

competent authority, if the claim is just or legal, does
not vitiate consent (Art. 1335, 4th par).

The threat to enforce a right, should not be

aimed at a result which is contrary to law or morals,
or which is unjust and contrary to good faith.
Although it is lawful to exercise rights, it is not always

20

lawful to use them for purposes different from those

for which they were created. Thus, although it is
lawful to report crimes, the threat to report it may be
illicit if the purpose is not to cooperate in the
discovery and prosecution of the crime, but to obtain
some prestation from the culprit which otherwise
could not be obtained and which does not constitute
indemnity for damages for the crime committed.
Thus, the threat to report a murderer if he does not
agree to pay a certain sum to one who saw the offense
committed, would constitute intimidation, because he
is made to agree to something which has no relation
to his crime.

The rule regarding marriage is different.

Where a man marries under the threat to obstruct his
admission to the bar by filing charges against him for
immorality committed by him, he cannot avoid the
marriage on the ground of duress.
iii. the threat is real and serious
For example the threat must be to kill you or burn
your house and not merely to pinch you.
iv. The threat produces a well-grounded fear that the
person making it can and will inflict harm
To determine the degree of intimidation, the age, sex, and
condition of the person shall be borne in mind (Art. 1335, 3rd
par).
For example, a 75year old man who is bed ridden and
says that he will kill you does not produce a wellgrounded fear.
Intimidation shall annul the obligation, although it may have
been employed by a 3rd person who did not take part in the
contract (Art. 1336).
DURESS is that degree of constraint or danger sufficient to
overcome the mind and will of the person or ordinary firmness.
Violence
Intimidation
Duress actually inflicted
threatened or impending
External
Internal
Serves to prevent an act fromoperates upon the will, induces
being done
performance of an act
Physical force employed isInfluences the mind to choose
irresistible
bet. two evils
Or of such degree as that victimInfluences the expression of the
has no other choice but towill, inhibits the true intent and
submit
making of manifest something
apparently as that of the person
who consents
Such force is the determiningintimidation caused the consent
cause in giving consent
to be given
Threatened act unjust or
unlawful
Threat must be real or serious
producing reasonable and wellgrounded fear
d) undue influence
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 confidentiality, 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 (Art. 1337).
e) Fraud

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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 (Art.
1332).
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 (Art. 1338)
deceit or dolo causante.
Requisites of Fraud:

1.

fraud is employed by 1 party on the other (Arts. 1342,

1344)

2.

the other party was induced to enter into the contract

(Art.1338)

3.

the fraud must be serious (Art. 1344)

4.

there is damage or injury caused

Failure to disclose facts, when there is a duty to reveal them, as

when the parties are bound by confidential relations,
constitutes fraud (Art. 1339)
The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent
(Art. 1340).
A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the
formers special knowledge (Art. 1341).
Misrepresentation by a 3rd person does not vitiate consent,
unless such misrepresentation has created substantial mistake
and the same is mutual (Art. 1342).
Misrepresentation made in good faith is not fraudulent but
may constitute error (Art. 1343).
In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both
contracting parties (Art.1344, 1st par).
Incidental fraud only obliges the person employing it to pay
damages (Art. 1344, 2nd par).
If a 3rd person should commit violence or intimidation on 1 of
the contracting parties and this vitiates the contracting partys
consent, then the contract may be annulled (Art. 1336).
By analogy, if a 3rd person should exert undue influence on 1 of
the contracting parties and this vitiates the consent of the
contracting party, then the contract may be annulled.
However, if the 3rd party commits fraud, damages is the only
remedy unless the fraud committed by the 3 rd person has
created a mutual substantial mistake (Art. 1342).
Rules Regarding Voidable Contracts:

a)

Voidable contracts are effective unless set

aside.

b)

The validity of a voidable contract can only

be assailed in a suit for that purpose (i.e. complaint
or counterclaim).

The action for annulment of contracts may be

instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they

21

contracted; nor can those who exerted intimidation,

violence, or undue influence, or employed fraud, or
caused ,mistake base their action upon these flaws of
the contract (Art. 1397).
The action for annulment shall be brought within 4 years. This
period shall begin:
intimidation from the time the defect of the consent ceases;
violence from the time the defect of the consent ceases;
undue influence from the time the defect of the consent
ceases;
mistake from the time of the discovery of the mistake
fraud from the time of the discovery of the fraud
Requisites of Consent
vitiated by
1. it shd be intelligent, with exact notionby error or mistake
of the matter to whc it refers
2. it shd be free
violence,
intimidation,
or
undue influence
3. it shd be spontaneous
by fraud
The 4 year prescription period to annul contracts
entered into by minors or other incapacitated persons shall
begin from the time the guardianship ceases (Art. 1391, 4th
par).
An obligation having been annulled, the contracting parties
shall restore to each other the things which have been the
subject matter of the contract, with their fruits, and the price
with its interest, except in cases provided by law (Art. 1398,
1st par).
In obligations to render service, the value thereof shall be the
basis for damages (Art. 1398, 2nd par).
When the defect of the contract consists in the incapacity of 1 of
the parties, the incapacitated person is not obliged to make any
restitution except insofar as he has been benefited by the thing
or price received by him (Art. 1399);

b) if the action to annul has prescribed (Art. 1391)

c) when the thing which is the object of the contract is
lost through the fault or fraud of the person who has a
right to institute the proceedings (Art. 1401, 1st par)
d) estoppel
Voidable contracts can be confirmed.

Confirmation extinguishes the action to annul a

voidable contract (Art. 1392).

Confirmation cleanses the contract from all its

defects from the moment it was constituted
(Art. 1396).

Requisites of Confirmation:

i.

that the contract is a voidable or annullable

contract

ii.

that the ratification is made with knowledge

of the cause for nullity

iii.

that at the time the ratification is made, the

cause of nullity has already ceased to exist
Confirmation may be effected expressly or tacitly. It is
understood that there is tacit confirmation if, with knowledge
of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it
should execute an act which necessarily implies an intention to
waive his right (Art. 1393).
Voidable contracts can be confirmed only by the party
whose consent was vitiated.

Confirmation does not require the conformity of the

contracting party who has no right to bring the action
for annulment (Art. 1395).

Confirmation may be effected by the guardian of the

incapacitated person (Art. 1394).

Q: What if the Thing to Be Returned is Lost?

a. Loss due to Fault of Defendant to pay the plaintiff
value of the thing loss, fruits if any, interest
b. Loss due to a Fortuitous Event or due to a 3rd party
Defendant has to pay the plaintiff value of the
thing loss fruits if any
c. Loss due to Fault or Fraud of Plaintiff
The plaintiff loses the right to annul (Art. 1401).

There is fault on the part of the plaintiff once the

plaintiff regains capacity.

d. Loss without Fault on the Plaintiffs Part

Commentators have a difference of opinion the right to annul is extinguished unless the plaintiff
offers to pay the value of the object at the time of loss
the plaintiff is entitled to annul without having to pay
anything.

(3) Unenforceable Contracts

An unenforceable contract is a contract 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 the contracting parties
do not possess the required legal capacity.
[BAVIERA]
Q: Authority to sell oral but sale is in writing
A: Void.
Q: Authority to sell in writing but sale of land is not
A: Unenforceable under Statute of Frauds.

As long as 1 of the contracting parties does not restore what in

virtue of the decree of annulment he is bound to return, the
other cannot be compelled to comply with what is incumbent
upon him (Art. 1402).

Q: Why should loan be in writing for antichresis to be

in writing?
A: Antichresis takes a long time. Loan is valid if not in
writing but antichresis not

The action for annulment will not prosper in the

following:

Donation propter nuptias: rules on ordinary donations would

apply.

a) if the contract has been confirmed (Art. 1392)

Q: Buyer & seller orally agreed for Seller to sell land.

Buyer sold palay & w/ the money fr. this sale Buyer
gave to Seller. Seller refused.

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22

A: Seller can refuse. He did not receive any benefit

yet.

within a year. For practical reasons, the contract

must be in writing since the parties might forget.
According to Prof. Balane, the SCs interpretation
is incorrect. If the obligation cannot be finished
within 1 year, the contract is not within the
Statute of Frauds because of partial performance.

Q: X saw an advertisement for the sale of a car for

P200T. X phoned Y & the latter noted the order. Y
failed to deliver the car. Can X enforce the obligation?
A: Sale of movable > P500 should be in writing under
the Statute of Frauds or else unenforceable.

ii. a special promise to answer for the debt,

default or miscarriage of another

If person promises to lend money to another, then refuses to

lend, no cause of action. If a bank does it, enforceable.

The test as to whether a promise is within the

statute has been said to lie in the answer to the
question whether the promise is an original or
collateral one. If the promise is an original one or
an independent one, that is, if the promisor
becomes thereby primarily liable for the payment
of the debt, the promise is not within the statute.

Dilag vs. IAC Badges of fraud:

whether sale to children was paid

not registered until after decision in the quasidelict case

parents continued to exercise acts of

ownership over land

relationship between vendor & vendee.

If the promise is collateral to the agreement of

another and the promisor becomes merely a
surety or guarantor, the promise must be in
writing.

This does not fall squarely under the presumption of fraud bec.
there was a sale before judgment in 1974. If sale was after,
presumed to be fraudulent.

iii. an agreement made in consideration of

marriage, other than a mutual promise to
marry

Q: X proposed to buy Ys house & lot. X paid the P100T

then constituted a chattel mortgage on Ys house & lot
for the unpaid balance. Art. 1484 CC: law gives seller
the choice of remedies.
A: Y cannot choose to rescind bec. alternative remedy
of foreclosure is available.

A mutual promise to marry does not fall

within the Statute of Frauds since they are not
made in writing.
Agreements made in consideration of marriage
other than the mutual promise to marry are
within the Statute of Frauds.

The following contracts are unenforceable unless

they are ratified (Art. 1403):
(a) those entered into in the name of another person
by 1 who has been given no authority or legal
representation, or who has acted beyond his powers

No one may contract in the name of another without

being authorized by the latter, or unless he has by law
or right to represent him (Art. 1317, 1st par).

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,
2nd par).

When a person enters into a contract for and in the

name of another, without authority to do so, the
contract does not bind the latter, unless he ratifies the
same.

The agent, who has entered into the contract in the

name of the purported principal, but without
authority from him, is liable to 3 rd persons upon the
contract.

(b) those that do not comply with the Statute of

Frauds

In Cabague v. Auxilio, the father of the groom promised

to improve
his daughter-in-laws fathers house in
consideration of the marriage. The father of the groom made
improvements on the house. The wedding did not take
place. The SC said that the father of the groom could not sue
on the oral contract which as to him is not mutual promise
to marry. Prof. Balane disagrees with the SC. According to
Prof. Balane, the father of the groom should be able to sue
since there was partial performance.
iv. an agreement for the sale of goods, chattels or
things in action, at a price not less than P500, unless
the buyer accepts and receives part of such goods and
chattels, or the evidence, 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 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

The requirement of a written instrument or a

memorandum for sales of personal property for a price not
less than P500, covers both tangible and intangible
personal property. It also covers the assignment of choses
in action.

Where a contract for the sale of goods at a price not less

than P500 is oral, and there is neither partial payment or
delivery, receipt, and acceptance of the goods, the contract
is unenforceable, and cannot be the basis of an action for
the recovery of the purchase price, or as the basis of an
action for damages for breach of the agreement.

Where there is a purchase of a number of articles which

taken separately does not have a price of P500 each, but
taken together, the price exceeds P500, the operation of
the statute of frauds depends upon whether there is a
single inseparable contract or a several one. If the contract
is entire or inseparable, and the total price exceeds P500,

i. an agreement that by its terms is not to be

performed within a year from the making
thereof
In Babao v. Perez, the SC interpreted the
phrase not be to performed within a year to
mean that the obligation cannot be finished
within 1 year. Prof. Balane does not agree with
this interpretation. According to Prof. Balane the
phrase not to be performed within a year
should mean that the obligation cannot begin

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the statute applies. But if the contract is separable, then

each article is taken separately.
v. an agreement of lease for a period of more than 1
year, or the sale of real property or of an interest
therein

ii. acceptance of benefits (Art. 1405)

if there has been performance on 1 side and

the other side accepts, then the Statute of
Frauds is not applicable.

As long there is a sale of real property, the sale must

be in writing. There is no minimum.

(b) The Statute of Frauds applies only to executory

contracts and not to those which have been executed
in whole or in part.

An oral contract for a supplemental lease of real

property for longer period than 1 year is within the
Statute of Frauds.
An agreement to enter into an agreement is also
within the Statute of Frauds.

TOLENTINO:
Purpose of the Statute of Frauds: To prevent fraud &
perjury in the enforcement of obligations depending for their
evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts & transactions to be evidenced by
a writing signed by the party to be charged.

vi. a representation as to the credit of a 3rd person

A wants to borrow money from C. C does not know A.

C goes to B to ask about As credit standing. B says
that As credit standing is satisfactory even though B
knows that A is insolvent. Under Art. 1403, C can go
after B if Bs representation was in writing.
Prof. Balane thinks that this does not belong in the
Statute of Frauds. There is no contract between C and
B. B did not bind himself to pay C. What we have
here is an unenforceable tort.
According to Prof. Balane, a representation as to the
credit of a 3rd person should be replaced by Art. 1443.
Art. 1443 provides that no express trusts concerning
an immovable or any interest therein may be proved
by parol evidence.
When the express trust concerns an immovable or an
interest therein, a writing is necessary to prove it.
This writing is not required for the validity of the
trust. It is required only for purposes of proof. When
the property subject to the express trust, however is
not real estate or an interest therein, then it may be
proved by any competent evidence, including parol
evidence.

(c) those where both parties are incapable of giving

consent to a contract

Neither party or his representative can enforce the

contract unless it has been previously ratified.

The ratification by 1 party, however, converts the

contract into a voidable contract voidable at the
option of the party who has not ratified; the latter,
therefore, can enforce the contract against the party
who has ratified.

Or, instead, of enforcing the contract, the party who

has not ratified it may ask for annulment on the
ground of his incapacity.

2 Principles in the Statute of Frauds

(a) Parol evidence is not admissible. However, there
are 2 ways of bringing it out.
i. failure to object by the opposing lawyer when parol
evidence is used (Art. 1405)

Statute Of Frauds
simply provides for the manner in w/c contracts
under it shall be proved

such contracts are valid but effect of noncompliance

w/ the SOF is simply that no action can be proved
unless the requirement is complied w/

not applicable to contracts either totally or partially

performed but only to executory contracts

neither applicable to actions w/c are neither for

specific performance of the contract nor for the
violation thereof

partial performance must be duly proved

contract under SOF cannot be proved w/o the
writing or a memorandum thereof
note or memorandum
evidence of the agreement used to show the intention of
the parties

may consist of any kind of writing, fr. a solemn deed to

a mere hasty note or memorandum in books & papers,
may be in ink or in pencil, typed or printed

meets requirements of Statute of Frauds if it contains:

names of the parties
terms & conditions of the agreement
a description of the subject matter sufficient to render it
capable of identification

date & place of the making of the agreement

signature of the party assuming the obligation
Where there is a sale of a number of articles w/c separately do
not have a price of P500 each but w/c in their aggregate have a
total price exceeding P500, the operation of the SOF depends
upon whether there is a single inseparable contract or a several
one. If the contract is entire or inseparable, SOF applies. If
separable, then each article is taken separately, & the application
of the SOF depends upon its price.
oral evidence to prove a consummated sale of real property allowed by the Statute of Frauds
representation as to credit of a third person - limited to those
w/c operate to induce the person to whom they are made to
enter into contractual relations w/ the 3 rd person, but NOT to
those representations tending to induce action for the benefit of
the person making them.

If there is no objection, then parol evidence

is admitted.

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An oral contract for a supplemental lease of property for a

period longer than 1 year - also w/in SOF. An agreement to enter
into an agreement is also w/in the SOF & the promise is not
enforceable unless the statute is satisfied.
Defense of the Statute of Frauds personal to the party to
the agreement like minority, fraud, mistake, & similar defenses
w/c may be asserted or waived by the party affected cannot be
set up by strangers to the agreement

7) any person can invoke the contracts nullity if its

juridical effects are felt as to him

The defense of illegality of contracts is not available to

3rd persons whose interests are not directly affected
(Art. 1421).

Pari Delicto (in equal guilt)

4. Void Contracts
A void contract is an absolute nullity and produces no
effect, as if it had never been executed or entered into.
The following contracts are inexistent and void from
the beginning (Art. 1409):

(a)

those whose cause, object or purpose is

contrary to law, morals. Good customs, public order
or public policy

(b)

those which are absolutely simulated or

fictitious

(c)

those whose cause or object did not exist at

the time of the transaction
Balane: Art. 1409 (3) should not be did not exist.
Rather, the correct phrase should be could not come
into existence because there can be a contract over a
future thing.
(d) those whose object is outside the commerce of
men
(e) those which contemplate an impossible service
(f) those where the intention of the parties relative to
the principal object of the contract cannot be
ascertained
(g) those expressly prohibited or declared void by
law

1) the contract produces no effect whatsoever either

against or in favor of anyone

of

nullity

would

be

merely

Even when the contract is void or inexistent, an action

is necessary to declare its inexistence, when it has
already been fulfilled. Nobody can take the law into
his own hands.
The intervention of a competent court is necessary to
declare the absolute nullity of the contract and to
decree the restitution of what has been given under it.
The judgment of nullity will retroact to the very day
when the contract was entered into.

3) it cannot be confirmed or ratified

4) if it has been performed, the restoration of what
has been given is in order
5) the right to set the contracts nullity cannot be
waived
6) the action for nullity is imprescriptible (Art. 1410)

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A. If it constitutes a criminal offense

1. If both parties are in pari delicto
No action for specific performance can prosper on
either side (Art. 1411, 1st par).
No action for restitution can prosper on either side
(Art. 1411, 1st par).
A shabu supplier supplies shabu to the shabu
dealer. If the shabu supplier does not deliver the
shabu, the dealer cannot file an action for specific
performance.

If the shabu dealer pays the shabu supplier but

fails to deliver the shabu, the shabu deliver
cannot recover what he has paid.

2. If only 1 party is guilty

No action for specific performance can

prosper on either side.

An action for restitution will be allowed only

if the innocent party demands.
B. If it does not constitute a criminal offense
1. If both parties are in pari delicto
No action for specific performance can
prosper on either side (Art. 1411, 1st par).

Characteristics of Void Contracts:

2)
a judgment
declaratory

As between the parties to a contract, validity cannot

be given to it by estoppel if it is prohibited by law or is
against public policy.

No action for restitution can prosper on

either side (Art. 1411, 1st par).

2. If only 1 party is guilty

No action for specific performance

can prosper on either side.

An action for restitution will be

allowed only if the innocent party demands.
Exceptions to Pari Delicto:
Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest therefrom from
the date of payment (Art. 1413)
When money is paid or property delivered for an illegal
purpose, the contract may be repudiated by 1 of the parties
before the purpose has been accomplished, or before any
damage has been caused to a 3rd 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 (Art. 1414).
Where 1 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 (Art. 1415).

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When the agreement is not illegal per se but is merely

prohibited, and the prohibition by law is designed for the
protection of the plaintiff, he may, if public policy is enhanced,
recover what he has paid or delivered (Art. 1416).

When the law fixes, or authorizes the fixing of the maximum

number of hours of labor, and a contract is entered into
whereby a laborer undertakes to work longer than the
maximum thus fixed, he may demand additional compensation
for service rendered beyond the time limit (Art. 1418).

When the price of any article or commodity is determined by

statute, or by authority of law, any person paying any amount
in excess of the maximum price allowed may recover such
excess (Art. 1417).

When the law sets or authorizes the setting of a minimum wage

for laborers, and a contract is agreed upon by which a laborer
accepts a lower wage, he shall be entitled to recover the
deficiency (Art. 1419).

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