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II. CONTRACTS & In Sales (art. 1491): one party can never validly give consent.

(Read Arts. 1305-1422)


Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction,
A. General Provisions 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;
1. Definition
(2) Agents, the property whose administration or sale may have been intrusted to them, unless
Article 1305. A contract is a meeting of minds between two persons whereby one binds the consent of the principal has been given;
himself, with respect to the other, to give something or to render some service. (3) Executors and administrators, the property of the estate under administration;
Balane: thinks that the definition in Art. 1305 is inaccurate. The term persons should be substituted by (4) Public officers and EEs, the property of the State or of any subdivision thereof, or of any
the term parties. Also, contracts may be multilateral; there can be more than 2 parties involved (i.e. government-owned or controlled corporation, or institution, the administration of which has
partnership). been intrusted to them; this provision shall apply to judges and government experts who, in any
manner whatsoever, take part in the sale;
SANCHEZ-ROMAN: a juridical convention manifested in legal form, by virtue of whc one or more (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
parties bind themselves in favor of one another or others, or reciprocally, to d fulfillment of a prestation other officers and EEs connected with the administration of justice, the property and rights in
to give, to do or not to do. 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
Tolentino: Contracts w/reciprocal s excluded by d def. 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;
Q: An agreement was made betw. A & B. Was a created?
A: NN. Agreement to go to church together is not a . (6) Any others specially disqualified by law.
Baviera:
Q: May a be perfected as to an Agreement no to do? YES Nos. 1-3 are voidable contracts; Nos. 4-6 are void contracts.
EX: not to engage in business (provided not in perpetuity) 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
Q: MAYDeed of sale signed by only 1 party? mentioned, such that the law prevents them fr. being tempted to take advantage of their positions.
A: Yes, in auto
The prohibition rests on the fact that greed might get the better of loyalty. The law does
AUTO-CONTRACT: not trust human nature to resist the temptations likely to arise out of the antagonism between the
Is a executed by one person only, but in such execution he represents at least 2 interest of the seller & the buyer.
parties;
An agent who has renounced the agency & is a judgment creditor of his principal may
acquire the latters property in a public sale.
Executed by one person, either:
1. when a person in his capacity as rep, of himself, or The prohibition against lawyers is intended to curtail any undue influence the lawyer may
2. when as a rep of 2 diff persons he brings abt a bet his principals by ing w/himself 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 &
GR: valid, exc. 1491. ratification.
EX: of AGENCY (Read art. 1890)
Q: When is a thing deemed to be the subject of litigation?
Article 1890. If the agent has been empowered to borrow money, he may himself be the lender at the Not only if there is some contest or litigation in court, but also fr. the moment it becomes
current rate of interest. If he has been authorized to lend money at interest, he cannot borrow it without subject to judicial action.
the consent of the principal.
Agent can be lender but he may not be the borrower.

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Contingent fee- not contrary to law as it will encourage the lawyer to work harder to win The accidental elements are those which exist only when the parties expressly
the case in order to earn the said fee. thus, it is to the clients advantage. But the court may reduce provide for them for the purpose of limiting or modifying the normal effects of the contract
the fee is found to be unconscionable. (i.e. conditions, terms, modes)
(ON LEASE OF RURAL AND URBAN LANDS)
Article 1646. The persons disqualified to buy referred to in articles 1490 and 1491, are also disqualified Q: Stipulation as to interest in a of Loan, what kind of ?
to become lessees of the things mentioned therein A: Accidental; Interest must always be expressed/written to be given effect.
TOLENTINO:
BATCHELDER vs CB 44 SCRA 45:
All s under 1491 are void by reason of PP
In Code of commerce, (Art.267) a commission agent w/o permission of principal RATIO: Monetary Boards do not create s bet. CB & dollar earner.
cannot buy for himself or for another, nor to sell what he ought to buy.
B. GOVERNING LAW / JURISDICTION:
(2) ELEMENTS OF CONTRACTS
1307 - innominate Cs governed by:
a) ESSENTIAL
i. Stipulation of parties
b) NATURAL
ii. Law on ObliCon
c) ACCIDENTAL
iii. Analogous contracts
iv. Customs
(a) Essential Elements
The essential elements are those without which there can be no contract. 1370 intention of parties; based on contemporaneous & subseq. Acts
(indispensable rqmts.)
These elements are, in turn, subdivided into: Q: What may not be SM of of Sale?
A: service
1.) common (communes) those which are present in all contracts, such as consent,
object certain, and cause; Q: that is perfected at the negotiation stage?
A: Option a preal
2.) special (especiales) are present only in certain contracts, such as delivery in real
contracts, or form in solemn ones.
C. CHARACTERISTICS / PRINCIPLES OF CONTRACTS:
3.) extraordinary (especialissimos) are those which are peculiar to a specific contract
(i.e. price in sales). (1) Consensuality;
(2) Autonomy;
(3) Mutuality;
(b) NATURAL ELEMENTS
(4) Obligatory Force
those which are derived from the nature of the contract and ordinarily accompany the
(5) Relativity
same.
They are presumed by law, although they can be excluded by the contracting parties if
(1) CONSENSUALITY OF CONTRACTS
they so desire.
Article 1305. A contract is a meeting of minds between two persons whereby one binds himself,
i. right to resolve (Art. 1191) with respect to the other, to give something or to render some service.
ii. warranties in sales contracts, implied
Article 1317. No one may contract in the name of another without being authorized by the
Q: Is warranty a natural of ? Not always
latter, or unless he has by law a right to represent him.
A: only implied warranty are natural, not express ones
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,
(c) Accidental Elements

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expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked (2) AUTONOMY OF CONTRACTS:
by the other contracting party.
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
Consent vitiated voidable they may deem convenient, provided they are not contrary to law, morals, good customs, public
If by Rep authority is void unenforceable order or public policy.

Q: How is consent given? Ex: unconscionable/usurious interest (Jurado)


A: by a mtg of the offer and acceptance, upon the thing whc is to constitute the and as to the autonomy of will; Liberty of s/Freedom to contract
cause. CONSTI Non-impairment Clause, legisture nor Courts may not prescribe the terms
of a legal , \freedom to w/o prior restraint;
The following contracts are unenforceable unless they are ratified (Art. 1403): 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
(a) those entered into in the name of another person by one who has been given no authority or legal Pacto de Retro Sale may be construed by court to be loan w/mortgage after looking at the
representation, or who has acted beyond his powers (r/t Art.1317) substance of d & not merely its form or name.
Freedom to limited by the common good (Police Power)
CONTRACT OF ADHESION: EX: a PN whc constitute a gambling debt is unenforceable
Where one party has already prepared the form of a , containing stips. he desires, and Compromise Agreement approved by court, where a grantee of public land promised to
he simply asks the other party to agree to them if he wants to continue w/d ; 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)
The party who adheres to the is in reality free to reject it entirely, but if he does, he
consents; Limitations in Freedom to Contract:

In case of doubt in interpretation of stip in , such will be construed vs. d party who In Agency, a stipulation which excludes one or more partners from any share in the profits or losses is
prepared such stip. void. (Article 1799)

Q: of adhesion is being disputed on the ground of lack of consent of the other party. Is this tenable? In Pledge/mortgage The creditor cannot appropriate the things given by way of pledge or mortgage, or
A: SC held no, is valid. (Ong Yiu v. CA) dispose of them. Any stipulation to the contrary is null and void. (Article 2088)

REPUBLIC v, PLDT, 26 SCRA 620 Article 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be
void.
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 Parties may not Agree on a ceiling price of mortgaged prop.in execution b/c such shd
stipulate such terms and conditions is of the essence of our contractual system, and by express provision be made to d highest bidder (Warner v, Jaucian); nor stipulate that upon non-payment, creditor
of the statute, a contract may be annulled if tainted by violence, intimidation, or undue influence may approp. Mortgaged prop. Upon himself this is called pactum commisorium, contrary to
(Articles 1306, 1336, 1337, CC). Art. 2088.

There are certain matters where man, by nature must have freedom of decision,
CORPUS v. CA, 98 SCRA 424 thus may not validly be bound by al , such as:
RATIO: 1. promise to marry or not, to secure legal sep, or to adopt a child;
2. promise to change citizenship, professions, religion or domicile;
An atty-client rel. can be created by implied agreement, as when the atty. Actually rendered 3. promise not to hold public ofc, or limit perf or ofc duties;
legal services for a person who is a close friend. The of such a person to pay attys fees is based on 4. promise to join a poli.party or separate fr it.
the law of s concept of facio ut des (I do and you give). 5. not to engage in work, labor;
6. to vote for a candidate,
7. to do, at the risk of life,
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8. to pay money for an immoral cause i.e. commit a crime; bribe a public ofc; marry; The determination shall not be obligatory if it is evidently inequitable. In such case, the courts
testify in court. shall decide what is equitable under the circumstances (Art. 1310).

CUI V. ARELLANO [112 PHIL 135 (1961)] An example of a determination made by a 3rd person (Art. 1309) is the fixing of the price by the
rd
3 person.
STIPULATION CONTRARY TO P.P.
The contract may be revoked if there is mutual dissent.
RATIO: STIPULATION WHEREBY STUDENT CANNOT TRANSFER TO ANOTHER SCHOOL
W/O REFUNDING SCHOLARSHIP CASH, NULL AND VOID. The condition can never depend solely upon the will of the debtor. If the condition depends
Scholarships are awarded in recognition of merit & NOT to keep students in school to solely on the will of the debtor, the obligation is void (Art. 1182).
bolster prestige. As for the Def., scholarship award is a business scheme designed to increase the business The obligation is void because there is no vinculum juris. The creditor could never compel the
potential of an educational institution. debtor to perform the . (potestative suspensive that depends on sole will of Db)

Q: A stip. That may be terminated by 1 party, valid?


SAURA v. SINDICO, 107 PH 336 A: Yes, does not violate mutuality, b/c the latter pertains to validity/performance, not
STIPULATION CONTRARY TO P.P. termination (Philbanking v. Lui She)

RATIO: ACCELERATION CLAUSE


Among those that may not be the subject matter (object) of contracts are certain rights of EX: In of Sale by Installment basis
individuals, which the law and public policy have deemed wise to exclude from the commerce of man. 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)
LEAL v. IAC, 155 SC 394
It is provided by the parties, to adjust compensation/consid. upon the happening of an
event.
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, Limitation of CCs liability for loss of passengers baggage that was under declared by
the latter, valid. (Ong Yiu v. CA)
clauses, and conditions which are contrary to public order are null and void, thus, without any
binding effect. Escalator clause
Annotations on title: prohibition to sell property to third parties whc is indefinite & unlimited Valid if not potestative solely on the will of one of the parties (violates mutuality)
as to time, whc shall continue to be applicable beyond the lifetime of the original parties to the , is a EX: of Loan/ of WORK/service/project-independent ing
nullity.
Redemption: Right to redeem must be expressly stipulated in the of sale to have legal Q: w/o de-escalation clause, will still be valid?
existence. A: yes; only the escalation clause will not be given effect

BANCO FILIPINO SAVINGS VS NAVARRO, 152 SC 346 (87)


(3) MUTUALITY PRINCIPLE:
RATIO: A contract which embodies an Escalation Clause authorizing automatic
The contract must bind both contracting parties; its validity or compliance cannot be left to increase in interest rates in the event a law increasing the lawful rates of interest that may be
the will of one of them (Art. 1308). 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.
The determination of the performance may be left to a 3 rd person, whose decision shall not be
in int. if incd. by law or by the Monet.Board; in order for such stip. To be valid, it must incl. a
binding until it has been made known to both contracting parties (Art. 1309).
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.

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However, if the contract is purely personal (intuitu personae), then the contract will
not bind assigns and heirs. (intransmissible rts.)
FLORENDO VS CA, 265 SC 678 (96)
Tol: GR: Rts. & s under a are transmitted to the heirs of the parties. Heirs cant be considered as
RATIO: 3P, bec. there is privity of interest bet. them & their predecessor.
A contract containing a condition which makes its fulfillment dependent exclusively upon
Q: Who are bound by s?
the uncontrolled will of one of the contracting parties, is void A: parties/successors-in-int/ heirs/assigns
The unilateral determination and imposition of increased interest rates by the herein
respondent bank is obviously violative of the principle of mutuality of contracts ordained in Article GR: Under the Principle of Privity of s, assigns & heirs are bound
1308 of the Civil Code.
EXC: intransmissible rts or s created by law/ nature / stip
Escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability
and to retain the value of money in long term contracts. Intransmissible s: those w/c are purely personal, either by
(1) provision of law, such as in cases of partnership & agency / usufructuary rts;

4. OBLIGATORY FORCE OF CONTRACTS: (2) by the very nature of the s arising therefr., such as those requiring special personal
qualifications of the obligor; of service, det;
Obligations arising from contracts have the force of law between the parties and should be (3) or by stip of parties i.e. pacto de retro sale where only the party may redeem not anyone
complied with in good faith (Art. 1159) else

Contracts are perfected by mere consent, and from that moment the parties are bound not only to the 2nd par. permits a 3P to avail himself of a benefit extended to him by its terms. Doctrine of stipulations
fulfillment of what has been expressly stipulated but also to all the consequences which, according to pour autrui (SPA).
their nature, may be in keeping with good faith, usage and law (Art. 1315).
Requisites of SPA:
(1) stip. in favor of 3P
GEN RULE: Contracts are perfected by mere consent the principle of consensuality (Art. 1315) (2) stip. shld. be a part, not the whole, of the
(3) clearly & deliberately conferred by ing parties
EXCEPTION: Real contracts, such as deposit, pledge, and commodatum are not perfected until the (4) not be conditioned or compensated by any kind of whatever
delivery of the object of the obligation (Art. 1316) (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
Q: Perfection of goes into what principle?
A: Obligatory force of , when parties became bound (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
Donation of immovables (Art. 749) those affecting its validity.
The donation must be in a public instrument.
The acceptance must either be in the same public instrument or in a different public instrument. Bav: A consignee, though not strictly a party in the of transpo, can sue, on the , the common
Acceptance shall not take effect unless it is done during the lifetime of the donor. carrier.
If the acceptance is made in a separate public instrument, the donor shall be notified thereof in Reason: There is a stip. in his favor.
an authentic form, and this step shall be noted in both instruments
In Art. 1314, Any 3P who induces another to violate his shall be liable to the other
contracting party.
5. RELATIVITY OF CONTRACTS Tol:
Reqs. of axn under this article:
GEN RULE: The contract is binding only upon the parties and their successors (Art. 1311). existence of a valid
knowledge by 3P of s existence
interference by 3P in the al relation w/o legal justification
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Whatever may be the char. of the liability w/c a stranger to a may incur by advising or BONIFACIO BROS. V. MORA, 20 SCRA 261
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. RATIO: CONTRACTS TAKE EFFECT ONLY BET. THE PARTIES THERETO.
To hold the stranger liable for damages in excess of those that could. be recovered v. the FLORENTINO V. ENCARNACION
immediate. party would. lead to results grotesquely unjust.
RATIO:
3Ps liability. is solidary w/ non-perf.. party, bec. he commits a tortuous act or a q-delict. 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
BAL: of whom acted as agent of the third person, and such third person and demand its fulfillment provoked
EXCEPTION: 3 parties are affected by the contract in the following instances and can take that he communicates his to the obligor before it is revoked
appropriate action:
The acceptance does not have to be in any particular form, even when the stipulation is for the
(i) accion pauliana (Art. 1177) third person an act of liberality or generosity on the part of the promisor or promise.
A rescissory action involving a contract in fraud of creditors. It need not be made expressly and formally. Notification of acceptance, other than such as is
Creditors are protected in cases of contracts intended to defraud them (Art. 1313). involved in the making of demand, is unnecessary.

(ii) accion discreta (Arts. 1652, 1729) The requisites are:


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 (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract;
the actions of the lessor against the sublessee (Art. 1652);
the laborer of an independent contractor against the
(2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation
owner/principal ER (Art. 1729);
whatever; and
the principal against the subagent (Art. 1893); and
the vendor-a-retro against the transferee of the vendee (Art.
1608). (3) neither of the contracting bears the legal represented or authorization of third person.
In contracts creating real rights, 3rd 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 While a stipulation in favor of a third person has no binding effect in itself before its
Laws (Art. 1312) purchaser in good faith 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
VELASCO VS CA, 95 SC 616 revoked.

RATIO: In the Deed of Quitclaim in question wherein Laigo Realty waived in favor of GSIS its rts in BANK OF AMERICA vs. IAC
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 RATIO: Contract between foreign bank & local bank asking the latter to pay an amount to a
relieved of any liability to pet. For cost of materials & labor the latter incurred in bldg the subdv beneficiary, is a SPA.
houses if Laigo is unable to pay them. (Solidary liability of Principal ER, w/job contractor when
EEs wages not paid.)
MARIMPERIO vs. CA
Kauffman v. National Bank, 42 Phil 182
RATIO: A party who has not taken part in the cannot sue or be sued for the performance or
RATIO: A stipulation in favor of a 3P cannot be revoked by the obligated party alone, w/o the cancellation thereof, unless he has a real interest affected thereby.
conformity of the other contracting party.
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.
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c. accessory
An accessory contract is one which can exist only as a consequence of, or in relation
DAYWALT VS CORP DE PP AGUSTINOS with, another prior contract (i.e. pledge, mortgage).
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 2. According to Perfection
which all must agree. This is, that the stranger cannot become more extensively liable in damages for a. consensual
the nonperformance of the contract than the party in whose behalf he intermeddles. A consensual contract is one which is perfected by mere agreement of the parties (i.e.
sales, lease).

b. real
GILCHRIST vs. CUDDY 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,
RATIO: One who wrongfully interferes in a contract between others, and, for the deposit, pledge).
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 3) According to their Form or solemnity:
irreparable
a. Common or informal
HELD: An informal contract is one which does not require some particular form (i.e. loan,
Injunction is the proper remedy to prevent a wrongful interference with contract by strangers lease).
to such contracts where the legal remedy is insufficient and the resulting injury is irreparable.
b. Special or formal
A formal contract is one which requires some particular form (i.e. donation, chattel
EST. OF K.H. HEMADY vs. LUZON SURETY mortgage).

RATIO: A party's contractual rights and obligations are transmissible to the successors. 4) According to Purpose

a. transfer of ownership (i.e. sale)


SO PING BUN vs. CA
b. conveyance of use (i.e. commodatum)
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 c. rendition of service (i.e. agency)
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
5) According to the Nature of the Obligation
D. CLASSIFICATION OF CONTRACTS
a. bilateral
1. ACCORDING TO DEGREE OF DEPENDENCE A bilateral contract is one which gives rise to reciprocal obligations for both parties
a. preparatory
(i.e. sale, lease).
A preparatory contract is one which has for its object the establishment of a
condition in law which is necessary as a preliminary step towards the celebration of another
b. unilateral
subsequent contract (i.e. partnership, agency).
A unilateral contract is one which gives rise to an obligation for only 1 of the parties
(i.e. commodatum, gratuitous deposit).
b. principal
A principal contract is one which can subsist independently from other contracts and
6) According to Cause
whose purpose can be fulfilled by themselves (i.e. sales, lease).

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a. onerous a. thing (i.e. sale, deposit, pledge)
An onerous contract is one in which each of the parties aspires to procure for himself a b. right
benefit through the giving of an equivalent or compensation (i.e. sale). c. service (i.e. agency, lease of services)

b. gratuitous E. STAGES OF CONTRACTS


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). 1. NEGOTIATION

7) According to Risk Preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties
a. commutative
A commutative contract is one in which each of the parties acquires an equivalent of CONTRACT OF OPTION:
his prestation and such equivalent is pecuniarily appreciable and already determined from
the moment of the celebration of the contract (i.e. lease). 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
b. aleatory founded upon a consideration, as something paid or promised.
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 Art. 1479. A promise to buy & sell a determinate thing for a price certain is reciprocally demandable.
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 An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
loss or gain (i.e. insurance). promissor if the promise is supported by a consideration distinct fr. the price.
8) According to Name 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.
a. nominate
A nominate contract is one which has a name and is regulated by special provisions of Bav: The parties could stipulate otherwise & that the earnest money will be forfeited, as in the CAB
law (i.e. sale, lease)
When there is a right of first refusal, at the time the offer is made, the owner still has not
b. innominate yet decided to sell, but in case he does, the holder of the right has the priority to accept it.
An innominate contract is one does not have a name and is not regulated by special Distinguished fr. an option to sell, where there is a continuing offer to sell on the part of the owner.
provisions of law.
Innominate contracts shall be regulated by the SANCHEZ VS. RIGOS
1) stipulations of the parties,
2) provisions of obligations and contracts, As Justice Bengzon explained, an option is unilateral; a promise to sell at the price fixed
3) rules governing the most analogous nominate contracts, and whenever the offeree should decide to exercise his option w/in the specified time. After accepting the
4) customs of the place (Art. 1307). 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
4 Classes of Innominate Contracts 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.
i. I do, you do
ii. I do, you give If the option is given w/o a consideration, it is a mere offer of a contract of sale, w/c is not binding
iii. I give, you do until accepted. If however, acceptance is made before a w/drawal, it constitutes a binding of sale, even
iv. I give, you give though the option was not supported by a sufficient consideration.

9) According to Subject Matter BAVIERA:


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Q: Distinguish between Art. 1479 & 1324? Equitable Mortgage

1479 1324 Art. 1602. The contract shall be presumed to be an equitable mortgage in any of the following cases:
Applies if has NOT This is the GENERAL (1) When the price of the sale w/ right to repurchase is unusually inadequate;
been ACCEPTED RULE on CONTRACTS: (2) When the vendor remains in possession as lessee or otherwise;
If ACCEPTED, the (3) When upon or after the expiration of the right to repurchase another instrument extending the period of
A consideration other agreement becomes redemption or granting a new period is executed;
than the purchase price is BINDING (WON there is (4) When the purchaser retains for himself a part of the purchase price;
required to make the a consideration other than (5) When the vendor binds himself to pay the taxes on the thing sold;
unilateral promise the purchase price) (6) In any other case where it may be fairly inferred that the real intention of the parties is that the
binding 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.
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 Art. 1603. In case of doubt, a contract purporting to be a sale w/ right to repurchase shall be construed as an
distinct fr. the price. Accordingly, the promisee cannot compel the promisor to comply w/ equitable mortgage.
the promise, unless the former establishes the existence of said distinct consideration. The
promisee has the burden of proving such consideration. (Cronco v. Tuazon) Paras:
An equitable mortgage is one w/c, though lacking in some formality or other requisites
Conventional Redemption 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. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the
Art 1606. The right referred to in Art. 1601, in the absence of an express agreement, shall last four years fr.
thing sold, w/ the obligation to comply w/ the provisions of Art. 1616 & other stipulations w/c may have
date of the contract.
been agreed upon.
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
Art. 1616. The vendor cannot avail himself of the right of repurchase w/o returning to the vend the price of
was rendered in a civil action on the basis that the contract was a true sale w/ right to repurchase.
the sale , & in addition:
(1) The expenses of the contract, & any other legitimate payments made by reason of the sale;
Baviera:
(2) The necessary & useful expenses made on the thing sold.
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
Baviera:
In an equitable mortgage, the property must still first be foreclosed before ownership passes to of the thing sold, & the subsequent grant of the right to repurchase is a new agreement. But where the
the seller. Distinguished fr. a pacto de retro sale, where ownership already passes to the buyer upon period to repurchase has not expired, & another agreement is entered into granting the vendor a retro the
perfection of the contract, but if the right to redeem is exercised, then ownership reverts to the seller. 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.
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 Reason for the 10-year limitation: A pacto de retro is a suspension of title, & it is against public interest
execute an affidavit consolidating ownership in himself & register the same in the Register of Deeds. The to permit such uncertainty to continue for a long time.
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 Counting of 4-year period: From the execution of the contract. But if the right is suspended by agreement
of the property does not justify the conclusion that the contract is one of mortgage.
that it shall be exercised only after a certain time or condition arises, then the period shall be counted only
If the seller wants to redeem, he must give the buyer the price the expenses of the fr. the time such right could be exercised, but not exceeding 10 years fr. execution.
contract any other legitimate payments made by reason of the sale the necessary expenses
made on thing sold.

9
Not sufficient that a vendor a retro manifests his desire to redeem. This must be accompanied by an actual Contract to Sell is a bilateral , where there is merely an offer by one party; w/o acceptance on the
or simultaneous tender of payment of the redemption price. But if vendee refuses, then vendor may file a other party, no consent. (Salonga v. Farrales, July 10, 1981);
suit against him & consign the amount in court.
An offer is a unilateral proposition which 1 party makes to the other for the celebration of a contract.

2. PERFECTION Requisites of Offer:


1. definite
Perfection or birth of the contract, which is the moment when the parties come to The offer must be definite, so that upon acceptance, an agreement can be reached on the
agree on the terms of the contract; whole contract.
GEN RULE: Contracts are perfected by mere consent the principle of consensuality 2. complete
(Art. 1315); 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-
EXCEPTION: Real contracts, such as deposit, pledge, and commodatum are not essential ones desired by the offeror.
perfected until the delivery of the object of the obligation (Art. 1316) 3. intentional
An offer without seriousness, made in such manner that the other party would not fail to
3. PERFORMANCE 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).
4. CONSUMMATION
Consummation or death, which is the fulfillment or performance of the terms agreed Acceptance must be affirmatively and clearly made & must be evidenced by some acts or conduct
upon 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)
F. ESSENTIAL ELEMENTS OF CONTRACTS:
Requisites of Acceptance:
1. unequivocal
1. CONSENT of the contracting parties:
2. unconditional
Consent is the manifested by the meeting of offer and acceptance upon the thing and the cause which are
o If the acceptance is qualified, then that is a counter-offer.
to constitute the contract (Art. 1319, 1st par).
o An amplified acceptance may or may not be an acceptance of the original offer. It
depends on the circumstances.
Elements of Consent:
o For example, A is selling 1000 kgs. of cement. B says he wants to buy 2000 kgs of
a. plurality of subjects
cement. There is no acceptance of the offer if B will only buy 2000 kgs and nothing less.
b. capacity (legal)
c. intelligent and free will
Manifestation of Acceptance:
d. express or tacit manifestation of the will
o An acceptance may be express or implied (Art. 1320).
e. conformity of the internal will and its manifestation
o Silence is ambiguous. One must look at the circumstances to determine if the silence is
a form of acceptance.
CONSENT is the concurrence of wills of the offerer & the acceptor as to the thing & the cause whc
o A and B are own stalls which sell rice. C
constitute a contract
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
OFFER manifestation of a willingness to enter into a bargain so made as to justify another in
call C. Both A and B are silent. A acceptance the rice because of the arrangement. If A did not
understanding that his assent to that bargain is invited & will conclude it.
want to accept the rice, then A should have called. Bs silence is not acceptance.
Offer negotiation imperfect promise policitation
Q: Could there be a perfected contract in a unilateral promise to sell?
No acceptance no concurrence of wills no consent no !

10
A: Yes, a perfected contract of option is an accepted unilateral promise whc specifies the thing to be This distinct consideration of P5,000 is payment for the 30 days. J is paying for time. The option
sold and the price to be paid, when coupled with a valuable consideration distinct and separate from contract is separate from the contract of sale. B cannot sell the car to anybody else within that 30 day
the price. (Art. 1324) period.

OPTION is a contract granting a privilege to buy or sell at a determined price w/in an agreed time (Ang 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
Yiu Asuncion v. CA, Dec. 2, 1994) 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
COGNITION Theory 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
Acceptance made by letter of telegram does not bind the offer except from the time it came to his contract, there should be no continuing offer. According to Prof. Balane, the SC should have explained
knowledge (Art. 1319, 2nd par). that.
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. 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
The problem arises when there is a time gap. Under Art. 1319, there is perfection of the earnest money worth P5,000. J decides to buy the car within 30 days. The car is not sold to anybody
contract when there is knowledge of the other partys acceptance/. This has serious consequences. else. B does not want to sell the car to J. J can sue B for specific performance compel B to sell him the
For example, the offer was made in Davao on Feb. 1. The offer was sent through mail which is car.
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 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
Davao. According to Prof. Balane, under Art. 1323, there is no contract since there was no earnest money worth P5,000. J decides to buy the car within 30 days. Before J is able to buy the car, B
contractual capacity. 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:


Offers Through Agents
An offer made through an agent is accepted from the time acceptance is communicated to him right of first refusal option contact
(Art. 1322). right to have first opportunity limits the promissors power
to purchase or the right to to revoke an offer
Effect of Death, Insanity meet any other offer
An offer becomes ineffective upon the death, civil interdiction, insanity or insolvency of either not covered by the Civil Code Art. 1324, CC
party before acceptance is conveyed (Art. 1323). In Equatorial v. Mayfair the In Ang Yu v. CA, the SC said
right of first refusal was that an action for specific
Withdrawal of the Offer violated when the vendor sold performance will not lie
When the offerer has allowed the offeree a cetain period to accept, the offer may be withdrawn the object to another person - against the promissor.
at any time before acceptance by communicating such withdrawal, except when the option is founded an action for specific However, a complaint under
upon consideration, something paid or promised (Art. 1324). performance may be filed. Art. 19 for damages may be
filed if the actions of the
EX: A offers to B by mail on Feb.1 The offer reaches B on Feb. 5. B accepts via mail. The promissor are whimsical.
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. 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
Art. 1324 is related to Art. 1479, par. 2. They actually say the same thing. 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
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 property to a 3rd person, again, under the same terms as offered to the optionee. (PARANAQUE
earnest money worth P5,000. The payment of P5,000 is a distinct consideration from the price of the car. KINGS ENTERPRISES vs. CA)
11
SANCHEZ V. RIGOS b. Relatively Simulated (contrato disimulado)
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, &, Relative simulation of a contract takes place when the parties conceal their true agreement
more specifically, to an "accepted unilateral promise to buy or to sell." Art. 1479 is controlling in the (Art. 1345).
case at bar. In a relatively simulated contract, the parties enter into a contract but disguise it as another.

2. In order that said unilateral promise may be binding upon the promisor, Art. 1479 requires the EX: X has many creditors, and they are going after Xs car. X cannot donate his car to Y since
concurrence of a condition, namely, that the promise be "supported by a consideration distinct fr. the the creditors will just resort to accion pauliana. So, X antedates a contract of sale, selling his
price. In other words, the promise, even if accepted, may be w/drawn if there is no consideration distinct fr. car to Y, except that Xs intention is to donate his car to Y.
the price. (SW Sugar case)
A relatively simulated contract, when it does not prejudice a 3 rd person and is not intended for
In a right of first refusal, there is no definite offer since the vendor has to option of deciding any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their
not to sell the object. Also, in a right of first refusal, there is no need for a separate consideration. In an real agreement (Art. 1346).
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 The law will apply the rules of the true contract and not the ostensible contract.
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 Article 37. Juridical capacity, which is the fitness to be the subject of legal relations, is inherent in
first refusal which is more tentative? Also, where the SC get these rules since the right of first refusal is every natural person and is lost only through death.
not covered by the Civil Code. Capacity to act, which is the power to do acts with legal effect, is acquired and may be lost.
ADVERTISEMENTS: Article 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil
Unless it appears otherwise, business advertisements of things for sale are not definite offers, interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person from
but mere invitations to make an offer (Art. 1325) 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,
Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to
imbecility, the state of being a deaf-mute, penalty, prodigality, family relations, alienage, absence,
accept the highest or lowest bidder, unless the contrary appears (Art. 1326).
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
Most advertisements are simply invitations to make an offer and are not offers in themselves or political opinion.
since not all the necessary terms can fit in the advertisement.
Article 739. The following donations shall be void:
Even if the ad had all the necessary terms, its still an invitation to make offer since there is no (1) Those made between persons who were guilty of adultery or concubinage at the time of the
definite person to whom the offer is being made (public offer). donation;
Simulated Contracts (2) Those made between persons found guilty of the same criminal offense, in consideration
thereof;
a. Absolutely Simulated (contrato simulado) (3) Those made to a public officer or his wife, descendants and ascendants, by reason of his
office.
Absolute simulation of a contract takes place when the parties do not intent to be bound at all
(Art. 1345). 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
EX: X pretends to sell his car to avoid tax liability. However X has no real intention to sell the same action.
car. Article 1476. In the case of a sale by auction:
An absolutely simulated or fictitious contract is void (Art. 1346) xxx
12
(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of Article 5. Acts executed against the provisions of mandatory or prohibitory laws shall be void, except
the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to when the law itself authorizes their validity.
bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such
[FC: E.O. 209]
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. 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
Article 1490. The husband and the wife cannot sell property to each other, except:
of any family rejoicing. The prohibition shall also apply to persons living together as husband and wife
(1) When a separation of property was agreed upon in the marriage settlements; or without a valid marriage.
(2) When there has been a judicial separation of property under article 191. Section 5. Administration of the Conjugal Partnership Property
Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, Art. 124. The administration and enjoyment of the conjugal partnership shall belong to both spouses
either in person or through the mediation of another: 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
(1) The guardian, the property of the person or persons who may be under his guardianship;
implementing such decision.
(2) Agents, the property whose administration or sale may have been intrusted to them, unless the
In the event that one spouse is incapacitated or otherwise unable to participate in the
consent of the principal has been given;
administration of the conjugal properties, the other spouse may assume sole powers of administration.
(3) Executors and administrators, the property of the estate under 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
(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any shall be void. However, the transaction shall be construed as a continuing offer on the part of the
government-owned or controlled corporation, or institution, the administration of which has been
consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance
intrusted to them; this provision shall apply to judges and government experts who, in any manner
by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.
whatsoever, take part in the sale;
EMANCIPATION AND AGE OF MAJORITY
(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 Art. 234. Emancipation takes place by the attainment of majority. Unless otherwise provided, majority
upon an execution before the court within whose jurisdiction or territory they exercise their respective commences at the age of twenty-one years.
functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with
Emancipation also takes place:
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; (1) By the marriage of the minor; or
(6) Any others specially disqualified by law (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
Art. 1533 (par.5). The seller is bound to exercise reasonable care and judgment in making a
emancipation shall be irrevocable.
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. [RA No. 6809]
Article 1646. The persons disqualified to buy referred to in articles 1490 and 1491, are also disqualified Republic Act No. 6809, which reduced the age of majority to eighteen (18) years was
to become lessees of the things mentioned therein approved only on 13 December 1989 and became effective two weeks after publication in two
newspapers of general circulation.
Article 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter
into universal partnership. 1987 CONSTITUTION: ARTICLE XII - NATIONAL ECONOMY AND PATRIMONY
Article 1409. The following contracts are inexistent and void from the beginning: 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
xxx
domain.
(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.

13
Section 8. Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the If the object is impossible, then the contract is void for lack of cause;
Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to
limitations provided by law. Art. 1348 does not talk of supervening impossibility which is a mode of
extinguishment;
2. OBJECT certain which is SM of Impossibility under Art. 1348 must be actual and contemporaneous with the making of
the contract.
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 4. the object must be determinate as to its kind and determinable as to its quantity (Art. 1349)
object and not the object itself.
The object need not be individualized. It must be determinate as to its kind or species;
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 The quantity of the object may be indeterminate, so long as the right of the creditor is
though. not rendered illusory.

Requisites of Object: 5. the object must be transmissible

1. the object must be within the commerce of man, either already existing or in potency (Art. This is actually a redundancy since this is already in the requisite of being within the
1347) commerce of man.

Within the commerce of man means that the object is capable of appropriation and
transmission; 3. CAUSE of the :
The term in potency means that the object will come into existence in the future; The cause of a contract is the why of the contract;
Generally, in reciprocal contracts particularly sales, the sale of future things is allowed. the immediate and most proximate purpose of the contract;
For example, it is possible to sell the future harvest of a farm.
the essential reason which impels the contracting parties to enter into it and which explains and
The coming into being of the future thing is a suspensive condition. justifies the creation of the obligation through such contract;

Emptio rei speratae is a conditional sale. There is a suspensive condition. If the future The cause is different from consideration.
thing does not come into existence, then there is no contract of sale. Consideration in the Anglo-American sense must always be valuable or capable of pecuniary
estimation.
Emptio spei is the sale of a hope. Even if the future thing does not materialize, the Cause, on the other hand, need not be material at all, and may consist in a moral satisfaction for
buyer must pay since the buyer is taking a chance. (i.e. sale of lotto ticket). Hope is a present the promissor.
thing.
Requisites of Cause:
Some future things are not allowed to be objects of the prestation. The law does not 1. it must exist
allow contracts on future inheritance. 2. it must be true
3. it must be licit
2. the object must be LICIT, or not be contrary to law, morals, good customs, public policy or
public order (Art. 1347) Cause is different from motive.
Cause is the proximate why while motive is the ultimate why;
3. the object must be possible (Art. 1348)

14
EX: A wants to sell his house for P60 M because A is moving to Canada. B is willing to buy Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
the house for P60 M. In this case, the cause for A is the P60 M while the cause for B is the contract, unless there has been fraud, mistake or undue influence.
house. As motive is to dispose of the house which he does not need since A is going to
Canada. 4. Delivery for real contracts

Like failure of or lack of object, the failure of cause has an effect on the contract. If there is no 5. Form for formal contracts
cause or the cause is illegal, then the contract is void.
Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the
This is unlike the lack of consent. When consent is lacking, the contract is not void. The essential requisites for their validity are present. However, when the law requires that a contract be in some
contract is merely voidable. 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.
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 Tolentino
remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
Art. 1356 provides for TWO CASES where form is absolute & indispensable, namely:
[GR] Failure of motive as a general rule does not affect the contract. (1) When the form is essential to the validity of the ;
[EXC] Motive affects the contract when: (2) When the is unenforceable unless it is in a certain form, such as those under the
1. the motive becomes a suspensive condition; or Statute of Frauds (SOF)
2. the realization of the motive is the cause for the contract and there is an intervening serious
mistake of fact 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;
In onerous contracts, the cause is the prestation or promise of a thing or service by the Requisites under Art. 1318
other party. 1. Consent of the contracting parties
It has been held that, as a mortgage is an accessory contract, its cause or consideration 2. Object certain w/c is the subject matter of
is the very cause or consideration of the principal contract, from which it receives its life, and litigation
without which it cannot exist as an independent contract (China Bank v. Lichauco). 3. Cause of the obligation w/c is established
In remuneratory contracts, the cause is the service or benefit which is remunerated .
The formalities required by law are classified into three groups:
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 (1) ad esentia, ad solemnitatem those w/c are required for the validity of the ;
benefit was not due as a legal obligation.
In gratuitous contracts, the cause is the mere liberality of the benefactor. (2) those required to make the effective as against 3rd parties, such as those mentioned in Arts. 1357 &
1358;
Article 1351. The particular motives of the parties in entering into a contract are different from the cause
(3) formalities ad probationem those required for the purpose of proving the existence of a , such as
thereof. those provided in the SOF

Article 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is ONG YIU v CA
unlawful if it is contrary to law, morals, good customs, public order or public policy. 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
Article 1353. The statement of a false cause in contracts shall render them void, if it should not be assent.
proved that they were founded upon another cause which is true and lawful.
It is a contract of adhesion wherein one party imposes a ready made contract for the other party,
Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, the place ticket in CAB. Such contracts are not entirely prohibited. The one who adheres to the contract
unless the debtor proves the contrary. is free to reject it entirely, if he adheres he give consent.

15
WELDON v CA Article 1358. The following must appear in a public document:
RATIO: (1) Acts and contracts which have for their object the creation, transmission, modification or
Only an absolute or unqualified acceptance of a definite offer manifests the consent extinguishment of real rights over immovable property; sales of real property or of an interest therein
necessary to perfect a contract (Article 1319, New Civil Code). are governed by articles 1403, No. 2, and 1405;
Once a contract is shown to have been consummated or fully performed by the parties (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
thereto, its existence and binding effect can no longer be disputed. partnership of gains;
(3) The power to administer property, or any other power which has for its object an act appearing or
TANG v CA which should appear in a public document, or should prejudice a third person;
RATIO:
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood (4) The cession of actions or rights proceeding from an act appearing in a public document.
by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
thereof have been fully explained to the former. private one. But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and
1405.
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. 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
CARIO v CA
RATIO:
EXCEPTION: When the written form is required
Contracts whc are absolutely simulated or fictitious are inexistent and null & void ab initio.
2. SPECIAL FORM

LAGUNZAD v GONZALES a) for validity


RATIO:
Duties must comply w/s entered into where provisions thereof are not contrary to If it not written, the same is void.
L/M/GC/PO/PP.
Examples are donations (Arts. 748, 749),
antichresis (Art. 2134),
G. FORM OF CONTRACTS: 1356-1358 interest in a loan (Art. 1956),
sale of land by an agent (Art. 1874),
CHAPTER 3 - Form of Contracts contribution of immovables in a partnership (Art. 1773)
Article 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document,
all the essential requisites for their validity are present. However, when the law requires that a contract be specifying therein the property donated & the value of the charges w/c the donee must satisfy.
in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, The acceptance may be made in the same deed of donation or in a separate public document, but it shall not
that requirement is absolute and indispensable. In such cases, the right of the parties stated in the take effect unless it is done during the lifetime of the donor.
following article cannot be exercised. (1278a) If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form,
Article 1357. If the law requires a document or other special form, as in the acts and contracts & this step shall be noted in both instruments.
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 Tolentino:
the contract. (1279a) 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.

16
Art. 1357 applies only to s w/c validly exist, & cannot be held applicable to a case where the Requisites under Art. 1318
form is required in order to make it valid 1. Consent of the contracting parties
2. Object certain w/c is the subject matter of
A public instrument is not necessary in cases of onerous donations bec. they are governed by the litigation
rules on contracts. 3. Cause of the obligation w/c is established

Title to immov prop. does not pass fr. the donor to the donee until & unless: Tolentino:
A donation of personal prop. exceeding P5 thou in value must ALWAYS be made in writing, &
1. it has been accepted in a public instrument---whether in the deed of donation itself or accepted also in writing.
on a separate public instrument. Solemn words of acceptance are not necessary.
The document of donation & the acceptance need not be public instruments but may simply be
2. The donor was duly notified thereof--- Necessary that formal notice is given to the private documents.
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 When the value does not exceed P5 thou, a donation may be made orally or in writing.
3. The acceptance must be made during the life of the donor; if not made before the If donation is made orally, there must be simultaneous delivery.
donors death, it is w/o effect.
If there is no simultaneous delivery, the donation is void unless made in writing. BUT in this case,
4. In so far as the donor is concerned, the donation is not accepted unless he/she is notified the law does not require that that when the donation is made in writing, the acceptance should also be in
of such acceptance. writing.
Art. 748. x x x If the value of the personal property donated exceeds five thousand pesos, the donation &
Instances when the law requires to be in a certain form to be valid:
the acceptance shall be made in writing. Otherwise, the donation shall be void.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
[Tolentino, RE 748]
inventory of said property is not made, signed by the parties, & attached to the public instrument.
A donation of personal prop. exceeding P5 thou in value must ALWAYS be made in writing, &
accepted also in writing.
Art. 1984. The depositary cannot demand that the depositor proves his ownership of the thing deposited.
The document of donation & the acceptance need not be public instruments but may simply be Nevertheless, should he discover that the thing has been stolen & who its true owner is, he must
private documents. 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
When the value does not exceed P5 thou, a donation may be mare orally or in writing. depositary shall be relieved of all responsibility by returning the thing deposited to the
depositor.
If donation is made orally, there must be simultaneous delivery. 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.
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 Art. 2134. The amount of the principal & of the interest shall be specified in writing; otherwise, the contract
writing.
of antichresis shall be void.
Tolentino
Art. 83---Family Code
Art. 1356 provides for TWO CASES where form is absolute & indispensable, namely:
These donations are governed by the rules on ordinary donations established in Title III of Book
1) When the form is essential to the validity of the III of the Civil Code, insofar as they are not modified by the following articles.
2) When the is unenforceable unless it is in a certain form, such as those under the Statute
of Frauds (SOF) (b) for enforceability

GENERAL RULE: A having the essential requisites of Art. 1318 will be valid as between the parties NOTE: *** This list is EXCLUSIVE (Art. 1403, below)
whatever the form it may have been entered into [BAVIERA]
17
When the law states in writing, this need not be a public document. Even when marriage is a consideration, but in addition thereto, there is some other
It is sufficient that it was SIGNED by the party sought to be charged consideration sufficient to support the oral agreement, this may be proved by w/o a writing.

Instances when the law makes a contract unenforceable if it is not written: (SOF) (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
(a) an agreement that by its terms is not to be performed within a year from the making thereof (Art. things in action, or pay at the time some part of the purchase money; but when a sale is made by auction
1403 (a)) 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] 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
BAVIERA: Choses in action refer to incorporeal property
entered upon;

It must appear that the parties intended when they made the that it should not be performed w/in Tolentino: The requirement of a written instrument or a memo for sales of personal prop. for a price not
a year. less than P500, covers both TANGIBLE & INTANGIBLE personal prop.

Where no time is fixed by the parties for performance, & there is nothing in the agreement itself to To bring a sales transaction w/in the operation of the SOF, the price of the prop.
show that it cannot be performed w/in a year according to its terms & the understanding of the parties, the sold must be at least P500.
agreement is NOT w/in the SOF.
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.
(b) a special promise to answer for the debt, default or miscarriage of another (Art. 1403 (b))
Neither will the SOF apply where there has been part payment of the purchase
BAVIERA: Examples of this are guaranty & surety contracts price.

Tolentino: This has been defined as an undertaking by a person, not before liable, for the purpose Evidence to prove an oral of sale of real estate must be disregarded if timely
of securing or performing the same duty for w/c the original debtor continues to be liable. objections are made to its introduction.
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: A consummated sale of real prop. is not covered by the SOF.

PROMISE IS ORIGINAL OR PROMISE IS COLLATERAL (e) an agreement of lease for a period of more than 1 year, or the sale of real property or of an
INDEPENDENT interest therein (Art. 1403 (e))
If the promisor becomes primarily liable If the promise is collateral to the agreement of another & the
for the payment of a debt, the promise is promisor becomes thereby merely a surety, the promise falls (f) a representation as to the credit of a 3rd person (Art. 1403 (f))
not w/in the statute w/in the SOF & hence, it should be in writing
Tolentino:
(c) an agreement made in consideration of marriage, other than a mutual promise to marry (Art. 1403 The representations are limited to those w/c operate to induce the person to whom they
(c)) 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: Examples of this would be a marriage settlement, donation propter nuptias
BAVIERA:Q: What is the ratio for the SOF?
A mutual promise to marry, whether or not in writing, is unenforceable bec. it is a personal act. A: To prevent fraud. The problem w/ oral contracts is that they are easy to fabricate & perjure the
witnesses.
Tolentino: When the marriage is a mere incident, & not the end to be attained by the agreement, the Q: An oral contract for the lease of property for 2 years. What is the status of the K?
contract is not in consideration of marriage, & oral evidence can prove the agreement A: Enforceable for the 1st year, unenforceable for the 2nd year

18
Q: An oral K for the sale of land. The buyer suffered damages when the seller refused to comply w/ his This provision is not very clear as to the meaning of parol. Strictly, parol evidence rule
promise even if the buyer offered to pay. B consigned the payment. So whats up? presupposes a written agreement. It is much better to make it unenforceable.
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 Pertinent Family Code Provisions
be to allow a party to perpetrate fraud.
Art. 77. The marriage settlements & any modification thereof shall be in writing, signed by the parties &
Q: When is there a waiver of the SOF? executed before the celebration of the marriage. They shall not prejudice third persons unless they are
A: In the ff. instances: registered in the local civil registry where the marriage contract is recorded as well as in the proper
When there has been acceptance of benefits registries of property.
When there is failure to object to the introduction of oral evidence
Art. 83. These donations are governed by the rules on ordinary donations established in Title III of Book III
Q: Seller has advertised a specific object for sale. A buyer comes to buy (sus...eh ano pa nga bang of the Civil Code, insofar as they are not modified by the following articles.
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
LAO SOK v. SABAYSABAY, 138 SC 135
SOF?
A: OO naman. RATIO:
Perfected - where the ER offered the EEs payment of separation pay whc offer was
[Tolentino] unconditionally accepted, a was perfected; s tho orally made are binding on the parties.
Rationale of the SOF: Oral contracts lead to fraud in the fulfillment of obligations, or to false
testimony.
GALLARDO v. IAC, 155 SC 134
SOF applies only to EXECUTORY & not to completed or executed s.
RATIO:
A falling under the SOF cannot be proved w/o the writing or a memorandum thereof. 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.
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 C. For Greater Efficacy or Convenience or for Registrability the following must appear in a public
statute.
instrument:
1. acts and contracts which have for their object the creation, transmission, modification or
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 extinguishment of real rights over immovable property; sales of real property or of an interest therein
upon the parties as if it had been reduced to writing. governed by Arts. 1403 (2) and 1405

In order that a NOTE/MEMORANDUM shall meet the requirements of the SOF, it must contain: 2. the cession, repudiation or renunciation of hereditary rights or of those of the conjugal
the names of the parties partnership of gains
the terms & conditions of the agreement
a description of the subject matter sufficient to render it capable of identification 3. the power to administer property, or any other power which has for its object an act appearing or
the date & place of the making of the agreement which should appear in a public document, or should prejudice a 3 rd person
signature of the party assuming the obligation
4. the cession of actions or rights proceeding from an act appearing in a public document
(g) no express trusts concerning an immovable or any interest therein may be proved by parol
evidence (Art. 1443)
Contracts enumerated in Art. 1358 are valid as between the contracting parties even when they
BAVIERA: have not been reduced to public or private writings.

19
Except in certain cases where public instruments and registration are required for the 1. there must have been a meeting of the minds upon the contract
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 2. the instrument or document evidencing the contract does not express the true agreement
between the contracting parties, but are required for the purposes of making it effective as between the parties
against 3rd person.
3. the failure of the instrument to express the agreement must be due to mistake, fraud,
Art. 1357 gives the contracting parties the coercive power to reciprocally compel the inequitable conduct or accident
execution of the formalities required by law, as soon as the requisites for the validity of the
contracts are present. Requisites of Mistake:
H. Reformation of Instruments
a) that the mistake is one of fact
o Whenever an instrument is drawn with the intention of carrying an agreement
Once the minds of the contracting parties meet, a valid contract exists, whether the agreement is
previously made, but which, due to mistake or inadvertence of the draftsman or clerk, does not
reduced to writing or not. There are instances however, where in reducing their agreements to
carry out the intention of the parties, but violates it, there is a ground to correct the mistake by
writing, the true intention of the contracting parties are not correctly expressed in the document,
reforming the instrument.
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 b) that it was common to both parties
reason, some provision was omitted or mistakenly inserted, and the action to change the instrument A written instrument may be reformed where there is a mistake on 1 side and fraud or
so as to make it conform to the contract agreed upon. inequitable conduct on the other, as where 1 party to an instrument has made a mistake and the
other knows it and conceals the truth from him.
Reformation Distinguished from Annulment
The mistake of 1 party must refer to the contents of the instrument and not the subject
Reformation Annulment mater or the principal conditions of the agreement. In the latter case, an action for annulment is
presupposes that there is a if the minds of the parties did the proper remedy.
valid existing contract not meet, or if the consent of
between the parties, and only either one was vitiated by If 2 parties agree upon the mortgage or pledge of real property or personal property, but
the document or instrument violence or intimidation or the instrument states that the property is sold absolutely or with a right of repurchase,
which was drawn up and mistake or fraud, so that no reformation is proper.
signed by them does not real and valid contract was c) the proof of mutual mistake must be clear and convincing
correctly express the terms of made
their agreement Limitations of Reformation:
gives life to it upon certain involves a complete
corrections nullification of the contract 1. Reformation is not proper in the following cases:
while reformation gives life a) simple donations inter vivos wherein no condition is imposed;
to it upon certain corrections.
b) wills
Operation and Effect of Reformation
c) when the real agreement is void
GR: Reformation relates back to, and takes effect from the time of its original execution, especially as
2. Who may ask for reformation
between the parties. a) If the mistake is mutual, reformation may be ordered at the instance of either party or his
successors in interest
Requisites of Reformation: b) If the mistake is not mutual, reformation may be ordered upon petition of the injured party
or his heirs and assigns
20
3. Effect of enforcing an action If the doubts are cast upon the principal object of the contract in such a way that it cannot be
When one of the parties has brought an action to enforce the instrument, he cannot known what may have been the intention or will of the parties, the contract shall be null and void.
subsequently ask for its reformation.

J. Kinds of Contracts as to Validity:


I. Interpretation of Contracts: (1370-1379)
1. Valid and Binding
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 2. Valid but defective
writing must be understood as waived and abandoned. Generally, therefore, there can be no evidence of a. rescissible (1380-89; 1191)
the terms of the contract other than the contents of the writing, unless it is alleged and proved that the b. voidable (1390-1402; 1327-28; 1330)
intention of the parties is otherwise. c. unenforceable (1403-1408; 1317; 1878)

When the terms of the agreement are so clear and explicit that they do not justify an attempt to 3. Void or inexistent (1409-1422; 1318; 1353; 1378; 1491; 1898)
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.
DEFECTIVE CONTRACTS:
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. 1. Rescissible Contracts

In order to judge the intention of the contracting parties, their contemporaneous and subsequent A rescissible contract is a contract which is valid because it contains all the essential requisites
acts shall be principally considered. prescribed by law, but which is defective because of injury or damage to either of the contracting parties
or to 3rd persons, as a consequence of which it may be rescinded by means of a proper action for
When a general and a particular provision are inconsistent, the particular provision will control. rescission.

Where the instrument is susceptible of 2 interpretations, 1 which will make it invalid and illegal, Rescission is a remedy granted by law to the contracting parties, and even to 3rd persons, to
and another which will make it valid and legal, the latter interpretation should be adopted. 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.
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. Requisites of Rescission:

When there is doubt as to the meaning of any particular language, it should be determined by a a) the contact must be a rescissible contract under Art. 1381 or Art. 1382:
consideration of the general scope and purpose of the instrument in which it occurs.
The following contracts are rescissible -
An instrument may be construed according to usage in order to determine its true character.
i. those entered into by guardians whenever the whom they represent suffer lesion by more than
The party who draws up a contract in which obscure terms or clauses appear, is the one of the value of things which are the object thereof (Art. 1381 (1))
responsible for the obscurity or ambiguity; they must therefore be construed against him. Rescission shall not take place with respect to contracts approved by the court (Art. 1386).

When it is absolutely impossible to settle doubts by the rules established in the preceding As a rule, when a guardian enters into a contract involving the disposition of the wards
articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of property, the guardian must secure the approval of the guardianship court. A guardian is only
rights and interest shall prevail. If the contract is onerous, the doubt shall be settled in favor of the authorized to manage the estate of the ward. A guardian has no power to dispose of any portion of
greatest reciprocity of interests.

21
the estate without approval of the court. If more than acts of mere administration are involved, which are inherent in his person; they may also impugn the acts which the debtor may have done to
judicial approval is necessary. defraud them (Art. 1177).

In case of sale, mortgage, or other encumbrance of any portion of the estate which does not Creditors are protected in cases of contracts intended to defraud them (Art. 1313).
have judicial approval is an unenforceable contract (Art. 1403 (1)).
In determining whether or not a certain conveyance is fraudulent, the question in every case is
Therefore, Art. 1381 (1) is limited to contracts which constitute mere acts of administration whether the conveyance was a bona fide transaction or trick and contrivance to defeat creditors, or
(i.e. the purchase of equipment for the cultivation of lands, purchase of materials for repair of whether it conserves to the debtor a special right.
buildings, etc.). 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
Lesion is very difficult to apply in practice property to pay all debts contracted before the donation (Art. 1387, 1st par).

For example, A is the agent of B. B owns land worth P10 M. A sells the land for P7 M. From the facts, Alienations by onerous title are also presumed fraudulent when made by persons against whom
the lesion suffered by B is 30%. In practice, are you sure that P10 M is the fair market value of the land. some judgment has been rendered in any instance or some writ of attachment has been issued. The
What if the situation is urgent and that property must be disposed of right away? decision or attachment need not refer to the property alienated, and need not have been obtained by
the party seeking the rescission (Art. 1387, 2 nd par).
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. Badges of Fraud:
ii. those agreed upon in representation of absentees, if the absentee suffers lesion by more than of
1. the fact that the consideration of the conveyance is inadequate
the value of things which are the object thereof (Art. 1381 (2))
2. a transfer made by a debtor after suit has begun and while it is pending against him
Rescission shall not take place with respect to contracts approved by the court (Art. 1386).
3. a sale upon credit by an insolvent debtor
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. 4. evidence of large indebtedness or complete insolvency
A legal representative is only authorized to manage the estate of the absentee. He has no power 5. the transfer of all or nearly all of his property by a debtor, especially when he is
to dispose of any portion of the estate without approval of the court. If more than acts of mere insolvent or greatly embarrassed financially
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 6. the fact that the transfer is made between father and son when there are present any of
judicial approval is an unenforceable contract (Art. 1403 (1)). the above circumstances

Therefore, Art. 1381 (2) is limited to contracts 7. the failure of the vendee to take exclusive possession of all the property
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.).
iv. those which refer to things under litigation if they have been entered into by the defendant without
iii. those undertaken in fraud of creditors when the creditors cannot in any other manner collect the the knowledge and approval of the litigants or of competent judicial authority (Art. 1381 (4))
claims due them (Art. 1381 (3))
Art. 1381 (4) refers to a contract executed by the defendant in a suit involving the
This is an exception to the principle of relativity of contracts. ownership or possession of a thing, when such contract is made without the knowledge and
approval of the plaintiff or court.
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 for the same purpose, save those

22
As in the case of a contract in fraud of creditors, the remedy of rescission in this case is [Tolentino]
given to a 3rd person who is not a party to the contract. The purpose is to protect the plaintiff. Similarities between Rsn under Art. 1191 & Art. 1380+:

v. all other contracts specially declared by law to be the subject of rescission (Art. 1381 (5)) (1) both presuppose s validly entered into & existing, &

(2) both require mutual restitution when declared proper.


The following provision in sales are examples of rescissible contracts declared by law Arts
1526, 1534, 1538, 1539, 1540, 1556, 1560, 1567, 1659. Differences:
payments made in a state of insolvency for obligations to whose fulfillment the debtor could not (1) Rsn under 1191 may be demanded only by party to the , under 1380+ by 3P prejudiced by the ;
be compelled at the time they were effected (Art. 1382)
(2) Rsn under 1191 may be denied when there is sufficient reason to justify extension of time to perform,
(1) the person asking for rescission must have no other legal means to obtain under 1380+ such reason does NOT affect rt. To ask for Rsn;
reparation for the damages suffered by him (Art. 1383);
(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
(2) the person demanding rescission must be able to return whatever he may be performed, while under 1380(+) ob. May be unilateral or reciprocal & even when K has been fulfilled.
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.
2. VOIDABLE Contracts
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
A voidable contract is a contract in which all of the essential elements for validity are present, but
possession of a 3rd person acting in good faith (Art. 1385, 2nd par)
the element of consent is vitiated either by lack f legal capacity of 1 of the contracting parties or by
Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify mistake, violence, intimidation, undue influence, or fraud.
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). Voidable contracts are binding unless they are annulled by a proper action court. They are
susceptible to confirmation.
If there are 2 or more alienations,the 1st acquirer shall be liable 1st, and so on
successively (Art. 1388, 2nd par). There is a difference between confirmation and ratification:
Confirmation is the process of curing the defect of a voidable contract.
(4) the action for rescission must be brought within the prescriptive period of 4 years (Art.
1389) Ratification is the process of curing contracts which are defective because they were entered
into without authority.
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 following contracts are voidable or annullable, even though there may have been no damage to
The injured party may choose between the fulfillment & the rescission of the ds., w/ the payment of the contracting parties:
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible. a. those where one of the parties is incapable of giving consent to a contract.
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 The following cannot give consent to a contract (Art. 1327):
w/ Arts. 1385 & 1388 & the Mortgage Law.
i. unemancipated minors
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the 1st infractor Where necessaries are sold and delivered to a minor or other person without capacity to
shall be equally tempered bye the cts. If it cannot be det. Which of the parties 1st violated the K, the same act, he must pay a reasonable price therefore.
shall be deemed extinguished, & each shall bear his own damages. Necessaries include everything that is indispensable for sustenance, dwelling, clothing,
and medical attendance.
23
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 b) violence
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 There is violence when in order to wrest consent, serious or irresistible force is employed (Art. 1335, 1st
in consonance with the rules of estoppel. (Mercado v. Espiritu). par).
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 Violence shall annul the obligation, although it may been employed by a 3 rd person who did not take part
he was under age, at the time he entered into the contract. According to Prof. Balane, this view in the contract (Art. 1336).
is very logical. If the minor is too young to enter into contracts, he is too young to be estopped.
Requisites of Violence:
ii. insane or demented persons, and deaf mutes who do not know how to write i. irresistible physical force is employed
Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of ii. the force is the determining cause for giving consent
drunkenness or during a hypnotic spell are voidable (Art. 1328).
c) intimidation
iii. those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud 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
A contract where consent is given through mistake, violence, intimidation, undue influence or spouse, descendants or ascendants, to give his consent (Art. 1335, 2nd par).
fraud is voidable (Art. 1330).
Requisites of Intimidation:
a) mistake
i. the threat must be the determining cause for giving consent
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 ii. the threatened act is unjust and unlawful
into the contract (Art. 1331, 1st par). A threat to enforce ones claim through competent authority, if the claim is just or
legal, does not vitiate consent (Art. 1335, 4th 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). 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
A simple mistake of account shall give rise to its correction (Art. 1331, 3rd par). is not always 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
When one of the parties is unable to read, or if the contract is in a language not understood by him, and not to cooperate in the discovery and prosecution of the crime, but to obtain some prestation
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been from the culprit which otherwise could not be obtained and which does not constitute indemnity
fully explained to the former (Art. 1332). 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,
There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the because he is made to agree to something which has no relation to his crime.
contract (Art. 1333)
The rule regarding marriage is different. Where a man marries under the threat to
Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may obstruct his admission to the bar by filing charges against him for immorality committed by
vitiate consent (Art. 1334). him, he cannot avoid the marriage on the ground of duress.

Misrepresentation by a 3rd person does not vitiate consent, unless such misrepresentation has created iii. the threat is real and serious
substantial mistake and the same is mutual (Art. 1342).
For example the threat must be to kill you or burn your house and not merely to pinch you.
Misrepresentation made in good faith is not fraudulent but may constitute error (Art. 1343).

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iv. The threat produces a well-grounded fear that the person making it can and will inflict harm 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
To determine the degree of intimidation, the age, sex, and condition of the person shall be borne in mind fully explained to the former (Art. 1332).
(Art. 1335, 3rd par).
For example, a 75year old man who is bed ridden and says that he will kill you does not produce There is fraud when, through insidious words or machinations of one of the contracting parties, the
a well-grounded fear. other is induced to enter into a contract which, without them, he would not have agreed to (Art. 1338)

Intimidation shall annul the obligation, although it may have been employed by a 3 rd person who did not deceit or dolo causante.
take part in the contract (Art. 1336).
Requisites of Fraud:
DURESS is that degree of constraint or danger sufficient to overcome the mind and will of the person or
ordinary firmness. 1. fraud is employed by 1 party on the other (Arts. 1342, 1344)

Violence Intimidation 2. the other party was induced to enter into the contract (Art.1338)
Duress actually inflicted threatened or impending
External Internal 3. the fraud must be serious (Art. 1344)
Serves to prevent an act from operates upon the will,
being done induces performance of an act 4. there is damage or injury caused
Physical force employed is Influences the mind to choose
irresistible bet. two evils Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
Or of such degree as that Influences the expression of confidential relations, constitutes fraud (Art. 1339)
victim has no other choice the will, inhibits the true
but to submit intent and making of manifest The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
something apparently as that themselves fraudulent (Art. 1340).
of the person who consents A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has
Such force is the determining intimidation caused the relied on the formers special knowledge (Art. 1341).
cause in giving consent consent to be given
Threatened act unjust or Misrepresentation by a 3rd person does not vitiate consent, unless such misrepresentation has created
unlawful substantial mistake and the same is mutual (Art. 1342).
Threat must be real or serious
producing reasonable and Misrepresentation made in good faith is not fraudulent but may constitute error (Art. 1343).
well-grounded fear
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).
d) undue influence
Incidental fraud only obliges the person employing it to pay damages (Art. 1344, 2nd par).
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 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).
alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress (Art. 1337).
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 3 rd party
e) Fraud
commits fraud, damages is the only remedy unless the fraud committed by the 3rd person has created a
mutual substantial mistake (Art. 1342).

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Rules Regarding Voidable Contracts:
b. Loss due to a Fortuitous Event or due to a 3rd party
a) Voidable contracts are effective unless set aside. Defendant has to pay the plaintiff value of the thing loss fruits if any

b) The validity of a voidable contract can only be assailed in a suit for that purpose (i.e. c. Loss due to Fault or Fraud of Plaintiff
complaint or counterclaim). The plaintiff loses the right to annul (Art. 1401).
There is fault on the part of the plaintiff once the plaintiff regains capacity.
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 d. Loss without Fault on the Plaintiffs Part
those with whom they 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 Commentators have a difference of opinion -
contract (Art. 1397). the right to annul is extinguished unless the plaintiff offers to pay the value of the object at the
time of loss
The action for annulment shall be brought within 4 years. This period shall begin: the plaintiff is entitled to annul without having to pay anything.

intimidation from the time the defect of the consent ceases; As long as 1 of the contracting parties does not restore what in virtue of the decree of annulment he is
violence from the time the defect of the consent ceases; bound to return, the other cannot be compelled to comply with what is incumbent upon him (Art. 1402).
undue influence from the time the defect of the consent ceases;
mistake from the time of the discovery of the mistake The action for annulment will not prosper in the following:
fraud from the time of the discovery of the fraud
a) if the contract has been confirmed (Art. 1392)
Requisites of Consent vitiated by
1. it shd be intelligent, with exact notion by error or b) if the action to annul has prescribed (Art. 1391)
of the matter to whc it refers mistake
2. it shd be free violence, c) when the thing which is the object of the contract is lost through the fault or fraud of the person
intimidation, or who has a right to institute the proceedings (Art. 1401, 1 st par)
undue influence
3. it shd be spontaneous by fraud d) estoppel

The 4 year prescription period to annul contracts entered into by minors or other incapacitated Voidable contracts can be confirmed.
persons shall begin from the time the guardianship ceases (Art. 1391, 4th par).
Confirmation extinguishes the action to annul a voidable contract (Art. 1392).
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 Confirmation cleanses the contract from all its defects from the moment it was constituted
cases provided by law (Art. 1398, 1st par). (Art. 1396).

In obligations to render service, the value thereof shall be the basis for damages (Art. 1398, 2nd par). Requisites of Confirmation:

When the defect of the contract consists in the incapacity of 1 of the parties, the incapacitated person is i. that the contract is a voidable or annullable contract
not obliged to make any restitution except insofar as he has been benefited by the thing or price received
by him (Art. 1399); ii. that the ratification is made with knowledge of the cause for nullity

Q: What if the Thing to Be Returned is Lost? iii. that at the time the ratification is made, the cause of nullity has already ceased to exist

a. Loss due to Fault of Defendant to pay the plaintiff value of the thing loss, fruits if any, interest
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Confirmation may be effected expressly or tacitly. It is understood that there is tacit confirmation if, not registered until after decision in the quasi-delict case
with knowledge of the reason which renders the contract voidable and such reason having ceased, the parents continued to exercise acts of ownership over land
person who has a right to invoke it should execute an act which necessarily implies an intention to waive relationship between vendor & vendee.
his right (Art. 1393).
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.
Voidable contracts can be confirmed only by the party whose consent was vitiated. 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.
Confirmation does not require the conformity of the contracting party who has no right to bring A: Y cannot choose to rescind bec. alternative remedy of foreclosure is available.
the action for annulment (Art. 1395).
The following contracts are unenforceable unless they are ratified (Art. 1403):
Confirmation may be effected by the guardian of the incapacitated person (Art. 1394).
(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
(3) Unenforceable Contracts
No one may contract in the name of another without being authorized by the latter, or unless he
An unenforceable contract is a contract which cannot be enforced by a proper action in court, unless has by law or right to represent him (Art. 1317, 1 st par).
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 A contract entered into in the name of another by one who has no authority or legal
legal capacity. 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
[BAVIERA] by the other contracting party. (Art. 1317, 2 nd par).
Q: Authority to sell oral but sale is in writing
A: Void. 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.
Q: Authority to sell in writing but sale of land is not
A: Unenforceable under Statute of Frauds.
The agent, who has entered into the contract in the name of the purported principal, but without
Q: Why should loan be in writing for antichresis to be in writing? authority from him, is liable to 3rd persons upon the contract.
A: Antichresis takes a long time. Loan is valid if not in writing but antichresis not
(b) those that do not comply with the Statute of Frauds
Donation propter nuptias: rules on ordinary donations would apply.
i. an agreement that by its terms is not to be performed within a year from the making
Q: Buyer & seller orally agreed for Seller to sell land. Buyer sold palay & w/ the money fr. this sale thereof
Buyer gave to Seller. Seller refused.
A: Seller can refuse. He did not receive any benefit yet.
In Babao v. Perez, the SC interpreted the phrase not be to performed within a year to
Q: X saw an advertisement for the sale of a car for P200T. X phoned Y & the latter noted the order. mean that the obligation cannot be finished within 1 year. Prof. Balane does not agree with
Y failed to deliver the car. Can X enforce the obligation? this interpretation. According to Prof. Balane the phrase not to be performed within a
A: Sale of movable > P500 should be in writing under the Statute of Frauds or else year should mean that the obligation cannot begin within a year. For practical reasons, the
unenforceable. 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
If person promises to lend money to another, then refuses to lend, no cause of action. If a bank does it, contract is not within the Statute of Frauds because of partial performance.
enforceable.
ii. a special promise to answer for the debt, default or miscarriage of another
Dilag vs. IAC Badges of fraud:
whether sale to children was paid

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The test as to whether a promise is within the statute has been said to lie in the answer to v. an agreement of lease for a period of more than 1 year, or the sale of real property or of an
the question whether the promise is an original or collateral one. If the promise is an interest therein
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. As long there is a sale of real property, the sale must be in writing. There is no minimum.

If the promise is collateral to the agreement of another and the promisor becomes merely a An oral contract for a supplemental lease of real property for longer period than 1 year is within
surety or guarantor, the promise must be in writing. the Statute of Frauds.
An agreement to enter into an agreement is also within the Statute of Frauds.
iii. an agreement made in consideration of marriage, other than a mutual promise to
marry vi. a representation as to the credit of a 3 rd person

A mutual promise to marry does not fall within the Statute of Frauds since they are not A wants to borrow money from C. C does not know A. C goes to B to ask about As credit
made in writing. standing. B says that As credit standing is satisfactory even though B knows that A is insolvent.
Agreements made in consideration of marriage other than the mutual promise to marry are Under Art. 1403, C can go after B if Bs representation was in writing.
within the Statute of Frauds.
Prof. Balane thinks that this does not belong in the Statute of Frauds. There is no contract
In Cabague v. Auxilio, the father of the groom promised to improve his daughter-in-laws fathers house between C and B. B did not bind himself to pay C. What we have here is an unenforceable tort.
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 According to Prof. Balane, a representation as to the credit of a 3rd person should be replaced
which as to him is not mutual promise to marry. Prof. Balane disagrees with the SC. According to by Art. 1443. Art. 1443 provides that no express trusts concerning an immovable or any interest
Prof. Balane, the father of the groom should be able to sue since there was partial performance. therein may be proved by parol evidence.

iv. an agreement for the sale of goods, chattels or things in action, at a price not less than P500, When the express trust concerns an immovable or an interest therein, a writing is necessary to
unless the buyer accepts and receives part of such goods and chattels, or the evidence, or some of prove it. This writing is not required for the validity of the trust. It is required only for purposes
them, of such things in action, or pay at the time some part of the purchase money; but when a sale of proof. When the property subject to the express trust, however is not real estate or an interest
is made by auction and entry is made by the auctioneer in his sales book, at the time of sale, of the therein, then it may be proved by any competent evidence, including parol evidence.
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 (c) those where both parties are incapable of giving consent to a contract

The requirement of a written instrument or a memorandum for sales of personal property for a price Neither party or his representative can enforce the contract unless it has been previously ratified.
not less than P500, covers both tangible and intangible personal property. It also covers the
assignment of choses in action. 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
Where a contract for the sale of goods at a price not less than P500 is oral, and there is neither partial the party who has ratified.
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 Or, instead, of enforcing the contract, the party who has not ratified it may ask for annulment on
damages for breach of the agreement. the ground of his incapacity.

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 2 Principles in the Statute of Frauds
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, the statute applies. But if the contract is separable, (a) Parol evidence is not admissible. However, there are 2 ways of bringing it out.
then each article is taken separately.
i. failure to object by the opposing lawyer when parol evidence is used (Art. 1405)

28
If there is no objection, then parol evidence is admitted. 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.
ii. acceptance of benefits (Art. 1405)
oral evidence to prove a consummated sale of real property - allowed by the Statute of Frauds
if there has been performance on 1 side and the other side accepts, then the Statute of representation as to credit of a third person - limited to those w/c operate to induce the person to whom
Frauds is not applicable. they are made to enter into contractual relations w/ the 3rd person, but NOT to those representations tending
to induce action for the benefit of the person making them.
(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 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
TOLENTINO: statute is satisfied.
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 Defense of the Statute of Frauds personal to the party to the agreement like minority, fraud, mistake,
contracts & transactions to be evidenced by a writing signed by the party to be charged. & similar defenses w/c may be asserted or waived by the party affected cannot be set up by strangers to the
agreement
Statute Of Frauds
simply provides for the manner in w/c contracts under it shall be proved
4. Void Contracts
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/
A void contract is an absolute nullity and produces no effect, as if it had never been executed or
not applicable to contracts either totally or partially performed but only to executory entered into.
contracts
The following contracts are inexistent and void from the beginning (Art. 1409):
neither applicable to actions w/c are neither for specific performance of the contract nor
for the violation thereof (a) those whose cause, object or purpose is contrary to law, morals. Good customs, public order
partial performance must be duly proved or public policy
contract under SOF cannot be proved w/o the writing or a memorandum thereof (b) those which are absolutely simulated or fictitious

note or memorandum (c) those whose cause or object did not exist at the time of the transaction
evidence of the agreement used to show the intention of the parties
Balane: Art. 1409 (3) should not be did not exist. Rather, the correct phrase should be could
may consist of any kind of writing, fr. a solemn deed to a mere hasty note or memorandum in
not come into existence because there can be a contract over a future thing.
books & papers, may be in ink or in pencil, typed or printed
meets requirements of Statute of Frauds if it contains: (d) those whose object is outside the commerce of men
names of the parties
(e) those which contemplate an impossible service
terms & conditions of the agreement
(f) those where the intention of the parties relative to the principal object of the contract cannot be
a description of the subject matter sufficient to render it capable of identification
ascertained
date & place of the making of the agreement
(g) those expressly prohibited or declared void by law
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 Characteristics of Void Contracts:
their aggregate have a total price exceeding P500, the operation of the SOF depends upon whether there is a
29
1) the contract produces no effect whatsoever either against or in favor of anyone 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.
2) a judgment of nullity would be merely declaratory
If the shabu dealer pays the shabu supplier but fails to deliver the shabu, the shabu deliver
Even when the contract is void or inexistent, an action is necessary to declare its inexistence, cannot recover what he has paid.
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 2. If only 1 party is guilty
and to decree the restitution of what has been given under it. No action for specific performance can prosper on either side.
The judgment of nullity will retroact to the very day when the contract was entered into.
An action for restitution will be allowed only if the innocent party demands.
3) it cannot be confirmed or ratified
B. If it does not constitute a criminal offense
4) if it has been performed, the restoration of what has been given is in order
1. If both parties are in pari delicto
5) the right to set the contracts nullity cannot be waived No action for specific performance can prosper on either side (Art. 1411, 1 st par).

6) the action for nullity is imprescriptible (Art. 1410) No action for restitution can prosper on either side (Art. 1411, 1 st par).

As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited 2. If only 1 party is guilty
by law or is against public policy. No action for specific performance can prosper on either side.

7) any person can invoke the contracts nullity if its juridical effects are felt as to him An action for restitution will be allowed only if the innocent party demands.

The defense of illegality of contracts is not available to 3rd persons whose interests are not Exceptions to Pari Delicto:
directly affected (Art. 1421).
Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with
Pari Delicto (in equal guilt) interest therefrom from the date of payment (Art. 1413)

A. If it constitutes a criminal offense When money is paid or property delivered for an illegal purpose, the contract may be repudiated by 1 of
1. If both parties are in pari delicto the parties before the purpose has been accomplished, or before any damage has been caused to a 3 rd
person. In such case, the courts may, if the public interest will thus be subserved, allow the party
No action for specific performance can prosper on either side (Art. 1411, 1 st par). repudiating the contract to recover the money or property (Art. 1414).

No action for restitution can prosper on either side (Art. 1411, 1 st par).
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 When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a
incapacitated person (Art. 1415). 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.
When the agreement is not illegal per se but is merely prohibited, and the prohibition by law is 1418).
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 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
When the price of any article or commodity is determined by statute, or by authority of law, any deficiency (Art. 1419).
person paying any amount in excess of the maximum price allowed may recover such excess
(Art. 1417).

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