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CONTRACTS a.

Unilateral – only one is obligated


Art. 1305. A contract is a meeting of minds between two persons (commodatum) BUT the giving of consent is
whereby one binds himself, with respect to the other, to give mutual or bilateral
something or to render some service. (to give, to do, or not to b. Bilateral – synalagmatic, both are required
do) reciprocally (sale)
Elements: 5. According to their name or designation
1. Essential elements C-onsent S-ubject matter (Object) a. Nominate – has particular name (sale,
and C-ause or consideration deposit)
a. Form and Delivery may also be essential in b. Innominate – not given a special name
some contracts i. Do ut des – I give that you may give
2. Natural elements – presumed to exist (now BARTER)
a. Warranty of eviction and against hidden ii. Do ut facias – I give that you may do
defects in the contract of sale iii. Facio ut des – I do that you may give
i. A bought a laptop from B. Even iv. Facio ut facias – I do that you may do
without stipulation that if the laptop 6. According to the risk of fulfillment
is defective B assumes liability. A is a. Commutative – real fulfillment, equivalent
protected with the presumption that values are given
it is free from any defects. b. Aleatory – fulfillment is dependent upon
ii. A bought land from B. there is a chance, values vary because of risk or chance
presumption that B has the capacity (insurance contract)
to transfer the ownership of the land 7. According to the time of performance of fulfillment
and A is protected from third a. Executed – obligations are complied with at
persons’ claim and eviction from this time
such land. b. Executory – prestations are to be complied
3. Accidental elements – agreed upon by the parties. with at some future time.
STIPULATED. i. Sale perfected but has not yet been
a. To pay credit, interest, to pay in a particular delivered and price not yet been
place etc. given
b. NOTE: agreement of parties would always ii. Sale to be performed 1 year from
PREVAIL as long as it is not contrary to law, now (Statute of Fraud)
morals… etc Art. 1306 8. According to subject matter
Classification of Contracts a. Things (sale)
1. According to perfection of formation b. Rights or credits (provided these are
a. Consensual – consent (sale) transmissible: usufruct, assignment of credit)
b. Real – delivery (pledge, commodatum) c. Services (agency, contract of carriage /
c. Formal or solemn – special formalities common carriage)
(donation inter vivos of real property – must 9. According to obligations imposed and regarded by law
be in public instrument) a. Ordinary – sale
2. According to Cause or Equivalence of the value of b. Institutional – marriage
prestations 10. According to evidence required for its proof
a. Onerous – equivalent valuable consideration a. Oral or parol
(may kapalit, sale) b. Written proof (Statute of Frauds: note or
b. Gratuitous or lucrative – a feeling that one has memorandum)
been generous or liberal (libre, donation) 11. According to number of persons actually and
c. Remunerative – given for a benefit or service physically entering into the contracts
that had been rendered PREVIOUSLY (utang a. Ordinary – two persons are represented by
na loob, chos! Haha) different parties
3. According to importance or dependence of one upon b. AUTO CONTRACTS – one person represents
another two opposite parties, BUT in DIFFERENT
a. Principal – can stand alone by itself (sale, CAPACITIES
lease) i. An agent representing his principal
b. Accessory – dependent upon another contract sells a specific car to himself, as
(mortgage will not exist without a prior loan) buyer
c. Preparatory – as a means to a future 12. According to the number of persons who participated
transaction and not as an end to itself. in the drafting of the contract
i. Agency – you enter into an agency a. Ordinary
contract to have someone represent b. Contract of adhesion – one prepared the
you in your transactions contract (insurance) if the buyer or offeree
ii. Partnership – you enter into a refuses and adds or change parts of the
partnership for profit or gain from contract (counter offer), they enter into a new
operations contract
4. According to the parties obligated 13. According to the nature of the contract
a. Personal (insurance)
b. Impersonal
i. Note: the person itself is necessary -Sale where a third person fixes the price and the delivery of the
for the contract, not transmissible object, decision will be binding only after the price is made
known to both parties.
STAGES OF A CONTRACT -BUT if there is evident inequitable determination, it is not
1. Preparation (Conception or Generacion) – they have binding. Such price shall be ascertained by the court.
not yet arrived to any definite agreement (offers,
bargaining) RELATIVITY OF CONTRACTS
2. Perfection (or birth) – came to a definite agreement 1. General Rule: Effective only between the parties, their
(COC are present) assigns, and their heirs.
3. Consummation (death or termination) – fully 2. Exceptions:
performed or executed a. Not transmissible by nature, by stipulation or
by law
BASIC PRINCIPLES OR CHARACTERSITICS OF A CONTRACT i. Partnership – death of a partner
1. Freedom (or liberty) to STIPULATE (provided not ends the partnership. Not
contrary to law, morals, good customs, public order, or substituted by the heirs as
public policy) Art. 1306 partnership are personal contracts
2. Obligatory Force and Compliance In Good Faith (Arts. ii. Agency – same as above
1159 and 1315) b. Stipulation pour autrui (in favor of a third
3. Perfection by Mere Consent (Consensuality) party)
4. Mutually Bound (both parties) i. Codal provision. Art. 1311 par 2
5. Relativity (generally, binding only between the parties, ii. Requisites:
their assigns, and heirs) Art. 1311 1. Stipulation in favor of a 3rd person
2. Clearly and deliberately conferred a
LIMITATIONS ON THE NATURE OF THE STIPULATIONS (on favor upon a third person
FREEDOM) 3. Not a mere incidental benefit or
1. Law – sale/donation between husband and wife; labor interest (examine the intention of
contracts as per overtime pay; mortgage where the parties as disclosed by their
mortgagee will automatically own the property if contract)
unpaid at maturity; deprivation of jurisdiction 4. Stipulation must be part of the
2. Morals – debtor agreed to work as a servant for her contract
credit WITHOUT PAY; reimbursement of scholarship 5. Third person communicated his
given in case of transfer; payment of P5 for each day of acceptance before revocation by the
delay after maturity; promise of marriage based on original parties (may be in form of a
carnal consideration; excessive or unreasonable demand)
attorney’s fees even if stipulated; separated couple 6. No relation of agency between
waives their right to prosecute each other for future either of the parties and the third
acts of infidelity person
3. Good Customs –varies according to the culture; c. Third person induces another to violate his
contrary to public policy if it “has a tendency to injure contract (Art. 1314, Civil Code)
the public”. E.g. denying access to courts; encourage d. Where a third person may be adversely
fraud; exempting a carrier from liability for gross affected where they did not participate
negligence; warrants of attorney to confess judgement; (quasi-contracts: negotiorum gestio, creation
undue or unreasonable restraint of trade; surrendering of a status: marriage, real right – registration
the right to vote for a consideration of sale of real properties creates right of the
owner AGAINST third persons
INNOMINATE CONTRACTS e. Accion directa – law authorizes the creditor to
Governing rules for innominate contracts sue on a contract entered into by his debtor
1. Stipulations 3. Reason for the law: RES INTER ALIOS ACTA ALIIS NEQUE
2. Obligations and contracts NOCET PRODEST
3. Rules on the most ANALOGOUS nominate contracts The act, declaration, or omission of another,
4. Customs of the place cannot affect another, except as otherwise provided by
NOTE: the name given to the contract by the parties should not law or agreement.
be controlling. A contract is what the parties INTENDED it to be,
not what they call it. Substance over form. CONSENSUALITY OF CONTRACTS
- Perfection by mere consent
- From the moment there is agreement (consent) on the
subject matter, and the cause or consideration.
MUTUALITY OF CONTRACTS Consequences of Perfection
1. A party cannot revoke or renounce a contract without 1. Bound to what is expressly stipulated and
the consent of the other compliance thereof in good faith
2. Both parties are bound – based on the essential a. Reformation – if intention is not
equality of the parties expressed
2. Bound to all consequences which, according to i. Note: place where offer is made is presumed to have
their nature, may be in keeping with good faith, been the place the contract is entered into.
usage and law. (Philippines)
Real contracts – not perfected by mere consent ii. Forms of Aceptance
1. Requisites – Consent, subject matter, cause or 1. Express
consideration, and DELIVERY 2. Implied – conduct, acceptance of unslocited services
2. Examples: Deposit, Pledge, Commodatum (Loan of a 3. Presumed by law – failure to repudiate hereditary
car) rights within the period fixed by law or Silence
3. “to make” a deposit, “to make” a pledge or “to make” a (estoppel)
commodatum is a consensual contract Offerer may fix:
1. The time
Requisite for a person to contract in the name of another (in re: 2. The place
Unenforceable contracts) 3. The manner of acceptance
1. Must be duly authorized (express or implied)
2. By law a right to represent him (guardian or Acceptance of an Offer Made Through an Agent
administrator) 1. Agent – an extension of the personality of the principal.
3. Subsequently ratified (express, implied, by word or by a. On Jan. 1 Vin authorized Kenneth to sell his
deed) laptop. Kenneth then went to Anne and made
a. Implied – president of a company entered in an offer to sell the laptop. On January 2, Anne
an ultra vires contract. BOD collected the accepted the offer and communicated it to
profits and assumed the losses incurred in the Kenneth. Kenneth then went to Vin on Jan. 5
contract. and gave the payment. When did the
b. Effect – cleanses the contracts from all its acceptance become binding?
defects from the beginning (retroactive) i. Ans. January 2. As an agent of Vin,
c. Revocation removes the option of ratification Kenneth acted within his capacity to
ESSENTIAL ELEMENTS OF A CONTRACT make an offer and accept the same.
1. CONSENT –presupposes legal capacity It is as if Vin accepted the offer of
- meeting of the minds between the parties Anne.
- meeting the offer and the acceptance b. Same facts, but Kenneth is merely a
Effect of Non-consent messenger without a special power of
a. Absolutely no consent – no contract, non- attorney from Vin.
existent, void (a joke is not an implied consent i. Ans. January 5, acceptance was only
= no consent) made known then.
b. Vitiated consent – error, fraud, undue c. On Jan. 1 Vin authorized Kenneth to sell his
influence, mistake = voidable laptop. Kenneth then went to Anne and made
Requisites of Consent an offer to sell the laptop, and right then and
1. Two or more parties (one person may represent two or there, Anne accepted the offer. On Jan. 2, Vin
more unless contradictory or prejudicial) went to see Klarisse for their date, Vin offered
2. Capable or capacitated (if one is incapacitated = to give his laptop and Klarisse accepted the
voidable; if both = unenforceable) same. Kenneth then went to Vin on Jan. 5,
3. No vitiation of consent (otherwise, voidable) gave the payment and demanded that Anne
4. No conflict between what was expressly declared and should be the rightful owner of the laptop. Is
what was really intended (otherwise, reformation; if Kenneth correct? (sometimes, hahahahaha)
absolutely simulated or fictitious = void) i. Ans. Yes. Kenneth as agent acted
5. Intent must be declared properly (as to formalities that within his authority. There was a
needs to be complied with) valid sale. (assuming that possession
Requisites for the Meeting of the Minds hasn’t been transferred to anyone. If
a. An offer that must be CERTAIN possession is already with Klarisse,
b. Acceptance that must be UNQUALIFIED and ABSOLUTE she will be the rightful owner pero
(otherwise, counter-offer (different contract)) ibang topic na yun)
i. Acceptance will be binding only upon knowledge of the
offerer (may be actual or constructive) Offer becomes ineffective (Art. 1323)
1. Application: On January 1, Sandy (Philippines) made an 1. Upon death,
offer of sale of cake to Hazel who is in America. January 2. Civil interdiction,
12, Hazel accepted the offer and mailed a letter to 3. Insanity,
Sandy stating her intentions. January 15, Hazel changed 4. Insolvency of either party before acceptance is
her mind and sent another letter rejecting Sandy’s conveyed.
offer. Was there meeting of the minds? Other instances:
i. Yes, if Sandy received the acceptance letter first. 1. Rejected (express or implied)
b. No, if Sandy received the rejection letter first. 2. Accepted with qualification or condition (counter-offer)
c. If both arrived at the same time, whichever intention 3. Subject matter has become illegal or impossible
came to Sandy’s knowledge. (bottomline: whichever 4. Period of time given by the offerer has already lapsed
came to the offerer’s knowledge) 5. Offer is revoked in due time (before learning of the
acceptance of the offeree)
Application: a. Note: valid if they are capable of
On Jan. 1 Unde Cided made an offer to Opti On to sell understanding
his car. Opti asked Unde to give him 1 week to decide. On Jan. 5 4. Persons Specially Disqualified
Unde told Opti that he no longer wants to sell the car for a. Between husband and wife
sentimental reasons. Was there a valid revocation? b. Insolvents
1. Yes. No acceptance yet was communicated by Opti c. Because of fiduciary relationships (guardian –
Same facts with modifications: On Jan. 4 Opti left a note on who is not allowed to purchase the property
Unde’s door accepting the offer. The note was lost without of his ward, judges – with reference to
Unde having the chance to read it. Jan. 5 Unde revoked his properties under litigation)
offer. Was there a valid revocation?
1. Yes. Unde did not learn of Opti’s acceptance. 5. Incompetents Under the Rules of Court
On Jan. 1 Unde Cided made an offer to Opti On to sell his a. Those under civil interdiction
car. Opti asked Unde to give him 1 week to decide and gave b. Hospitalized lepers
100,000 in consideration for the option. On Jan. 5 Unde told Opti c. Prodigals
that he no longer wants to sell the car of sentimental reasons. d. Deaf and dumb who are unable to read and
Was there a valid revocation? write
1. No. the option or the 1 week from when Opti is to e. Unsound mind even though they have lucid
decide is founded upon a consideration, a contract intervals
separate and distinct from the contract of sale of the f. Reason of age, disease, weak mind, and other
car. similar causes
a. Option – it is a contract granting a person the
privilege to buy or not to buy a certain object CAUSES OF VITIATED CONSENT (vices of consent)
at any time within the agreed period at a fixed 1. Mistake (or error) –affects the intellect (the faculty in
price. the mind of man to discern the truth, thus affects
cognition)
Business advertisements of things for sale: 2. Fraud – affects the intellect
1. Definite offer – if it appears to be a definite offer 3. Violence – affects the will (to discern which is good,
wherein it contains all specific particulars needed in a thus affects volition)
contract 4. Intimidation - will
2. Mere invitation to make an offer – if important details 5. Undue influence - will
are left out
MISTAKE – false belief about something
Advertisements for bidders are simply invitations to make 1. Must be substantial – object, principal conditions such
proposals, and the advertiser is not bound to accept the highest as error in quality or in quantity, and mistake in identity
or lowest bidder, unless the contrary appear (Art. 1326) or qualifications (only if such was the principal cause of
the contract)
Persons incapacitated to Consent 2. Must be excusable – not caused by negligence
1. Unemancipated minors 3. Must be mistake of fact and not of law (Ignorance of
a. Not emancipated by marriage, attainment of the law is not an excuse)
the age of majority, or by parental or judicial
authority Presumption: a person who enters a contract acts in due care
b. In general, contracts entered into by them are and signs with full knowledge of all the documents.
voidable unless: When does the presumption not applicable:
i. At the age of majority, they ratify the 1. One of the parties are unable to read (including blind
same persons)
ii. Entered into through a guardian or 2. Contract is in a language not understood by one of the
with court approval parties
iii. Contract of life insurance in favor of
their family NOTE: Knowledge of Doubt or Risk does not vitiate consent –
iv. In the form of a savings account they are willing to take the risk, contracts aleatory in nature.
v. Contracts for necessities: food
vi. If minor misrepresented his age and Mutual Error to Vitiate Consent
the other party was misled, the Requisites:
minor is in estoppel 1. There must be mutual error
c. If both parties are minor = unenforceable 2. The error must refer to the LEGAL EFFECT
2. Insane or demented persons (unless they acted during 3. The real purpose is FRUSTRATED
lucid interval), drunks and those hypnotized
Declaration of insanity by the court is not There was meeting of minds but does not show the real
required as long as it is substantially shown intention = reformation
If with declaration with by the court that a Both agreed on a sale, but both thought that it has the same
person is insane, this does not mean that he is effect as a mortgage, no meeting of minds = annulment
incapacitated in all contracts entered into by VIOLENCE – physical coercion; external
him. He may be in the state of a lucid interval. Requisites:
3. deaf-mutes who do not know how to write (and read) 1. Employment of serious or irresistible force
2. The reason why the contract was entered into is well in possession of his mental faculties, will the court grant
INTIMIDATION – moral coercion; internal relief by annulling the contract?
Requisites: Ans.: No, it is the man’s own fault. All men are presumed to be
1. Reasonable and well-grounded fear sane and normal.
a. Depends on the circumstance
b. Not well grounded if threat is to initiate  Failure to disclose facts (Concealment) constitutes FRAUD,
expropriation proceedings when there is a DUTY to reveal them.
2. Imminent and grave evil  Usual exaggerations in trade, when the other party had
a. Depends upon circumstance: sex, age, opportunity to know the facts, are not in themselves
condition fraudulent.
3. Upon his person, property, or upon the person or o “caveat emptor” – let the buyer beware
property of his spouse, descendants, or ascendants o Usual exaggerations (dealer’s talk) – tolerated fraud,
a. Threat to person includes: threat to honor, what does not appear on the face of the written
chastity, and dignity contract
b. Fiancé – the provision should be given a  A mere expression of an opinion does not signify fraud,
liberal interpretation unless made by an expert and the other party has relied on
4. Must have been the reason why the contract has been the former’s special knowledge
entered into  Misrepresentation made by a third person does not vitiate
a. If the person concerned would have entered consent, unless such misrepresentation has created
into the contract even without the substantial mistake and the same is mutual.
intimidation, consent is valid. o If so, it would be voidable. Contract may be
5. Threat must be unjust act, an actionable wrong annulled, on the ground of error or mistake.
a. Threat to prosecute is not intimidation  Misrepresentation made in good faith is not fraudulent but
b. The right to enforce one’s claim through may constitute error.
competent authority must not by itself
constitute an unlawful act. Requisites of Fraud to vitiate Consent
Note: even if caused by third person, the contract may be 1. Fraud must be serious
annulled. Consent is still vitiated. a. Incidental Fraud does not vitiate consent
which does not cause for annulment
UNDUE INFLUENCE –destroys reasonable freedom of choice 2. Parties must not be in pari delicto (mutual guilt),
Requisites: otherwise neither party may ask for annulment. Valid
1. Improper advantage contract.
2. Power over the will of another Simulation of a Contract – process of intentionally deceiving
3. Deprivation of the latter’s will of a reasonable freedom others by producing the appearance of a contract that really
of choice does not exist (absolute simulation) or which is different from
(must be the kind that overpowers the mind as to destroy the true agreement (relative simulation)
the party’s free agency) Requisites:
Examples of Circumstances: 1. Outward declaration of will different from the will of
1. Confidential, family, spiritual, and other relations the parties
between the parties 2. False appearance must have been intended by mutual
2. Mental weakness agreement
3. Ignorance 3. Purpose is to deceive third persons
4. Financial distress Kinds of Simulated Contracts
Note: even if caused by third person, the contract may be 1. Absolutely simulated
annulled. Consent is still vitiated. a. The parties do not intend to be bound
b. Void
FRAUD – through insidious words or machinations of one of the 2. Relatively simulated (disimulados) disguised contracts
contracting parties, the other is induced to enter into a contract a. Parties conceal their true agreement
which, without them, he would not have agreed to. b. Parties are bound to the real or true
Requisites: agreement except –
1. Fraud must be material and serious, that is, it really i. Contract should prejudice 3rd person
induced the consent. ii. If contrary to LMGPP
2. Must have been employed by only one of the Absolutely simulated is different from illegal contract
contracting parties. If both = valid contract
3. Deliberate intent to deceive or to induce; OBJECT – a thing or service
misrepresentation in good faith is not fraud Requisites:
4. Other party must have relied on the untrue statement, 1. Within commerce of man
and must himself not be guilty of negligence in 2. Transmissible
ascertaining the truth. 3. Must not be contrary to LMGPP
a. Dolo causante (causal fraud) –voidable 4. Must not be impossible
b. Dolo incidente (incidental fraud) – valid 5. Determinate or determinable without the need of a
Entrance into a Ridiculous Contract – Suppose a man enters into new contract or agreement
a ridiculous contract because of a wrong judgement although he WITHIN THE COMMERCE OF MAN
Examples of those outside the commerce of man:
1. Sidewalks b. Mistake
2. Bridges c. Or undue influence
3. Taxes 3. Lesion may be EVIDENCE of the presence of fraud,
mistake, or undue influence
TRANSMISSIBLE
Intransmissible: FORM OF CONTRACTS
1. Political rights (right to vote) Form may be important:
2. Strictly personal rights (parental authority) 1. For VALIDITY (formal or solemn contracts)
2. For ENFORCEABILITY (Statute of Frauds)
NOT CONTRARY TO LMGPP 3. For CONVENIENCE (contracts enumerated in Art. 1385)
1. Future things may be object of a contract Formal Contracts:
a. Express provision of law states that future 1. Donation of real property – public instrument
property may not be donated 2. Donation of personal property – written document or
2. Future inheritance (source is still alive) cannot be the contract if it exceeds P500
subject of a contract except: 3. Stipulation to pay interest on loans – stipulation must
a. Marriage settlements be in writing
b. Partitions of property inter vivos by the 4. Transfer of large cattle – transfer of the certificate of
deceased registration
3. Human blood, like other parts of the body cannot be 5. Sale of land through an agent – authority must be in
considered as object of a contract writing
IMPOSSIBILTY 6. Antichresis – principal loan and interest, if any, must be
1. Because of the nature of transaction or by law in writing
2. Absolute (objectively impossible, no one can)
3. Relative (subjectively) One party has the RIGHT to COMPEL the other to execute the
 NOTE: must not be confused with DIFFICULTY necessary form when:
1. Perfected (valid)
DETERMINATE OR DETERMINABLE 2. Enforceable under the Statute of Frauds
-without the need of a new contract or agreement >needed only for convenience and not for validity or
-contract is VOID for lack of an essential requisite –object enforceability

CAUSE OF CONTRACTS REFORMATION OF INSTRUMENTS


-essential and impelling reason why a party assumes an Reformation – remedy in equity by means of which a written
obligation instrument is made or construed so as to express or conform to
Requisites: the real intention of the parties when some error or mistake is
1. It must be present (at the time the contract was committed
entered into)
2. It must be true Remedy: Reformation vs. Annulment
3. It must be lawful (not contrary to LMGPP) R: there is meeting of minds but there is mistake, fraud,
Classification of Contracts as to Cause: inequitable conduct or accident in the contracts as written
1. Onerous – the cause is the prestation or promise of a A: no meeting of the minds, because of vitiated consent
thing or service by the other R: does not invalidate a contract
2. Remuneratory – the past service or benefit which by A: invalidates a contract
itself is recoverable debt
3. Gratuitous – pure beneficence – cause is the mere Requisites for the Action of Reformation
liability of the benefactor 1. There must be meeting of the minds
 Cause in Accessory Contracts 2. The true intention is not expressed
Mortgage and Pledge – cause is the contract of loan 3. There must be clear and convincing proof
 Cause in Accessory Contracts of Personal Guaranty 4. Brought within the proper prescriptive period
(Guaranty and Suretyship) 5. Document must not refer to simple unconditional
Cause is pure liberality donation inter vivos, or to a contract where the real
 Moral Obligation may be a valid Cause of a Civil Obligation agreement is void
 Shocking cause or consideration – void ab initio When Reformation may be asked:
Motive is different from Cause 1. Mutual mistake
Motive – may vary from person to person who enters the same 2. Unilateral – Art. 1362 – mistake is unilateral but the
contract; may be unknown to the other; illegal motive does not other party acted fraudulently or inequitably
render the Contract void Art. 1363 – unilateral mistake but the other party is
Cause – is always the same in contracts alike; always known; guilty of concealment; only the party in good faith can
illegal cause renders a contract void ask for reformation
Note: the presence of motive cannot cure the absence of cause 3. Mistake must be of fact – generally, an error of law is
 LESION – inadequacy of cause, like an insufficient price for a not enough
thing sold 4. Does not convey the true intent because of:
1. Gen. rule: does not invalidate a contract a. Ignorance
2. Exceptions: when, together with lesion, there has been: b. Lack of skill
a. Fraud
c. Bad faith of 3. Requires mutual restitution
i. The drafter of the instrument Two Kinds:
ii. Or the clerk 1. Art. 1380 (as now being discussed)
iii. Or the typist a. Based on lesion
5. True intent is frustrated b. Action by parties or third persons
a. How to judge the parties’ intent c. Court cannot grant a period or term
i. Contemporaneous and subsequent d. Non-performance of the party is immaterial
acts 2. Art. 1191. “resolution”
When Reformation is Not Allowed: a. Based on non-performance or non-fulfillment
1. Simple Donation – pure liberality b. Instated only by the injured party
2. Wills – strictly personal act which is free c. In some cases, courts may grant a term
3. Void Agreements – such procedure would be useless d. Non-performance is important
4. When one of the parties has brought an action to  Rescissible contract is not void. It is valid until
enforce the instrument he cannot subsequently ask for rescinded.
its reformation (by law)  Fictitious contracts cannot be rescinded
a. Basis is estoppel, waiver or ratification  Effect: abrogates the contract from inception and
Who may ask for Reformation restores the parties to their original position as if no
1. If mistake is mutual, either party or his successors in contract has been made
interest
2. Other cases: Contracts that are rescissble:
a. Injured party As enumerated
b. His heirs and assigns 1. In behalf or Wards
a. Lesion (damage or injury of more than ¼)
INTERPRETATION OF CONTRACTS  If act of ownership: court approval is required,
Art. 1370. If the terms of a contract are clear and leave no doubt otherwise it would be unenforceable
upon the intention of the contracting parties, the literal meaning  If act of administration: with court approval, valid
of its stipulations shall control regardless of lesion; without court approval,
If the words appear to be contrary to the evident rescissible if lesion of more than ¼
intention of the parties, the latter shall prevail over the former. 2. In representation of absentees
a. Same as in the first case
How to judge the parties’ intent 3. Undertaken in Fraud of Creditors, when the Latter
1. Contemporaneous and subsequent acts Cannot in any Other Means Collect Claims due to them
2. If the parties themselves placed an interpretation to Requisites:
the terms of their contract, such interpretation must be a. There must be a creditor who became such
in general be followed prior to the contract sought to be rescinded
3. The contract of the parties may result in estoppel b. Alienation made subsequent to such credit
4. Court may consider the relationship of the parties c. Alienating must be in BAD FAITH (knew that
Note: Special Intent prevails over General Intent damage would be caused to creditors)
d. There must be no other remedy for the
 If stipulation admits several meanings – one which is most prejudiced creditor – inability to collect claims
adequate to render it effectual due them (rescission is merely subsidiary
 One interpretation makes it valid, the other illegal – the remedy)
former interpretation must prevail 4. Things in Litigation
 Various stipulations shall be interpreted together, jointly a. Notice of Lis Pendens – purpose is to give
 Understood in that which is most in keeping with the nature notice to the whole world
of the object of the contract 5. Other instances – partition, result of deterioration,
 Consider the usage and custom of the place right given to unpaid seller, sale of real estate
 Interpretation of obscure words shall not favor the party As per different article
who caused the obscurity 6. Premature payments made in a state of Insolovency
Requisites:
FOUR KINDS OF DEFECTIVE CONTRACTS a. The debtor-payer must have been insolvent
1. Rescissible (need not be judicially declared)
2. Voidable b. Debt was not yet due AND demandable
3. Unenforceable  Rescission is subsidiary, only when there are no other legal
4. Void means to obtain reparation
 Only to the extent necessary to cover the damages caused
RESCISSIBLE CONTRACTS – process designated to render
inefficacious a contract validly entered into and normally Necessity of Mutual Restitution – to restore status quo
binding, by reason of external conditions, causing an economic Requisites:
prejudice to a party or his creditors 1. Plaintiff must be able to return what has been received
Requisites: (exception: prejudiced creditors)
1. There must be at the beginning either a valid or a a. Object with fruits,
voidable contract b. Price with interest
2. There is an economic or financial prejudice to someone
2. The object is not in the legal possession of third compelled to pay since he is in good faith. If Three was also in
persons in good faith (e.g. registration in the Registry of bad faith, he may be compelled to pay if Two cannot.
Property)
3. Subsidiary – there must be no other legal remedy  Prescriptive Period for Rescission
4. Action must be brought within the proper prescriptive Gen. rule: four years from the date the contract was entered into
period Exceptions: persons under guardianship – 4 yrs from termination
PRESUMPTION OF FRAUD of incapacity
1. Gratuitous Alienations – presumed fraudulent when Absentees – 4 yrs from the time the domicile is known
the debtor did not reserve sufficient property to pay all  Direct Action is necessary for rescission – cannot be
debts contracted BEFORE the donation attacked collaterally
Ex. Mapag Bigay (with assets worth 1M and liabilities  Who can bring action? – injured party, heir or successor-in-
worth 600T) donated his property to Abu Sado worth interest, creditors
500T. Is the donation presumed fraudulent?
Ans.: Yes. Mapag did not reserve enough property to VOIDABLE CONTRACTS
pay his debts (presumption may be rebutted) -valid till annulled. It cannot be annulled, however, if there has
Same facts but property donated was only 200T been a ratification. The defect is more or less intrinsic, as in the
Ans.: No. Mapag still has enough property to cover his case of vitiated consent.
debts. -voidable are not void ab initio and it is binding upon the parties
2. Onerous Alienation – presumed fraudulent when made
by persons Grounds for Annulment (Declaration of Nullity)
a. Against whom some judgement has been 1. Incapacity to consent
rendered in any instance (even if not yet final 2. Vitiated consent
judgement) *Repentance is not a ground for annulment
b. Against whom some writ of attachment has Prescriptive period:
been issued 1. 4 years in case of defect of the consent ceases
Ex. Mau Tak was ordered by court to transfer the (intimidation, violence or undue influence)
ownership of his car to Mas Werte. After leaving the 2. 4 years from the discovery of – mistake or fraud
courtroom, he saw Wama Lay and offered his car for 3. 4 years from the time the guardianship ceases (minors
100T. Wama agreed and paid Mau and drove his new or incapacitated persons)
car home. Was there presumption of fraud? *if the action is prescribes, the contract can no longer be set
Ans.: Yes. aside.
Same facts but the case is still pending and without To CURE the defect:
attachment issued on the car. 1. Confirmation – to cure the defect in a voidable contract
Ans.: None. Sale was made before the judgement. 2. Ratification – to cure the defect of lack of authority in
Presumption of fraud cannot apply. an authorized contract (entered into by another)
 Fraud alone is not sufficient for Rescission 3. Acknowledgement – to remedy a deficiency of proof.
Transferee may have been in good faith and is now in legal *in the New Civil Code, these are all termed as RATIFICATION
possession of the property. Effect of Ratification:
Ex. In the case of Mau Tak, Mas Werte and Wama Lay: 1. Action to annul is extinguished
Mau Tak was indeed defrauding Mas Werte. Wama Lay was 2. Contract is cleansed of its defect from the beginning
a buyer in good faith and took possession of the car. Can (retroactive)
rescission be made? No. Requisites:
1. The contract is voidable
EFFECT OF BAD FAITH 2. The person ratifying must know the reason the cause of
Bad Faith – state of mind affirmatively operating with furtive it being voidable
design or with some motive or self-interest or ill-will or an ulterior 3. The cause must not exist or continue to exist anymore
purpose, and implies a conscious and intentional design to do a 4. Made expressly or by an act implying (tacit) a waiver to
wrongful act for a dishonest purpose or moral obliquity annul
1. Acquirer must return or indemnify 5. Must be the injured party (may also be the guardian, if
2. Due to any cause (includes fortuitous events) injured party is incapacitated)
Subsequent Transfers:  Consent of the guilty party is NOT needed.
1. If transferee is in good faith, the good or bad faith of  Although there is retroactive effect, the rights of the
the next transferee is not important innocent third person must not be prejudiced
2. If the first is in bad faith, the next transferee is liable  Who may ask for annulment? The victim
only if he is also in bad faith  Creditors of the victim cannot ask for annulment
One, in fraud of creditors, sold his house to Two, who is in bad  If a minor misrepresents his age and the other party is
faith. Two then sold the house to Three who is also in bad faith. misled by the age, may the minor later on sue for
The contract is rescinded but the house is destroyed. Who is annulment? SC: NO. because he is in estoppel
liable first? Two is liable ANNULMENT
Effect: (restoration)
One, in fraud of creditors, sold his house to Two, who is in bad 1. If not complied with, excused from obligations
faith. Two then sold the house to Three who is also in good faith. 2. If already performed, MUTUAL RESTITUTION of
The contract is rescinded but the house is destroyed. Who is a. The thing, with fruits
liable first? Two is liable. If he cannot pay, Three cannot be b. The price, with interest
confronted by B who demanded the puppet.
 No restitution by INCAPACITATED persons: only to the Is the agreement enforceable in under SOF?
extent of enrichment (food, clothes etc.) Enrichment is not ANS.: No, it should have been made in writing.
presumed by the law (e.g. insane squandered the money 2. A special promise to answer for the debt, default, or
away. This is not enrichment, being insane.) miscarriage of another.
A special promise refers to a subsidiary or collateral
UENFORCEABLE CONTRACTS promise to pay, like a contract of guaranty.
-cannot be sued upon or enforced unless ratified; thus, it has as a. A was having his house repaired by B, who
if they have no effect yet. But they may be ratified; thus, they needed certain materials. So A told the
can have the effect of a valid contract. They may be called storeowner (of materials), “Give B the
validable. materials. I shall be responsible. I shall stand
These are nearer absolute nullity than voidable and good.” This was orally made. Is this a special
rescissble. promise? Is this oral agreement enforceable?
KINDS OF UNENFORCEABLE CONTRACTS This is not a special promise. This is not a guaranty.
1. Unauthorized contracts Only A obligated himself. This is enforceable even if
2. Those that fail to comply with the Statute of Frauds orally made.
3. Those were both parties are incapable of giving consent 3. An agreement made in consideration of marriage other
UNAUTHORIZED CONTRACTS than a mutual promise to marry.
-those entered into in the name of another person by who has a. Marriage settlements
been given no authority or legal representation, or who acted b. Donations propter nuptias
beyond his powers. A and B promised to marry each other. The promise
need not be in writing unless the marriage be deferred
STATUTE OF FRAUDS till after the lapse of one year from the agreement. For
-purpose is to prevent fraud, and not to encourage the same. breach of a mutual promise to marry, the groom may
Thus, certain agreements are required to be in writing sue the bride for actual damages and oral evidence of
(memorandum or note) so that they may be enforced. such mutual promise is admissible (Family Code)
-As oral agreements are based on memory that is often 4. An agreement for the sale of goods, chattels, or things
unreliable, these may sometimes result in injustice in action, at a price not less than five hundred pesos
GENERAL RULE OF APPLICATION OF SOF unless…”
1. Applies only to executory contracts and not partially or a. Things in action = intangible ( credit )
completely executed b. The law says SALE, not other contracts
2. It cannot apply if the action is neither for damages nor c. If price is exactly P500, the contract must be
for specific performance in writing to be enforceable
3. Statute of Fraud is exclusive (enumerated) Rules in auction sale:
4. The defense of the SOF may be waived a. When a sale is made by auction, and the entry
5. SOF is a personal defense (cannot be assailed by third is made by the auctioneer in his sales book at
persons) the time of the sale of:
6. Contracts infringing SOF is not void -the amount and kind of property
7. Statute of Fraud is a rule of Exlusion -the terms of the sale
8. SOF does not determine the credibility or weight of -the price
evidence. It merely concerns itself with the -the names of the purchasers and persons on
admissibility thereof whose account the sale is made-the entry is
9. SOF does not apply if it is claimed that the contract considered a SUFFICIENT memorandum (even
does not express the true agreement of the parties. if the same is not signed by the party sought
FIRST PRINCIPLE – EXECUTORY CONTRACTS to be charged)
A guardian sold the land of his ward worth 1M for only 700T 5. An agreement for the leasing for a longer period than
without court approval. The guardian prepared the Deed of Sale one year, or for the sale of real property or of an
and the buyer made sure she has the money. The buyer, still in interest therein.
Canada, will arrive the next day and will meet with the guardian. a. lease of real property for more than one year
Kenneth says that it is rescissible since the ward suffered lesion (note of personal property) – if exactly one
of more than ¼ . Is he correct? year, the contract may be oral
Ans.: NO. Unless it states that partial or complete performance b. sale of real property (regardless of price) –
was made by either parties, it remains unenforceable sine “no “Interest”- in real property may include
lesion, prejudice, or damage” has yet incurred by the ward. The easement or usufruct
sale has not yet complied with the SOF and still executory thus, 6. A representations as to the credit of a third person
unenforceable. -this should not be confused with guaranty.
-Here, no promise to answer for another’s debt is
ENUMERATION: made; there is merely an assurance that somebody has
1. An agreement that by its terms is not to be performed a certain amount of credit, made with the intention of
within a year from the making thereof. enabling the person in whose favor it is made to obtain
a. A told B that he would sell his puppet worth credit by virtue of such assurance or representation.
P200 pesos after his son (newborn) reach the  A was borrowing money from B, and gave C as his reference.
age of 3. On the 3rd birthday of A’s son, he was When C was asked regarding A’s credit: “you can safely lend
money to A because A is the owner of a parcel of land and I  The action or defense for the declaration of the inexistence
have the title deeds in my possession. This was made orally. of a contract does not prescribe.
 The representation is not enforceable against C because it is
not in writing. PARI DELICTO Rule – refuses legal remedy to either party to an
Illegal Agreement and Leaves them where they were
 An attorney for the defendant should file a motion to Reason: Ours are courts of both the law and equity-they compel
dismiss, plead the SOF as an affirmative defense and make a. The doctrine applies even to the spouse of one of them,
timely objection in the course of the trial. who although not a signatory to the contract, has
 Sufficient Memorandum – complies with all statutory sufficiently manifested by affirmative acts her
requirements of the statute as to contents and signature. unequivocal concurrence to the contract in
 RULE ON AUTHORITY OF THE AGENT TO SELL LAND OR ANY controversy. (especially if spouse is benefited)
INTEREST THEREIN – authority must be in writing (GPA or b. The doctrine does not apply to fictitious or absolutely
SPA) otherwise, the sale shall be VOID. simulated contracts, since these are inexistent; not to a
contract where one party, a minor, is much less guilty
BOTH PARTIES ARE INCAPACITATED TO GIVE CONSENT than another, who is of age; nor to a case where the
-2 unemancipated minors without consent of parents government is involved for the government is not
A and B, both 15 yrs old, entered into a contract. It is estopped by the neglect of its officers; nor finally to a
unenforceable. If the parent of A ratifies, it becomes voidable. If contract of sale
both the parents of A and B ratifies, it becomes valid from the c. Does not apply where a superior public policy
beginning. intervenes.
d. Does not apply in case of void contracts which are
Unauthorized contracts, unless ratified, has no effect simulated to circumvent a law.
Ratification of Contracts Infringing the SOF
1. Failure to object to the presentation of oral evidence Two Kinds of ILLEGAL contracts:
(deemed as waiver) 1. There is a criminal offense
2. Acceptance of benefit under them(no longer executory) e. Both parties are guilty (in pari delicto)
-no action against each other
Unenforceability cannot be assailed by strangers. -both shall be prosecuted
-effects or the instruments of the crime (things or
VOID OR INEXISTENT CONTRACTS price of the contract) shall be confiscated in favor
Two kinds of void contracts: of the government
1. INEXISTENT ONES – like those where essential formalities f. Only one is guilty and the other is innocent
are not complied with; ex.: a donation of land in a private -even if both are guilty but are not equally guilty,
instrument; this produces no effect whatsoever not in pari delicto
a. Those which are absolutely simulated or fictitious; -the guilty party will be prosecuted
i. Valid contracts: sale of future or after acquired -the instrument of the crime will be prosecuted
property) -the innocent one may claim what he has given; or
ii. Absolutely simulated – void; relatively simulated – if he has not yet given anything, he shall not be
generally binding bound to comply with his promise
b. Those whose cause or object did not exist at the time of 2. There is no criminal offense – unlawful or forbidden
the transaction BUT where NO criminal offense
2. ILLEGAL / ILLICIT ONES – like donation with an immoral a. Those were both are guilty
condition like illicit sexual intercourse (produces an effect, -neither may recover what he has given
he who gave donation cannot get back what he has given) b. Those were only one is guilty or at fault
a. Those whose cause, object, or purpose is contrary to -or where one party is less guilty than the other,
LMGPP; hence they are not in pari delicto
b. Those whose object is outside the commerce of men; -guilty party cannot recover what he has given or
c. Those which contemplate an impossible service; ask for the fulfillment of what had been promised
d. Those where the intention of the parties relative to the -the party NOT at fault may demand the return of
principle object of the contract cannot be ascertained; what he has given, without any obligation to
e. Those expressly prohibited or declared void by law comply with his promise
i. Donation of husband and wife during marriage
ii. Art. 1490 – sale between husband and wife BETTING not equal to GAMBLING
iii. Art. 1491- guardian, judge etc. Gambling on the results of a game of chance is prohibited
iv. Art. 1689 – Household Compensation Betting (which concerns itself with games of skill, like chess) is
v. Art. 1782 – Universal partnership ordinarily allowed.
vi. Art. 1799 – stipulation as to the share of liab
vii. Art. 2035 – no compromise of civil status RECOVERY even if IN PARI DELICTO
viii. Art. 2088 – pactum commissorium a. Purpose has not yet been accomplished
ix. Art. 2130 – owner of the property mortgaged is b. Or if the damage has not been caused to any third
prohibited from selling it. person
NOTE: these contracts cannot be ratified. Neither can the right to Art. 1416 distinguishes illegal per se and prohibition.
set up the defense of illegality be waived.  Illegal per se – those forbidden because of public
interest
 Prohibited contracts – forbidden because of private MINOR without the CONSENT of the parents
interest. Recovery is permitted provided that: When such contract is annulled:
a. Contract is not illegal per se 1. Minor may not be compelled to return what has been
b. The prohibition is designed for the protection of received by him (unless benefited)
the plaintiff 2. IF MINOR VOLUNTARILY RETURNS the object, whether
c. And public policy would be enhanced by allowing or not he was benefited, he cannot later on recover the
the recovery object
PAYMENT IN EXCESS OF MAXIMUM PRICE Ex.: A, a minor, borrowed 100T from B without the consent of A’s
-may recover such excess; to curb the evils of profiteering parents. After learning what A has done, his parents (as
guardians) filed a motion to annul such contract of loan and such
MAXIMUM NUMBER OF HOURS OF LABOR was granted by the court. B cannot recover the 100T unless
-may demand additional compensation for services rendered there is showing that A benefited from the money. If A, after a
beyond the time limit few days, voluntarily gave the money to B, A cannot (nor his
parents) recover the 100T.
MINIMUM WAGE
-entitled to recover the deficiency WINNER IN AN ACTION TO ENFORCE A CIVIL OBLIGATION
If a defendant who won the case (for him to not pay the
ILLEGAL TERMS OF CONTRACTS complainant) voluntarily pays the complainant, he can no longer
1. Divisible – only the legal terms shall be enforced recover such payment.
2. Indivisible – whole contract is void, even if only some
are illegal HEIR PAYS DEBT OF DECEDENT BEYOND THE VALUE OF THE
ESTATE RECEIVED
DEFENSE OF ILLEGALITY – not available to 3rd persons not directly A received from his father assets worth 10M and liabilities worth
affected 15M. A is only expected to pay the debt/liabilities worth 10M
since it is only to the extent of the estate/assets received. If A
A contract which is a direct result of a previous illegal contract, is pays the whole 15M, he cannot recover such payment.
also void and inexistent.
PAYMENT OF LEGACIES DESPITE THE FACT THAT WILL IS VOID
NATURAL OBLIGATIONS A is the administrator of his father’s estate. If his father left a will
-based on moral duty and not legal duty but such is void, A may or may not perform the provisions in the
-allowed by law to encourage persons to fulfill their obligations said void will. If A gave B’s share in accordance to the void will,
he cannot recover from B what has already been given.
Voluntary Fulfillment – the debtor complied with the same even
if he knew that he could not have been legally forced to do so. ESTOPPEL
-bars a party from denying or alleging a certain fact owing to that
UNDUE PAYMENT not equal to NATURAL OBLIGATION party’s previous conduct
If I pay a debt that has prescribed – -the principles of estoppel are only suppletory (supplying a
a. Not knowing it has prescribed, I can recover on the deficiency)
ground of UNDUE PAYMENT
b. Knowing it has prescribed, I cannot recover for this is a Kinds of estoppel
case of a NATURAL OBLIGATION 1. Estoppel IN PAIS (equitable estoppel):
Examples of Natural Obligations: a. By conduct or acceptance of benefits – but if
1. Obligation to pay interest for use of money, even if not conduct because of ignorance or mistake, it does
agreed upon in writing not result to estoppel
2. Duty to support natural or spurious children (even if b. By representation or concealment
not recognized) c. By silence – there should be a duty or obligation to
3. Giving of material and financial assistance to children speak, otherwise it wouldn’t result to estoppel
upon their marriage d. By omission – mere promise or to omit at some
Extinctive Prescription – by virtue of this, a right or property has future time does not necessarily result in estoppel.
been lost. Promise must have been relied upon, and
prejudice would result unless estoppel is applied
Application of Art. 1424 e. By laches (unreasonable delay in suing) – bars an
A’s debt to C has been extinguished by prescription. A knowing action to CREATE a vested right (executory
the prescription, voluntarily paid the prescribed debt. A cannot interest) but does not bar an action to protect a
now recover what he has paid C. vested right (executed interest)
2. Estoppel BY DEED (technical estoppel)-there must be a
Payment by a third person of an obligation already PRESCRIBED: written instrument
1. With knowledge and consent of the debtor – civil - It is a bar which precludes a party to a deed and his
obligation of the debtor to pay 3rd person arises privies any right or title in derogation of the deed, or
2. Without knowledge or against the will of the debtor – from denying the truth of any material fact asserted in
debtor is not bound to reimburse the 3rd person it.
- BUT if debtor pays the third person, he cannot  Sale or Alienation by Non-Owner and later on acquires title
recover what he has paid on the ground of thereto, the non-owner (now owner) is estopped from
prescription.
depriving the buyer such ownership. Title passes by
operation of law.
 Sale or Alienation in Representation of Another
A, in representation of B, sells to C a car. A cannot state that
the sale is invalid since A was really the owner and not B. A
is estopped from claiming his own title.

 Estoppel on the part of a lessee or a bailee


A leased the apartment of B. C now claims that he is the
rightful owner of the apartment and not B. A, in order to
avoid payment, claims that B is not the real owner. A is
estopped from claiming such since A contracted a lease
agreement with B.

 Estoppel Concerning Immovable Property


A owns a parcel of land which B is interested in buying. A
and B are mortal enemies. In order to sell the land without B
knowing, C, with A’s consent, misrepresented himself as the
owner of the said land and sold the same to B. A is estopped
from demanding payment from B although he is the real
owner of the sold land.

 Allowing Someone to Assume Apparent Ownership of the


Personal Property.
A owns a necklace. B, A’s sister, assumes apparent
ownership of the necklace and without the consent of A
sold it to C. B gave the payment to A. A is now estopped
from claiming there was no valid sale since B is not the real
owner. A received the benefit of the sale.

 Persons bound by Estoppel are the parties or their


successors-in-interest