CONTRACTS

DEFINITION
A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or
to render some service. (Art. 1305)
KINDS OF CONTRACTS; AS TO
FORMATION OR PERFECTION
1. CONSENSUAL – perfected by mere consent
2. REAL – perfected by delivery (e.g., deposit, pledge,
commodatum and mutuum)
3. FORMAL or SOLEMN – requires a certain form for perfection
(e.g., interest must be stipulated in writing, antichresis,
donation of real properties and personal properties more than
P5,000)
KINDS OF CONTRACTS; AS TO CAUSE
1. ONEROUS – such as a contract of sale, barter, lease and
simple loans or mutuum with stipulation for interest.
2. GRATUITOUS OR LUCRATIVE – such as a donation and
commodatum.
3. REMUNERATORY – where one prestation is given for a
benefit or service that had been rendered previously
KINDS OF CONTRACTS; AS TO
DEPENDENCE OF ONE UPON ANOTHER
1. PRINCIPAL – a contract which can stand on its own, such as
a contract of sale, barter, lease, loan.
2. ACCESSORY – those which cannot stand on its own and are
dependent upon other contracts for its validity. E.g., guaranty,
suretyship, mortgage and antichresis.
3. PREPARATORY – a contract is a means to achieving an end,
such as an option contract, a contract of partnership and that
of agency.
KINDS OF CONTRACTS; AS TO PARTIES
OBLIGED
1. BILATERAL – where both parties are reciprocally obligated,
e.g., lease (where the lessor is obliged to allow the use of the
thing and the lessee is obliged to pay rent) and sale (where
the buyer is obliged to pay the price and the seller obliged to
deliver the thing) (ARTS. 1642, 1458)
2. UNILATERAL – only one party is obliged. E.g., guaranty and
pledge. (ARTS. 2047, 2093)
KINDS OF CONTRACTS; AS TO NAME
1. NOMINATE – those contracts for which a particular name
has been designated and rules particular to them are
applicable such as sales, commodatum, partnership, agency,
deposit, etc.
2. INNOMINATE – those which do not have particular
designation, such as do ut des, do ut facias, facio ut des and
facio ut facias.
KINDS OF CONTRACTS; AS TO RISK
1. COMMUTATIVE – where the parties contemplate real
fulfillment, therefore, equivalent values (presumably) are
given, such as sales (where the price is presumably the
equivalent of the thing to be delivered) or lease (where the
rental payments is presumably the value of the use of the
thing)
2. ALEATORY – where the fulfillment of the cause as to one
party is dependent upon chance, such as an insurance
contract (where the payment will depend on the happening of
the event insured against).
KINDS OF CONTRACTS; AS TO RISK
1. COMMUTATIVE – where the parties contemplate real
fulfillment, therefore, equivalent values (presumably) are
given, such as sales (where the price is presumably the
equivalent of the thing to be delivered) or lease (where the
rental payments is presumably the value of the use of the
thing)
2. ALEATORY – where the fulfillment of the cause as to one
party is dependent upon chance, such as an insurance
contract (where the payment will depend on the happening of
the event insured against).
STAGES OF A CONTRACT
1. NEGOTIATION (PREPARATION OR CONCEPTION OR
GENERACION) – here the arties are progressing with their
negotiations; prior to the arrival on a definite agreement.
Here is where the parties provide for their offers and bargain
with each other.
2. PERFECTION (OR BIRTH) – when the parties have already
came to a definite agreement and all the essential elements
are present (which includes form or delivey in some).
3. CONSUMMATION (OR DEATH OR TERMINATION) – the
terms of the contract have already been performed
CHARACTERISTICS OF A CONTRACT
1. Consensuality
2. Autonomy or Freedom to Contract
3. Mutuality
4. Obligatory Force of Contracts
5. Relativity or Privity
CONSENSUALITY
Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all consequences which, according
to their nature, may be in keeping with good faith, usage and law.
(Art. 1315)
CONSENSUALITY
CONTRACT OF ADHESION - one where there is already a
prepared form containing the stipulations desired by one party
whereby the latter only asks the other party to agree to them if
he wants to enter into a contract. This is generally valid because a
party who does not consent to the terms and conditions in the
contract can opt not to.
Not even the government can force someone to enter into
a contract: as such, in the case of PLDT, the SC held that the
government cannot compel PLDT to enter into an interconnection
agreement with it. However, the government may exercise its
sovereign power of eminent domain and compel PLDT to allow
the use of its facilities subject to just compensation. In this case,
the Court treated the action as one of expropriation. (Republic vs.
PLDT)
AUTONOMY
The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order,
or public policy. (Art. 1306)
AUTONOMY
Contrary to Law: note that the law is deemed part of every
contract and must thus be not contrary to the same.
1. Waiver for future fraud.
2. Partnership: Pactum Leonina – a stipulation which excludes
one or more partners from any share in the profits or losses
3. Mortgage/Pledge: Pactum Commissorium – a stipulation where
the creditor appropriates the things given by way of pledge or
mortgage, or dispose of them.
4. Mortgage/Pledge: Pactum de non aliendo – a stipulation
forbidding the owner from alienating the immovable
mortgaged.
AUTONOMY
Contrary to Public Policy:
1. Refund of tuition fees during the time a student is covered by
a scholarship if such student transfers schools. Scholarships
are granted not to attract and to keep brilliant students in
school for their propaganda mine but to reward merit or help
gifted students in whom society has an established interest or
a first lien. (Cui vs. Arellano)
2. Prohibiting a losing candidate in a convention to run as an
independent candidate is contrary to constitutionality
protected right to be elected in public office and the right of
the electorate to choose. (Saura vs. Sindico)
AUTONOMY
Contrary to Morals: in a contract of loan, where the interest
rate is 50%, is void for being contrary to morals, the same being
unconscionable, confiscatory, exorbitant, excessive or
inequitable, not because of it is usurious
MUTUALITY
The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (Art. 1308)

Consequences of Mutuality:
1. One party cannot revoke or renounce a contract without the
consent of the other, nor have it said aside on the ground that
he had made a bad bargain.
2. The determination of the performance may be left to a third
person:
a. Whose decision shall not be binding until it has been
made known both contracting parties
b. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is
equitable under the circumstances
MUTUALITY
ESCALATION CLAUSE: where one increases/decreases
compensation of one of the parties.

When Void: when the increase is dependent solely upon the will
of one of the parties.

When Valid: when the increase/decrease is dependent on valid

and reasonable standards.

NON-INVOLVEMENT CLAUSE: a stipulation in restraint of trade

is valid provided there is a limitation upon either time or place and
the restraint upon one party is not greater than the protection the
other party requires.
RELATIVITY
the contract takes effect only between the parties, their assigns
and heirs which are referred to as privies.

When not transmissible:

1. When the nature of the obligation is that it is not
transmissible: when the rights are purely or strictly personal
in nature, i.e., the qualifications and skills of the person have
been considered in the constitution of the contract.
2. By stipulation: e.g. the right to sublease is granted by law -
but may be prohibited by stipulation.
3. By provision of law: e.g. heirs as to the usufruct. The law
provides that the rights of a usufructuary shall not be
transmitted to the heirs, unless the parties stipulate
otherwise.
RELATIVITY
Exceptions to Relativity:
1. Third person may be bound by the contract:
2. A creditor may initiate an action against the contracting
parties
3. Third persons may be liable under a contract
4. Third persons may be benefited by a contract
ELEMENTS OF A CONTRACT
1. Essential - those without which the contract cannot exist,
i.e., Consent, object, consideration. In some contracts, form
and delivery is essential too.
2. Natural - those which exist as part of the contract even if the
parties do not stipulate it because the law is deemed written
therein. Example: Warranty against eviction in a contract of
sale or the warranty agains hidden defects.
3. Accidental - those which are agreed upon by the parties and
which cannot exist without being stipulated. Example:
stipulation for interest
ESSENTIAL ELEMENTS OF A CONTRACT
1. Consent of the Contracting Parties
2. Object Certain which is the Subject Matter
3. Cause or Consideration

In some contracts, delivery (real), or certain formalities (formal or

solemn contracts), is likewise required.
CONSENT
Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.

Offer and Acceptance:

1. The offer must be certain and he acceptance must be absolute. A
qualified acceptance constitutes a counter-offer.
2. Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was
made.
3. An acceptance may be express or implied.
4. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
5. An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed
CONSENT
Option Agreement: When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as something
paid or promised.

Advertisements: Unless it appears otherwise, business

advertisements of things for sale are not definite offers, but
mere invitations to make an offer. Advertisements for bidders are
simply invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the contrary
appears.
SITUATIONS CONCERNING CONSENT
OF THE CONTRACTING PARTIES
1. Both parties gave consent their consent as to the
essential elements of the contract – the contract is valid.

2. Simulation: when one or both the parties did not intend to

be bound by the contract (absolute simulation), the same is
void. Otherwise, if the parties merely conceal their true
agreement (relative simulation), they shall be bound by their
real agreement.
SITUATIONS CONCERNING CONSENT
OF THE CONTRACTING PARTIES
3. Incapacity of one of the parties:

Kinds of Capacity:
a. Juridical capacity - is the fitness to be the subject of legal
relations, is inherent in every natural person and is lost only
through death.

If incapacity pertains to juridical capacity the contract is void.

b. Capacity to act (or legal capacity) - is the power to do acts

with legal effect, is acquired and may be lost.
SITUATIONS CONCERNING CONSENT
OF THE CONTRACTING PARTIES
If incapacity pertains to capacity to act or legal capacity, it can
be:

i. Absolute Incapacity – the party cannot give consent in any

contract, with anyone, in whatever capacity, over anything.
ii. Relative Incapacity – a person may be prohibited from
entering specific contracts or that in a contract, he may be
prohibited in a certain capacity, i.e., prohibited to be the
buyer, or to specific things, or to specific persons.
SITUATIONS CONCERNING CONSENT
OF THE CONTRACTING PARTIES
4. Both are incapacitated: the contract is unenforceable.
5. Both parties gave their consent, but such consent was
vitiated by VICES OF CONSENT.
VICES OF CONSENT
1. Mistake
2. Violence
3. Intimidation
4. Undue Influence
5. Fraud
MISTAKE
Mistake -must be that of (a) the object of the contract, or to (b)
those conditions which have principally moved one or both
parties to enter into the contract.

1. Mistake as to the identity or qualifications of one of the

parties will vitiate consent only when such identity or
qualifications have been the principal cause of the contract.
2. Mistake or error as to motive does not vitiate consent.
3. A simple mistake of account shall give rise to its correction.
4. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
5. Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent
VIOLENCE
when in order to wrest consent, serious or irresistible force is
employed.
INTIMIDATION
When one of the contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and

condition of the person shall be borne in mind.

A threat to enforce one's claim through competent authority, if

the claim is just or legal, does not vitiate consent
UNDUE INFLUENCE
When a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of
choice.

The following circumstances shall be considered: the confidential,

family, spiritual and other relations between the parties, or the
fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial
distress
FRAUD
When, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.

Rules on Fraud:
1. Failure to disclose facts, when there is a duty to reveal them,
as when the parties are bound by confidential relations,
constitutes fraud.
2. The usual exaggerations in trade, when the other party had
an opportunity to know the facts, are not in themselves
fraudulent.
3. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the
former's special knowledge
FRAUD
4. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial
mistake and the same is mutual.
5. In order that fraud may make a contract voidable, it should
be serious and should not have been employed by both
contracting parties.
6. Incidental fraud only obliges the person employing it to pay
damages.
7. Misrepresentation made in good faith is not fraudulent but
may constitute error
OBJECT CERTAIN WHICH IS THE
SUBJECT MATTER
May involve things, services or rights.

Requisites:
1. The thing, right or service must be within the commerce of
man;
2. It must be transmissible;
3. It must not be contrary to law, morals, good customs, public
order or public policy;
4. It must not be impossible;
5. It must be determinate as to its kind or determinable without
the need of a new contract or agreement.
OBJECT CERTAIN WHICH IS THE
SUBJECT MATTER
Future Inheritance: cannot be the subject matter of a valid
contract. This is because the seller owns no inheritance while his
predecessor lives. Public policy demands that if you’re going to
sell, you have the right to do so, but not necessarily requiring
that the seller is the owner.
CAUSE OR CONSIDERATION
Cause is the essential or impelling reason why a party assumes
an obligation.

In onerous contracts the cause is understood to be, for each

contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure beneficence,
the mere liberality of the benefactor.
CAUSE OR CONSIDERATION
RULES ON CAUSE:
1. Contracts without cause, or with unlawful cause, produce no
effect whatever. The cause is unlawful if it is contrary to law,
morals, good customs, public order or public policy
2. The statement of a false cause in contracts shall render them
void, if it should not be proved that they were founded upon
another cause which is true and lawful.
3. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves
the contrary.
CAUSE OR CONSIDERATION
RULES ON CAUSE:
4. As a rule, inadequacy of the price will not affect the contract.
Except:
a. When expressly provided by law, e.g., rescissible contracts;
b. When there has been fraud, mistake or undue influence
5. The particular motives of the parties in entering into a
contract are different from the cause thereof.
FORMS OF CONTRACT
GENERAL RULE: no form is required for the validity or
perfection of a contract.

Exceptions:
1. Donations of real property which requires a public instrument.
2. Donations of personal property which exceeds P5,000 which
requires that the donation be written.
3. Stipulation to pay interests on loans or for the use of money,
which must be in writing.
4. Sale or transfer of large cattle which requires that it be in a
public instrument, registered and that there should be a
certificate of transfer
FORMS OF CONTRACT
Formalities required for enforceability (STATUTE OF
FRAUDS): The following are unenforceable, unless they are in
writing, or some note or memorandum and subscribed by the
party charged, or by his agent:
1. An agreement that by its terms is not to be performed
within a year from the making thereof;
2. A special promise to answer for the debt, default, or
miscarriage of another;
3. An agreement made in consideration of marriage, other
than a mutual promise to marry;
FORMS OF CONTRACT
4. An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in
action or pay at the time some part of the purchase money;
but when a sale is made by auction and entry is made by the
auctioneer in his sales book, at the time of the 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;
5. An agreement of the leasing for a longer period than one
year, or for the sale of real property or of an interest
therein;
6. A representation as to the credit of a third person.
FORMS OF CONTRACT
Formalities required for convenience: to bind third persons,
the following are required to appear in a public instrument:
1. Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights
over immovable property; sales of real property or of an
interest therein a governed by the Statute of Frauds.
2. The cession, repudiation or renunciation of hereditary rights
or of those of the conjugal partnership of gains;
3. The power to administer property, or any other power which
has for its object an act appearing or which should appear in
a public document, or should prejudice a third person;
4. The cession of actions or rights proceeding from an act
appearing in a public document
REFORMATION OF INSTRUMENTS
Reformation: is the remedy by means of which a written
instrument is made or construed so as to express or conform to
the true intention of the parties when some error or mistake has
been committed.

Requisites:
1. There is a meeting of the minds;
2. There is a written instrument; and
3. The written instrument does not reflect the true intention of
the parties
REFORMATION OF INSTRUMENTS
When may reformation be had:
1. Mutual mistake of the parties.
2. If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show
their true intention, the former may ask for the reformation of
the instrument
3. When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but
concealed that fact from the former.
4. Ignorance, lack of skill, negligence or bad faith on the part of
the person drafting the instrument or of the clerk or typist.
5. If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property
is sold absolutely or with a right of repurchase.
REFORMATION OF INSTRUMENTS
No reformation:
1. Simple donations inter vivos wherein no condition is imposed;
2. Wills;
3. When the real agreement is void.
INTERPRETATION OF CONTRACTS
1. If the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of
its stipulations shall control.
2. If the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former.
3. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered.
4. When it is absolutely impossible to settle doubts, and the
doubts refer to incidental circumstances of a gratuitous
contract, the least transmission of rights and interests shall
prevail. If the contract is onerous, the doubt shall be settled
in favor of the greatest reciprocity of interests.
INTERPRETATION OF CONTRACTS
5. If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what may
have been the intention or will of the parties, the contract
shall be null and void.
6. General the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases
that are different from those upon which the parties intended
to agree.
7. If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which
is most adequate to render it effectual.
8. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.
INTERPRETATION OF CONTRACTS
9. Words which may have different significations shall be
understood in that which is most in keeping with the nature
and object of the contract.
10. The usage or custom of the place shall be borne in mind in
the interpretation of the ambiguities of a contract, and shall
fill the omission of stipulations which are ordinarily
established.
11. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity
KINDS OF CONTRACTS AS TO
VALIDITY
1. Valid and Binding
2. Rescissible
3. Voidable
4. Unenforceable
5. Void
RESCISSIBLE CONTRACTS
The following contracts are rescissible:
1. Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-
fourth of the value of the things which are the object thereof;
2. Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
3. Those undertaken in fraud of creditors when the latter cannot
in any other manner collect the claims due them;
4. Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
5. All other contracts specially declared by law to be subject to
rescission
RESCISSIBLE CONTRACTS
Lesion – is the damage or injury to the party asking for
rescission, which represents the difference between the price and
the actual value of the property. Lesion, as a ground for
rescission must be MORE THAN ONE-FOURTH of the value.
RESCISSIBLE CONTRACTS
In fraud of creditors: which is properly termed “accion
pauliana,” through which the creditor can interfere and have the
contract entered into by the debtor rescinded. This presupposes
that the creditor cannot in any other manner collect the claims
due. Thus, if the debtor entered into a contract of sale with a
third person in order to have enough money to pay the creditor,
the latter cannot rescind such contract of sale since the sale was
precisely entered into to pay him his due.
RESCISSIBLE CONTRACTS
Presumption of Fraud:

1. Alienations by gratuitous title: presumed to have been

entered into in fraud of creditors, when the donor did not
reserve sufficient property to pay all debts contracted before
the donation.
2. Alienations by onerous title: presumed fraudulent when
made by persons against whom some judgment has been
issued. The decision or attachment need not refer to the
property alienated, and need not have been obtained by the
party seeking the rescission.
RESCISSIBLE CONTRACTS
Other contract subject to rescission under the law:
1. Rights of an unpaid seller;
2. In obligations to deliver a specific thing, where the same
deteriorates with the fault of the debtor before the suspensive
condition is fulfilled (or suspensive term arrives);
3. Lesion of at least one-fourth in partition.
4. In sale of real estate for a certain price per unit of measure
and the real estate delivered is deficient by more than 1/10 or
when the buyer would not have entered into the contract
knowing the actual area of the real estate.
RESCISSIBLE CONTRACTS
Rescission as a remedy:
1. The action for rescission is subsidiary; it cannot be instituted except when
the party suffering damage has no other legal means to obtain reparation
for the same
2. Rescission shall be only to the extent necessary to cover the damages
caused
3. Restitution - rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest.
4. It can be carried out only when he who demands rescission can return
whatever he may be obliged to restore
5. Rescission shall not take place when the things which are the object of
the contract are legally in the possession of third persons who did not act
in bad faith. In which case, indemnity for damages may be demanded
from the person causing the loss.
6. If the sale of the property of the guardian or the absentee is approved by
courts, rescission is not an available remedy
RESCISSIBLE CONTRACTS
Prescriptive Period: the action to claim rescission must be
commenced within 4 years. For persons under guardianship and
for absentees, such four year period shall begin upon termination
of the ward’s incapacity or when the absentee’s domicile is
known.

Sale of land, 4 years is counted from the time of registration:

When a transaction involves registered land, the four-year period
fixed in Article 1391 within winch to bring an action for
annulment of the deed, shall be computed from the registration
of the conveyance.

The registration of the document is constructive notice of the

conveyance to the whole world. (HSBC vs. Pauli)
VOIDABLE CONTRACTS
Voidable Contracts: are those which are valid until they have
been annulled by proper action in court. However, they are
likewise subject to ratification to cure the defect.

The following are voidable contracts:

1. Those where one of the parties is incapable of giving consent;
2. Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud
VOIDABLE CONTRACTS
Prescriptive Period: shall be four years.
Ground Counted from:

Intimidation, violence or undue The defect of the consent

influence ceases

Mistake or fraud Discovery

Minority or incapacity Guardianship ceases

VOIDABLE CONTRACTS
Ratification: extinguishes the action to annul a voidable
contract.
1. Ratification may be effected by the guardian of the
incapacitated person
2. It does not require the conformity of the contract party who
has no right to bring the action for annulment.
3. It cleanses the contract from all the defects from the moment
it was constituted.
4. It may be done:
a. Expressly – either oral or written; or
b. Tacitly (impliedly) – when the reason which renders the
contract voidable has ceased, the person who has a right
to invoke annulment should execute an act which
necessarily implies an intention to waive such right.
VOIDABLE CONTRACTS
Ratification: extinguishes the action to annul a voidable
contract.
1. Ratification may be effected by the guardian of the
incapacitated person
2. It does not require the conformity of the contract party who
has no right to bring the action for annulment.
3. It cleanses the contract from all the defects from the moment
it was constituted.
4. It may be done:
a. Expressly – either oral or written; or
b. Tacitly (impliedly) – when the reason which renders the
contract voidable has ceased, the person who has a right
to invoke annulment should execute an act which
necessarily implies an intention to waive such right.
VOIDABLE CONTRACTS
Annulment: renders the contract non-existing, as if it was never
entered into.
1. Only the injured party (the victim, whether principal or
subsidiary party) may ask for annulment.
2. Creditors of the injured party cannot ask for the annulment of
the contract for they are not parties thereto.
3. In case of minority, and the minor misrepresents his age and
the other party was led to believe the same, there can be no
annulment, for here, the minor would be estopped.
4. Those who are capacitated cannot allege the incapacity of
those with whom they contracted with nor those who exerted
intimidation, violence or undue influence, or employed fraud,
or caused mistake.
VOIDABLE CONTRACTS
5. Effects of loss of the thing:
a. The action for annulment of contracts shall be extinguished
when the thing which is the object thereof is lost through
the fraud or fault of the person who has a right to institute
the proceedings
b. If the right of action is based upon incapacity, the loss of
the thing shall not be an obstacle to the success of the
action, unless said loss took place through the fraud or fault
of the incapacitated person
VOIDABLE CONTRACTS
6. Effects of annulment:
a. Generally, the parties are obliged to restore to each other
the things which have been the subject matter of the
contract, with their fruits and the price with its interest.
b. In obligations to render service, the value thereof shall be
the basis for damages.
c. In case of incapacity, the person incapacitated is not
obligated to make any restitution except insofar as he has
been benefited by the thing or price received by him.
VOIDABLE CONTRACTS
6. Effects of annulment:
a. Whenever the person who is obliged to return the thing
cannot do so because it has been lost through his fault, he
shall return:
i. the fruits received and
ii. the value of the thing at the time of loss
iii. with interest from the same date.

b. When one party does not return what is due him by virtue
of the annulment, he cannot compel the other to comply
what is incumbent upon him.
UNENFORCEABLE CONTRACTS
Unenforceable contracts – are those which have no effect until
they are ratified.

KINDS OF UNENFORCEABLE CONTRACTS:

1. Unauthorized contracts – those entered into in the name of a
person by one who has been given no authority or legal
representation, or who has acted beyond his powers.
2. Those that do not comply with the Statute of Frauds – these
are agreements that are required to be in writing in order to
avoid fraud.
3. Those where both parties are incapable of giving consent.
UNENFORCEABLE CONTRACTS
Unenforceable contracts – are those which have no effect until
they are ratified.

KINDS OF UNENFORCEABLE CONTRACTS:

1. Unauthorized contracts – those entered into in the name of a
person by one who has been given no authority or legal
representation, or who has acted beyond his powers.
2. Those that do not comply with the Statute of Frauds – these
are agreements that are required to be in writing in order to
avoid fraud.
3. Those where both parties are incapable of giving consent.
UNENFORCEABLE CONTRACTS
Rules Applicable to Statute of Frauds:
1. It applies only to executory contracts, and not those which
have been partially or completely executed.
2. The list is exclusive, that is, it applies only to the agreements
or contracts enumerated above.
3. The defense of Statute of Frauds may be waived.
4. The Statute of Frauds is a personal defense, that is, an
agreement infringing it cannot be assailed by third persons.
5. If oral evidence is presented to prove the agreement, and the
other does not object thereto, there is deemed a waiver of the
defense of Statute of Frauds. The same is true if the other
party has already accepted the benefits of the contract
VOID CONTRACTS
Void Contracts are those which are either inexistent (as when
the required formalities are not complied with for its perfection,
which produces no legal effects), or illegal or illicit.
VOID CONTRACTS
The following contracts are inexistent and void from the
beginning:
1. Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of the
transaction;
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
7. Those expressly prohibited or declared void by law.
VOID CONTRACTS
Rules Applicable:
1. The action or defense for the declaration of the contract as
inexistent does not prescribe.
2. The contract cannot be ratified.
3. It cannot give rise to valid subsequent contracts if the same
are based on it.
4. Generally, produces no effect and no action to declare them
void is needed.
VOID CONTRACTS
Rules Applicable:
5. When money is paid or property delivered for an illegal
purpose, the contract may be repudiated by one of the parties
before the purpose has been accomplished, or before any
damage has been caused to a third person. In such case, the
courts may, if the public interest will thus be subserved, allow
the party repudiating the contract to recover the money or
property.
6. Where one of the parties to an illegal contract is incapable of
giving consent, the courts may, if the interest of justice so
demands allow recovery of money or property delivered by
the incapacitated person.
VOID CONTRACTS
Rules Applicable:
7. When the agreement is not illegal per se but is merely
prohibited, and the prohibition by the law is designated for the
protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.
8. In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced.
9. The defense of illegality of contract is not available to third
persons whose interests are not directly affected.
VOID CONTRACTS
Illegal Contracts: can either be that which involves a criminal
offense or where there is no criminal offense.

When there is a criminal offense, it may be of two kinds:

1. Those where both parties are guilty (in pari delicto) – they
shall have no action against each other; they shall both be
prosecuted; the effects of the crime shall be confiscated in
favor of the government. Example is when both parties
entered into a contract to smuggle contraband.
2. Those where only one is guilty and the other is innocent:
a. The guilty party will be prosecuted;
b. The instrument of the crime (or object of the contract) will
be confiscated;
c. The innocent one may claim what he has given.
VOID CONTRACTS
When there is no criminal offense, which may be:
1. Where both are guilty – where neither can recover what he
has given by virtue of the contract or demand the
performance of the other’s undertaking.
2. Where only one is guilty or at fault – where the guilty party
cannot recover what he has given by reason of the contract
or ask for the fulfillment of what had been promised him and
the party not at fault may demand the return of what he has
given, without any obligation to comply with his promise.
END