Article 1305, Civil Code.

A contract is a meeting advance

of
2. Aleatory: fulfillment is determined by
minds, between two persons whereby one binds
chance
himself, with respect to the other, to give something
E. By equivalence of prestations
or to render some service.
1. Gratuitous: no correlative prestation is

received by a party
I. Classification of Contracts
2. Onerous: there is an exchange of
A. To formation:
correlative prestations
1. Consensual: consent is enough; e.g.
3. Remuneratory: the prestation is based
sale
on services or benefits already received
2. Real: consent and delivery is required;
F. By the time of fulfillment
e.g. deposit, pledge
1. Executed: obligation is fulfilled at the
3. Solemn or formal: special formalities are
time contract is entered into
required for perfection e.g. donation of
2. Executory: fulfillment does not take
realty
place at the time the contract is made
B. To relation to other contracts:
G. To their purpose
1. Principal: may exist alone; e.g. lease
1. Transfer of ownership, e.g. sale
2. Accessory: depends on another contract
2. Conveyance of Use, e.g. Commodatum
for its existence; e.g. guaranty
3. Rendition of Service, e.g. agency
3. Preparatory: a preliminary step towards
H. To their subject matter
the celebration of a subsequent
1. Things, e.g. sale, deposit
contract; e.g. agency
2. Services, e.g. agency
C. To nature of vinculum
I. To their designation
1. Unilateral: only one party is bound by
1. Nominate: the law gives the contract a
the prestation; e.g. commodatum
special designation or particular name
2. Bilateral (synallagmatic): where both
e.g. deposit
parties are bound by reciprocal
2. Innominate: the contract has no special
prestations; e.g. sale
Name
D. To fulfillment of prestations
Article 1305, Civil Code. INNOMINATE
1. Commutative: fulfillment is determined in
CONTRACTS shall be regulated by the stipulations
of the parties, by the general provisions of Titles I revocation. A mere incidental benefit or

and II of [the Civil Code], by the rules governing the interest of a person is not sufficient. The

most analogous nominate contracts, and by the contracting parties must have clearly and

customs of the place. deliberately conferred a favour upon a third

IV. Charactertics of Contracts (MARCO) person (Art.1311).

A. MUTUALITY Requisites:

The contract must bind both contracting parties; a. There must be a stipulation in favor of a

its validity or compliance cannot be left to the will third person

of one of them (Art.1308). b. The stipulation must be part, not the

B. AUTONOMY whole of the contract

The contracting parties may establish such c. The contracting parties must have

stipulations, clauses, terms and conditions as clearly and deliberately conferred a

they may deem convenient, provided they are favor upon a third person, NOT a mere

not contrary to law, morals, good customs, incidental benefit or interest.

public order, or public policy (Art. 1306). d. The third person must have

C. RELATIVITY communicated his acceptance to the

Contracts take effect only between parties, their obligor before its revocation

assigns and heirs UNLESS, obligations arising e. No relation of agency exists between

from the contract are not transmissible by their any of the parties and the third person

(1) nature, (2) by stipulation or (3) by provision of Favored

law. The heir is not liable beyond the value of 2. Third Person In Possession—

the property he received from the decedent. (Art. When the third person comes into

1311) possession of the object of a contract

Exception: Strangers may enforce the contract creating real rights (Art 1312)

in their favor in the ff. cases: 3. Fraud—

1. Stipulations Pour Autrui— Where the contract is entered into in order to

If a contract should contain some stipulation defraud a person (Art. 1313)

in favor of a third person, he may demand its 4. Tortuous Interference—

fulfilment provided he communicated his acceptance Where the third person induces a
to the obligor before its
contracting party to violate his contract
(Art.1314). bound not only to the fulfillment of what has been

expressly stipulated but also to all the consequences

Requisites: which, according to their nature, may be in keeping

a. Existence of a valid contract with good faith, usage and law.

b. Knowledge of the third person of the Art. 1356, Civil Code. Contracts shall be
obligatory,
existence of the contract; and
in whatever form they may have been entered into,
c. Interference by third person without
provided all the essential requisites for their validity
legal justification or excuse
are present. However, when the law requires that a
D. CONSENSUALITY
contract be in some form in order that it may be valid
Contracts are perfected by mere consent and
or enforceable, or that a contract be proved in a
from that moment, the parties are bound not only
certain way, that requirement is absolute and
to the fulfillment of what has been expressly
indispensable. In such cases, the right of the parties
stipulated but also to all consequences which,
stated in the following article cannot be exercised.
according to their nature, may be in keeping with

good faith, usage and law, (Art.1315) EXCEPT

Chapter II. Essential Requisites
real contracts, such as deposit, pledge and
I. CONSENT
commodatum, are not perfected until the
II. OBJECT
delivery of the object of the obligation.
III. CAUSE
(Tolentino)
I. Consent
E. OBLIGATORY FORCE
Conformity of the parties to the terms of the
Art. 1159, Civil Code. Obligations arising from
contract; the acceptance by one of the offer
contracts have the force of law between the
made by the other. (Manresa)
contracting parties and should be complied with in
Requisites:
good faith.
1. It must be manifested by the concurrence of
Art. 1308, Civil Code. The contract must bind
both the offer and acceptance (Arts. 1319-1326)

contracting parties; its validity or compliance cannot 2. The contracting parties must possess the

be left to the will of one of them. necessary legal capacity (Arts. 1327-1329)

Art. 1315, Civil Code. Contracts are perfected by 3. It must be intelligent, free, spontaneous, and

mere consent, and from that moment the parties are real (not vitiated) (Arts. 1330-1346)
A. Concurrence e. Revocation of the offer before learning

1. Offer: a unilateral proposition which one of acceptance

party makes to the other for the celebration f. Supervening illegality before acceptance

of the contract. (Tolentino) (J.B.L. Reyes)

Requisites: 2. Acceptance

a. Definite Requisites:

b. Intentional a. Unqualified and Unconditional, i.e. it

c. Complete must conform with all the terms of the

Invitations to make offers offer, otherwise it is a counter-offer (Art.

(advertisements) 1319)

Business advertisements of things for b. Communicated to the offeror and

sale, are NOT definite offers, just learned by him (Arts. 1319, 1322). If

invitations to make an offer, UNLESS made through an agent, the offer is

the contrary appears (Art. 1325) accepted from the time the acceptance

Advertisements for bidders are is communicated to such agent.

invitations to make proposals, advertiser c. Express/Implied, but is not presumed

is NOT bound to accept lowest or OPTION CONTRACT: A preparatory

highest bid, UNLESS contrary appears; contract in which one party grants to the

the bidder is the offeror (Art. 1326). other, for a fixed period, the option to decide

Statements of intention: no contract whether or not to enter into a principal

results even if accepted contract. (Art. 1324)

OFFER TERMINATES upon: B. Capacity

a. Rejection by the offeree 1. Incapacitated to Give Consent

b. Incapacity (death, civil interdiction, a. Minors, UNLESS, the minor’s consent

insanity, or insolvency) of the offeror or is operative in contracts:

offeree before acceptance is conveyed For necessaries (Art.1427)

c. Counter-offer Where the minor actively

d. Lapse of the time stated in the offer misrepresents his age (estoppel)

without acceptance being conveyed Mercado v. Espiritu, 1917:

Minors held in estoppel through property or personal service contracts)

active misrepresentation must be approved by the Governor or

Bambalan v. Maramba, 1928: his representative. (Public Land Act)

There is no estoppel if the minority

was known. C. Vices of Consent (Art. 1330, CC) (MIVUF)

b. Insane or demented persons, 1. Mistake

UNLESS, they contract during a lucid Inadvertent and excusable disregard of a

interval circumstance material to the contract. (J.B.L.

c. Deaf-mutes who do not know how to Reyes)

read and write. In order that mistake may invalidate

2. Disqualified to Contract (Art. 1329): consent, it should refer to the

a. Those under Civil interdiction for substance of the thing which is the

transactions inter vivos (RPC Art. 34) object of the contract, or to those

b. Undischarged insolvents (Insolvency conditions which have principally moved

Law, Sec.24) one or both parties to enter into the

c. Husband and wife: cannot donate (Art. contract (Art.1331)

123 FC) to each other, nor sell if the 2. Intimidation

marriage is under ACP (Art.1490) When one of the contracting parties is

d. The ff. cannot purchase (Art. 1491): compelled by a reasonable and wellgrounded

The guardian: his ward’s property fear of an imminent and grave evil

The agent: the principal’s property upon his person or property, or upon the

Executors and administrators: person or property of his spouse,

property under administration descendants or ascendants, to give his

Public officers-state property under consent (Art. 1335).

their administration 3. Violence

Justices, judges, prosecutors, clerks Irresistible force used to extort consent

of court, lawyers-property attached (J.B.L. Reyes)

in litigation. 4. Undue Influence

e. Members of Ethnic Minorities: their When a person takes improper advantage of

contracts (excluding sale of personal his power over the will of another, depriving
the latter of a reasonable freedom of choice
(Art. 1337).
Circumstances:
a. Relationship of the parties (family,
spiritual, confidential etc.)
b. That the person unduly influenced was
suffering from infirmity (mental
weakness, ignorance etc.) (Art.1337)
5. Fraud
When through insidious words or
machinations of one of the contracting
parties, the other is induced to enter into a
contract which, without them, he would not
have agreed to (Art. 1338).
Art. 1339, Civil Code. Failure to disclose facts,
when
there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.
Art. 1340, Civil Code. The usual exaggerations in
trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.
Art. 1341, Civil Code. 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.
Art. 1342, Civil Code. Misrepresentation by a
third
person does not vitiate consent, unless, such
misrepresentation has created substantial mistake
and the same is mutual.
Art. 1343, Civil Code. Misrepresentation made in
good faith is not fraudulent but may constitute error.
SIMULATION OF CONTRACTS (Art. 1345-
1346): Declaration of a non-existent will made
deliberately for the purpose of producing the
appearance of a transaction that does not exist,
or which is different from the one which actually
arose. (J.B.L. Reyes)
II. Object
The thing right or service which is the subject
matter of the obligation arising from the contract.
Requisites:
a. Lawful: Not contrary to law, morals, good
customs, public order or public policy.
b. Actual or possible
c. Transmissible: Within the commerce of man
d. Determinate or determinable
All things or services may be the object of
contracts, EXCEPT:
Things which are outside the commerce of
men
Intransmissible rights
Future inheritance except in cases
authorized by law
Impossible things or services
Objects which are indeterminable as to their
kind, the genus should be expressed
In order that a thing, right or service may be the
object of a contract, it should be in existence at
the moment of the celebration of the contract, or
at least, it can exist subsequently or in the Exceptions:

future. When the law requires that a contract be in

A FUTURE THING may be the object of a some form for validity (Arts. 1357-1358)

contract, such contract may be interpreted as a: When the law requires that contract be in

Conditional contract: where its efficacy some form to be enforceable (Statute of

should depend upon the future existence of Frauds)

the thing II. Kinds of Formalities

A. Contracts Which Must Appear in Writing:

Aleatory contract: where one of the contracting 1. Donation of personal property whose

parties assumes the risk that the thing will never value exceeds five hundred pesos (Art

come into existence, e.g. insurance 748)

III. Cause 2. Sale of a piece of land or any interest

It is the impelling reason for which a party therein through an agent (Art 1874)

assumes an obligation under a contract. 3. Antichresis (Art 2134)

Requisites: 4. Agreements regarding payment of

a. Existing interests in contracts of loans (Art. 2314)

b. Licit or Lawful B. Contracts Which Must Appear in a Public

c. True Document

1. Art. 1358:

Chapter III. Forms of Contracts a. Acts and contracts which have for

I. RULES their object the creation,

II. KINDS OF FORMALITIES transmission, modification or

I. Rules extinguishment of real rights over

Contracts shall be obligatory, in whatever form immovable property; sales of real

they may have been entered into, provided all property or of an interest therein a

the essential requisites for their validity are governed by Articles 1403, No. 2,

present. (Art. 1356) and 1405;

Spiritual System of the Spanish Code: The law looks b. The cession, repudiation or

more on the spirit rather than the form of contracts. renunciation of hereditary rights or

of those of the conjugal partnership

of gains;
c. 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;
d. The cession of actions or rights
proceeding from an act appearing in
a public document.
e. All other contracts where the
amount involved exceeds five
hundred pesos must appear in
writing, even a private one. But
sales of goods, chattels or things in
action are governed by Articles,
1403, No. 2 and 1405.
2. Donation of immovable properties (Art.
749)
3. Partnership where immovable property
or real rights are contributed to the
common fund (Arts.1771 and 1773)
Chapter IV. Reformation of Contracts
Reformation of Contracts (Art 1359-1369)
REFORMATION: is that remedy in equity by
means of which a written instrument is made or
construed so as to express or conform to the
real intention of the parties when some error or
mistake has been committed. (J.B.L. Reyes)
Requisites (Art 1359):
1. There must be a meeting of the minds of the
contracting parties;
2. Their true intention is not expressed in the
instrument;
3. Such failure to express their true intention is
due to mistake, fraud, inequitable conduct,
or accident; and
4. There is clear and convincing proof of
mistake, fraud, inequitable conduct, or
accident.
If the mistake, fraud, inequitable conduct, or
accident
has prevented the meeting of the minds of the
parties,
the proper remedy is not reformation but annulment
of
the contract. (See also Art 1390)
Who May Ask for Reformation (Art. 1368):
1. Either party or his successors in interest, if
the mistake was mutual; otherwise,
2. Upon petition of the injured party, or his
heirs and assigns.
NO REFORMATION in (Art. 1366):
1. Simple donations inter vivos wherein no
condition is imposed;
2. Wills;
3. When the real agreement is void.
Implied Ratification (Art. 1367): The action to
enforce the instrument bars subsequent action
to reform.
CHAPTER 6
RESCISSIBLE CONTRACTS rescissible contracts are:

Classes of defective contracts: 1. contracts in behalf of ward

• rescissible contracts • entered into by guardians whenever their

• voidable contracts wards suffer lesion or damages by more

• unenforceable contracts than ¼ of the value of the thing which are

• void or inexistent contracts the object thereof.

• Rules of Court: judicial guardian entering

rescissible contracts – all of the essential into a contract with respect to the property

elements of a contract are present; contract is of his ward must ordinarily secure the

valid, but by reason of injury or damage to either of approval of a competent court.

the contracting parties or to 3rd persons, it may be • Apply Arts 326, CC; Rules 95-96 New

rescinded. Rules of Court

Characteristics: 2. contracts in behalf of absentees

• defects consists in injury or damage to • rescissible if the absentee suffer the lesion

either of one of the contracting parties or to or damage by more than ¼ of the value of

3rd persons. the thing which are the object thereof.

• Before rescission, they are valid and • principles applicable in Art. 1381, par 1 are

therefore legally effective applicable to this provision since the

• can only be attacked directly powers and duties of representatives are

• can be attacked by I of the contracting the same as that of the guardian.

parties or the 3rd person injured or Requisites for par. 1 & 2 of Arts. 1381

defrauded. • contract must have been entered into by

• Susceptible of convalidation only by the guardian in behalf of his ward or a legal

prescription and not by ratification representative in behalf of an absentee

rescission – remedy to secure the reparation of • ward or absentee must have suffered

damages caused to the contracting party or 3rd lesion of more than ¼ of the value of the

person by a contract; by means of restoration of property which is the object of the contract.

things to their condition prior to the celebration of • Contract must have been entered into

the contract. without court approval

(Art. 1381-1382) • there must be no other means for obtaining

reparation for the lesion contract conveying patrimonial

• the person asking for the rescission must benefit to a 3rd person

be able to return whatever he may be obliged to ▪ creditor has no other legal remedy
restore.
▪ act being impugned is fraudulent.
• Object of the contract must not be legally in
▪ 3rd person has been an accomplice
the possession of 3rd person who acted in
in the fraud.
good faith. (otherwise, remedy is
• Purpose is to guarantee an existing debt
indemnification for damages)
• there is personal right that deserves the
3. contracts in fraud of creditors
protection of law
• when the creditor cannot in any manner
4. contracts referring to things in litigation
collect the claims due them.
• if entered into by the defendant without the
• Requisites:
knowledge and approval of the litigants or
◦ existing credit prior to the celebration of
of competent judicial authority.
the contract.
• Purpose is to secure the possible effectivity
◦ Fraud or at least an intent to commit
of a claim
fraud to the prejudice of the creditor
• there is a real right involved that deserves
seeking rescission.
the protection of law
◦ No other manner by which the creditor
5. contracts by insolvent (Art. 1382)
can collect the credit
• insolvency – refers to the financial situation
◦ object of the credit is not in legal
of the debtor in which it is impossible for
possession by 3rd person who acted in
him to fulfill his obligations.
good faith.(otherwise, remedy is to
• requisites:
proceed against the person causing the
it must have been made in a state of
loss for damages)
insolvency
• accion pauliana- action to rescind contracts
◦ the obligation must have been one
in fraud of the creditors
which the debtor could not be
◦ requisites:
compelled to pay at the time such
▪ plaintiff asking for the rescission
payment was effected.
has a credit prior to the alienation
• Basis of the rescissible character is fraud
▪ debtor has made a subsequent
• contemplates obligations with terms or are
subject to suspensive condition; void and right (No.3 Art. 1381, Civil Code)

natural obligations; and those condoned or Case: Concepcion vs Sta. Ana

have prescribed. (Art. 1384)

6. other contracts declared by law to be purpose of rescission: reparation of damage or

rescissible injury suffered by one of the contracting parties or

• Arts. 1098, 1189, 1526, 1534, 1539, 1542, 3rd person.

1556, 1560, 1567, and 1659 of the Civil Extent of rescission shall be only be to that

Code necessary to cover the damage caused.

(Art. 1383) (Art. 1385)

***Action for rescission is subsidiary it cannot be par. 1 of the provision applies only to rescissory

instituted except when the party suffering damage actions on the ground of lesion and not to

has no other legal means to obtain reparation for rescissory action based on fraud.

the same. Effect of rescission:

Who may institute action: • return the things which were the object of

• person prejudiced the contract (Includes fruits or interests)

◦ party suffering the lesion in the ◦ fruits – natural, industrial, civil, and

rescissory action on the ground of fraud other accessions obtained by the thing

◦ creditor who is defrauded in rescissory ◦ interest – legal interest

actions ***rescission cannot apply if the one who demands

◦ other persons authorized to exercise cannot return what he may be obliged to restore.

the same in their rescissory actions. The determination of good or bad faith of the

• representatives of those prejudiced contacting parties is important in order to assess

• heirs of those prejudiced the fruits or the value thereof which must be

• creditors by virtue of the subrogatory action returned as well as the expenses which must be

(Art. 1177) reimbursed.

***If the decedent himself does not have the right In transfer of properties through gratuitous title,

to institute the action, the heir acting as good faith of the transferee is not a defense.

representative of the decedent also does not have Rescission shall not take effect upon 3rd person, 2

the right to institute the action; however, it will be requisites:

possible for him to institute the action in his own • the thing must be legally in the possession
of 3rd person (immovable,property: the exists against the debtor, the 2nd presumption is not

thing must be registered in the name of the applicable.

3rd person for the requisite to apply) ***The presumptions are disputable and may be

Case: Sikatuna vs Guevarra rebutted by satisfactory and convincing evidence to

• such 3rd person must not have acted in bad the contrary. Case: Honrado vs Marcayda et al.

faith. Badges of fraud: (conveyance)

Remedy if maintaining an action for the rescission 1. inadequate cause or consideration

is impossible is to bring an action for indemnity 2. transfer made by a debtor after the suit has

for damages against the person who caused the been begun and while it is pending against

loss. him

(Art. 1386-1388) 3. sale on credit by an insolvent debtor

proof of fraud- needed to be established in order 4. evidence of large indebtedness or large

that a contract may be rescinded insolvency

presumption of fraud: 5. transfer of all of the property of a debtor

1. alienation of property by gratuitous title if when he is insolvent

the debtor has not reserved sufficient 6. transfer made between father and son

property to pay all of his debts contracted 7. failure of vendee to take exclusive

before such alienation/donation possession of all property

2. Alienations by onerous title when made by ***If it happens that there are 2 or more alienation,

persons against whom some judgment has the 1st acquirer shall be liable first, and so on

been rendered in any instance (even if not successively.

yet final and executory) or some writ of Par. 2 of Art. 1388 seems to have forgotten the

attachment has been issued. The decision or debtor; this is because the debtor is already
attachment need not refer to the
presumed to be insolvent.
property alienated, and need not have
(Art. 1389)
been obtained by the party seeking the
4year-prescriptive period for commencement of
rescission.
action for rescission.
3. Any other manner recognized by law of
– this period must be counted from the time
evidence
of the termination of the incapacity of the
***Where no judgment or preliminary attachment
ward (Art. 1381, par.1)
– this period must be counted from the time or by prescription

the domicile of the absentee is known (Art. 4. defect or voidable character cannot be

1381, par.2) invoked by 3rd persons

– this period must be counted from the time (Art. 1390)

of the discovery of fraud (Art. 1381 par. Voidable contracts:

3&4; Art. 1382) 1. Those where one of the parties is

– in certain cases of rescissible contracts of incapable of giving consent to a contract;

ale, the prescriptive period is 6 months or 2. Those where the consent is vitiated by

even 40 days from the day of delivery. mistake, violence, intimidation, undue

CHAPTER 7 influence or fraud.

VOIDABLE CONTRACTS ***if the consent is absolutely lacking or simulated,

Voidable contracts – element of consent of one of the contract is inexistent, not voidable.

the contracting parties is vitiated either by lack of (Art. 1391)

legal capacity of one of the contracting parties, or 4 years prescriptive period – shall
commence:
by mistake, violence, intimidation, undue influence,
• from the time the defect of the consent
or fraud.
ceases (intimidation, violence, or undue
– binding until annulled by a competent court
influence)
Remedies:
• from the time of the discovery of mistake or
• attack the validity of the contract
fraud
◦ direct – by means of proper action
• from the time the guardianship cease
(annulment)
(contracts entered into by the minors or
◦ indirect – as a defense (annulability or
other incapacitated persons)
relative nullity)
◦ 2 conflicting views:
• convalidate it either by ratification or
▪ prescription applies only to ACTION
prescription.
and NOT defense
Characteristics:
▪ prescription applies to BOTH action
1. defect consists in the vitiation of consent of
and defense – this one is more logical
one of the contracting parties
1392-1396)
2. binding until annulled by a competent court
Ratification – confirmation; act or means by virtue
3. susceptible of convalidation by ratification
of which efficacy is given to contract which suffers • extinguishes the action to annul the

from a vice of curable nullity. contract.

Requisites: • Cleanses the contract of its defects from

1. contract should be tainted with a vice which the moment it was constituted.

is susceptible of being cured (Art. 1397)

2. the confirmation should be effected by the requisites to confer the necessary capacity for the

person who is entitled to do so under the exercise of action to annul:

law • plaintiff must have an interest in the

3. it should be effected with knowledge of the contract

vice or defect of the contract • the VICTIM and not the party responsible

4. the cause of the nullity or defect should for the vice or defect must be the person

have already disappeared who must assert the same

***if the person entitled to effect the confirmation General rule: a third person who is a stranger to
ratifies or confirms the contract with knowledge of
the contract cannot institute an action for
the mistake, but not of the fraud, his right to ask for
annulment.
an annulment is not extinguished thereby since the
Exception: when the 3rd person is prejudiced in his
ratification has only purged the contract of mistake,
rights with respect to one of the contracting parties,
but not the fraud.
and can show detriment which would positively
Forms of ratification:
result to him from the contract in which he has no
(with knowledge of the reason which renders the
intervention.
contract voidable and such reason having
Case: Teves vs People's Homesite & Housing
ceased...)
Corp.
• express – declaration of desire to
(Art. 1398-1399)
convalidate the contract and express
effects of annulment
declaration to renounce his right to annul
• contracting parties are released from their
the contract.
obligations (contract not yet consummated)
• Taci t – executing an act which necessarily
• apply Art. 1398-1402 of the Civil Code
implies an intention to waive his right to
(consummated contract)
annul the contract.
contract, its fruits, and the price with
Effects of ratification:
interest, except in cases provided by
law an incapacitated person)

◦ to do: apportionment of damages (Art. 1400-1402)

based on the value of the prestation Effect of failure to make restitution because
of
with corresponding interests.
loss:
***when the defect of the contract
• due to the fault of the defendant
consists in the incapacity of one of the
◦ return the fruits received and the value
contracting parties, the incapacitated
of the thing at the time of the loss, with
person is not obliged to make any
interests on the same date
restitution except insofar as he has
◦ action for annulment not extinguished
been benefited by the thing or price
◦ instead of being compelled to restore
received by him.
the thing, the defendant can only be
***In the obligation of the incapacitated person to
compelled to pay the value thereof at
make restitution, it is sufficient that there has been
the time of the loss
a prudent and beneficial use by him of the thing
• due to the fault of the plaintiff
which he has received. (food, clothing, shelter,
can be held liable
health, etc.)
only for the value of the thing at the
– presumption that no benefit has accrued to
time of the loss, but without interest
the incapacitated person
thereon
– burden of proof of benefit is casted upon
CHAPTER 8
the person who has capacity.
UNENFORCEABLE CONTRACTS
– Art. 1399 is not applicable in cases where
(Art. 1403-1408)
the incapacitated person can still return the
Unenforceable contracts – cannot be enforced
thing that he received.
by a proper action, unless ratified;
– There is IMPLIED ratification when the
Classes:
incapacitated person failed to ask for the
1. contracts entered into without or in
annulment of the contract and also
excess of authority (Art. 1403, No.1) or;
squandered that part of the consideration
◦ there is absolutely no consent
which remained.
◦ applicable principles:
– In consonance with the principle
▪ no one may contract in the name of
enunciated in Art. 1241 (payment made to
another without being authorized by ◦ Effect: no action can be enforced

the latter or unless he has right to unless the requirement that the

represent him. If he is duly contract be in writing be complied with.

authorized, he must act within the ◦ Form required is for evidentiary

scope of his powers purpose

▪ such contracts are unenforceable ◦ Statute of Frauds is applicable only to

as reiterated in the law on agency those contacts which are purely

▪ such contract may be ratified by the executory and not to those which have

person in whose behalf it has been been consummated either totally or

executed, before it is revoked by partially. (Case: Carbonnel vs Poncio)

the other contracting party et al.; Inigo vs Estate of Maloto)

***Confirmation and ratification were not used ◦ 6 contracts covered :

interchangeably in the old law, but in the new law, ▪ An agreement that by its terms is

the term ratification is now used to designate the not to be performed within a year

act of validating any kind of defective contract. from the making thereof;

Recognition, on the other hand, is merely • limit of human memory is 1

to cure a defect of proof. year

2. contracts which do not comply with • if one of the contracting parties

the statute of frauds (Art. 1403, No. 2) has already complied with the

◦ there is no writing, note, or obligations imposed upon him

memorandum by which the contract by said contract within the

may be proved year, the other party cannot

◦ Statute of Frauds was enacted for the states that invoke the Statute of Fraud
evidence of the
▪ A special promise to answer for the
agreement cannot be received without
debt, default, or miscarriage of
the writing or a secondary evidence of
another;
its contents
• such promise must be
◦ statute simply provides the method by
collateral, not independent or
which the contracts enumerated therein
original for Statute of Frauds to
may be proved.
apply.
▪ An agreement made in document in representing the

consideration of marriage, other credit of another person.

than a mutual promise to marry; ◦ These contracts are susceptible to

• marriage settlements and ratification

donations propter nuptias are ▪ by the failure to object to the

covered by the statute of fraud presentation of oral evidence to

▪ An agreement for the sale of prove the same

goods, chattels or things in action, ▪ by the acceptance of the benefits

at a price not less than five hundred under them.

pesos 3. contracts where both the contracting

• loan is not covered, provision parties do not possess the required

applies only to SALE of goods, legal capacity.

inseparable goods, the prices ◦ Absolutely vitiated consent

of the items shall be ◦ if only one party is incapacitated, the

considered as a whole contract is voidable

• if the transaction separable ◦ may be ratified by the parents or

goods, the prices of the items guardians of the incapacitated persons,

shall not be less than P500 in effect, the contract becomes

▪ An agreement for the leasing for a voidable

longer period than one year, or for ◦ if ratified by the parties themselves

the sale of real property or of an after gaining the capacity, the contract

interest therein; shall be validated from its inception

• oral agreement to extend the Characteristics of unenforceable contracts:

lease is covered by the Statute • cannot be enforced by proper action

▪ A representation as to the credit of • susceptible of ratification

a third person. • cannot be assailed by 3rd persons

• Quasi-delict CHAPTER 9

• misrepresentation by a 3rd VOID OR INEXISTENT CONTRACTS

person will make him liable Void or Inexistent contract – lacks absolutely

only if he has signed a either in fact or in law one or some of the elements
which are essential for its validity. absolute nullity cannot be waived

the beginning • action or defense for the declaration of

• cause, object, purpose are contrary to law, their inexistence or nullity is imprescriptible

public morals, good customs, public order, (Art. 1410)

public policy • inexistence or absolute nullity cannot be

• absolutely simulated or fictitious invoked by a person whose interests are

• cause or object did not exist at the time of not directly affected.

transaction (Art. 1410)

◦ except if the object is possible to come action or defense of declaration of nullity is

into existence (this is to harmonize Art. imprescriptible – because the defects are more or

1409 with the provision that future less permanent, thus cannot be cured by

objects may be some future thing) prescription

• object is outside the commerce of man Case: Castillo vs Galvan

• contemplates an impossible service ***An action to declare the nullity of a void

• where the intention of the parties relative to judgment does not prescribe (Paluwagan ng

the principal object of the contract cannot Bayan Bank vs King)

be ascertained Case: Aznar Brothers Realty vs Heirs of

• expressly prohibited or declared void by Augusto – no unreasonable delay in

asserting
law
their rights
***cannot be ratified; defense of illegality cannot be
– in spite the imprescriptibility, laches may
Waived
bar the action of a party in asserting the
produce no legal effect (quod nullum est
nullity of the contract
nullum producit effectum)
(Art. 1411-1422)
◦ Except: Art. 1411-1412 – nullity is
in pari delicto – equally at fault
based on the illegality of the cause; any
– the law will not aid either party to an illegal
action by a guilty party to recover
agreement, it leaves them where they are.
whatever he has already given under
– Applies only to cases of existing contracts
the contract is barred
with an illegal cause or object and not to
• not susceptible of ratification
simulated or fictitious contracts nor to those
• right to set up the defense of inexistence or
which are inexistent • agreement that is not illegal per se but is

Case: Rodriguez vs Rodriguez prohibited by law (Art. 1416)

– circumvention of provision on prohibited ◦ “in pari delicto is not applicable to a

donation between spouses homestead; the purpose of the law is to

– appellant is clearly as guilty as her give land to a family for home and

husband in the attempt to circumvent the cause cultivation, consequently, the law

only 1 party is at fault: allows the homesteader to reacquire

• executed contract the land even if it has been sold.”

◦ guilty party is barred from recovering (Angeles vs CA, 102 Phil. 1006)

what he has given to the other party by ◦ rule of in pari delicto is inapplicable

reason of the contract where the same violates a wellestablished

◦ innocent party may demand the return public policy (Angeles vs

of what it has given CA, 102 Phil. 1006) and Phil. Banking

• executory contract vs Lui She

◦ contract cannot produce any legal • payment of any amount in excess of the

effect whatsoever maximum price of any article or commodity

◦ parties cannot demand for the fixed by law. (Art. 1417)

fulfillment of any obligation arising from • Contract where by a laborer undertakes to

the contact nor be compelled to comply work longer than the maximum number of

with such obligation hours fixed by law (Art. 1418)

Exceptions in applicability of in pari delicto: • contract whereby a laborer accepts a wage

• payment in usurious interes t (Art. 1413) lower than the minimum wage fixed by law

◦ “interest paid in excess of the interest (Art. 1419)

allowed by the usury law” - means the ARTICLE 1421

whole usurious interest; with interest The defense of illegality of contract is not available

thereon from the date of payment to third persons whose interests are not directly

• payment of money or delivery of property affected.

for an illegal purpose (Art. 1414) ARTICLE 1422

• payment of money or delivery of property A contract which is the direct result of a previous

by an incapacitated person (Art. 1415) illegal contract, is also void and inexistent.