CONTRACTS
debt
ART. 1385 – Recission creates obligation of Mutual
Restitution
(If contract is rescinded – parties must return to each
other the object of the contract with its fruits and the
price with legal interest)
To restore in the original situation
Obligations of third person to restore –
“He who demands rescission” – applies also to 3rd person
When rescission is not allowed
One of the party who demands rescission cannot
return what he is obliged to restore
- Property is in possession of 3rd person who acted
in good faith (na acquire ng 3rd person yung
property and nakaregister sa torrens system) –
Therefore indemnity for damages lang
(e.g. Si G ay guardian ni M, tas si M may land worth of
200k pero binenta lang for 140k. Pag hindi na minor si
M pede sya mag ask for rescission dun sa sale na
nangyari dati. Therefore, kug kay C binenta, need nya
ibalik yung and plus fruits then si M need nya ibalik
yung 140k plus legal interest. If si M mismo ang di na
makakapagbalik nung need nya ibalik, the hindi
magkakarron ng rescission.)
(e.g. eto naman yung sa 3rd person who acted in good
faith – Kung binenta naman ni C kay D, di na pede
magkaroon ng rescission. – Therefore, indemtnity nalang
ang pede)
ART. 1386 - Rescission in no. 1 and 2 in article 1381
shall not takes place with respect to contracts
provided by law
Contracts approved by law
- When there is a ward or absentee then approved
by court – NO RESCISSION
ART 1387 – Alienation presumed in fraud of
creditors
- Prima facie (first impression) presumptions of
fraud in case of alienation by debtor to his
property
1. Alienation by gratuitous title – (e.g. R donated land
to E, pero before the donation R had contracted several
debts. With the donation to E, remaining property of R is
not sufficient to pay all his debts – The donation is
fraudulent kase magkukulang yung pambayad nya sa
2. Alienation by onerous title – (e.g. dapat hindi
maprejudice yung rights ng crecitors ni R, kunwari ay
sale yung kanina, hindi donation)
(e.g. Pag may writ of attachment yung creditor ni R tas
binenta pa din nya sa iba, fraudulent ulit yon)
(e.g. Yung creditors in E, pede mag ano ng rescission)
Circumstances denominated as badges (mark or sign) of
fraud
1. Fictitious or inadequate
2. Transfer made by a debtor after suit has begun and
while it is pending against him.
3. A sale upon credit by an insolvent debtor
4. The transfer of all property by debtor – he is insolvent
or embarrassed financially
5. Transfer made between father and son
6. Failure to take exclusive possession of all the property
7. Known to vendee that the vendor has no properties
ART 1388 – Liability of purchaser in bad faith &
Whoever may be the first acquirer shall be liable first
- Return the same is sale in rescinded
- If it is impossible for him to return, then he must
indemnify the former (saan sya ang acquire)
(e.g. S binenta kay B car nya, para matakasan utang
kay S. – alam ni B purpose ni S – If sale is
rescinded, b must return the car. Kung di na
mababalik kase nasira with or without fault of B, si
C ang sasalo ng damages ni B)
(e.g. kunwari naman ni-transfer ni B kay D who also
acted in bad faith, then D to E na walang alam –
therefore, As first acquirer B shall be liable first,
then if he cannot pay si D naman) – Pero kung si B
acted in good faith – di na importante kung si D
acted in good or bad except kung nakipag connived
sya kunwari kay A para maging innocent si B
(e.g. B brought land from S who is not a registered
owner – Then B is still a bad purchaser kase no one
can buy from who is not registered)
ART. 1389 – Period for filling actions and persons
entitled to bring action
Period for filling actions
1. For persons under guardianship – period shall
begin from the termination of incapacity
2. For absentees – from the time domicile is known
Persons entitled to bring action
1. The injured party / defrauded creditor
2. Heirs, assigns or successors in interest
3. Creditors entitled to subrogation
Chapter 7 – Voidable Contracts
ART. 1390 – Voidable Contracts
Voidable or Annullable – possess all essential
requisites of a valid contract
- One parties in incapable of giving consent
- Consent is vitiated by mistake, violence, undue
influence or fraud
Binding force
- Valid and binding between the parties unless
action is brought to court and it is annulled
- Once ratified, it cannot be annulled
*Economic damage is not essential for annulment
Kinds of voidable contracts
1. Legally incapacity to give consent
2. Violation to a contract (Mistake or etc.)
Annulment – declaration of inefficiency of
contract
ART 1391 – Period for filling action for annulment
- 4 year period
- In case of intimidation, undue influence or
violence
- In case of fraud or mistake
- In case of contracts entered by minors or
incapacitated persons
ART 1392 – Ratification extinguishes the action to
annul a voidable contract
Ratification – voluntary adopts or approves
some defective or unauthorized act or contract
without his subsequent approval or consent
- Cleanses the contracts from all its defects
- Contract becomes valid
ART 1393 – Kinds of Ratification
1. Express – words or in writing
2. Implied or tacit – silence, action and more
Requisites for ratification
1. Implied Ratification
a. There must be a knowledge of the reason
b. Such reason must have ceased
c. Injured parry implies an intention to waived his right
2. Express Ratification – same with implied however,
the former is affected expressly
ART 1394 – Ratification may be affected by the
guardian of the incapacitated person
Who may ratify
A. Contracted entered by incapacitated person may be
ratified by:
1. Guardian
2. Injured party provided he is already capacitated
B. Ratification can be made by the party whose consent
is vitiated
ART 1395 – Conformity (behaving the same way like
others) of guilty party to ratification not required
- Consent of guilty party is not required
ART 1396 – Ratification cleanses the contract from
all its defects from the moment it was constituted –
extinguishes the right of action to annul
(e.g. B force S to sell the latter’s horse, then horse gave
birth to a colt- S is entitled to the colt since ratification
has a retroactive effect)
ART 1397 – Party entitled to bring an action to annul
1. Plaintiff (person who bring the action to the court)
must have an interest in the contract
2. The victim
Right of strangers to bring action
- No right unless they can show detriment (state
of being harmed)
(e.g. S sold land to B, but consent of S is vitiated with
fraud – then S sold the same land to C then C can bring
an action to annul the sale)
(e.g. S sold land to B, provided by law sila lang pede
mag file for annulment. S C ay isa pang owner kaso di
sya pede mag file ng annulment kase di sya obliged –
Pero may right to question if under the law he has the
right for redemption – therefore redemption will annul
the sale of S and B)
ART 1398 – Duty of mutual restitution upon
annulment
1. Must return to each other the subject matter plus fruits
and price with legal interest
2. Personal Obligations – the value with corresponding
interest is the basis for damages recoverable from the
party benefited by the service
ART 1399 – Restitution by the incapacitated person
-Obliged to restitution up to the extent that he was
benefited by the thing or price received by him
ART 1400 – Effect of loss of the things to be returned
1. Loss without his fault (person obliged to make
restitution) – no more obligation to return the thing
2. Loss due to his fault – indemnity for damages
ART 1401 – Extinguishment of Action for annulment
-If the person who has the right to institute an action for
annulment – will not be able to restore the thing which
he may be obliged when thing lost is through fraud
-Right of action is based upon the incapacity of any one
of the contracting parties
ART 1402 – Effect where a party cannot restore what
he is bound to restore – no annulment
(B force S to sell horse but annulled by court – if horse
died bc of fortuitous event – S can refuse to return
purchase price. With or w/o fault of B, S has right to
demand value of horse with damages.
Chapter 8 – Unenforceable Contracts
ART 1403 – Unenforceable Contracts
Unenforceable Contracts – cannot be enforced
or given effect by court
Binding force
- Valid but when they are ratified then it will be
enforceable
Kinds of Unenforceable Contracts
- Those entered into the name of another one
without or acting in excess of authority
- Those who do not comply with statues of fraud
- Both parties are incapable of giving
Unauthorized Contracts - those entered into
the name of another one without or acting in
excess of authority or power
Statute of Fraud – must be done in writing
Agreement within the scope of Statute of Fraud
1. Agreement not to be performed within one
year from the making
2. Promise to answer for the debt, default, or
miscarriage of another (guarantor)
3. Agreement in consideration of marriage
other than mutual promise to marry
4. Agreement for sale of goods etc at price not
less than 500
5. Agreement for leasing for a longer period
of 1 yr
6. Agreement for the sale of real property or
of an interest
7. Representation as to the credit of a third
person
ART 1404 – Unauthorized contracts are governed by
article 1317
ART 1405 – Modes of Ratification under Statute
1. Failure to object to the presentation of oral evidence to
prove the contract
2. Acceptance of benefits under the contract
ART 1406 – Right of party where contract is
enforceable
1. Party to an oral sale of real property cannot compel
the other to put the contract in a public document for
purposes of registration bc it is unenforceable unless it
has been ratified
2. The right of one party to have the other execute a
public document is not available in a donation of realty
when it is in a private instrument bc donation is void.
ART 1407 – When unenforceable contract becomes
voidable contract or valid contract
When unenforceable contract becomes voidable contract
- Both parties to a contract are incapable of giving
consent – unenforceable. If the parent or
guardian or if one of the parties after attaining or
regaining capacity, ratifies the contract –
voidable
When unenforceable contract valid contract
- Ratification made by parents or guardians after
attaining or regaining capacity – valid contract
ART 1408 – Unenforceable contract cannot be
assailed (attack on) by third persons
Rights of 3rd person to assail an unenforceable contract
- No right
Chapter 9 – Void or Inexistent Contracts
ART 1409 - Void or Inexistent Contracts
Void Contracts – no effect
- Considered inexistent
Inexistent Contracts – agreement which lack
one or some or all of the elements of contract
- Do not comply with formalities w/c are
essential for the existence of contract
Characteristics of a void or inexistent contract
- No force or effect
- Cannot be ratified
- Right to set up defense of illegality cannot be
waived
- Action or defense for the declaration of
inexistence does not prescribe
- The defense of illegality is not available to 3rd
persons whose interest are not directly affected
- Cannot give rise to a valid contract
Instances of void or inexistent contracts
- Contracts whose cause, object or purpose is
contrary to law
- Contracts which are absolutely simulated or
fictitious
- Contracts w/o cause or object
- Contracts whose object is outside the commerce
of men
- Contracts which contemplate an impossible
service
- Contracts where the intention of parties relative
to the object cannot be ascertained
- Contracts expressly prohibited or declared void
by law
ART 1410 – Action or defense is imprescriptible
(cannot be taken away)
- It is better that a judicial declaration of nullity be
secured not only to give peace of mind to the
parties but also to avoid the taking of the law
into their own hands
ART 1411 – Rules where the contract is illegal and
the act constitutes a criminal offense
1. Where both parties are in pari delicto (both are
wrong)
a. no action against each other
b. both shall be prosecuted
c. things or price of the contract, as the effects or
instruments of the crime shall be confiscated in favor of
the govt.
2. Where only one party is guilty
ART 1412 - – Rules where the contract is illegal and
the act does not constitutes a criminal offense
1. Where both parties are in pari delicto
a. neither party may recover what he has given by virtue
of the contract
b. neither party may demand performance of the other’s
undertaking
2. Where only one party is guilty
a. guilty party loses what he has given by reason
b. guilty party cannot ask for fulfilment
c. innocent party may demand the return of what he gave
d. Innocent party cannot compelled to comply with his
promise
ART 1413 – Recovery of Usurious Interest
-Interest paid in excess of the interest allowed by the
usury law may be recovered by the debtor with interest
thereon from the date of the payment
ART 1414 – Recovery where contract into for illegal
purpose
1. the contract into is for illegal purpose
2. Contract is repudiated before the purpose has been
accomplished or before any damage has been caused to a
3rd person
3. Court considers public interest will be sub served by
slowing recovery.
(e.g. Bibigyan ni A di B ng 1k if nihide nya si C na nag
murder, if nagbago isip nya then di pa natatago si C-
recovery of 1k)
ART 1415 - Recovery by an incapacitated person
- Recovery can be allowed when one of the parties
is incapacitated and the interest of justice so
demands
ART 1419 - Recovery of amount of wage less than
minimum fixed
- Includes legal interest
ART 1420 – Effect of illegality where contract is
indivisible/divisible
- When consideration is entire and single –
contract is indivisible so that if part of such
consideration is illegal the whole contract is void
and unenforceable
- Where the contract is divisible or severable,
consideration is made up of several parts –
illegal ones can be separated from the legal
portions – subject to contrary intention of parties
(e.g. S sold to B his car and shabu for 200k –
contract is void kase isang consideration lang –
magkasama na sa 2ook yung illegal na drugs) – pero
if magkahiwalay yung illegal lang ang mawawala
Divisible contract distinguished from divisible
obligation
DIVISIBLE CONRACT DIVISIBLE OBLIGATION

ART 1416 - Recovery where contract not illegal per Divisibility of its cause Susceptibility of partial
fulfilment
se
Recovery is permitted provided that:
- Agreement is not illegal per se ART 1421 – Persons entitled to raise defense of
- Prohibition is designed for the protection of the illegality or nullity
plaintiff
- Public policy would be enhanced by allowing - The defense of illegality of contracts is not
the plaintiff to recover what he has paid or available to 3rd persons whose interest are not
delivered directly affected.

ART 1417 - Recovery of amount paid in excess of ART 1422 – Void contract cannot be novated (new
ceiling price contract)
Ceiling law – statute fixing maximum price of
any article or commodity

ART 1418 - Recovery of additional compensation for

service rendered beyond time limit

Applies to all employees, expect:

- Govt. Employees
- Managerial employees
- Field Personnel
- Members of the family of the employers
- Domestic helpers
- Persons in the personal service to others
 ART 1428 – Performance after action to enforce civil
obligation has failed
NATURAL OBLIGATIONS
- When after an action to enforce a civil obligation
ART 1423 – Natural obligations has failed, the defendant voluntarily performs
the obligation, he cannot demand the return of
(eto yung pag wala ka ng obligation pero nagbayad ka pa what he rendered or delivered
din – wala ka ng makukuha)
ART 1429 – Payment by heir of debt exceeding
- Civil and Natural Law value of property inherited

Civil Obligation distinguished from Natural Obligations - Kung labis yung binayad mo sa natanggap mo
ay di mo na makukuha yung labis na yon.
CIVIL OBLIGATIONS NATURAL OBLIGATIONS
ART 1430 – Payment of legacy after will has been
declared void
-arise from law, -not based on positive law but
contracts, quasi contracts on equity and natural law Legacy – regalo sa hindi mo tagapagmana (you give
or delicts money or property)
-do not grant such right of
-give a right of action in action to enforce their Device – what you give is a real property
courts of justice to performance
compel their performance
or fulfilment

ART 1424 – Performance after civil obligation has

prescribed

- No obligation
- If nagbayad ka pa din – no recovery

ART 1425 – Reimbursement of 3rd person for the

debt that prescribed

(e.g. If without knowledge, di makakakuha si 3rd person

sa debtor pero pag binayadan ni debtor si 3rd person
etong si debtor di naman makukuha sa creditor kase nag
prescribed na nga)

ART 1426 –Restitution (restoration) by minor after

annulment of contract

(e.g. M ay minor binenta car nya for 100k w/o consent of

parents, if nawala ang 30k tas annulled contract – he is
obliged to return 70k pero may natural obligation sya
ibalik ang 100k)

ART 1427 – Delivery by minor of money or fungible

thing in fulfilment of obligation

- No right to recover from the oblige who has

spent or consumed it on good faith