OBLIGATIONS & CONTRACT of the parties

The contract is Once the marriage

REVIEWER executed, the result is celebrated, the
is a contract result is a status.
CONTRACTS Usual remedy is for Usual remedy is for
the injured party to the injured party to
Art. 1305 A contract is a meeting of minds institute an action institute a civil
between two persons whereby one binds against the other action against the
himself, with respect to the other, to give party for damages other party for legal
something or to render some service. separation or a
criminal action for
“Contract” adultery or
- means an agreement or convention. concubinage.
- As the juridical convention Perfected promise Imperfected
manifested in legal form, by virtue of Promise
which one or more persons bind To insure and pave Is a mere
themselves in favor of another or way for the unaccepted offer.
others, or reciprocally, to the celebration of a
fulfillment of a prestation to give, to future contract
do, or not to do. Pact Stipulation
Is an incidental part Is an essential and
Contract Convention of a contract which dispositive part
Limited exclusively Broad enough to can be separated chich cannot be
to those include any kind of from the principal separated from
agreements which agreement agreement such principal
produce patrimonial agreement.
obligations.
specie genus Elements of a Contract
Contract Juridical 1. Essential – those without which
Convention there can be no contract. The
The principal The principal following are essential elements:
source o rights and source of rights and a. Common (communes) –
obligations of the obligations of the those which are present in all
parties is their parties is the law contracts, such as the
agreements itself consent, object and cause.
Rights and Rights and b. Special (especiales) –
obligations are obligations are present onle in certain
concrete, limited more or less contracts, such as delivery in
and transitory elastic, absolute real contracts.
and permanent. c. Extraordinary or peculiar
Contract Marriage Contract (especialisimos) – which are
Parties may be two It is necessary that peculiar to a specific
or more persons of the partis must be contract, such as the price in
the same or of one man and one a contract of sale.
different sexes woman. 2. Natural – those which are derived
Consequences and Consequences and from the nature of the contract and
ioncidents of the incidents of the ordinarily accompany the same, they
contract are marriage are are presumed by the law, they can
governed primarily governed by law be excluded by the contract parties if
by the agreement they so desire.

SHELLA HANNAH J. SALIH 1

 3. Accidental – those which exist only
when the p[arties expressly provide
for them for the purpose of limiting or
modifying the normal effects of the
contract.
Parties to a Contract
It is evident that the existence of two parties
is also another essential element which is
common to all contracts and must,
theref9re, be added to the requirement of
consent, object certain and cause.
A person cannot enter into a contract with
himself. However, there are certain cases
where a juridical relation, known as an
“Auto- contract”, may be created, there is
only one party involved but in reality, said
party merely acts in the name and for the
account of two distinct contracting parties.
An Auto Contract may take place only in two
(2) cases:
1. When a person, in his capacity as
representative of another, contracts
with himself, or
2. When as a representative of two
different persons, he brings about a
contract between his principals by
contracting with himself.
Characteristics of Contracts
The fundamental characteristics of
contracts:
1. The obligatory force or character of
contracts.
- Once a contract is perfected, it shall
be of obligatory force upon both of
the contracting parties, not only to
the fulfillment of what has been
expressly stipulated., but also to all
of the consequences thereof.
2. The autonomy of contracts
- The contracting parties may
establish such agreements as they
may deem convenient, provided that
they are not contrary to law, morals,
good customs, public order, or public
policy.
SHELLA HANNAH J. SALIH
3. Mutuality of contracts or what
amounts to the same thing.
- Refers ot the position of essential
equality that is occupied by both
contracting parties in relation to the
contract, it must be binding upon
both of the parties.
- The validity or compliance cannot be
left to the will of one of them.
4. Relativity of contracts
- Contracts take effect only between
the parties, their assigns and heirs.
- General rule, contracts cannot
produce any effect upon third
persons, in conformity with the
principle of res inter alios acta aliis
negue nocet prodest. (a thing done
bwteen others does not harm or
benefit others).
“Breach of Contracts”
- As the failure, without legal reason,
to comply with the terms of the
contract.
- As the faulire, without legao excuse,
to perform any promise which forms
the whole or part of the contract.
Life of Contracts
First Stage: Generation
- As the preliminary or
preparation,conception, or
generatiom, which is the period of
negotiaton and bargaining, ending at
the moment of agreement of the
parties.
Second Stage: Perfection
- The perfection or birth of the
contract, when the parties come to
agree on the terms of the contract.
Third Stage: Consummation
- The death, which is the fulfillment or
performance of the terms agreed
upon in the contract.
Classification of Contracts
2
According to their relation to other
contracts.
Preparatory
- which have for their object the
establishment of a condition in law
which is necessary as a
preliminary step towards the
celebration of another subsequent
contract
Principal
- which can subsist independently
from other contracts and whose
purpose can be fulfilled by
themselves.
Accessory
- which can exist only as
consequence of, or in relation
with, another prior contract.
According to their perfection
Consensual
- which are perfected by the mere
agreement of the parties
Real
- which require not only the consent
of the parties for their perfection
but also the delivery of the object
According to their form
Common or Informal
- which require no particular form
Special or Formal
- which require some particular form
According to their purpose
Transfer of Ownership
Conveyance of Use
Rendition of Service
According to their subject matter
Things
Services
According to the nature of the
vinculum which they produce
Unilateral
- which give rise to an obligation for
only one of the parties
Bilateral
- which give rise to reciprocal
obligations for both parties
According to their cause
Onerous
- which each of the parties aspires
SHELLA HANNAH J. SALIH
to procure for himself a benefit
through the giving of an equivalent
or compensation
Gratuitous
- which one of the parties proposes
to give to the other a benefit
without any equivalent or
compensation
According to the risks involved
Commutative
- each of the parties acquires an
equivalent of his prestation and
such equivalent is pecuniarily
appreciable and already
determined from the moment
Aleatory
- where each of the parties has to
his account the acquisition of an
equivalent of his prestation, but
such equivalent, although
pecuniarily appreciable, is not yet
determined at the moment of the
celebration of the contract, since it
depends upon the happening of
an uncertain
According to their names or norms
regulating them
Nominate
- those which have their own
individuality and are regulated by
special provisions of law
Innominate
- which lack individuality and are
not regulated by special provisions
of law.
Art. 1306 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
This is this is the right of the contracting
parties to establish any stipulation, clause,
term or condition as they deem convenient.
Limitations
3
The stipulations, clause,. Term, or condition
established by the contracting parties must
not be contrary to:
1. Law
- The laws referred to are:
a. Those which are mandatory or
prohibitive in character
b. Those which are expressive of
fundamental principles of justice
c. Which impose essential
requisites without which the
contract cannot exist.
2. Morals
- The morals referred to are those
principles which are incontrovertible
and are universally admitted and
which have received social and
practical recognition.
3. Good customs
- If a moral precept or custom is not
recognized universally, but is
sanctioned by the practice of a
certain community, then it shall be
included within the scope or sphere
of good customs.
4. Public order
- Can only refer to the safety, as well
ass to the peace and order, of the
country or of any particular
community.
5. Public policy
- A principle of law shich holds that no
person can lawfully do that which
has a tendency to be injurious to the
public or against the public good.
- According to Justice Laurel: in order
to declare a contract void as against
public policy, it. Must find that the
contract as to the consideration or
thing to be done, has a tendency to
injure the public, is against public
good, or contravenes some
established interests of society or is
inconsistent with sound policy and
god moralkls, or tends clearly to
undermine the security of individual
rights.
Restrain in Business Trade
SHELLA HANNAH J. SALIH
With regard to contracts which tend top
restrain business trade, the rule is now well
established that a contract in restraint of
trade is valid provided that there is a
limitation upon either time or place.
A contract, however, which restrains a man
from entering into a business or trade
without either. A limitation as to time or
place is invalid.
In addition to the requirement that there
must be a limitation as to time or place, it is
also required that the restraint must be
reasonable necessary for the protection of
the contracting parties.
Compromise Agreement
“Compromise”
- Is a contract whereby the parties, by
making reciprocal concessions,
avoid a litigation or put an end to
one already commenced.
- It is an agreement between 2 or
more persons, for preventing or
putting an end to a law suit, adjust
their difficulties by mutual consent in
the manner which they agree on,
which every one of them prefers in
the hope of gaining, balanced by the
danger of losing.
Compromise Agreement is binding on the
contracting parties and is expressly
acknowledged as a juridical agreement
The general rule is that a compromise has
upon the parties the effect and authority of
res judicata. Even if the agreement has not
been judicially approved.
The compromise agreement as a
consensual contract became binding
between the parties upon its execution and
not upon its court approval. It becomes the
source of the rights and obligations.
In the case of National Commerical bank of
Saudi Arabia v. Court of Appeals, the Coiurt
held that to have the force of res judicate,
4
the Compromise Agreement must be
approved by final order of the court, and
must be based on real claims and actually
agreed upon in good faith.
Nominate/ Innominate Contracts
Art. 1307. Innominate contracts shall be
regulated by the stipulations of the parties,
by the provisions of Titles I and II of this
Book, by the rules governing the most
analogous nominate contracts, and by the
customs of the place.
“Nominate Contracts”
- Those which have their own
distinctive individuality and regulated
by special provisions of law. Such
as:
a. Sales
b. Barter or Exchange
c. Lease
d. Partnership
e. Agency
f. Loan
g. Deposits
h. Aleatory Contracts
i. Compromise and Arbitration
j. Pledge, Mortgage, and
Antichresis
“Innominate Contracts”
- Those which lack individuality and
are not regulted by special
provisions of law.
- There are four kinds:
a. Do ut des: I give that you give
b. Do ut facias: I give that you do
c. Facio ut des: I do that you give
d. Facio ut facis: I do that you do
Innominate Contracts shall be regulated by
the stipulations of the parties, by the general
provisions or principles of obligations and
contracts, by the rules governing the most
analogous nominate contracts and by the
customs of the place. (Art. 1307)
Mutuality of Contracts
SHELLA HANNAH J. SALIH
Article 1308. The contract must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them.
Article 1309. The determination of the
performance may be left to a third person,
whose decision shall not be binding until it
has been made known to both contracting
parties.
Article 1310. The determination shall not be
obligatory if it is evidently inequitable. In
such case, the courts shall decide what is
equitable under the circumstances.
The law expressly or impliedly recognizes
the following:
1. The validity or fulfillment of a
contract cannot be left to the will of
one of the contracting parties.
What is prohibited by the law from
being delegated to one of the
contracting parties:
a. The power to determine whether
or not the contract shall be valid
b. The power to determine whether
or not the contract shall be
fulfilled.
2. The validity or fulfillment may be left
to the will of a third person. Whose
decision shall not be binding until it
has been made known to each of
the contracting parties.
3. The validity or fulfillment can be left
to chance.
There are certain agreement which will in
effect render the mutuality of contracts
illusory because one of the contracting
parties is placed in a position of superiority
with regard to the determination of the
validity or fulfillment of the contract, but it
does not fall within the purview of the
prohibition. Such as:
1. Where the obligor promises to pay a
certain amount which is not
determined, but the contract itself
specifies the manner by which the
amount may be determined by the
5
 exercise of judgment and discretion
of the obligor.
2. Where the fulfillment of the contract
is left to the will of one of the
contracting parties in the negative
form of rescission.
Relativity of Contracts
Article 1311. Contracts take effect only
between the parties, their assigns and heirs,
except in case where the rights and
obligations arising from the contract are not
transmissible by their nature, or by
stipulation or by provision of law. The heir is
not liable beyond the value of the property
he received from the decedent. If a contract
should contain some stipulation in favor of a
third person, he may demand its fulfillment
provided he communicated his acceptance
to the obligor before its revocation. A mere
incidental benefit or interest of a person is
not sufficient. The contracting parties must
have clearly and deliberately conferred a
favor upon a third person.
A contract can only bind the parties who
had entered into it or their successors who
have assumed their personality or their
juridical position, and that, such contract
can neither favor nor prejudice a third
person.
An assignment or transfer by a contracting
party has the effect of subrogating the
assignee to all of the rights and obligations
of the assignor.
It must be noted, that the monetary
obligations that the decedent might have
incur during his lifetime cannot be
transmitted to his heirs through
successions. The heirs cannot be charged
directly with the payment of such
obligations.
It is the estate or the mass of property left
by the decedent, instead of the heirs
directly, that becomes vestyed and charged
SHELLA HANNAH J. SALIH
with his rights and obligations which survive
after his death.
The general rule that am assignee or heir
shall be bound by the terms of the contract
is not apllicable if the rights and obligations
arising from the contract are not
transmissible, such as:
1. By their nature
- When the special or personal
qualification of the obligor
constitutes one of the principal
motives for the establishment of the
contract.
2. By the stipulation of the parties
- When the contract expressly
provides that the obligor shall
perform an act by himself and not
through another.
3. By the provisions of law
- Those arising from a contract of
partnership or of agency.
Effects of Contract on Third Persons
Four exceptional instances where a contract
may produce effect either directly or
indirectly on third persons:
1. Where the contract contains a
stipulation in favor of a third person
2. Where the third person comes into
possession of the object of a
contract creating a real right
3. Where the contract is entered into in
order to defraud a third persons
4. Where the third person induces a
contracting party violate his contract.
Beneficial Stipulation
- A stipulation in a contract, clearly
and deliberately conferred by the
contracting parties as a favor upon a
third person, who must have
accepted it before it could be
revoked.
- he may demand its fulfillment
provided that he communicated his
acceptance to the obligor before its
revocation.
6
 Kinds of beneficial stipulations:
a. Where the stipuolation is
intended for the sole benefit of
the third person
b. Where an obligation is due from
the promise to the third person
which the former seks to
discharge by means of such
stipulation.
Requisites:
1. There must be a stipulation in favor
if a third person
2. The stipulation musty be a part, not
the whole of the contract
3. The contracting parties must have
clearly and deliberately conferred a
favor upon a third person
4. The third person must have
communicated his acceptance to the
obligor before its revocation
5. Neither of the contracting parties
bears the legal representative or
authorization of the third party.
Contracts Creating Real Rights
Article 1312. In contracts creating real
rights, third persons who come into
possession of the object of the contract are
bound thereby, subject to the provisions of
the Mortgage Law and the Land
Registration Laws.
“Real Right”
- Right belonging to a person over a
specific thing, against whom such
right may be personally enforced.
- Enforceable against the whole world
- A third person who might come into
the possession of the object of a
contract creating a real right will be
bound by such right
Contracts in Fraud of Creditors
Article 1313. Creditors are protected in
cases of contracts intended to defraud
them.
SHELLA HANNAH J. SALIH
Although a third person cannot ask for the
annulment of a contract, but if he is a
creditor of one of the contracting parties,
and the contract was entered into with the
intention of defrauding him, he may ask for
its rescission.
Interferences with Contractual Relations
Article 1314. Any third person who induces
another to violate his contract shall be liable
for damages to the other contracting party.
Any third person who induces another to
violate his contract shall be liable for
damages.
Requisites:
1. The existence of a valid contract
2. Knowledge on the part of the third
person of the existence of the
contract
3. Interference by the third person
without legal justification or excuse
The malice which makes one liable for
procuring a breach of contract is malice in
its legal sense, and whether a wrongdoer’s
motive in interfering is to benefit himself or
to gratify his spite by working mischief to
another is immaterial.
Perfection of Contracts
Article 1315. 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 the consequences which,
according to their nature, may be in keeping
with good faith, usage and law
“Perfecting of Contract”
- The moment in the life of a contract
when there is finally a concurrence
of the wills of the contracting parties
with respect to the object and the
cause of the contract.
- Signifies the bbirth or appearance of
the contract as an obligatory tie
7
General rule is that the perfection of a
contract is produced by mere consent.
There are certain contracts, such as
deposit, pledge and commodatum, which
cannot be perfected until the delivery of the
object.
Contracts in Name of Another
Article 1317. No one may contract in the
name of another without being authorized
by the latter, or unless he has by law a right
to represent him. A contract entered into in
the name of another by one who has no
authority or legal representation, or who has
acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly
or impliedly, by the person on whose behalf
it has been executed, before it is revoked by
the other contracting party.
No person may enter into a contract in the
name of another unless he has been duly
authorized by the latter, or unless he has by
law a right to represent him.
If he enters into a contract, although he has
no authority or legal representation, or even
if he has such authority, if he has acted
beyond the scope of his powers, the
contract is unenforceable.
Unenforceable Voidable
It cannot be sued it is binding, unless
upon or en forced, annulled by proper
unless they are action in court.
ratified by the
person in whose
behalf it has been
executed.
In the degree of In the degree of
defectiveness, defectiveness,
unenforceable voidable contracts
contract occupies are farther away
an intermediate from absolute
ground between a nullity than
voidable and void unenforceable
contract contracts.
SHELLA HANNAH J. SALIH
ESSENTIAL REQUISITES OF
CONTRACTS
Article 1318. There is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject
matter of the contract;
(3) Cause of the obligation which is
established
The elements of a contract may either be:
1. Essential
- Those without which there can be no
contract.
- It may either be:
a. Common Elements: those which
are present in all contracts
b. Special Elements: those which
are present only in certain
contracts
c. Extraordinary Elements: those
which are peculiar to a specific
contract.
2. Natural
- Those which are derived from the
very nature of the contract, and as a
consequence, ordinarily accompany
the same, although they can be
excluded by the contracting parties if
they so desire.
3. Accidental
- Those which exist only when the
contracting parties expressly provide
for them for the purpose of limiting or
modifying the normal effects of the
contract.
The law imposes the essential elements,
presumes the natural and authorizes the
accidental. Conversely, the will of the
contracting parties conforms to the first,
accepts or repudiates the second and
establishes the third.
Consent
8
Article 1319. Consent is manifested by the
meeting of the offer and the acceptance
upon the thing and the cause which are to
constitute the contract. The offer must be
certain and the acceptance absolute. A
qualified acceptance constitutes a counter-
offer.
Acceptance made by letter or telegram does
not bind the offeror 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.
“Consent”
- Merely means the agreement of
wills.
- The concurrence of the wills of the
contracting parties with respect to
the object and the cause which shall
constitute the contract.
Requisites:
1. Consent must be manifested by the
concurrence of the offer and the
acceptance
2. The contracting parties must
possess the necessary legal
capacity
3. The consent must be intelligent,
free, spontaneous, and real
Contracts are Perfected
It is perfected from the moment that there is
a manifestation of the concurrence between
the offer and the acceptance with respect to
the object and the cause which shall
constitute the contract.
If the acceptance is made by letter or
telegram:
offeror has is made accepting
knowledge of such the offer.
acceptance
Only applies to
purely commercial
contracts
Manifestation of Consent
Before there is consent, it is essential that it
must be manifested by the meeting of the
offer and the acceptance upon the thing and
the cause which are to constitute the
contract.
Once there manifestation, the stage of
negotiation is terminated. The contract is
finally perfected.
Character of Offer and Acceptance
“Offer”
- May be defined as a proposal to
make a contract.
- The offer must be certain or definite
- “willing to entertain” does not perfect
a contract, since it is simply a
position to deliberate whether to
perform or not to perform said act.
“Acceptance”
- the acceptance must also be certain
or definite
- It has been held that stating “we are
willing to accept” does not mean
acceptance, but simple a disposition
to accept the offer in principle.
- To convert the offer into a contract,
the acceptance must be absolute
and must not qualify the terms of the
offer.
- It must be plain, unequivocal,
unconditional and without variance
of any sort from the proposal.

Art. 1319, par. 2 of Art. 54 of the “Qualified Acceptance”

the Civil Code Code of - One that involves a new proposal,
Commerce constitutes a counter-offer and is a
General Rule: The Exception: The rejection of the original offer.
contract is contract is - According to ABS CBN
perfected from the perfected from the Broadcasting Corp. v. Court of
moment that the moment an answer Appeals, When something is desired

SHELLA HANNAH J. SALIH 9

 which is not exactly what is
proposed in the offer, such
acceptance is not sufficient to
generate consent because any
modification or variation from the
terms of the offer annuls the offer.
Complex Offers
If the offeror proposes to lease one part and
to sell another part, acceptance of one by
the offeree would ordinarily result in a
perfected contract. Unless, the offeror
should have made one offer dependent
upon the other.
Acceptance by Letter or Telegram
When or at what precise moment would
there be a meeting of the offer and the
acceptance.
There are four theories to pin-point the
exact moment of perfection:
1. Manifestation Theory
- The contract is perfected from the
moment the acceptance is declared
or made
2. Expedition Theory
- The contract is perfected from the
moment the offeree transmits the
notification of acceptance to the
offeror, as when the letter is placed
in the mailbox
3. Reception Theory
- The contract is perfected from the
moment that the notification of
acceptance is in the hand of the
offeror in such a manner that he can,
procure the knowledge or its
contents
- Even if he is not able actually to
acquire such knowledge by reason
of absence, sickness or some other
cause.
4. Cognition Theory
- The contract is perfected from the
moment the acceptance comes to
the knowledge of the offeror.
According Art. 1319 of the Civil Code,
acceptance made by letter or diagram does
SHELLA HANNAH J. SALIH
not bind the offeror except from the time it
came to his knowledge. It is presumed to
have entered into in the place where the
offer was made. Therefore, we follow the
Cognition Theory.
Constructive Knowledge
There must be a clear implication that such
offeror must have read the contents of the
letter or telegram accepting his offer. Mere
receipt of the letter or telegram is not
sufficient.
Once it is established that the offeror has
received the letter or telegram, there arises
a presumption that he has read the contents
thereof.
But if he might not have been able to do so,
such as when he was absent or
incapacitated at the time of the receipt of
the letter or telegram, it is quite clear that he
cannot be bound by the acceptance.
It is however, different if, being able to do
so, he refused to open the letter or telegram
because for some reason or other he has
already changed his mind or he has already
decided to revoke his offer or proposal.
Withdrawal of Offer
The rule in this jurisdiction is that he may
still withdraw his offer or proposal as long as
he still has no knowledge of the acceptance
by the offeree. This is implied that he is not
bound by the acceptance except from the
time it comes to his knowledge.
In the case of Laudico v Arias: “Mr. Arias
wrote Mr. Laudio, withdrawing the offer, he
had the right to do so, inasmuch as he had
not yet received notice of acceptance, and
when the notice of acceptance was received
by Mr. Arias, it no longer had any effect, as
the offer was not then in existence, the
same having already been withdrawn.
Though both the offer and the acceptance
existed, they did not meet to give birth to a
contract.”
10
Withdrawal of Acceptance - The moment when the offeror has
As far as the law is concerned, there is only knowledge of the acceptance by the
one decisive moment to consider and that is offeree
the moment when the offeror has
knowledge of the acceptance made by the Period of Acceptance
offeree.
Article 1324. When the offerer has allowed
At any time before that moment, the offeror the offeree a certain period to accept, the
is not bound by his offer, neither should the offer may be withdrawn at any time before
offeree be bound by his acceptance. acceptance by communicating such
withdrawal, except when the option is
Form of Acceptance founded upon a consideration, as
something paid or promised.
Article 1320. An acceptance may be
express or implied. As far as the right of the offeror to withdraw
his offer or proposal is concerned:
The acceptance may be: The effect of an The effect of one
1. Express or, option which is which is founded
2. Implied without upon a
consideration consideration
The Court held that: not only is there an The offeror may The offeror cannot
express and tacit consent which produces withdraw his offer withdraw his offer.
true contracts, but there is also a by communicating
presumptive consent which is the basis of such withdrawal to
quasi- contracts. the offeree at
anytime before
Effect of Death, Civil Interdiction, acceptance
Insanity or Insolvency
“Option”
Article 1321. The person making the offer - Bouvier defined an option as a
may fix the time, place, and manner of contract in the following language: ‘A
acceptance, all of which must be complied contract by virtue of which A, in
with. consideration of the payment of a
Article 1322. An offer made through an certain sum to B, acquires the
agent is accepted from the time acceptance privilege of buying from, or selling to
is communicated to him. B, certain securities or properties
Article 1323. An offer becomes ineffective within a limited time at a specified
upon the death, civil interdiction, insanity, or price.
insolvency of either party before acceptance
is conveyed Article 1325. Unless it appears otherwise,
business advertisements of things for sale
An offer becomes ineffective upon the are not definite offers, but mere invitations
death, civil interdiction, insanity, or to make an offer.
insolvency of either party before the offeror
has knowledge of the acceptance by the Article 1326. Advertisements for bidders are
offeree. simply invitations to make proposals, and
the advertiser is not bound to accept the
“Conveyed” highest or lowest bidder, unless the contrary
appears.

SHELLA HANNAH J. SALIH 11

Legal Capacity of Contracting Parties
Article 1327. The following cannot give
consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and
(3) deaf-mutes who do not know how to
write.
the capacity of the contracting parties, is an
indispensable requisite of consent.
Because the law incapacitates them to give
their consent to a contract, the only way by
which any of those enumerated above can
enter into a contract is to act through a
parent or guardian. If this requirement is not
complied with, the result is a defective
contract.
If only one of the contracting parties is
incapacitated to give his consent, the
contract is voidable.
If both are incapacitated to give their
consent, the contract is unenforceable.
Unemancipated Minors
They cannot give their consent to a
contract.
However, if a minor is emancipated by
marriage or by voluntary concession he
shall have the power to administer his
property.
There are five exceptional cases where a
contract entered into by unemancipated
minor may have all of the effects of a valid
contract:
1. When it is entered into by a minor
who misrepresent his age
2. When it involves the sale and
delivery of necessaries to the minor
3. When it involves a natural obligation
and such obligation is fulfilled
voluntarily by the minor
4. When it is a marriage settlement or
donation propter nuptias
SHELLA HANNAH J. SALIH
5. When it is a life, health or accident
insurance taken on the life of the
minor and the beneficiary appointed
is the minor’s estate, or the minor’s
father, mother, husband wife, child,
brother, or sister.
Insane or Demented Persons
“Insane or Demented Persons”
- Any person, at the time of
celebration of the contract, cannot
understand the nature and
consequences of the act or
transaction by reason of any cause
affecting his intellectual or sensitive
faculties, whether permanent or
temporary
- A contract entered into during a lucid
interval is valid.
- The presumption of insanity, is only
prima facie and may be rebutted by
evidence.
- It was established that one of the
contracting parties was suffering
from monomania or delusion of
wealth believing himself to be very
wealthy when as a matter of fact is
nit, it was held that such fact alone
will not be sufficient to invalidate the
contract.
Deaf-Mutes
- Deaf mute who knows how to write:
perfectly valid
- Deaf mute who does not know how
to write: either voidable or
unenforceable, depending upon
whether one or both of the parties
are incapacitated.
Other incapacitated persons
There are another who are also
incapacitated to give their consent to a
contract, such as:
1. married women of age specified by
law
2. persons suffering from civil
interdiction
3. incompetents who are under
guardianship. Incompetent includes:
12
 a. persons suffering from civil contract, but he disqualified from
interdiction must do so through entering into that
b. hospitalized lepers his parent or contract
c. prodigals guardian
d. deaf and dumb who are unable Based upon Based upon public
to read and write subjective policy and mortality
e. those who are of unsound mind, circumstances of
even though they have lucid certain persons
intervals which compel the
f. those by reason of age, weak law to suspend for
mind, and other similar causes a definite or
indefinite period
A person is not incapacitated to enter into a their right to
contract merely because of advanced years contract.
or by reason of physical infirmities, unless Merely voidable void
such age and infirmities impair his mental
faculties to the extent that he is unable to Vices of Consent
properly understand the provisions of said Article 1330. A contract where consent is
contract. given through mistake, violence,
intimidation, undue influence, or fraud is
voidable.
Disqualifications to Contract
Vices of consent may be divided into two
Article 1328. Contracts entered into during a distinct groups:
lucid interval are valid. Contracts agreed to 1. Vices of the Will
in a state of drunkenness or during a a. Mistake
hypnotic spell are voidable. b. Violence
c. Intimidation
Article 1329. The incapacity declared in d. Undue Influence
article 1327 is subject to the modifications e. Fraud
determined by law, and is understood to be 2. Vices of Declaration
without prejudice to special disqualifications - Comprehends all forms of simulated
established in the laws contracts

Art. 1329 refer to those who are prohibited Requisites of Consent:

from entering into a contract with certain 1. Intelligent
persons with regard to certain property - Vitiated by mistake or error
under certain circumstances and not to 2. Free
those who are incapacitated to give their - Consent by violence, intimidation
consent to a contract. and undue influence
3. Spontaneous
Prohibition distinguished from - Consent by fraud
Incapacity to contract 4. Real
- Vitiated by Simulation of contracts
Incapacity Art. 1329 In the absence of any of the first three
Prohibition requisites, the contract is voidable. In
Restrains the Restrains the very the absence of the fourth requisite it
exercise of the right right itself may be either void ab initio or valid,
to contract whether the simulation is absolute or
can still enter into a Absolutely relative.

SHELLA HANNAH J. SALIH 13

 c. Mistake as to the conditions of
the thing
Mistake d. Mistake as to the quantity of the
thing
Article 1331. In order that mistake may 2. Mistake as to person
invalidate consent, it should refer to the - May refer either to the name or to
substance of the thing which is the object of the identity or to the qualification of a
the contract, or to those conditions which person.
have principally moved one or both parties - Mistake with regard to the name of
to enter into the contract. one or both of the contracting parties
will not invalidate the contract.
Mistake as to the identity or qualifications of - Requisites:
one of the parties will vitiate consent only 1. The mistake must be either with
when such identity or qualifications have regard to the identity or with
been the principal cause of the contract. regard to the qualification of one
of the contracting parties
A simple mistake of account shall give rise 2. Such identity or qualification
to its correction. must have been the principal
consideration for the celebration
“Mistake” of the contracts.
- Not only as the wrong conception of - This kind of mistakes occurs in
a thing, but also as the lack of obligations to do which require
knowledge with respect to a thing. special qualifications of the parties
or which are based on confidence.
Two kinds of mistakes:
Where a Party is Illiterate
Mistake of Fact Mistake of Law
When one or both When one or both Article 1332. When one of the parties is
of the contracting of the contracting unable to read, or if the contract is in a
parties believe that parties arrive at an language not understood by him, and
a fact exists when erroneous mistake or fraud is alleged, the person
in reality it does conclusion enforcing the contract must show that the
not, or that such regarding the terms thereof have been fully explained to
fact does not exist interpretation of a the former.
when in reality it question of law.
does. This provision is intended for the protection
It is only a mistake Mistake of law does of a party to a contract who is at
of fact which will not render the disadvantage due to his illiteracy,
vitiate consent thus contract voidable. ignorance, mental weakness or other
rendering the handicap.
contract voidable
“Mistake”
Mistake of Fact - Should refer to the substance of the
Different mistake of fact which vitiate thing which is the object of the
consent: contract, or to those conditions
1. Misake as to object which have principally moved one or
a. Mistake as to the identity of the both parties enter into the contract.
thing
b. Mistake as to the substance of
the thing “Fraud”

SHELLA HANNAH J. SALIH 14

 - Is present when through 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.
Article 1336. Violence or intimidation shall
annul the obligation, although it may have
been employed by a third person who did
not take part in the contract

Mistake of Law Violence Intimidation

Prevents the Influences the
Article 1333. There is no mistake if the party expression of the operation of the
alleging it knew the doubt, contingency or will substituting It will, inhibiting it in
risk affecting the object of the contract. (n) with a material act such a way that the
dictated by another expression thereof
Article 1334. Mutual error as to the legal is apparently that of
effect of an agreement when the real a person who has
purpose of the parties is frustrated, may freely given his
vitiate consent consent.
Physical Moral Compulsion
General Rule: Mistake of law will not vitiate Compulsion
consent. Requisites: Requisites:
1. Force 1. One of the
Exception: According Art. 1334, mutual employed to contracting
error as to the effect of an agreement when wrest parties is
the real purpose of the parties is frustrated, consent compelled
may vitiate consent. must be to give his
serious or consent by
Requisites: irresistible a
1. Mistake must be with respect to the 2. It must be reasonable
legal effect of an agreement the and well-
2. Mistake must be mutual determining grounded
3. The real purpose of the parties must cause for fear of an
have been frustrated the party evil.
upon whom 2. The evil
Violence and Intimidation it is must be
employed in imminent
Article 1335. There is violence when in entering into and grave
order to wrest consent, serious or irresistible the contract 3. Evil must be
force is employed. There is intimidation unjust
when one of the contracting parties is 4. Evil must be
compelled by a reasonable and well- the
grounded fear of an imminent and grave evil determining
upon his person or property, or upon the cause for
person or property of his spouse, the party
descendants or ascendants, to give his upon whom
consent. To determine the degree of it is
intimidation, the age, sex and condition of employed in
the person shall be borne in mind. A threat entering into
to enforce one's claim through competent the contract.
authority, if the claim is just or legal, does
not vitiate consent.

SHELLA HANNAH J. SALIH 15

Character of Intimidation
One of the contracting parties should be
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.
The threat or intimidation must be actual,
serious and possible realization, and that
the actor can and still will carry out his
threat.
Without any proof of direct acts showing the
imminence and gravity of any injury, does
not in itself establish intimidation.
Degree of Intimidation
To determine the degree of the intimidation,
the age, sex, and condition of the person
shall be borne in mind.
Just or Legal Threat
A threat to enforce one’s claim through
competent authority, if the claim is just or
legal, does not vitiate consent.
Even if it can be established that the reason
or motive of a party in entering into a
contract was the threat of the other to
proceed against him through the courts, the
contract would still be perfectly valid and not
voidable.
Even if the claim proves to be unfounded so
long as the creditor who made the threat
believed that his right to do so.
Undue Influence
Article 1337. There is undue influence when
a person takes improper advantage of his
power over the will of another, depriving the
latter of a reasonable freedom of choice.
The following circumstances shall be
considered: the confidential, family, spiritual
and other relations between the parties, or
the fact that the person alleged to have
been unduly influenced was suffering from
SHELLA HANNAH J. SALIH
mental weakness, or was ignorant or in
financial distress.
“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.
- Which substitutes the wishes of
another for those of a part to the
contract or that which deprives he
latter of his free agency.
- Influence obtained by persuasion or
argument or by appeals to the
affections is not prohibited either in
law or morals and is not obnoxious
even in courts of equity.
Circumstances considered:
1. The confidential
2. Family
3. Spiritual
4. Other relations between the parties
5. The person unduly influenced is
suffering from mental weakness or
ignorant or in financial distress.
Fraud
Article 1338. There is 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.
“Fraud”
- Insidious words or machinations
employed by one of the contracting
parties in order to induce the other to
enter into a contract, without them,
he would not have agreed to.
Fraud or dolo which is present or employed
at the time of the birth or perfection of a
contract, may be subdivided into:
Dolo Causante Dolo Incidente
Deceptions or Deceptions or
misrepresentations misrepresentations
of a serious which are not
character employed serious in character
16
 by one party and and without which does not affect the formation of the contract
without which the the other party or operate to discharge the parties from
other party would would still have their agreement.
not have entered entred into the
into the contract. contract. Exaggerations in Trade

Serious in Not serious Article 1340. The usual exaggerations in

character trade, when the other party had an
It is the cause It is not the cause opportunity to know the facts, are not in
which nduces the themselves fraudulent.
party upon whom it
is employed in Expression of Opinion
entering into the
contract Article 1341. A mere expression of an
Render the contract Render the party opinion does not signify fraud, unless made
voidable who employed it by an expert and the other party has relied
liable for damages on the former's special knowledge.

Requisites: Misrepresentation by Third Persons

1. Words or machinations must have
been employed by one of the
contracting parties
2. Words or machinations must have
been serious
3. Words or machinations must have
induced the other party to enter into
the contract
4. Shoud not have been employed by
both of the contracting parties or by
third persons.
It is essential that such insidious words or
machinations must be prior to or
contemporaneous with the birth or
perfection of the contract
Failure to Disclose Facts
Article 1342. Misrepresentation by a third
person does not vitiate consent, unless
such misrepresentation has created
substantial mistake and the same is mutual
The fraud must be employed only by one of
the contracting parties. It would be clearly
unjust to visit upon a contracting party the
disastrous effects of nullity simply because
the other contracting party has indiscreetly
reposed his confidence upon a third party.
The precept would not be applicable if the
third person makes the misrepresentation
with the complicity or at least, with the
knowledge, but without any objection, of the
contracting party who is favored.

Article 1339. Failure to disclose facts, when Magnitude of Fraud

there is a duty to reveal them, as when the
parties are bound by confidential relations,
constitutes fraud.
When there is a duty to reveal them, as
when the parties are bound by confidential
relations, constitutes fraud.
However, the innocent nondisclosure of a
fact, when there is no duty to reveal it, does
not constitute fraud, such nondisclosure
Article 1343. Misrepresentation made in
good faith is not fraudulent but may
constitute error.
Article 1344. In order that fraud may make a
contract voidable, it should be serious and
should not have been employed by both
contracting parties. Incidental fraud only
obliges the person employing it to pay
damages.

SHELLA HANNAH J. SALIH 17


“Serious Character”
- Refers not to its influence, but to its
importance or magnitude,
- The annulment of a contract cannot
be invoked just because of the
presence of minor or common acts
of fraud whose veracity could easily
have been investigated.
If fraud is merely incidental in the sense that
the party who is deceived would have
agreed to the contract even without it, his
consent is not at affected.
Simulation of Contracts
Article 1345. Simulation of a contract may
be absolute or relative. The former takes
place when the parties do not intend to be
bound at all; the latter, when the parties
conceal their true agreement.
Article 1346. An absolutely simulated or
fictitious contract is void. A relative
simulation, when it does not prejudice a
third person and is not intended for any
purpose contrary to law, morals, good
customs, public order or public policy binds
the parties to their real agreement.
“Simulation of Contract”
- Vices of declaration
May be either:
a. Absolute
- There is colorable contract but it has
no substance as the contracting
parties do not intend to be bound by
the contract at all.
- The apparent contract is not really
desired or intended to produce legal
effects or in any way alter te juridical
situation of the parties.
b. Relative
- When the contracting parties state a
false cause in the contract to
conceal their true agreement
SHELLA HANNAH J. SALIH
An absolutely simulated contract is void,
while a relatively simulated contract binds
the parties and the parties may recover from
each other what they may have given under
the contract.
The legal presumption is in favor of the
validity of contracts.
Contracts of Adhesion
Its terms are prepared by only one party
while the other party merely affixes his
signature signifying his adhesion thereto.
A contract of adhesion is just as binding as
ordinary contracts. The one who adheres to
the contract is in reality free to reject it
entirely; if he adheres. He gives his consent.
Neither the law nor the courts will extricate a
party from an unwise or undesirable
contract entered into ith all the required
formalities and with full awareness of its
consequences.
On numerous occasions, the Supreme
Court has upheld the binding effects of such
contracts.
Object of Contract
Object is the most indispensable in order to
have at least the shadow of a contract.
Without an object there is nothing.
“Object of a Contract”
- May be defined as the thing, right, or
service which si the subject matter of
the obligation which is created or
established.
Article 1347. All things which are not outside
the commerce of men, including future
things, may be the object of a contract. All
rights which are not intransmissible may
also be the object of contracts. No contract
may be entered into upon future inheritance
except in cases expressly authorized by
law. All services which are not contrary to
law, morals, good customs, public order or
18
public policy may likewise be the object of a
contract.
Article 1348. Impossible things or services
cannot be the object of contracts.
If at the time the contract of sale is
perfected, the thing which is the object of
the contract has been entirely lost, the
contract shall be without any affect.

Article 1349. The object of every contract Future Things

must be determinate as to its kind. The fact
that the quantity is not determinate shall not
be an obstacle to the existence of the
contract, provided it is possible to determine
the same, without the need of a new
contract between the parties.
it is a conditional contract if its efficacy
should depend upon the future existence of
the thing
it is an aleatory contract if one of the
contracting parties should bear the risk that
the thing will never come into existence.

General rule, all things or services may be In case of doubt, it must be deemed to be
the object of contracts. conditional.
Requisites: The prohibition enunciated in the second
1. The object should be within the paragraph of art. 1347, is not absolute in
commerce of men character. There are two exceptions:
- It should be susceptible of 1. Under art. 130 allows the future
appropriation and transmissible from spouses to give or donate to each
one person to another. toehr in their marriage settlement
2. The object should be real or possible their future property to take effect
- It should exist at the moment of the upon the death of the donor
celebration of the contract, or it can 2. Under art. 1080 allows a person to
exist subsequently or in the future. make a partition oh his estate by an
3. The object should be licit act inter vivos, provided that the
- It should not be contrary to law, legitimate of compulsory heirs is not
morals, good customs, public order prejudiced.
or public policy.
4. The object should be determinate Impossible Things or Services
- Possible of determination Impossible things or services cannot be the
object of contracts, otherwise the contract is
The following cannot be the object of void or inexistent.
contracts:
1. Things which are outside the
commerce of men Absolute Relative
2. Intransmissible rights Impossibility Impossibility
3. Future inheritance Which arises from Which arises from
4. Services which are contrary to law, the very nature or the circumstances
morals, good customs, public order essence of the act or qualifications of
or public policy or service itself, the obligor
5. Impossible things or services renders the rendering him
6. Objects which are not possible of contract void. incapable of
determination as to their kind executing the act or
service, allows the
It has been held that communal things, such perfection of the
as public plazas, sidewalks, streets, rivers, contract, although
fountains and other things for public use the fulfillment
cannot be sold or leased. thereof is hardly

SHELLA HANNAH J. SALIH 19

 probable. The legality or Legality or illegality
illegality will affect will not affect the
the existence or existence of the
Cause of Contracts. validity of the contract.
contract
Article 1350. In onerous contracts the cause Motive becomes cause when it
is understood to be, for each contracting predetermines the purpose of the
party, the prestation or promise of a thing or contract.
service by the other; in remuneratory ones,
the service or benefit which is remunerated; Moral Obligations
and in contracts of pure beneficence, the Where the moral obligation arises wholly
mere liberality of the benefactor. from ethical considerations, unconnected
with any civil obligation, it not demandable
Article 1351. The particular motives of the in aw, it cannot constitute a sufficient cause
parties in entering into a contract are or consideration to support an onerous
different from the cause thereof. contract

“Cause” But where such moral os based upon a

- Is the why of the contract or the previous civil obligation which has already
essential reason which moves the been barred by the statute of limitations,it
contracting parties to enter into the constitutes a sufficient cause or
contract. consideration to support the said contract.
- It is the immediate direct or most
proximate reason which explains Remuneratory Contracts
and justifies the creation of an Cause in remuneratory contracts is the
obligation through the will of the service or benefit which is remunerated, is
contracting parties. also one in which one of the contracting
parties remunerates or compensates the
service or benefit rendered or given by the
Cause Object other party.
The service or The thing which is
benefit which is given in Cause
remunerated remuneration
The liberality of the The object is the Article 1352. Contracts without cause, or
donor or benefactor thing which is given with unlawful cause, produce no effect
or donated whatever. The cause is unlawful if it is
Is the prestation or Is the thing or contrary to law, morals, good customs,
promise of a thing service itself public order or public policy.
or service by the
other Article 1353. The statement of a false cause
Cause Motives in contracts shall render them void, if it
Direct or most Indirect or remote should not be proved that they were
proximate reason reasons founded upon another cause which is true
of a contract and lawful.
The objective or Psychological or
juridical reason of a purely personal Article 1354. Although the cause is not
contract reasons stated in the contract, it is presumed that it
Cause is always Differ for each exists and is lawful, unless the debtor
the same contracting party proves the contrary.

SHELLA HANNAH J. SALIH 20

Article 1355. Except in cases specified by
law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been
fraud, mistake or undue influence.
Requisites of Cause:
1. the cause should be in existence at
the time of the celebration of the
contract
2. The cause should be licit or lawful
3. The cause should be true
If the contract has no cause, or even if it
has, if the cause should be illicit or unlawful,
it shall not produce any effect whatsoever,
or what amounts to the same thing, it is
inexistent or void from the beginning.
The same is true if the cause stated in the
contract is false.
Effects of Lack of Cause
If the contract is not founded upon any
cause, then it shall not produce any effect
whatsoever.
According to Art. 1409, those contracts
which are absolutely simulated or fictitious
as well as those whose cause did not exist
at the time of the transaction shall be
inexistent.
Even where the contract itself expressly
states that the consideration fro the sale of
a piece of land is only one peso, it does not
follow that the contract or sale is void or
inexistent, the contract may be voidable
because of the inadequacy of the cause or
consideration, but certainly, it is not void.
According to Art. 1354, even if the cause is
not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor
proves the contrary.
Effect of Unlawful Cause
If a contract has an unlawful cause, it shall
not produce any effect whatsoever, in other
words it is void from the very beginning.
Effect of False Cause
SHELLA HANNAH J. SALIH
Statement of a false cause in contracts shall
render them void.
If a contract is simulated, it does not
necessarily follow that it is inexistent or void,
provided, of course that it can be
established that it is, in reality, founded
upon another cause which is true and
lawful.
FORMS OF CONTRACTS
Article 1356. Contracts shall be obligatory,
in whatever form they may have been
entered into, provided all the essential
requisites for their validity are present.
However, when the law requires that a
contract be in some form in order that it may
be valid or enforceable, or that a contract be
proved in a certain way, that requirement is
absolute and indispensable. In such cases,
the right of the parties stated in the following
article cannot be exercised.
Whatever may be the form in which a
contract may have entered into, the general
rule is that it shall be obligatory, provided all
of the essential requisites for its validity are
present.
It has been held that contracts of
partnership, of agency, and of lease of
services, although executed verbally are
obligatory as far as the contracting parties
are concerned.
Verbal extrajudicial partition of property is
valid and binding among the parties thereto.
The right of a partitioner or his successor in
interest is merely a jus ad rem (personal),
not a jus in re (real).
Exceptions
Contracts as being obligatory regardless of
the form in which they may have been
entered into, it does not include those
contracts for which the law prescribed a
certain from either for validity or for
enforceability.
21

Two exceptions:
1. When the law requires that the
contract must be in a certain from in
order to be valid
2. When the law requires that the
contract must be in a certain form in
order to be enforceable.
Formalities for Validity
Certain contracts for which the law
prescribes certain forms for their validity.
Classification of said contracts:
1. Those which must appear in writing
2. Those which must appear in apublic
document
3. Those which must be registered
Contracts which must appear in writing:
1. Donations of personal property
whose value exceeds five thousand
pesos.
- The donation and acceptance shall
be made in writing
2. Sale of a piece of land or any
interest therein through an agent
- The authority of the latter shall be in
writing
3. Agreements regarding payment of
interest in contracts of loan.
- No interest shall be due unless it has
been expressly stipulated in writing
4. Anichresis
- The amount of the principal and of
the interest shall be specified in
writing.
Contracts which must appear in a public
documents
1. Donations of Immovable Property
2. Partnerships where immovable
property or real rights are
contributed to the common fund
- There must be an inventory of the
immovable property or real rights,
signed by the partners, and attached
to the public instrument.
SHELLA HANNAH J. SALIH
Contracts which must be registered are as
follows:
1. Chattel Mortgages
- Personal Property is recorded in the
Chattel Mortgage Register
2. Sales or transfers of large cattle
- No sale or transfer of large cattle
shall be valid unless it is duly
registered and a certificate of
transfer is secured.
Forms of Contracts Required by Law
The forms required by law for the execution
of certain contracts may be divided into:
1. Those which are necessary for the
convenience of the contracting
parties or for the efficacy of the
contract
2. Those which are necessary for the
validity of the contract
3. Those which are necessary for the
enforceability of the contracts.
Formalities of Efficacy
Article 1357. If the law requires a document
or other special form, as in the acts and
contracts enumerated in the following
article, the contracting parties may compel
each other to observe that form, once the
contract has been perfected. This right may
be exercised simultaneously with the action
upon the contract.
Article 1358. The following must appear in a
public document:
(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 are
governed by articles 1403, No. 2, and 1405;
(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
22
public document, or should prejudice a third
person;
(4) The cession of actions or rights
proceeding from an act appearing in a
public document. 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
There are certain contracts falling within the
purview or scope of this rule, by reason of
their importance, should be executed in
accordance with certain formalities, in order
to insure their efficacy and to protect the
interests of the contracting parties as well
as that of third persons.
The following principles:
1. Art. 1357 and 1358 do not require
the execution of the contract in order
to validate or enforce it but only to
insure its efficacy. After its existence
has been admitted, the party bound
may be compelled to execute the
necessary document.
2. Even where the contract has not
been reduced to the required form, it
is still valid and binding. Both articles
presuppose the existence of a
contract.
3. From the moment one of the
contracting parties invokes the
provisions by means of proper
action, the effect is to place the
existence of the contract in issue
4. Art. 1357 does not require that the
action to compel the execution of the
necessary document must precede
the action upon the contract.
5. Art. 1357 do not operate against the
validity of the contract nor the
validity of the acts voluntarily
performed by the parties for the
fulfillment, yet the moment when any
of the contracting parties invokes
said provision, it is evident that
under them the execution of the
SHELLA HANNAH J. SALIH
required document must precede the
determination of the other
obligations
REFORMATION OF INSTRUMENTS
Article 1359. When, there having been a
meeting of the minds of the parties to a
contract, their true intention is not
expressed in the instrument purporting to
embody the agreement, by reason of
mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the
reformation of the instrument to the end that
such true intention may be expressed.
If mistake, fraud, inequitable conduct, or
accident has prevented a meeting of the
minds of the parties, the proper remedy is
not reformation of the instrument but
annulment of the contract.
When the true intention of the parties are not
expressed in the instrument purporting to
embody their agreement by reason of
mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the
reformation of the instrument so that such true
intention may be expressed.
Requisites:
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.
Where the complaint fails to allege that the
instrument to be reformed does not express
the real agreement or intention of the parties,
it is clear that no cause of action is stated
theirein.
Action for the Action for the
reformation of an annulment of a
instrument contract
23
 Presupposes a Based on a (2) Wills; (3) When the real agreement is
perfectly valid defective contract in
contract in which which there has
there has already been no meeting of
been a meeting of the minds because
the minfs of the the consent has
contracting parties been vitiated.
Contracts of Adhesions
Article 1360. The principles of the general
law on the reformation of instruments are
hereby adopted insofar as they are not in
conflict with the provisions of this Code.
Article 1361. When a mutual mistake of the
parties causes the failure of the instrument
to disclose their real agreement, said
instrument may be reformed.
Article 1362. 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.
Article 1363. 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, the instrument may be reformed.
Article 1364. When through the ignorance,
lack of skill, negligence or bad faith on the
part of the person drafting the instrument or
of the clerk or typist, the instrument does
not express the true intention of the parties,
the courts may order that the instrument be
reformed.
Article 1365. 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 the instrument is
proper.
Article 1366. There shall be no reformation
in the following cases: (1) Simple donations
inter vivos wherein no condition is imposed;
SHELLA HANNAH J. SALIH
void.
Article 1367. When one of the parties has
brought an action to enforce the instrument,
he cannot subsequently ask for its
reformation.
Article 1368. Reformation may be ordered
at the instance of either party or his
successors in interest, if the mistake was
mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
Article 1369. The procedure for the
reformation of instrument shall be governed
by rules of court to be promulgated by the
Supreme Court.
“Contract of Adhesion”
- Which one of the parties imposes a
readymade form of contract, which
the other party may accept or reject,
but which the latter cannot modify.
- Is itself not an invalid agreement
- Binding as a mutually executed
transaction.
- The one who adheres to the contract
is in reality free to reject it entirely, if
he adheres he gives his consent.
- Not even an allegation of ignorance
of a party excuses non-compliance.
- When one of the parties is at a
disadvantage on account of his
moral dependence, ignorance,
indigence, metal weakness, tender
age or other handicap, courts must
be vigilitant for his protection.
Contracts of Credit Cards
For the cardholder to be absolved from
liability for unauthorized purchases made
through his lost or stolen card, two steps
must be followed:
1. The cardholder must give written
notice to the credit card company.
2. The crecit card company must notify
its member establishment of such
loss or theft, it may only do upon
24
 receipt of a notice from the
cardholder.
Prompt notice by the cardholder to the
credit card company of the loss or theft of
her card should be enough to relive the
former of any liability.
INTERPRETATION OF CONTRACTS
Article 1370. 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. If
the words appear to be contrary to the
evident intention of the parties, the latter
shall prevail over the former.
Article 1371. In order to judge the intention
of the contracting parties, their
contemporaneous and subsequent acts
shall be principally considered
The intention of the contracting parties
should always prevail because their will has
the force of law between them.
If the terms of contracts are clear and leave
no doubt as to the intention of the
contracting parties, the literal sense of its
stipulations shall be followed, and if the
words appear to be contrary to the evident
intention of the contracting parties, the
intention shall prevail.
In the case of Philippine National
Construction Corporation v. The Hon. CA et
al. the Court held that the contract between
parties is the formal expression of the
parties’ rights, duties and obligations.
When the terms of an agreement have been
reduced to writing, it is considered as
containing all the terms agreed upon and
there can be, no evidence of such terms
other than the contents of the written
agreement.
Judge Intention
SHELLA HANNAH J. SALIH
Their contemporaneous and subsequent
acts shall be principally considered. Without
prejudice to the consideration of other
factors as fixed or determined by the other
rules of interpretation.
One pattern is to ascertain the
contemporaneous and subsequent acts of
the contracting parties in relation to the
transaction under consideration.
Article 1372. However 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.
Article 1373. 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.
Article 1374. 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.
Article 1375. Words which may have
different significations shall be understood
in that which is most in keeping with the
nature and object of the contract.
Article 1376. 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.
Article 1377. The interpretation of obscure
words or stipulations in a contract shall not
favor the party who caused the obscurity.
Article 1378. When it is absolutely
impossible to settle doubts by the rules
established in the preceding articles, and
the doubts refer to incidental circumstances
of a gratuitous contract, the least
transmission of rights and interests shall
25
prevail. If the contract is onerous, the doubt
shall be settled in favor of the greatest competent court
reciprocity of interests. If the doubts are cast
upon the principal object of the contract in Voidable Contracts
such a way that it cannot be known what - Considered valid and enforceable
may have been the intention or will of the until they are annulled by a
parties, the contract shall be null and void. competent court

Article 1379. The principles of interpretation Unenforceable Contracts

stated in Rule 123 of the Rules of Court
shall likewise be observed in the
construction of contracts
RESCISSIBLE CONTRACTS
Classes of Defective Contracts
There are four classes of defective contracts
under present Civil Code. They are:
1. Rescissible Contracts
2. Voidable Contracts
3. Unenforceable Contracts
4. Void or Inexistent Contracts
As to Defect
Recissible Contracts
- There is damage or injury to either
to one of the contracting parties
Voidable Contracts
- There is vitiation of consent or legal
capacity of one of the contracting
parties.
Unenforceable Contracts
- The contract is entered into in
excess or without any authority or
does not comply with the Statute of
Frauds, or both contracting parties
are legally incapacitated
Void Contracts
- One or some of the essential
requisites of a valid contract are
lacking either in fact or in law
As to Effect
Recissible Contracts
- Considered vaid and enforceable
until they are rescinded by a
- Cannot be enforced by a proper
action in court
Void Contracts
- Do not produce any legal effect
As to prescriptibility of action or defense
Recissible Contracts
- An action for recission may
prescribe
Voidable Contracts
- The action for annulment or the
defense of annullability may
prescribe
Unenforceable Contracts
- The corresponding action for
recovery, if there was total or partial
performance of the unenforceable
contract under Art. 1403 may
prescribe
Void Contracts
- The action for declaration of nullity
or inexistence or the defense of
nullity or inexistence does not
prescribed.
As to Susceptibility of Ratification
Recissible Contracts
- Not susceptible of ratification
Voidable Contracts
- Susceptible of ratification
Unenforceable Contracts
- Susceptible of ratification
Void Contracts

SHELLA HANNAH J. SALIH 26

 of injury or damage to either of the
- Not susceptible of ratification contracting parties or to third persons, such
as creditors, it may be rescinded.
As to Who may Assail Contracts
Recissible Contracts Before it is rescinded, a Rescissible contract
- May assailed not only by a is valid and legally effective. The only way
contracting party but even by a third by chich it can be attacked is by means of a
person who is prejudiced or direct action for rescission based on any of
damaged by the contract the causes expressly specified by law,
hence it cannot be attacked collaterally.
Voidable Contracts
- May be assailed only by a Characteristics
contracting party 1. Their defect consists in injury or
damage eother to one of the
Unenforceable Contracts contracting parties or to third
- May be assailed only by a persons
contracting party 2. Before rescission, they are calid and
legally effective
Void Contracts 3. They can be attacked directly only,
- May be assailed not only by a and not collaterally
contracting party but even by a third 4. They can be attacked only either by
person whose interest is directly a contracting party or by a third
affected. person who is injured or defrauded
5. They are susceptible of
As to How Contracts may be Assailed convalidation only by prescription,
Rescissible Contracts not by ratification
- May be assailed directly only, and
not collaterally “Rescission”
- Is a remedy granted by law to the
Voidable Contracts contracting parties, and even to third
- May be assailed directly or person, to secure the reparation of
collaterally damages caused to them by a
contract, even if the same should be
Unenforceable Contracts
valid, by means of the restoration of
- May be assailed directly or
things to their condition prior to the
collaterally celebration of the contract.

Rescission v. Resolution
Void Contracts
- May be assailed directly or
collaterally Rescission Resolution
As to party who may institute action
May be instituted not only May be instituted
by the a party to the only by a party to
Rescissible Contracts contract but even by a the contract.
Article 1380. Contracts validly agreed upon third person
may be rescinded in the cases established As to the causes
by law. There are several causes the only ground
or grounds such as is failure of one of
All of the essential requisites of a contract lesion,fraud and other the parties to
exist and the contract is valid, but by reason expressly specified by comply with what
law is incumbent

SHELLA HANNAH J. SALIH 27

 upon him
As to powers of the courts
There is no power of the law expressly
courts to grant an declares that
extension of time for courts shall have
performance of the a discretionary
obligation so long as power to grant an
there is a ground for extension for
rescission performance
provided that
there is a just
cause
As to the contracts which may be
rescinded or resolved
Any contract, whether Only reciprocal
unliateral or reciprocal, contracts may be
may be rescinded resolved.
Article 1381. 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.
Article 1382. Payments made in a state of
insolvency for obligations to whose
fulfillment the debtor could not be compelled
at the time they were effected, are also
rescissible
Contracts in Behalf of Ward
Those which are entered into by guardians
whenever the wards whom they represent
suffer lesion or damage by more than ¼ for
the value of the things which are object
thereof.
SHELLA HANNAH J. SALIH
A judicial guardian entering into a contract
with respect to the property of his ward must
ordinarility secure the approval of a
competent court.
If the contract involves the sale or
encumbrance of real property, judicial
approval is indispensable. If a guardian
sells,mortgages or otherwise encumbers
real property belonging to his ward without
judicial approval, the contract is
unenforceable.
However, if he enters into a contract falling
within the scope of his powers as guardians
of the person and property, or only of the
property, of his ward, such as when the
contract involves acts of administration,
express judicial approval is not necessary.
Contracts in Behalf of Absentees
Such contracts are not Rescissible if they
have been approved by the courts.
Since the powers and duties if a legal
representative of an absentee are exactly
the same as those of a guardian.
Before it can be rescinded on the grounf of
lesion, it is indispensable that the following
requisites must concur:
1. The contract must have been
entered into by a guardian in behalf
of an absentee
2. The ward or absentee must have
suffered lesion of more than one
fourth of the value of the property
which is the object of the contract
3. The contract must have been
entered into without judicial approval
4. There must be no other legal means
for obtaining reparatiing for the
lesion
5. The person bringing be no other
legal means for obtaining reparation
for the lesion
6. The object of the contract must not
be legally in the possession of a
28
 third person who did not act in bad
faith.
If the object is legally in the possession of a
third person who did not act in bad faith, the
remedy available to the perso suffering the
lesion is indemnification for damages.
Contracts In Fraud of Creditors
When the creditors cannot in any other
manner collect the claims due them.
According to Art. 1177, one of the remedies
available to the creditor after he has
exhausted all of the property in possession
of the debtor is to impugn the acts which the
latter may have done to defraud him.
Requisites:
1. There must be a credit existing prior
to the celebration of the contract.
2. There must be a fraud, or at least,
the intent to commit fraud, or at
least, the intent to commit fraud to
the prejudice of the creditor seeking
the rescission
3. The creditor cannot in any other
legal manner collect his credit
4. The object ofte contract must not be
legally in the possession of a third
person who did not act in bad faith.
If the object is legally in the possession of a
third person who did not act in bad faith, the
remedy available to proceed against the
person causing the loss for damages.
Contracts Referring to Things under
Litigation
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
authority.
The purpose is to secure the possible
effectivity of a claim.
Contracts by Insolvent
In order that the payment can be rescinded,
it is indispensable:
SHELLA HANNAH J. SALIH
1. That is must have been made in a
state of insolvency
2. That the obligation must have been
one which the debtor could not be
compelled to pay at the time such
payment was effected
“insolvency”
- It refers to the financial situation of
the debtor by virtue of which it is
impossible for him to fulfill his
obligations.
- Juridical declaration of insovelncy is
not necessary.
According to Manresa, the obligations
contemplated by this article comprehend not
only those with a term or which are subject
to a suspensive condition, but even void
and natural obligations as well as those
which are condoned or which have
prescribed.
If the obligation with a period became due
before the obligation to the creditor seeking
the rescission became due, then the latter
cannot rescind the payment even if such
payment was effected before the expiration
of the period
If the obligation with a period became due
after the obligation to the creditor seeking
the rescission became due, then the latter
can rescind the payment
Subsidiary Character of Action
Article 1383. 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.
It cannot be instituted except when the party
suffering damage has no other legal means to
obtain reparation for the same.
Even where the fraud charged which is the
ground for an action for rescission actually did
exist, where there is not legal allegation or
29
evidence that the creditor has already
exhausted all of legal remedies to obtain
reparation from the debtor, the action to
rescind the sale made by said debtor is not
maintainable.
Parties Who May Institute Action
The action for rescission may be instituted by
the following:
1. The person who is prejudiced
2. Their representatives
3. Their heirs
4. Their creditors by virtue of the
subrogatory action
If it can be established that the decedent,
during his lifetime, entered into a contract with
another in order to defraud him of his
legitimate, in this case the compulsory heir
does not have any right to institute the action
as a representative of the decendent, since
the decedent himself does not have the right.
Extent of Rescission
Article 1384. Rescission shall be only to the
extent necessary to cover the damages
caused.
In order the purpose of rescission may be
realized the rescission does not necessarily
have to be total in character, it may also be
partial. Rescission shall apply only to the
extent necessary to cover the damages
caused.
Effect of Rescission in Case of Lesion
Article 1385. 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;
consequently, it can be carried out only
when he who demands rescission can
return whatever he may be obliged to
restore. Neither shall rescission 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
this case, indemnity for damages may be
demanded from the person causing the
loss.
SHELLA HANNAH J. SALIH
Applicable only to rescissoy actions on the
grounf of lesion and not to rescissory
actionson the ground of fraud. Because in
the latter there can be no obgliation on the
part of the plaintiff creditor to restore
anything since he has not received
anything.
Rescission is not possible, unless he who
demands it can return whatever he may
obliged to restore.
Ex. Where a guardian alienates certain
properties of a minor for P85,000 to a
certain person, and subsequently, the minor
upon reaching the age of majority, brings an
action for the rescission of the contract on
the ground of lesion,the effect if rescission
is granted would be the restoration of things
to their condition prior to the celebration of
the contract.
“fruits of the thing”
- Refer not only to natura, industrial,
and civil frits but also to other
accessions obtained by the thing.
- As the obligation to restore the fruits
is concerned , the rules on
possession shall be applied.
It has been held that as a condtion to the
rescission of a contract of sale of a parcel of
land, the vendor must refund to the vendees
an amount equal to the purchase price, plus
the sum expended by them in improving
the land.
Rescission Upon Third Person
Two indispensable requisites which must
concur in order that the acquisition of the
thing which constitutes the object of the
contract by a third person shall defeat an
action for rescission
Requisites:
1. The thing must be legally in the
possession of the third person
2. That such third person must not
have acted in bad faith.
30
When the object of the of the contract
happens to be a movable property, the
concurrence of these requisites offers no
difficulty bevause of the ptinciple that
possession of movable property acquired in
good faith is equivalent to a title.
When it it s n immovable property, it is
indispensable that the right of the third
person must be registered or recorded in
the proper registry before we can say that
the thing is legally in his possession.
Othewise, he ccanor be protected against
the effecs of a judgment rendered in the
action for rescission.
Fraud
Article 1386. Rescission referred to in Nos.
1 and 2 of article 1381 shall not take place
with respect to contracts approved by the
courts.
Article 1387. All contracts by virtue of which
the debtor alienates property by gratuitous
title are 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. Alienations
by onerous title are also presumed
fraudulent when made by persons against
whom some judgment has been rendered in
any instance or some writ of attachment 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. In addition to these
presumptions, the design to defraud
creditors may be proved in any other
manner recognized by the law of evidence.
Article 1388. Whoever acquires in bad faith
the things alienated in fraud of creditors,
shall indemnify the latter for damages
suffered by them on account of the
alienation, whenever, due to any cause, it
should be impossible for him to return them.
If there are two or more alienations, the first
acquirer shall be liable first, and so on
successively
SHELLA HANNAH J. SALIH
Presumptions of Fraud
The law presumes that there is fraud of
creditors in the following cases:
1. Alienations of property by gratuitous
title if the debtor has not reserved
sufficient property to pay all of his
debts contracted before such
alienations.
2. Alienations of property by onerous
title if made by a debtor against
whom some judgment had been
rendered in any instance or some
writ of attachment has been issued.
Ex. Where the debtor alienated a certain
property, which was his only attachable
property, to his son after judgment had been
rendered against him and a writ of
execution had been issues, there is a
presumption that such alienation is
fraudulent .
Badges of Fraud
It is not indispensable that the creditor shall
have to depend upon the two presumptions
established in Art. 1387 in order to prove
the existence of fraud or the intention to
defraud.
In determinin whether or not a certain
conveyance is fraudulent the question in
every case is whether or not it is prejudicial
to the right of the creditors.
The following circumstance are badges of
fraud:
1. The fact that the cause or
consideration of the conveyance is
inadequate
2. A transfer made a by a debtor after
suit has been begun and while it is
pending against him
3. A sale on credit by an insolvent
debtor
4. Evidence of large indebtedness or
complee insolvency
5. The transfer of all or nearly all of his
property by a debtor, especially
31
 when he is insolvent or greatly
embarrassed financially
6. The transfer is made between father
and son, when there are present
others of the above cirsumtances
7. The failure of the vendee to take
exclusive possession of all the
property.
But where the sale is founded on. Fictitious
cause or consideratoion it would be futile for
the creditor to invoke its rescission since
such action presupposes the existence of
valid,not inexistent, contract.
Acquisition by third person in good faith
If the property is acquired by a purchaser in
good faith and for value, the acquisition as
far as the law is concerned is not fraudulent.
The right of the purchaser over the property
is legally superior to that of any other
person eben against as the creditor who is
prejudiced by the conveyance,
The contract is not Rescissible.
Acquisition by third person in bad faith
If the property is acquired by one who is not
a purchaser in good faith and for value, it is
clear that the contract or conveyance is
Rescissible.
The creditor who is prejudiced can still
proceed after the property.
If it should be impossible for the acquirer in
back faith to return the property, he shall
indemnify the creditor seeking he rescission
for damages suffered in account of the
alienation.
If the reason for the impossibility of
returning the property acquired in bad faith
is a fortuitous event, then there can be no
liability of the acquirer.
Prescriptive Period
Article 1389. The action to claim rescission
must be commenced within four years. For
persons under guardianship and for
SHELLA HANNAH J. SALIH
absentees, the period of four years shall not
begin until the termination of the former's
incapacity, or until the domicile of the latter
is known.
The action for rescission of a contract must
be commenced within four years.
1. Under No. 1 of Art. 1391, the period
must be counted from the time of the
termination of the incapacity of the
ward
2. Under No.2, it must be counted from
the time the domicile of the absentee
is known
3. Under Nos. 3 &4 of Art. 1382, it
must be counted from the time of the
discover fo the fraud.
In certain cases of contracts of sale, the
prescriptive period is six months or even
forty days, counted from the day of delivery.
VOIDABLE CONTRACTS
“Voidable Contracts”
- Those in which all of the essential
elemts for validity are present,
although the elemtns of cosent is
vitiated either by lack of legal
capacity of one of the contracting
parties, or by mistake, violence,
intimidation,undue influence or
fraud.
Once is it executed there are only two
possible alternatives left tot the party who
may invoke its voidable character
1. Attack its validity
- Validity may be attacked either by:
a. directly by means of a
proper action in court. (The
action is called annulment)
b. indirectly by way of defense.
(the defense is called
annullability or relative nullity)
2. To convalidate it either by ratification
or by prescription
Characteristics
32
Voidable C. possess the following Whether a contract which the law considers
charactersitics: as voidable has already been consummated
1. Their defect consists in the vitiation or is merely executory is immaterial; it can
of consent always be annulled by a proper action court.
2. They are binding until they are
annulled by a competent court Prescriptive Period
3. They are susceptible of Article 1391. The action for annulment shall
convalidation by ratification or by be brought within four years. This period
prescription shall begin: In cases of intimidation,
violence or undue influence, from the time
Their defect or voidable character cannot be the defect of the consent ceases. In case of
invoked by third persons. mistake or fraud, from the time of the
discovery of the same. And when the action
refers to contracts entered into by minors or
Voidable Rescissible other incapacitated persons, from the time
The defect is The defect is the guardianship ceases.
intrinsic. It consists external. It consists
of a vice which of damage or The action must be commend within a
vitiates consent prejudice period of four years.
Voidable even if Not Rescissible if
there is not there no damage or
damage or prejudice Incapacitated From the time the
prejudice persosn guardianship
Annullability is Rescissibility is ceases
based on the law based on equity Consent is vitiated The time such VIU
Annulment is a Rescission is just a by ceases or
sanction remedy violence,intimidation, disappers
Susceptible of Not susceptible of undue influence
retification ratification (VIU)
Annulment may be May be invoked by Consent is vitiated The time of the
invoked only by a a third person by misrake or fraud discovery of such
contracting party mistake or fraud.

Contracts Which are Voidable Ratification

Article 1390. The following contracts are
voidable or annullable, even though there
may have been no damage to the
contracting parties:
(1) Those where one of the parties is
incapable of giving consent to a contract;
(2) Those where the consent is vitiated by
mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they
are annulled by a proper action in court.
They are susceptible of ratification.
Article 1392. Ratification extinguishes the
action to annul a voidable contract.
Article 1393. Ratification may be effected
expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge
of the reason which renders the contract
voidable and such reason having ceased,
the person who has a right to invoke it
should execute an act which necessarily
implies an intention to waive his right.
Article 1394. Ratification may be effected by
the guardian of the incapacitated person.

SHELLA HANNAH J. SALIH 33

Article 1395. Ratification does not require
the conformity of the contracting party who
has no right to bring the action for
annulment.
Article 1396. Ratification cleanses the
contract from all its defects from the
moment it was constituted.
“Ratification”
- As the act or means by virtue of
which efficacy is given to a contract
which suffers from a vice of curable
nullity.
Requisites:
1. Contract should be tainted with a
vice which is susceptible of being
cured
2. The confirmation should be effected
by the person who is entitled to do
so under the law
3. It should be effected with knowledge
of the vice or defect of the contract
4. The cause of the nullity or defect
should have already disappeared
Forms of Ratification
- It may be effected:
a. Expressly
 There is an express
confirmation if,with
knowledge of the
reason which renders
the contract voidable
and such reason
having ceased, the
person who has a
right to invoke it
should expressly
declare his desire to
convalidate it, to
renounce his right to
annul the contract.
b. Tacitly
 The person who has
a right to invoke it
should execute an act
which necessarily
SHELLA HANNAH J. SALIH
implies an intention to
waive his right.
Effects of Ratification
1. It extinguishes the action to annul
the contract
2. It cleanses the contract of its defects
from the moment it was constituted.
Who May Institute Action
Article 1397. The action for the annulment
of contracts may be instituted by all who are
thereby obliged principally or subsidiarily.
However, persons who are capable cannot
allege the incapacity of those with whom
they contracted; nor can those who exerted
intimidation, violence, or undue influence, or
employed fraud, or caused mistake base
their action upon these flaws of the contract.
Requisites:
1. The plaintiff must have an interest in
the contract
- General rule: a third person cannot
institute an action for its annulment
- Exception: he may exercise an
action for annulment if he is
prejudiced in his right with respect to
one of the contracting parties, and
can show detriment which would
positively result to him from the
contract in which he has no
intervention.
-
2. The victim and not the party
responsible for the vice must be the
person who assert the same
Annulment
Article 1398. An obligation having been
annulled, the contracting parties shall
restore to each other the things which have
been the subject matter of the contract, with
their fruits, and the price with its interest,
except in cases provided by law. In
obligations to render service, the value
thereof shall be the basis for damages.
Article 1399. When the defect of the
contract consists in the incapacity of one of
the parties, the incapacitated person is not
34
obliged to make any restitution except
insofar as he has been benefited by the
thing or price received by him
If the contract has not yet been
consummated, it is evident, although the
Code does not expreslly say so, that the
contracying parties shall be releasd from the
obligations arising therefrom.
Lost of the thing due
Article 1400. Whenever the person obliged
by the decree of annulment to return the
thing can not do so because it has been lost
through his fault, he shall return the fruits
received and the value of the thing at the
time of the loss, with interest from the same
date.

Obligation of Mutual Restitution Article 1401. The action for annulment of

contracts shall be extinguished when the
Obligation to give The parties shall thing which is the object thereof is lost
restore to each through the fraud or fault of the person who
other the things has a right to institute the proceedings. If
which have been the right of action is based upon the
the subject matter incapacity of any one of the contracting
of the contract, with parties, the loss of the thing shall not be an
their fruits, and the obstacle to the success of the action, unless
price with its said loss took place through the fraud or
interest. fault of the plaintiff.
Oblogation to do There will have to
and not to do be an Article 1402. As long as one of the
apportionment of contracting parties does not restore what in
damages based on virtue of the decree of annulment he is
the value of such bound to return, the other cannot be
prestation with compelled to comply with what is incumbent
corresponding upon him.
interests.
Due to the Fault of Defendant
If the defect of th contract consusts in the When the person obliged by the decree of
incapacity of one of the contracting parties, annulment to return the thing cannot do so
the incapacitated person is not obliged to because eit has been lost through his fault,
make any restitution except insofar as he he shall retrun the fruits received and the
has been benefited by the thing or price value of the thing at the time of the loss,
received by him. with interest from the same date.

Art.1399 cannot be applied to thosecases
where the incapacitated person can still
retirn the thing which he has received
Fi after attaining capacitu, it is established
that he not only failed to ask for the
annulment of the contract but he also
squandered that part of the consideration
which remained, it is clear that there is
already an implied ratification or
confirmation.
If the loss of the thing whcich constitutes the
object of the contract through the fault of the
party against whom the action for
annulment may be instituted shall not
extinguish the action for annulment, he can
only be complled to pay the value instead of
restoring the thing.
Due to the Fault of Plaintiff
The action for annulment shall be
extinguished.
Three modes of extinguishing the action:
1. Prescription

SHELLA HANNAH J. SALIH 35

 2. Ratification 2. Those which do not comply with the
3. Loss of the thing through the faulr of Statute of Fraud
the person who is entitled to institute 3. Those where both contracting
the action. parties are legally incapacitated

Whether the loss occurred during the They are noe placed in the same category
plaintiff’s incapacity or after he had acquired as contracts which do not comply with the
capacity, the action for annulment would still Statute of Frauds.
be extinguished in accordance with rule
stated in first paragraph. Characteristics:
1. They cannot be enforeced by a
Due to Fortuitous Event proper action in court
If the person obliged by the decree of 2. Suspceptible of retification
annulment to return the thing cannot do so 3. Cannot be assailed by third person
because it has been lost through a
fortuitous event, the contract can still be Unenforceable Rescissible
annulled. The defendant can be held liable Contracts Contracts
only for the value of thing at the time of the Cannot be Can be enforced
loss but without interest thereon. enforeced by a unless it is
proer action court rescinded
If it is the plaintiff who cannot return the Susceptible of Is not susceptible
thing because it has been lost through a FE, ratification of ratification
the contract may still be annulled, he must Cannot be assailed May be assailed by
pay the defendant the valude of the thing, by third person third person
but without interest. Unenforceable Voidable
Contracts Contracts
If the plaintiff offers to pay the value of the Cannot be enforced Can be enforced,
thing at the time of its loss as a substitute by a proper action unless it is annulled
for the thing itself the annulment if the in court
contract woud be still possible.
Article 1403. The following contracts are
unenforceable, unless they are ratified:
UNENFORCEABLE CONTRACTS
(1) Those entered into in the name of
“Unenforceable Contracts” another person by one who has been given
- Those which cannot be enforced by no authority or legal representation, or who
a proper action in court, unless they has acted beyond his powers;
are ratified, they are enterd into
without or in excess of authority or (2) Those that do not comply with the
they do not comply with the stature Statute of Frauds as set forth in this
of frauds or both contracting parties number. In the following cases an
do not possess the required legal agreement hereafter made shall be
capacity. unenforceable by action, unless the same,
or some note or memorandum, thereof, be
Classes of Unenforceable Contracts in writing, and subscribed by the party
1. Contracts entered into in the name charged, or by his agent; evidence,
of another person by one without therefore, of the agreement cannot be
any authority or in excess of his received without the writing, or a secondary
authority evidence of its contents:

SHELLA HANNAH J. SALIH 36

(a) An agreement that by its terms is not to
be performed within a year from the making
thereof;
(b) A special promise to answer for the debt,
default, or miscarriage of another;
(c) An agreement made in consideration of
marriage, other than a mutual promise to
marry;
(d) 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;
(e) An agreement for the leasing for a
longer period than one year, or for the sale
of real property or of an interest therein;
( f ) A representation as to the credit of a
third person.
(3) Those where both parties are incapable
of giving consent to a contract.
Contracts Without or in Excess of
Authority
1. No one may contract in the name of
another without being authorized by
the latter or unless he has a right to
represent him. If he is duly
authorized, he must acr within the
scope of his powers.
2. A contract entered into the name of
another by one who has no authority
or legal representation is
unenforceable
3. Suc contract may be ratified,
expressly or impliedly by the person
in whose behalf it has been
executed, before it is revoked by
other contracting party
Confirmation v. Recognition
SHELLA HANNAH J. SALIH
Confirmation tends to cure a vice of nullity
and ratification is for the purpose of giving
authority to a person who previously acted
in the name of another without authority.
Recognition is merely to cure a defect of
proof. The person acting on behalf of
another os duly authorized to do so.
Statute of Frauds
The statute of frauds was enacted for the
purpose of preventing frauds. The only
formality requires is that the contract or
agreement must be in writing and
subscribed by the party charged or by his
agent.
In case of noncompliance, the contract is
unenforceable by action. It is therefore clear
that the form required is for evidential
prupose only. Hence, if the parties permit a
contract to be proved, without any objection,
it is then just as binding as if the statute has
been complied with.
Classes of contracts which are covered by
the Statute of Frauds:
1. An agreement that by its terms is not
to be performed within a year from
the making thereof. This refers only
to agreements whuch by their terms
are not to be performed on either
side within a year from the execution
thereof.
When in an oral contract, which by
its terms is not to be performed
within one tear from the execution
thereof, one of the contracting
parties has already complied within
the year with the obligations
imposed upon him, the other party
cannot avoid the fulfillment of those
incumbent upon him.
2. A special promise to answer for th
debt, default or miscarriage of
another. It is well-settles that a
promise in order to fall under the
statute must be collateral not
independent or original.
37
 Article 1405. Contracts infringing the Statute
Perfomance of Contracts of Frauds, referred to in No. 2 of article
The statute of frauds is only applicable only 1403, are ratified by the failure to object to
to those contracts which are executory anf the presentation of oral evidence to prove
not to those which have been consummated the same, or by the acceptance of benefit
either totally or partiall. In such case there is under them.
already a ratification. There is acceptance of
benefits Article 1406. When a contract is enforceable
under the Statute of Frauds, and a public
document is necessary for its registration in
Ratification the Registry of Deeds, the parties may avail
Contracts infringing the statute of frauds are themselves of the right under Article 1357.
susceptible of ratification
Article 1407. In a contract where both
Such constracts may be ratified either: parties are incapable of giving consent,
1. By the failure to object to the express or implied ratification by the parent,
presentation of oral evidence to or guardian, as the case may be, of one of
prove the same the contracting parties shall give the
2. By the acceptance of benefits under contract the same effect as if only one of
them them were incapacitated. If ratification is
made by the parents or guardians, as the
Both Parties are Incapacitated case may be, of both contracting parties,
If both parties are legally incapacitated the the contract shall be validated from the
contract is unenforceable inception.
If only one is incapacitated, the contract is
voidable. Article 1408. Unenforceable contracts
In the case of those entered into the name cannot be assailed by third persons.
of another by one without or in excess of
authority, contracts where both parties are
legally incapacitated may be ratified either VOID OR UNEXISTENT
expreslly or impliedly. Such ratification may CONTRARCS CONTRACTS
be effected by the parents or guardians.
“Void or Inexistent”
- As one which lacks absolutely either
The ratification by The ratification by in fact or in law one or some of the
the parent or the parents or elments which are essential for its
guardian of one of guardians of both validity.
the contracting parties or by both - The contract is void when:
parties or by of such a. If there is absolutely no
himself upon themselves upon consent,object or cause, or
attaining capacity attaining capacity. b. if the formalities which are
essential for validity are not
VOIDABLE VALID UPON ITS complied with or
INCEPTION c. even if there is a cause and
an object, if such cause or
Article 1404. Unauthorized contracts are object is contrary to
governed by article 1317 and the principles law,morals, good
of agency in Title X of this Book. customs,public order or
public policy

SHELLA HANNAH J. SALIH 38

 d. the contract is expreslly The action for the The action for
prohibited or declared by law declaration of the rescission of a
to be void. nullity or contract is
inexistence of a prescriptible.
contract is
VOID INEXISTENT imprescriptible
those where all of those where one or The nullity cannot The Rescissible
the requisites of a some or all of those be assailed by third character may be
contract are requisires which persons assailed by third
present but the are essential for the persons
cause,object or validity of a VOID VOIDABLE
purpose is contrary contract are Produces as rule Binding, unless it is
to law,morals,good absolutelty lacking. no effect annulled
customs ,public Not Susceptible of Susceptible of
order or public Such as those ratification ratification
policy which are The defense of Defense of
absolutely inexistence or annulablity is not
simulated or absolute nullity is available to third
fictitious or the available to third persons
cause or object did person whose
not exist at the time interests are
of transaction. directly affected
Neither party may It is open to attack VOID UNENFORCEABLE
be heard to invoke even by the parties There is in reality Thee is actually a
its unlawful no contract at all contract which
character as a cannot be enforced
ground for relief. by a court action,
May produce legal Cannot produce unless it is ratified
effects any effect Not susceptible of Susceptible of
whatsoever ratification ratification
Can be assailed by Cannot be assailed
third persons by third persons
whose interests are
VOID RESCISSIBLE directly affected
CONTRACTS CONTRACTS
Produces no effect Valid unless it is CONTRACTS WHICH ARE VOID OR
even if it not set rescinded INEXISTENT
aside by a direct Article 1409. The following contracts are
action inexistent and void from the beginning:
The defect consists The defect consists (1) Those whose cause, object or purpose
in absolute lack in in lesion or damage is contrary to law, morals, good customs,
fact or in law of one to one of the public order or public policy;
or some of the contracting parties (2) Those which are absolutely simulated or
essential elemts of or to third persons fictitious;
a contract (3) Those whose cause or object did not
Nullity or The Rescissible exist at the time of the transaction;
inexistence of the character is based (4) Those whose object is outside the
contract is based on equity commerce of men;
on the law (5) Those which contemplate an impossible
service;

SHELLA HANNAH J. SALIH 39

(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.
These contracts cannot be ratified. Neither
can the right to set up the defense of
illegality be waived.
it must be observed, that Nos 1,4,5,6 and 7
refer to the contracts which are void, while
the Nos 2 and 3 refer to contracts which are
inexistent.
Charactersistics
(1) As a general rule, they produce no legal effects
whatsoever in accordance with the principle “quod
nullum est nullum producit effectum.’’22
(2)  They are not susceptible of ratification.23
(3)  The right to set up the defense of inexistence or
absolute nullity cannot be waived or renounced.24
(4) The action or defense for the declaration of their
inexistence or absolute nullity is imprescriptible. 25
(5) The inexistence or absolute nullity of a contract
cannot be invoked by a person whose interests are not
directly affected
Effects
As far as inexistent contracts are concerned, such
contracts can produce no legal effect whatsoever in
accordance with the principle “quod nullum est
nullum producit effectum.’
in the case of void contracts where the nullity
proceeds from the illegality of the cause or object, a
certain qualification must be made. nullity of
contracts due to illegal cause or object, when
executed (and not merely executory), will produce the
effect of barring any action by a guilty to recover
what he has already given under the contract.
Art. 1410. The action or defense for the
declaration of the inexistence of a contract does
not prescribe.
SHELLA HANNAH J. SALIH
Imprescriptibility of Action or Defense
Because of the fact that the defect of void or
inexistent contracts is of a more or less permanent
character, mere lapse of time cannot give efficacy to
such contracts.
This principle of impres- criptibility is applicable not
only to the action for the declaration of the
inexistence or absolute nullity of the contract but also
to the defense.
Art. 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties
being in pari delicto, they shall have no action
against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of
a crime shall be applicable to the things or the
price of the contract.
This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to
comply with his promise.34
Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both
contracting parties, neither may recover what he
has given by virtue of the contract, or demand the
performance of the other’s
undertaking;
(2) When only one of the contracting parties is at
fault, he cannot recover what he has given by
reason of the con- tract, or ask for the fulfillment
of what has been promised him. The other, who is
not at fault, may demand the return of what he
has given without any obligation to comply with
his promise.35
Principle of In Pari Delicto
When the defect of a void contract consists in the
illegality of the cause or object of the contract, and
both of the parties are at fault or in pari delicto, the
40
law refuses them every remedy and leaves them
where they are
The rule is expressed in the maxims: “Ex dolo malo
non oritur actio’’ and “In pari delicto potior est
conditio defendantis.’’ The law will not aid either
party to an illegal agreement it leaves them where
they are. Of course, this presupposes that the fault of
one party is more or less equal or equivalent to the
fault of the other party.38
It must be observed, however, that the principle of in
pari delicto applies only to cases of existing contracts
with an illegal cause or object and not to simulated or
fictitious contracts nor to those which are inexistent
for lack of an essential requisite such as cause or
consideration
In other words, the principle can have no application
to inexistent contracts, since such contracts are
always open to attack even by the parties thereto. But
where the contract is void because of the illegality of
the cause or the object, the principle is applicable
since the Code in Arts. 1411 and 1412 commands
that neither party thereto may be heard to invoke its
unlawful character as a ground for relief.4
Ex. Thus, if the plaintiff transfers to the defendant a
parcel of land by means of a fictitious deed of sale for
the purpose of averting its attachment by his
creditors, it is clear that the principle, enunciated in
Art. 1412 of the Civil Code is not applicable, since
what is illegal is the motive of the transferor and not
the object or the cause of the contract.43
Effect if only one party is at fault
When only one of the contracting parties is at fault,
we must have to distinguish between a case where the
contract has already been executed and one where it
is merely executory.
If the contract has already been executed, the guilty
party is barred from recovering what he has given to
the other party by reason of the contract. The
innocent party, however, may demand for the return
of what he has given
if the contract is merely executory, it is clear that it
cannot produce any legal effect whatsoever. Neither
of the contracting parties can demand for the
fulfillment of any obligation arising from the contract
nor be compelled to comply with such obligation
SHELLA HANNAH J. SALIH
Exceptions:
(1) Payment of usurious interest. In such case, the
law allows the debtor to recover the interest paid in
excess of that allowed by the usury laws, with interest
thereon from the date of payment.47
(2) Payment of money or delivery of property for an
illegal purpose, where the party who paid or
delivered repudiates the contract before the purpose
has been accomplished, or before any damage has
been caused to a third person. In such case, the courts
may allow such party to recover what he has paid or
delivered, if the public interest will thus be
subserved.48
(3) Payment of money or delivery of property by an
incapacitated person. In such case, the courts may
allow such person to recover what he has paid or
delivered, if the interest of justice so demands.49
(4) Agreement or contract which is not illegal per se
but is merely prohibited by law, and the prohibition is
designed for the protection of the plaintiff. In such
case, such plaintiff, if public policy is thereby
enhanced, may recover what he has paid or
delivered.50
(5) Payment of any amount in excess of the
maximum price of any article or commodity fixed by
law. In such case, the buyer may recover the excess.51
(6) Contract whereby a laborer undertakes to work
longer than the maximum number of hours fixed by
law. In such case, the laborer may demand for
overtime pay.52
(7) Contract whereby a laborer accepts a wage lower
than the minimum wage fixed by law. In such case,
the laborer may demand for the deficiency
Art. 1413. Interest paid in excess of the interest
allowed by the usury laws may be recovered by
the debtor, with interest thereon from the date of
the payment.54
Art. 1414. 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
41
be subserved, allow the party repudiating the
contract to recover the money or property.63

Art. 1415. When 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.64

Art. 1416. When the agreement is not illegal per se

but is merely prohibited, and the prohibition by
the law is designed for the protection of the
plaintiff, he may, if public policy is

thereby enhanced, recover what he has paid or

delivered

Art. 1417. When the price of any article or

commodity is determined by statute, or by
authority of law, any person paying any amount in
excess of the maximum price allowed may recover
such excess.79

Art. 1418. When the law fixes, or authorizes the

fixing of the maximum number of hours of labor,
and a contract is entered into whereby a laborer
undertakes to work longer than the maximum
thus fixed, he may demand additional
compensation for service rendered beyond the
time limit.80

Art. 1419. When the law sets, or authorizes the

setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer
accepts a lower wage, he shall be entitled

to recover the deficiency.81

Art. 1420. In case of a divisible contract, if the

illegal terms can be separated from the legal ones,
the latter may be enforced.82

Art. 1421. The defense of illegality of contracts is

not available to third persons whose interests are
not directly affected.83

Art. 1422. A contract which is the direct result of a

previous illegal contract, is also void and
inexistent.84

SHELLA HANNAH J. SALIH 42