CONTRACTS 

Article 1305. DEFINITION 

Contract 
 -is a meeting of the minds between two persons whereby one binds himself to give something
or render some service. 
 -there must be at least two persons or parties 
DISTINGUISHED FROM OBLIGATION. 
Contract is one of the sources of obligation (1157), while obligation is a legal tie that exists after
a contract is entered into. 
NO CONTRACT = NO OBLIGATION. But an Obligation may exist without a Contract. 

DISTINGUISHED FROM AGREEMENT. 

Contract are enforceable agreements through legal proceedings. All contracts are agreement but
not vice versa. 

STAGES 
 1. Preparation – all the steps taken by the parties leading to the perfection of the contract.
Parties have not yet arrived to an agreement. 
 2. Perfection – when parties have come to an agreement or meeting of the minds 
 3. Consummation – when the parties have performed their respective obligations 
CHARACTERISTICS OF CONTRACT 
 1. Autonomy (Art. 1306) – where there is a sense of freedom; contracting parties may
establish contract as long as it is not contrary to law, public policy, morals. 
 Limitations: 
 1. Law – contract entered into must conform to an applicable statute 
 2. Police power – contract shall not contravene morals, good customs, public order or policy. 
 2. Consensuality (Art. 1315, sent.1) – perfected by mere consent 
 * Classification of contracts according to perfection 
 1. consensual – like sale, lease, agency 
Art. 1316 
 *2. Real – perfected by DELIVERY of the thing 
 -those that are deposit (safe keeping), pledge (sanla), commodatum (pahiram). 
 3. Mutuality (Art. 1308) – that contract is binding to both parties 
 -a contract which its fulfillment or extinguishment is dependent upon the will of ONLY ONE
of the parties is VOID. 
 -no party can renounce or violate the law of the contract without the consent of the other 
 4. Obligatoriness (Art. 1315) – contract is complied with good faith (Art. 1157) 
 -parties are also bound to all the consequences 
 5. Relativity (Art. 1311) – 
GENERAL RULE: Contracts take effect only between the PARTIES, their ASSIGNS and
HEIRS 
EXCEPTIONS: 

*STIPULATION POUR AUTRUI 

 1. If the contract has STIPULATION 
 2. re IN FAVOR of a THIRD person 
 3. the contracting parties has CLEAR AND DELIBERATE CONFERMENT OF SUCH
FAVOR upon the third person 
 4. Third person COMMUNICATED his acceptance to such stipulation 
stipulation pour autrui is a stipulation in a contract clearly and deliberately conferring a favor
upon a third person who has a right to demand its fulfillment provided he communicates his
acceptance to such. 
Classes of stipulations pour autrui: 
 1. those intended for the sole benefit of a person 
(ex. A leases a house and told C that ¼ of its rentals will be given to him (c) ) 
 2. those where an obligation is due from the promise to the third person which former seeks to
discharge 
EXAMPLE: 
A owes P10,000.00 to B with a monthly interest of 14%. it was agreed upon that the P1,400 will
be given to S to whom B is indebted of the same amount. 

ACCION DIRECTA 
Art. 1313 – creditors are protected in cases of contracts intended to defraud them 
1. Lessor vs. sub lessors – Arts. 1651, 1652 
Art. 1651 example: 
 A (lessor) leased B (lessee) a room. B find it too large for him, hence, he subsequently leased
it to C (sub lessee; making B a sub-lessor). Hence, C will be liable for all the acts agreed upon
originally by A and B with regards to the use and preservation of the thing leased. 
2. Laborers/materialmen vs. Owner – Art. 1729 
Example: 
 S (owner) hired X (contractor) who hired A and B (laborers) for the construction of S's
building. 
If X do not pay A and B their compensation, A and B and go after S. 
3. Negotorium gestio – Arts. 2150, 2151 
example: 
 A and B are two land owners. A was out of town. There came a raging storm. B, a generous
neighbor, takes care of A's land while the latter's away. So B can reimburse to A to whatever
laibility. 
4. Article 1314 
 *example ni Sir, A is the exclusive distributor 
ng Nike Shoes; while X, induces the contractor of A to also allow him sell Nike shoes in a lower
price, without the knowledge/consent of A. 

ARTICLE 1317 – UNAUTHORIZED CONTRACTS 

 – instance when the contract is entered into the name of another who is not the authorized
person or representative 
 – Unenforceable in nature 
 – but can be cured by ratification 
Art. 1318 

ESSENTIAL REQUISITES OF CONTRACTS 

 -no contract unless the following elements are present: 
 1. CONSENT (Art. 1319) 
 -conformity of the wills of both parties 
 – manifested by meeting of the offer and the acceptance 
Offer – a proposal made by one party to another to enter into a contract. 
Acceptance – manifestation by the offeree of his assent to the terms of the title offer. Without it,
no meeting of the minds. 
Article 1320. Acceptance may be express or implied 
Article 1321. the person making the offer may fix the time, place and the manner of acceptance,
all must be complied with. 
Article 1322. If offer is made thru an agent, the offer is accepted from the time the same is
communicated. 
Article 1323. When does an offer becomes ineffective? 
 1. death 
 2. civil interdiction 
 3. insanity 
 4. insolvency OF EITHER PARTY 
Article 1324. CONTRACT OF OPTION; OPTION PERIOD; OPTION MONEY 
 – when the period of the offer's acceptance is 
certain, it is withdrawable until it is not yet accepted 
Article 1325 and Article 1326. BUSINESS ADVERTISEMENTS NOT DEFINITE OFFERS,
ONLY MERE INVITATION. 
Who cannot give consent to a contract? (Article 1327). 
 1. unemancipated minors; 
 2. insane or demented persons; 
 3. deaf-mutes/illiterates 
Article 1328. 
 – contracts entered into during lucid interval is VALID 
 – during drunkenness or hypnotic spell is VOIDABLE 
ARTICLE 1330. 
Consent given thru MISTAKE (1331), VIOLENCE (1335 p.1), INTIMIDATION (1335,
p.2/1336), UNDUE INFLUENCE (1337) OR FAUD (1338) is VOIDABLE! 

ARTILE 1331. MISTAKE OR ERROR 

 – the false notion of thing or a fact material to the contract 
Mistake of fact to which law refers: 
 1. substance of the thing which is the object of the contract; 
 2. conditions which have principally moved one or both parties to enter into contract; 
 3. the identity of one of the parties provided in the same was the principal cause of the
contract 
ARTICLE 1332. BURDEN OF PROOF IN CASE OF
MISTAKE OR FRAUD 
 – THE PARTY ENFORCING THE CONTRACT has the duty to show that there is no
mistake or fraud on the terms of the contract 
 – if a party knew about the doubt, contingency 
or risk affecting the object of the contact, it is presumed that he was willing to take a chance
(ARTICLE 1333). 

ARTICLE 1334. MISTAKE OF LAW 

 -arises from an ignorance of some provision of law, or from an erroneous interpretation of its
meaning 
– EFFECT: does not invalidate consent 
– APPLICATION: 
 1. when the error is mutual 
 2. it must be as to the legal effect of an agreement 
 3. it must frustrate the real purpose of the parties 
ARTICLE 1335. VIOLENCE & INTIMIDATION TO
VITIATE CONSENT 
Violence – requires physical force 
Intimidation – there is a reasonable and well-grounded fear of an evil that is imminent and grave
upon a person or property so a person will enter into a contract 
ARTICLE 1337. UNDUE INFLUENCE 
 -when a person takes improper advantage of his power over the will of another 
ARTICLE 1338. FRAUD 
Causal fraud (dolo causante) 
 -employed prior to or simultaneous to the consent or creation of the contract. 
REQUISITES: 
 1. There must be MISREPRESENTATION (Art. 1338 – thru insidious words or
machinations) or CONCEALMENT (Art. 1339 – failure to disclose facts). 
 2. It must be serious (Art. 1344) 
 -in order that fraud may make a contract VOIDABLE, it must be serious. 
 3. it must have been employed by only one of the contracting parties (Art. 1342) 
 * misrepresentation by a third person does not vitiate consent , unless it creates substantial
mistake and the same is mutual. 
 4. it must be made in bad faith or with intent to deceive (Art. 1343) 
 5. it must have induced the consent of the other contracting party (Art. 1338) 
 6. it must be alleged and proved by clear and convincing evidence 
FRAUD BY CONCEALMENT (Art. 1339) 
 -a neglect or failure to communicate that which a party to a contract knows and ought to
communicate constitute concealment. 
 -when this arises, the injured party has the right to rescind or annul the contract 
Art. 1341 -Expression of opinion 
 -a mere expression of opinion does not signify consent, unless made by an expert and the
other party has relied on the former's special knowledge 
TWO KINDS OF FRAUD IN MAKING OF A CONTRACT (Art. 1344) 
 1. causal fraud – which may be a ground for annulment of a contract, but also gives rise for
action for damages 
 2. incidental fraud – renders only the party who employs it liable for damages (Art. 1344, par.
2) 
Art. 1170 – refers to incidental fraud (dolo incidente) 
 -Committed in the performance of an obligation (at the stage of consummation) 
 -Ex. When you were shown a pendant and it looked real so you entered into buying it but the
seller gave you a fake pendant instead. 
It is comparable to causal fraud (dolo causante, Art. 1338) 
 -means a fraud employed in the execution of contract which vitiates consent and makes the
contract voidable 
 -the other party is induced by word to enter into the contract (happens at the stage of
perfection) 
SIMULATION OF A CONTRACT (Art. 1345) 
 -the act of deliberately deceiving other, by feigning or pretending by agreement, the
appearance of a contract which is neither inexistent or concealed. 
KINDS: 
 1. Absolute – when the contract does ot really exist and the parties do not intend to be bound
at all. 
Ex. 
D is indebted to C. Upon learning that C is going to enforce his credit, D pretended to sell his
land to F. D did not receive any single centavo for the transaction and he continued in possession
of the land as the contract was merely simulated or fictitious. 
 2. Relative – when the contract entered into by the parties is different from their true
agreement 
Ex. 
C and D entered into a contract of mortgage. But wanting to hide the mortgage, it was made to
appear in the form of deed of sale. (Example ni Sir about sa kotse na kukunin din ng creditor,
ibabalik lng pag nagbayad si debtor) 

OBJECT OF A CONTRACT 
(Art. 1347) 
 -the subject matter 
 -the object of every contract is the obligation created 
KINDS OF OBJECT IN A CONTRACT: 
 1. Things (like sale) 
 2. Rights (like assignment or credit) 
 3. Services (like agency) 
Requisites of THINGS as Object of a contract 
 1. must be within the commerce of men 
 2. must not be impossible 
 3. must be in existence or capable of 
 4. must be determinate (not generic) 
Requisites of SERVICES as Object 
 1. must be within the commerce of men 
 2. must not be impossible 
 3. must be determinate 
RIGHTS as Object 
GEN RULE: All rights may be the object of a contract. 

EXCEPTION: 
When they are transmissible by their nature, stipulation or provision of law (1311). 
Ex. 
 1. things outside of commerce of men – like things of public ownership (sidewalks, bridges,
streets) 
FUTURE INHERITANCE (1347, par. 2) 
 -any property or right, not in existence at the time of the contract, that a person may inherit in
the future. 
 -unless expressly stipulated by law, contract concerning future inheritance is VOID. 
 -inheritance ceases to be in future upon death of the decendant 
IMPOSSIBLE THINGS cannot be OBJECT of a contract (1348) 
 1. Physical – when the thing or service in the very nature of things cannot exist 
 a. Absolute – when the act cannot be done in any case (ex.flying) 
 b. Relative – when it arises from the special circumstance of the case (ex. To make payment
to a dead person) 
 2. Legal – when the thing or service is contrary to public morals, law, good customs, public
order or policy (ex. Selling prohibited drugs) 
EFFECT: 
 Absolute – nullifies the contract 
 Relative – if temporary, does not nullify the contract; if permanent, it annuls the contract 
 Art. 1349 The object of a contract must be determinate as to its KIND but the quantity need
not be determinate. 
CAUSE OF CONTRACTS (1350) 
Causa – the essential or more proximate purpose which contracting parties have in view at the
time of entering into a contract 

CLASSIFICATION OF CONTRACT ACCORDING TO

CAUSE 
1. Onerous 
 -one the cause of which , for each contracting party, is the prestation or promise of a thing or
service by the other. 
 -in this contract, both parties are obligated to each other 
Ex. B & E signed a document which in effect stated that if T was allowed to live with them, and
T should marry or leave them, she would receive ½ of their property. 
Should the contract be given effect? YES. Because the contract is more of a donation con cause
onerosa which means it is governed by the provisions of the Civil Code relating to contracts. 
 2. Renumenatory – one the cause of which is the service or benefit which is renumerated. The
purpose is to give reward the service that had been previously rendered by the party
renumerated. 
 3. Gratuitous – one the cause of which is the mere liberality of the benefactor or giver such as
commodatum, pure donation and the like. 
Art. 1351 – Motive 
 -purely personal or private reason which a party has in entering into a contract 
CAUSE  MOTIVE 

a
Juridical reason of  Psychological and purely personal reason 
contract 

Direct reason  Indirect reason 

Always known to the other contracting party  May be unknown 

Not 
Essential element of a contract  an essential 
element 

Does 
Affects the contract's validity 
not render the contract void 

Art. 1352. Requisites of Cause 

 1. It must exist (no cause, no effect) 
 2. it must be lawful – not contrary to law, moral, xxx (Art. 1354) 
 3. It must be true (Art. 1353) 
Effect of absence of cause 
 -contracts without cause confers no right and produce no legal effect 
Effect of inadequacy of cause/failure of cause 
 -does not render a contract void 
Ex. failure to pay the full amount stipulated in a contract does not nullify the contract
immediately. 
Effect of Illegality of cause 
 -makes the contract null and void 
Ex. A promise of marriage based upon carnal connection 
Effect of falsity of cause (Art. 1353) 
 -“statement of a false cause in contracts shall render them void, if it should not be proved that
they were founded upon another cause which is true and lawful”. 
 -the contract is void because the same actually does not exist 
Ex. X promised to give Y P1,000.00 as payment for the past services allegedly rendered by Y
which in truth have not been rendered. Here, the cause of X, which is the renumeration, is
erroneous as it is based upon facts believed to be existing but really inexistent. 
Is it necessary for the cause to be expressly stated? 
 -No. In such instance, the presumption is that the cause exists and is lawful, unless the debtor
proves the contrary (Art. 1354) 
LESION (Art. 1355) 
 -any damage caused by the fact that the price is unjust or inadequate 
Gen. Rule – does not invalidate the contract Exp. -when there has been fraud, mistake or undue
influence / or in cases specified by law. 
NOTE: Lumalabas sa exam 
Various incidents of causal incidents in a contract: 
1. non-existent cause 
st -VOID (1352, 1part) 
2. False cause in an ABSOLUTELY simulated contract 
-VOID (1346, 1353) 
3. False cause in a RELATIVELY simulated contract 
 -parties are bound to their real agreement (1346, 1353) 
 -what is their remedy? REFORMATION (1359) 
4. Inadequate cause (1355) 
 -ex. Nagbenta ka ng lupa worth 1M, binenta mo ng 100k or 1/10 of its value 
 -shall not invalidate contract unless there's fraud. Mistake or undue influence 
 -REMEDY: Reformation (1470) 
 -legal basis para maghabol ang creditor – Art. 1381 
5. Failure of cause 
 -if the seller failed to realize the price or does not deliver the thing to buyer = BREACH 
 -REMEDY: Rescission 
FORM OF CONTRACTS 
Form of a contract – the manner in which a contract is executed. 
 -maybe in oral, writing or partly oral and partly in writing. 
 -if in writing, it may be in a public or private instrument 
 -all its terms must be in writing 
GENERAL RULE: Contracts may be in any form as long as the three essential elements are
present 
WHEN IS FORM NECESSARY? 
**EXCEPTIONS to the Gen. Rule: 
 1. When the law requires a certain form for it to be valid. 
Ex. 
Donation of real property – public instrument Donation of personal property – in writing 

Sale of land thru an agent – in writing Contract of antichresis – in writing stipulation to pay
interest – in writing, otherwise, no interest due contract of partnership – in a public instrumeny 
transfer of sale of large cattle – registered; in a public instrument 
negotiable instruments – in writing 
2. when the law requires form for it to be enforceable (Art. 1403, p.2) 
 -if the contract is not in writing, it is valid but it cannot be proved and cannot be enforced
unless ratified. 
 3. when form is required for it to be convenient to the parties or for the third party (Art.
1357). 
 -an action that can be used by parties to compel each other to follow a certain form of their
contract for their own conveniences 
Art. 1358 – Documents that must appear in a public document 
REFORMATION OF INSTRUMENTS 
(Art. 1359) 
Reformation – remedy by means of which a written instrument is amended or rectified so as to
express the real agreement when by reason of fraud, mistake or undue influence fails to express
such true intention 
REQUISITES: 
 -for reformation to be availed of as remedy, the following should be present: 
 1. there is meeting of the minds of the parties; 
 2.written instrument that does not express the true agreement; 
 3. failure to express true intention due to fraud, mistake, inequitable conduct or accident; 
 4. the relief are put in issue by the pleadings; and, 
 5. there is a clear and convincing evidence of mistake, fraud, xxx. 
INSTANCES when reformation is the remedy: 
1. mutual mistake (1361) 
 -when both parties causes the failure of the instrument to disclose their real agreement 
2. unilateral mistake (1362) 
3. concealment (1363) 
 -when one party was mistaken and the other knew that the instrument did not state their real
agreement but concealed it to the former. 
4. mistake by a third party (1364) 
 -when thru ignorance, lack of skill, negligence or bad faith on the part of the third person
drafting the instrument and the latter does not express the true agreement 
 ex. stenographer had a mistake in typing the records of the trial 
5. mortgage or pledge as a sale (1365) 
 -when two parties agreed upon the mortgage or pledge of real property but the instrument
states that the property is sold with right of repurchase. 
WHEN IS REFORMATION NOT ALLOWED? (Art. 1366) 
In cases of: 
 1. simple donations 
 2. wills 
 3. when the real agreement is void 
INTERPRETATION OF CONTRACTS 
 -determination of the meaning of the terms used by the parties in their contract 
 -involves a question of law 
-if the language is clear, the contract is interpreted in its literal meaning (Art. 1370) 
 -Evident intention of parties prevail over the terms of contract 
 -in judging the intention of the contracting parties, their contemporaneous and subsequent
acts should be principally considered (1371) 
-special intent prevails general intent (1372) 
ex. S sold his house “including all the furniture therein”. The term “all” should not be understood
to include S' refrigerator which is distinct from “furniture”. 
 -in contracts with stipulation with several meanings, it shall be understood as bearing the
import which is most adequate to render it effectual (1373) 
 -various stipulations of a contract shall be interpreted together, jointly (1374) 
 -words which may have different significations shall be understood in that which is most in
keeping the nature and object of the contract. (1375) 
 -resort to custom or usage as aid in interpretation of the contract (the usage or custom where
the contract was entered into) 1376 
 -the interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity (1377) 
Rules in case of doubts are impossible to settle (1378) 
 1. when despite application of the preceding rules, certain doubts still exist, such will be
resolved in accordance with the supplementary rules like the least transmission of rights and
interests shall prevail. 
 ex. R gave his car to E, it is not clear whether it is commodatum or donation. Hence, it should
be presumed as mere commodatum because it would transmit lesser rights than a donation. 
 2. if the doubts are cast upon the principal object in such a way that it cannot be known what
may have been the intention of the parties, the contract shall be NULL AND VOID (1378, par.
2) 
RESCISSIBLE CONTRACTS (Art. 1380) 
Rescission – a remedy granted by law to the contracting parties and sometimes even to third
persons in order to secure reparation of damages caused them by a valid contract, by means of
the restoration of things to their condition prior to the celebration of said contract. 
Rescissible contracts – those validly agreed upon because all the essential elements exist but in
the cases established by law, the remedy of rescission. 
Requisites of Rescission 
 1. the contracting parties must be validly agreed upon (1380) 
 2. there must be lesion to one of the parties or to a third person (1381) 
 * contracts that are rescissible: 
1. contracts entered into in behalf of wards, the latter suffered ¼ of the value of the object 
ward – a person under guardianship by reason of some incapacity. 
Ex. G is the guardian of W. G sells the property of W worth P20,000.00 for only P15,000.00.
The contract of sale cannot be rescinded because the lesion is not more than ¼ of the value.
However, if the property is sold for less than P15,000, W can rescind the sale by proper action in
court. 
2. Contracts agreed upon in representation of absentees; the latter suffered ¼ of the value of the
object 
 -Absentee – a person whi disappears from his domicile, his whereabouts unknown 
 **In nos. 1 & 2, when the contract entered into is approved by the court, rescission cannot
take place because it is valid whether there is lesion or not (1386). 
3. Contracts undertaken in fraud of creditors 
 -in order for this instance be a ground, the following must be present: 
 1. there must be a credit prior to the contract to be rescinded; 
 2. there must be fraud on the part of the debtor which may be presumed or proved; 
3. the creditor cannot recover his credit in any other manner; debtor's insolvency is not required. 
4. contracts which refer to things under litigation 
 -Ex. S sues B for the recovery of a parcel of land. In this case, the land is a “thing under
litigation”. Hence, if during the pendency of the case, B sells the land to C without S approval,
the sale is rescissible by S. 
5. Other instances 
RESCISSION FOR BREACH OF CONTRACT versus RESCISSION BY REASON OF
LESION 
 1. Rescission on account of breach is not predicated on injury to economic interests but on the
breach of faith by the defendant that violates the reciprocity between the parties. It is not a
subsidiary action. 
 2. On the other hand, rescission by reason of lesion, the cause of action is subordinate to the
existence of the prejudice. 
Art. 1382 Payments made in the state of insolvency are rescissible 
 -a debtor is insolvent if he does not have sufficient properties to meet his obligations. Art.
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 
Art. 1384. Rescission shall only be to the extent necessary to cover the damage caused. 
Ex. G, guardian of M, a minor, authorized by the court to sell 2 parcels of land valued at P200k
each. G sold the 2 lands for only P200k. In this case, the entire contract need not be rescinded,
rescission can only be applied to one parcel of land to cover the damage caused by G. 
Art. 1385 EFFECT OF RESCISSION 
1. Obligation of mutual restitution 
 -when the parties declare a contract to be rescinded, the parties must return to each other (a)
the object of the contract with its fruits and (b) the price thereof with legal interest. 
2. Abrogation of contract 
 -the party seeking rescission cannot ask performance as to part and rescission as to remainder 
WHEN RESCISSION IS NOT ALLOWED? 
 1. If the party who demands rescission cannot return what he is obliged to restore under the
contract (1385, p.1) 
 2. if the property is legally in possession of a third person who acted in good faith (1385, p.2) 
Art. 1387. Alienation presumed in fraud of creditors 
 -the provision establishes fraud in case of alienation of property by the debtor. 
 -the presumption applies only when there has been an alienation or transfer, whether
gratuitous or onerous. 
 -only actual creditors can ask rescission. 
Ex. 
1. alienation by gratuitous title 
 -R made a donation of parcel of land to E. before the date of the donation, R contracted
several debts. With the donation to E, the remaining property of R is not sufficient to pay all his
debts. Hence, the said donation is presumed fraudulent unless otherwise proved. 
Art. 1388 Liability of purchaser in bad faith 
 -whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the
later for damages suffered by them on account of alienation. 
 -if there are two or more alienations, the first acquirer shall be liable first, and so on
successively. 
Ex. S sold his car to B in order to avoid the payment of his debt to C, his creditor. B knew of S's
purpose. If the sale is rescinded, B must return the car. 
Art. 1389 Prescription period for Rescission 
 -the action to claim rescission must be commented within four (4) years. 
 -the period shall be counted from the time the creditor has known the contract. 
 -for persons under guardianship and 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 unknown. 
Persons entitled to bring the action: 
 1. injured party or the defrauded creditor 
 2. his heirs, assigns, or successors in interest 
 3. creditors of the above entitled to subrogation 
VOIDABLE CONTRACT 
 (Art. 1390) 
 -are those which possess all the essential elements of a valid contract but there is defect as to
the consent. 
 -binding unless properly annulled and can be cured by ratification 
 *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. **ANNULMENT – remedy granted by law, for reason of public interest, for the
declaration of inefficacy of a contract based on a defect or vice in the consent. 
Art. 1391. the action for annulment shall be brought within four (4) years. 
This period shall begin: 
In case of:  Start of period: 

From the time of the 

Intimidation, violence or undue influence  defect of the consent 
CEASES 

Mistake or fraud  From the time of the discovery of the same* 

other  From 
Action entered into by minors or  the time the 
incapacitated persons  guardianship ceases 

*discovery of fraud must be reckoned to have taken place from the execution of the contract 
Art. 1392 – RATIFICATION 
 -ratification extinguishes the action to annul a voidable contract 
Art. 1393 – Express or implied ratification 
express – when the ratification is manifested in words or writing 
implied – it may take in diverse forms 
Requisites of implied ratification 
 1. there must be knowledge of the reason which renders the contract voidable 
 2. such reason must have ceased 
 3. the injured party must have executed an act which necessarily implies an intention to waive
his right. 
Ex. S, a minor, sold his land to B. upon reaching the age of majority, S, with full knowledge of
his rights in the premises, instead of repudiating the contract, collected the unpaid balance of the
purchase price from B. There is a tacit ratification by S. 
Art. 1394 Who may effect ratification? 
 1. In a contract entered into by an incapacitated person: 
 -guardian, or 
 -the injured party himself provided he is already capacitated 
 2. party whose consent is vitiated 
Art. 1395. conformity of guilty party to ratification is not required 
Art. 1396. Effect of ratification 
 -ratification cleanses the contract from all its defects from the moment it is constituted 
Ex. B forced S to sell the latter's horse. Later, the horse gave birth to a colt. If S should ratify the
contract after the birth of the colt, who is entitled to the colt? 
 -B, because ratification has a retroactive effect. It validates the contract from the date of its
execution. 
Art. 1397. Party entitled to bring action to annul 
 1. the plaintiff must have an interest in the contract 
 2. the victim and not the guilty party is the person who must assert the same. 
Rights of successors-in-interest to bring an action 
 -he can sue for the annulment of contract 
Right of strangers to bring an action – no legal capacity to challenge the validity of the contract
Art. 1398 duty of mutual restitution upon annulment 
 -if the contract is annulled, the parties must restore to each other the subject matter of the
contract with its fruits and the price thereof with legal interest. 
 -in obligations to render service, the value thereof shall be the basis for damages 
Art. 1399. person who is not obliged to any restitution 
 -when the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution 
except: insofar as to what he has been benefited by the thing or price received by him 
Art. 1400. effect of loss of thing to be returned 
 -if the thing to be returned is lost without the fault o the person obliged to make restitution,
there is no more obligation to return such thing. 
 -if it is lost through his fault, his obligation is not extinguished but is converted into an
indemnity for damages consisting of the value of the thing at the time of the loss with interest
with fruits. 
Ex. S sold his plow carabao to B. on the petition of S, the contract was annulled by the court. But
the carabao died in the possession of B thru his fault. Is B liable? 
Yes, under art. 1400, B must pay the value of the carabao at the time of his death, with interest
from the same date. 
Art. 1401. Extinguishment of action for annulment 
 -if the person who has the right to institute an action will not be able to restore the thing he is
obliged to return because the thing is lost thru his fraud or fault 
 -if the right of action is based upon the 
incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to
the success of the action 
except: if the said loss took place through the fraud or fault of the plaintiff 
Art. 1402 effect where a party cannot restore what he is bound to return 
 -when a contract is annulled, reciprocal obligation of restitution is created. 
 -in effect, there will be no annulment if the party cannot restore what he is bound to return. 
 -however, if the party who lost the thing through a fortuitous event offers to pay its value with
the fruits received if any, the other can be required to make restitution. 
Ex. B forced S to sell the latter's horse. The contract was annulled by the court at the instance S. 
 * If the horse died through the fault of B, Article 1400 governs. 
 * if the horse died due to fortuitous event, S can refuse to return the purchase price. 
 * but if B offers to pay the value of the horse at the time of its death, he can compel S to
return the price with the interest. 
UNENFORCEABLE CONTRACTS (Art. 1403) 
 -those that cannot be enforced in court or sued upon by reason of defects provided by law
until and unless they are ratified according to law. 
 -unenforceable contracts, although valid, are unenforceable unless ratified. 
 - cannot be enforced by legal action 
KINDS: 
 1. Those entered into in the name of another by one without or acting in excess of authority; 
 2. those that do not comply with the Statute of Frauds; 
 3. Those were both parties are incapable of giving consent. 
UNAUTHORIZED CONTRACTS 
 -those entered into in the name of another person by one who has been given no authority or
legal representation or who has acted beyond his powers. 
Art. 1405. Ratification 
 1. by failure to object to the presentation of oral evidence to prove the contract – tantamount
to a waiver and makes the contract binding. 
 2. acceptance of benefits under the contract. 
Art. 1406. Right of a party where contract enforceable. 
Art. 1407. 
When unenforceable contract becomes a voidable contract 
 -where both parties to a contract are incapable of giving consent, the contract is
unenforceable. 
 -However, if the parent or guardian, or if one of the parties after regaining capacity, ratifies
the contract, it becomes voidable. 
When unenforceable contract becomes a valid contract 
 -if the ratification is made by the parents or guardians of both contracting parties, or by both
contracting parties after regaining capacity, the contracts is VALIDATED and its validity
retroacts to the time it was entered into. 
Art. 1408. Unenforceable contracts cannot be assailed by third
persons 
VOID OR INEXISTENT CONTRACTS (Art. 1409) 
 -those which, because of certain defects, generally produce no effect at all. 
 - considered inexistent from the very beginning 
Inexistent contracts – refer to agreements which lack one or some or all the elements which are
essential for the existence of a contract 
CHARACTERISTICS: 
 1. Cannot be ratified (1409, p.2) 
 2. the right to set-up defense of illegality cannot be waived 
 3. the action for the declaration of inexistence does not prescribed 
 4. the defense of illegality is not available to the persons whose interests are not directly
affected 
 5. it cannot give rise to a valid contract 
INSTANCES OF VOID OR INEXISTENT CONTRACTS 
 1. Contracts whose cause, object or purpose is contrary to law, etc. 
 2. Contracts which are absolutely simulated or fictitious 
 -a contract of sale is void where the price, which appears thereon as paid, has in facts never
been paid. 
 3. Contracts without cause or object 
 4. Contracts whose object is outside the commerce of men (see Arts 1347 and 1348) 
 5. Contracts which contemplate an impossible service (see Arts 1347 and 1348) 
 6. Contracts where the intention of the parties relative to the object cannot be ascertained 
 7. Contracts expressly prohibited or declared void by law Ex. 
 1. contracts upon future inheritance 
 2. sale of property between husband and wife 
 3. purchase of property by persons who are 
specially disqualified by law (like guardians, agents, etc.) because of their position or relation
with the person or property under their care. 

Art. 1410. action for declaration of inexistence of a contract

does not prescribe 
 -also, necessity of judicial declaration is not needed 
Art. 1411. Rules where contract is illegal and the act constitutes
criminal offense 
 1. where both parties re in pari delicto (in equal fault) : 
 -both parties shall have no action against each other 
 - both shall be prosecuted 
 -the things or the price of the contract shall be confiscated in favor of the government 
Art. 1412. Rules where contract is illegal but the act is not a
criminal offense 
 1. where both parties in pari delicto: 
 -neither party may recover what he has given by virtue of the contracts 
 -neither party may demand the performance of the other's undertaking 
WHEN PARI DELICTO RULE NOT APPLICABLE? 
 1. Breach of warranty cases 
 2. simulated contracts 
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. 
Art. 1414. Recovery where contract for an illegal purpose 
 -allows recovery by one of the parties even both parties have acted contrary to law 
 1. the contract is for an illegal purpose; 
 2. the contract is repudiated before the purpose has been accomplished or before the damage
has been caused to a third person; 
 3. the court considers that public interest will be subserved by allowing recovery 
Art. 1415. Recovery by an incapacitated Art. 1421. Persons entitled to raise defense of
person  illegality or nullity 

- Exception to the Articles 1411-1412.  *third person may avail defense of illegality. 

-recovery can be allowed if one of the

Art. 1422. Void contract cannot be novated 
parties is incapacitated 

Ex. if X is a minor or an insane person, the court may allow X to recover the money paid if the
interest of justice so demands. 

Art. 1416. Recovery where contract not illegal per se 

 - another exception to Arts. 1411-12 
Recovery is permitted when: 
 1. the agreement is not illegal per se but is merely prohibited; 
 2. the prohibition is designed for the protection of the plaintiff; 
 3. public policy would be enhanced by allowing the plaintiff to recover 
Art. 1417. Recovery of amount paid in excess of ceiling price 
Art. 1418. Recovery to additional compensation for service
rendered beyond time limit 
Ex. when in a contract, the laborer undertakes to work longer than the maximum period fixed, he
may demand additional compensation. 

Art. 1419. Recovery of amount of wage less than minimum

fixed 
Art. 1420. Effect of illegality where contract is
indivisible/divisible 
 1. where the consideration is entire and single the contract is indivisible, so if the part of such
is illegal, the whole contract will be void. 
 2. where the contract is divisible, only the illegal parts are void.