TITLE II.

CONTRACTS
(ARTICLES 1305 TO 1422 OF THE NEW CIVIL
CODE)

CHAPTER 6 TO 9. EXTINGUISHMENT
RESCISSIBLE CONTRACTS
• RESCISSIBLE CONTRACTS (CHAPTER 6)

• ARE VALID BECAUSE ALL OF THE ESSENTIAL REQUISITES OF A CONTRACT EXIST BUT BY REASON OF ECONOMIC INJURY OR
DAMAGE TO ONE OF THE PARTIES OR TO THIRD PERSONS, SUCH AS CREDITORS, THE CONTRACT MAY BE RESCINDED.
• VERSUS 1191
• ARTICLE 1191
THE POWER TO RESCIND OBLIGATIONS IS IMPLIED IN RECIPROCAL ONES, IN CASE ONE OF THE OBLIGORS SHOULD NOT COMPLY WITH
WHAT IS INCUMBENT UPON HIM.
THE INJURED PARTY MAY CHOOSE BETWEEN THE FULFILLMENT AND THE RESCISSION OF THE OBLIGATION, WITH THE PAYMENT OF DAMAGES
IN EITHER CASE. HE MAY ALSO SEEK RESCISSION, EVEN AFTER HE HAS CHOSEN FULFILLMENT, IF THE LATTER SHOULD BECOME IMPOSSIBLE.
THE COURT SHALL DECREE THE RESCISSION CLAIMED, UNLESS THERE BE JUST CAUSE AUTHORIZING THE FIXING OF A PERIOD.
THIS IS UNDERSTOOD TO BE WITHOUT PREJUDICE TO THE RIGHTS OF THIRD PERSONS WHO HAVE ACQUIRED THE THING, IN ACCORDANCE
WITH ARTICLES 1385 AND 1388 AND THE MORTGAGE LAW. (1124)

• 1191 IS BASED ON BREACH OF TRUST

• 1191 IS BASED ON RECIPROCAL OBLIGATIONS
• 1191 PRESCRIBED IN 10 YEARS
• 1381 IS BASED ON ECONOMIC INTEREST OF THE PARTY PLAINTIFF
• 1381 BASED ON 4 YEARS

• PRESUPPOSED VALID CONTRACT HOWEVER PRODUCES LESION OR ECONOMIC DAMAGE

 ART 1381: CASES OF RESCISSBILE CONTRACT

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; (EXCEPT ORDERED BY THE COURT – ART 1386)
• G IS THE GUARDIAN OF M (A MINOR). G SELLS THE PROPERTY OF M
WORTH P 20,000.00 FOR ONLY P 15,000.00.
• 25% ONLY IS THE REDUCED AMOUNT
• IF MORE THAN 25% CAN RESCIND THE SALE BY PROPER ACTION IN
COURT UPON REACHING THE AGE OF MAJORITY
ART 1381: CASES OF RESCISSBILE CONTRACT

2. THOSE AGREE UPON IN REPRESENTATION OF ABSENTEES, IF THE

LATTER SUFFER THE LESION STATED IN THE PRECEDING NUMBER;
(EXCEPT ORDERED BY THE COURT – ART 1386)

• AN ABSENTEE IS A PERSON WHO DISAPPEARS FROM HIS

DOMICILE HIS WHEREABOUTS BEING UNKNOWN AND WITHOUT
LEAVING AN AGENT TO ADMINISTER HIS PROPERTY.
ART 1381: CASES OF RESCISSBILE CONTRACT

3. THOSE UNDERTAKEN IN FRAUD OF CREDITORS WHEN THE LATTER CANNOT

IN ANY OTHER MANNER COLLECT THE CLAIMS DUE THEM;
• REQUISITES:
• THERE MUST BE AN EXISTING CREDIT PRIOR TO THE CONTRACT TO BE
RESCINDED, ALTHOUGH IT IS NOT YET DUE OR DEMANDABLE;
• THERE MUST BE FRAUD ON THE PART OF THE DEBTOR WHICH MAY BE
PRESUMED OR PROVED AND;
• THE CREDITOR CANNOT RECOVER HIS CREDIT IN ANY OTHER MANNER, IT
NOT BEING REQUIRED THAT THE DEBTOR BE INSOLVENT.
 ART 1381: CASES OF RESCISSBILE CONTRACT

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
• PARTITION AND HEIRSHIP
ART 1381: CASES OF RESCISSBILE CONTRACT

(ARTICLE 1383) 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.
• THE COMPLAINANT NEEDS TO PROVE THAT HE HAS NO
OTHER REMEDY EXCEPT RESCISSION
ART 1381: CASES OF RESCISSBILE CONTRACT

(ARTICLE 1384) RESCISSION SHALL BE ONLY TO THE EXTENT

NECESSARY TO COVER THE DAMAGES CAUSED.
• G THE GUARDIAN OF M A MINOR WAS AUTHORIZED BY COURT
TO SELL TWO PARCELS OF LAND VALUED AT P 200,000.00 EACH.
• GO SOLD THE TWO LAND AT P 200,000.00
• LESION IS MORE THAN 25%
• THE ENTIRE CONTRACT NEED NOT BE RESCINDED, BUT ONLY ON
TO ONCE PARCEL OF LAND TO COVER THE DAMAGED CAUSED
BY G.
• BUT IF G IS WILLING TO PAY THE P 200,000.00, NO RESCISSION.
ART 1381: CASES OF RESCISSBILE CONTRACT

(ARTICLE 1385) RESCISSION CREATES MUTUAL RESTITUTION.

• WHEN THE COURT DECLARES A CONTRACT RESCINDED, THE
PARTIES MUST RETURN TO EACH OTHER (1) OBJECT OF THE
CONTRACT WITH THE FRUITS (2) THE PRICE THEREOF WITH
LEGAL INTEREST.
• IF NOTHING CAN BE RETURNED, RESCISSION CANNOT BE
ALLOWED BUT OTHER REMEDIES MAY BE AVAILED.
 ART 1381: CASES OF RESCISSBILE CONTRACT

(ARTICLE 1389) THE ACTION TO CLAIM RESCISSSION MUST BE

COMMENCED WITHIN FOUR YEARS. FOR PERSONS UNDER
GUARDIANSHIP AND FOR 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.
•
• ACTION FOR RESCISSION MAY BE BROUGHT BY:
• INJURED PARTY OR DEFRAUDED CREDITOR
• HIS HEIRS, ASSIGNS, OR SUCCESSORS IN INTEREST
• CREDITORS ENTITLED TO SUBROGATION
VOIDABLE CONTRACTS
VOIDABLE CONTRACTS (CHAPTER 7)

• VALID UNTIL ANNULLED UNLESS THERE HAS BEEN RATIFICATION.

• THE DEFECT IS CAUSED BY VICE OR CONSENT

• (ARTICLE 1390) THE FOLLOWING CONTRACTS ARE VOIDABLE OR ANNULLABLE

EVENTHOUGH THERE MAY HAVE BEEN NO DAMAGE TO THE CONTRACTING PARTIES.

1. ONE OF THE CONTRACTING PARTIES IS INCAPABLE OF GIVING CONSENT TO A CONTRACT

1. THOSE WHERE THE CONSENT IS VITIATED BY MISTAKE, VIOLENCE, INTIMIDATION, UNDUE

INFLUENCE OR FRAUD.
VOIDABLE CONTRACTS (CHAPTER 7)

• THEY ARE VALID AND BINDING UNLESS ANNULLED BY A PROPER ACTION IN COURT
BY THE INJURED PARTY.
• ONCE RATIFIED, BECOMES ABSOLUTELY VALID.
• ECONOMIC DAMAGE IS NOT ESSENTIAL
• ANNULMENT:
• REMEDY PROVIDED BY LAW FOR REASON OF PUBLIC INTEREST FOR THE
DECLARATION OF THE INEFFICACY OF A CONTRACT BASED ON A DEFECT OR VICE
OF CONSENT OF ONE OF THE CONTRACTING PARTIES IN ORDER TO RESTORE THEM
TO THEIR ORIGINAL POSITION IN WHICH THEY WERE BEFORE THE CONTRACTS WAS
EXECUTED.
VOIDABLE CONTRACTS (CHAPTER 7)

(ARTICLE 1391) THE ACTION FOR ANNULMENT SHALL BE BROUGHT WITHIN FOUR YEARS. THE PERIOD
SHALL BEGIN:

o IN CASE OF INTIMIDATION, VIOLENCE, OR UNDUE INFLUENCE – FROM THE TIME THE DEFECT OF THE
CONTRACT CEASES.

o IN CASE OF MISTAKE OR FRAUD – FROM THE TIME OF THE DISCOVERY OF THE FRAUD.

o IN CASE OF MINOR OR INCAPACITATED PERSONS – FROM THE TIME THE GUARDIANSHIP CEASES.
RATIFICATION:
(ARTICLE 1392) THE RATIFICATION EXTINGUISES THE ACTION TO ANNUL A VOIDABLE CONTRACT
• RATIFICATION – ONE VOLUNTARILY ADOPTS OR APPROVES SOME DEFECTIVE OR UNAUTHORIZE ACT OR
CONTRACT WHICH, WITHOUT HIS SUBSEQUENT APPROVAL OR CONSENT, WOULD NOT BE BINDING ON
HIM.
• INTENTION OF THE RATIFIER TO BE BOUND BY THE PROVISIONS OF THE CONTRACT.
• IT CLEANSES CONTRACT OF ALL ITS DEFECTS (ARTICLE 1396)
• KINDS OF RATIFICATION
• EXPRESS
• WHEN RATIFICATION IS MANIFESTED IN WORDS OR IN WRITING
• IMPLIED
• IT MAY TAKE DIVERSE FORM
• SILENCE OR ACQUIESCENCE
• ACT SHOWING ADOPTION OR APPROVAL OF THE CONTRACT
• ACCEPTANCE AND RETENTION OF BENEFITS
• APPLICABLE WHEN THE REASON CEASES
RATIFICATION:

• RATIFICATION MAY BE EFFECTED BY THE GUARDIAN OF THE

INCAPACITATED PERSON (ART 1394)
• WHO MAY RATIFY CONTRACT ENTERED INTO BY INCAPACITATED
PERSON
• THE GUARDIAN
• THE INCAPACITATED PROVIDED HE IS ALREADY CAPACITATED
• IN CASE OF FIMVU
• PARTY WHOSE CONSENT IS VITIATED
•
ANNULMENT

• (ARTICLE 1397) THE ACTION FOR ANNULMENT OF CONTRACTS CAN BE INSTITUTED

BY ALL WHO ARE THEREBY OBLIGED PRINCIPALLY OR SUBSIDIARILY

• PERSON CAPABLE CANNOT ALLEGE INCAPACITY OF THOSE WHO THEY CONTRACTED

NOR WHO COMMITTED FIMVU

• PARTY ENTITLED TO BRING ACTION TO ANNUL

• THE PLAINTIFF WITH INTEREST TO THE CONTRACT
• THE VICTIM AND NOT THE RESPONSIBLE PERSON
ANNULMENT

• DUTY OF MUTUAL RESTITUTION IN ANNULMENT (ARTICLE 1398)

• RESTORE THE SUBJECT MATTER OF CONTRACT PLUS FRUITS

• PRICE WITH LEGAL INTEREST
• IN PERSONAL OBLIGATION - - THE VALUE OF SERVICE PLUS INTEREST IS THE DAMAGES

• RESTITUTION OF THE INCAPACITATED PERSON

• ONLY TO THE EXTENT HE WAS BENEFITED (NONE IF WAS NOT BENEFITED)

• THING LOST AFTER ANNULMENT

• THE VALUE OF THE THING LOST PLUS INTEREST
• NO ANNULMENT IF DUE TO FAULT OF PERSON INSTITUTING THE ANNULMENT
UNENFORCEABLE CONTRACTS
UNENFORCEABLE CONTRACTS (CHAPTER 8)

• CANNOT BE SUED UPON OR ENFORCED UNLESS THEY ARE RATIFIED.

• IN OTHER WORDS, AN UNENFORCEABLE CONTRACT OCCUPIES AN
INTERMEDIATE GROUND BETWEEN A VOIDABLE AND VOID CONTRACT.
ARTICLE 1403. THE FOLLOWING CONTRACTS ARE UNENFORCEABLE, UNLESS THEY ARE RATIFIED:
(1) 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;
(2) THOSE THAT DO NOT COMPLY WITH THE STATUTE OF FRAUDS AS SET FORTH IN THIS NUMBER. IN THE FOLLOWING CASES AN
AGREEMENT HEREAFTER MADE SHALL BE UNENFORCEABLE BY ACTION, UNLESS THE SAME, OR SOME NOTE OR MEMORANDUM,
THEREOF, BE IN WRITING, AND SUBSCRIBED BY THE PARTY CHARGED, OR BY HIS AGENT; EVIDENCE, THEREFORE, OF THE AGREEMENT
CANNOT BE RECEIVED WITHOUT THE WRITING, OR A SECONDARY EVIDENCE OF ITS CONTENTS:
(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.
UNENFORCEABLE – THOSE THAT CANNOT BE ENFORCED OR GIVEN EFFECT IN COURT OF LAW OR SUED UPON
BY REASON OF CERTAIN DEFECTS PROVIDED BY LAW UNTIL AND UNLESS THEY ARE RATIFIED ACCORDING TO
THE LAW
BINDING EFFECT – UNENFORCEABLE CONTRACTS ALTHOUGH VALID ARE UNENFORCEABLE IN COURT UNLESS
THEY ARE CURED OR RATIFIED

(ARTICLE 1407) IN CONTRACT WHERE BOTH PARTIES ARE INCAPABLE OF GIVING CONSENT, EXPRESS OR
IMPLIED, RATIFICATION BY THE PARENT OR GUARDIAN OF ONE OF THE CONTRACTING PARTIES WILL HAVE
THE SAME EFFECT AS IF ONE IS INCAPACITATED. (VOIDABLE)

IF BOTH – RATIFIED

(ARTICLE 1408) UNENFORCEABLE CONTRACTS CANNOT BE ASSAILED BY THIRD PERSONS

• EXAMPLE: S SELLS LAND TO B. CONTRACT IS ORAL. C BINDS HIMSELF IN WRITING FOR THE PERFORMANCE BY B OF HIS
OBLIGATION TO PAY THE PRICE
• IN AN ACTION BY S TO RECOVER THE PRICE, C CANNOT ASSAIL THE CONTRACT BETWEEN S AND B FOR BEING UNENFORCEABLE
UNDER THE SOF. C IS A STRANGER OF A CONTRACT.
VOID CONTRACTS
VOID OR INEXISTENT CONTRACTS (CHAPTER 9)

•ABSOLUTELY NULL AND VOID

•VOID CONTRACTS HAVE NO EFFECT AT ALL
AND CANNOT BE RATIFIED.
ARTICLE 1409. THE FOLLOWING CONTRACTS ARE INEXISTENT AND VOID FROM THE BEGINNING:
(1) THOSE WHOSE CAUSE, OBJECT OR PURPOSE IS CONTRARY TO LAW, MORALS, GOOD CUSTOMS,
PUBLIC ORDER OR PUBLIC POLICY;

(2) THOSE WHICH ARE ABSOLUTELY SIMULATED OR FICTITIOUS;

(3) THOSE WHOSE CAUSE OR OBJECT DID NOT EXIST AT THE TIME OF THE TRANSACTION;
(4) THOSE WHOSE OBJECT IS OUTSIDE THE COMMERCE OF MEN;
(5) THOSE WHICH CONTEMPLATE AN IMPOSSIBLE SERVICE;
(6) THOSE WHERE THE INTENTION OF THE PARTIES RELATIVE TO THE PRINCIPAL OBJECT OF THE
CONTRACT CANNOT BE ASCERTAINED;
(7) THOSE EXPRESSLY PROHIBITED OR DECLARED VOID BY LAW.
THESE CONTRACTS CANNOT BE RATIFIED. NEITHER CAN THE RIGHT TO SET UP THE DEFENSE OF
ILLEGALITY BE WAIVED.
VOID OR INEXISTENT CONTRACTS (CHAPTER 9)
(ARTICLE 1410) THE ACTION OR DEFENSE FOR THE DECLARATION OF THE INEXISTENCE OF
A VOID CONTRACT DOES NOT PRESCRIBE.

(ARTICLE 1411)
• EFFECTS OF A CONTRACT WHOSE CAUSE OR OBJECT CONSTITUTES A CRIMINAL
OFFENSE AND BOTH PARTIES ARE IN PARI DELICTO (EQUALLY GUILTY)
• PARTIES HAVE NO ACTION AGAINST EACH OTHER
• BOTH SHALL BE PROSECUTED AND
• THINGS, PRICE AS WELL AS THE EFFECTS AND INSTRUMENTS OF THE CRIME SHALL BE
CONFISCATED IN FAVOR OF THE GOVERNMENT.
• EXAMPLE: S SOLD B A CONTRABAND FOR 10,000.00. B PAID 1000 AND S
FAILED TO DELIVER. NO ACTION WILL BE TAKEN BY THE COURT.
• IF ONLY ONE GUILTY, ART 1411 IS APPLICABLE ONLY TO THE GUILTY ONE
VOID OR INEXISTENT CONTRACTS (CHAPTER 9)
(ARTICLE 1410) THE ACTION OR DEFENSE FOR THE DECLARATION OF THE INEXISTENCE OF
A VOID CONTRACT DOES NOT PRESCRIBE.

(ARTICLE 1411)
• EFFECTS OF A CONTRACT WHOSE CAUSE OR OBJECT CONSTITUTES A CRIMINAL
OFFENSE AND BOTH PARTIES ARE IN PARI DELICTO (EQUALLY GUILTY)
• PARTIES HAVE NO ACTION AGAINST EACH OTHER
• BOTH SHALL BE PROSECUTED AND
• THINGS, PRICE AS WELL AS THE EFFECTS AND INSTRUMENTS OF THE CRIME SHALL BE
CONFISCATED IN FAVOR OF THE GOVERNMENT.
• EXAMPLE: S SOLD B A CONTRABAND FOR 10,000.00. B PAID 1000 AND S
FAILED TO DELIVER. NO ACTION WILL BE TAKEN BY THE COURT.
• IF ONLY ONE GUILTY, ART 1411 IS APPLICABLE ONLY TO THE GUILTY ONE
VOID OR INEXISTENT CONTRACTS (CHAPTER 9)
ARTICLE 1412
• RULES WHEN THE CONTRACT IS ILLEGAL BUT DOES NOT CONSTITUTE A CRIMINAL OFFENSE
• WHEN BOTH AT FAULT
• IF THE CAUSE OF CONTRACT IS UNLAWFUL OR FORBIDDEN BUT DOES NOT CONSTITUTE A CRIME, THE
FOLLOWING RULES SHOULD BE FOLLOWED:
• NEITHER PARTY MAY RECOVER WHAT HE HAS GIVEN BY VIRTUE OF THE CONTRACT
• NEITHER MAY DEMAND PERFORMANCE TO THE OTHER
• EXAMPLE:
• X AGREED TO LIVE AS COMMON LAW WIFE OF Y IN CONSIDERATION ON THE PROMISE OF Y TO DONATE
LAND TO X.
• PROMISE OF Y HAS FOR ITS CONSIDERATION AN IMMORAL BUT NOT AN ILLEGAL ACT OR DOES NOT
CONSTITUTE A CRIME
• NO RECOVERY NO ACTION FOR SPECIFIC PERFORMANCE
• ONLY ONE IS AT FAULT
• GUILTY PARTY WILL SUFFER
VOID OR INEXISTENT CONTRACTS (CHAPTER 9)

• (ARTICLE 1420) IN CASE OF DIVISIBLE CONTRACT, IF THE ILLEGAL TERMS CAN BE SEPARATATED FRO
THE LEGAL ONES, THE LATTER MAY BE ENFORCED.
• EXAMPLE:
• S SOLD TO B HIS CAR AND SHABU FOR P 100,000.00
• WHOLE CONTRACT VOID AS THE LEGAL AND ILLEGAL OBJECTS CANNOT BE
SEPARATED
• (ARTICLE 1421) DEFENSE OF ILLEGALITY OF CONTRACTS IS NOT AVAILABLE TO THIRD PERSONS
WHOSE INTEREST ARE NOT DIRECTLY AFFECTED.
• VOIDABLE, UNENFORCEABLE, AND RESCISSIBLE - - 3RD PERSONS ARE NOT ALLOWED TO BRING
AN ACTION TO ANNUL OR ASSAIL AS THE CASE MAY BE.
• VOID - - THIRD PERSON WITH INTEREST CAN ASSAIL THE ILLEGALITY THUS NULLIFYING THE
CONTRACT
• CANNOT BE SEPARATED
• (ARTICLE 1423) CONTRACT THAT IS A DIRECT RESULT OF AN ILLEGAL CONTRACT IS ALSO VOID.