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Defects and vices in Defects and vices in
the old obligation the old obligation are
are cured NOT cured
(ERNESTO L. PINEDA, OBLIGATIONS AND
CONTRACTS 354-355 (2009))
————- end of topic ————-
CONTRACTS
TOPIC OUTLINE UNDER THE SYLLABUS:
VI. CONTRACTS
A. GENERAL PROVISIONS
I. Stages of Contracts
II. Classifications
III. Essential Requisites
B. FORMALITY
C. REFORMATION OF INSTRUMENTS
D. INTERPRETATION OF CONTRACTS
E. DEFECTIVE CONTRACTS
I. Rescissible Contracts
II. Voidable Contracts
III. Unenforceable Contracts
IV. Void or Inexistent Contracts
V. Distinguish: resolution and
rescission of contracts
CIVIL LAW
A. GENERAL PROVISIONS
I. STAGES OF CONTRACTS
1. Preparation/Negotiation - period from the
time the prospective contracting parties
indicate their interest in the contract to the
time the contract is perfected
2. Perfection/Birth
(a) Consensual contracts
As a general rule, contracts are perfected
by mere consent of the parties regarding
the subject matter and the cause of the
contract. (CIVIL CODE, arts. 1315, 1319)
They are obligatory in whatever form they
may have been entered into, provided all
the essential requisites for their validity
are present. (CIVIL CODE, art. 1356)
(b) Real contracts
The exceptions are real contracts, which
are perfected not merely by consent but
by the actual or constructive delivery of
the object of the obligation. (CIVIL CODE,
art. 1316)
(c) Formal/Solemn contracts
When the law requires that a contract be
in some form to be valid (CIVIL CODE, art.
1356), this special form is necessary for
its perfection
3. Consummation - period when the parties
perform their respective undertaking under
the contract, culminating in the
extinguishment thereof (HECTOR S. DE LEON
& HECTOR M. DE LEON, JR., COMMENTS AND
CASES ON OBLIGATIONS AND CONTRACTS 542
(2014))
Negotiation begins from the time the prospective
contracting parties manifest their interest in the
contract and ends at the moment of agreement of
the parties. The perfection or birth of the contract
takes place when the parties agree upon the
essential elements of the contract. The last stage
is the consummation of the contract where the
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parties fulfill or perform the terms they agreed on,
culminating in its extinguishment. (International
Freeport Traders, Inc. v. Danzas Intercontinental,
Inc., 640 SCRA 621, Jan. 26, 2011)
II. CLASSIFICATIONS
Auto Contracts - only one person represents two
opposite parties, but in different capacities.
(ERNESTO L. PINEDA, OBLIGATIONS AND
CONTRACTS 367 (2009))
Example: An agent representing his principal
sells a specific car to himself, as a buyer
Collective Contracts - will of the majority binds
the minority to an agreement notwithstanding the
opposition of the latter. (4 ARTURO M. TOLENTINO,
COMMENTARIES AND JURISPRUDENCE ON THE CIVIL
CODE OF THE PHILIPPINES 437 (1991))
Example: Collective bargaining contracts by
labor organizations under R.A. No. 875.
Contracts of Adhesion - One party imposes a
ready-made form of contract which the other
party may accept or reject but cannot modify; one
party prepares the stipulation in the contract,
while the other party merely affixes his signature
or his “adhesion” thereto, giving no room for
negotiation and depriving the latter of the
opportunity to bargain on equal footing (Polotan,
Sr. v. CA, G.R. No. 119379, Sept. 25, 1998);
construed strictly against the one who drafted the
same (Geraldez v. CA, G.R. No. 108253, Feb. 23,
1994).
1. As to perfection or formation
(a) Consensual – perfected by mere
consent of the parties on the subject
matter and cause (CIVIL CODE, art. 1315)
(e.g., contract of sale)
(b) Real – perfected by delivery (CIVIL CODE,
art. 1316) (e.g. commodatum, pledge,
deposit)
(c) Formal/Solemn – require a certain
specified form, in addition to consent,
CIVIL LAW
subject matter and cause (CIVIL CODE,
art. 1356) (e.g., donation of real property)
2. As to cause
(a) Onerous – The cause is, for each
contracting party, the prestation or
promise of a thing or service by the other
(e.g., contract of sale) (CIVIL CODE, art.
1350)
(b) Remuneratory– The cause is some past
service or benefit which by itself is a
recoverable debt (CIVIL CODE, art. 1350)
Note: In a remuneratory donation, the past
service or debt is not by itself a recoverable
debt. (CIVIL CODE, art. 726)
(c) Gratuitous (or contracts of pure
beneficence) – founded on the mere
liberality of the benefactor (e.g., pure
donation) (CIVIL CODE, art. 1350)
3. As to importance or dependence of one
upon another
(a) Principal – when the contract does not
depend for its existence and validity upon
another contract (e.g. sale, lease)
(b) Accessory – depends on another
contract for its existence and validity
(e.g., mortgage, guaranty)
(c) Preparatory – the contract is entered
into as a means through which future
contracts may be made (e.g. agency,
partnership) (ERNESTO L. PINEDA,
OBLIGATIONS AND CONTRACTS 36 (2009))
4. As to parties obliged
(a) Unilateral – only one of the parties has
an obligation (ERNESTO L. PINEDA,
OBLIGATIONS AND CONTRACTS 366
(2009))
(b) Bilateral – both parties are required to
render reciprocal prestations (CIVIL
CODE, art. 1191)
5. As to form
(a) Common or informal – require no
particular form (CIVIL CODE, art. 1356)
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(b) Special or formal – require some III. ESSENTIAL REQUISITES

particular form (CIVIL CODE, art. 1356) 1. Consent
6. As to their purpose 2. Subject Matter
(a) Transfer of ownership 3. Consideration
(b) Conveyance of use
(c) Rendition of service (4 ARTURO M. 1. CONSENT
TOLENTINO, COMMENTARIES AND
JURISPRUDENCE ON THE CIVIL CODE OF THE Definition
PHILIPPINES 410-411 (1991)) Meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the
7. As to their subject matter contract; concurrence of a certain offer and an
(a) Things absolute acceptance (CIVIL CODE, art. 1319)
(b) Services (4 ARTURO M. TOLENTINO,
COMMENTARIES AND JURISPRUDENCE ON Requisites (C3):
THE CIVIL CODE OF THE PHILIPPINES 410-
1. Must be manifested by the Concurrence of
411 (1991))
the offer and acceptance upon the thing and
cause;
8. As to the risk involved
2. Parties are legally Capacitated to enter into
(a) Commutative – when the undertaking of
contracts
one party is considered the equivalent of
3. Consent must be intelligent, free,
that of the other (e.g. sale, lease)
spontaneous, and real (ERNESTO L. PINEDA,
(b) Aleatory – when it depends upon an
OBLIGATIONS AND CONTRACTS 415 (2009))
uncertain event or contingency both as to
benefit or loss (e.g. insurance, sale of
Offer – A proposal made by one party to another
hope) (DESIDERIO P. JURADO, COMMENTS
to enter into a contract; must be certain or
AND JURISPRUDENCE ON OBLIGATIONS AND
definite, complete and intentional. (CIVIL CODE,
CONTRACTS 361 (2010))
art. 1319)

9. As to name or designation
Acceptance – Manifestation by the offeree of his
(a) Nominate – those which have a specific
assent to the terms of the offer; must be absolute
name or designation in law (e.g., lease,
(i.e. must not qualify the terms of the offer)
sale, agency, etc.)
(Oesmer v. Paraiso Development Corporation,
(b) Innominate – those which have no
G.R. No. 157493, Feb. 5, 2007)
specific designation or name in law (CIVIL
CODE, art. 1307)
Note: A qualified acceptance constitutes counter-
Do ut des – I give that you may give
offer. (CIVIL CODE, art. 1319)
Do ut facias – I give that you may do
Facio ut des – I do that you may give
Elements of a valid offer
Facio ut facias – I do that you may do
(ERNESTO L. PINEDA, OBLIGATIONS AND 1. Definite
CONTRACTS 380 (2009)) 2. Complete
3. Intentional (Palattao v. CA, G.R. No. 131726,
Note: Do ut des is, however, no longer an May 7, 2002)
innominate contract. It has already been given
a name of its own, i.e., barter or exchange. Elements of a valid acceptance
(CIVIL CODE, art. 1638) 1. Unequivocal
2. Unconditional (Palattao v. CA, G.R. No.
131726, May 7, 2002)

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When offer becomes ineffective (QR-DRIP)
i. Death, civil interdiction, insanity or insolvency
of either party before acceptance is conveyed
(CIVIL CODE, art. 1323);
ii. Express or implied Rejection of the offer by
the offeree; (NHA v. Grace Baptist Church,
G.R. No. 156437, Mar. 1, 2004)
iii. Qualified or conditional acceptance of the
offer, which becomes a counter-offer; (CIVIL
CODE, art. 1319)
iv. Subject matter becomes Illegal or impossible
before acceptance is communicated;
(EDGARDO L. PARAS, CIVIL CODE OF THE
PHILIPPINES ANNOTATED: PRESCRIPTION;
OBLIGATIONS AND CONTRACTS 612 (2016))
v. Lapse of Period given to the offeree within
which to signify acceptance; (CIVIL CODE, art.
1324) or
vi. Revocation of the offer in due time (i.e. before
the offeror has learned of its acceptance by
the offeree) (CIVIL CODE, art. 1324)
Period for acceptance
1. Stated fixed period in the offer – The
offeree may accept at any time until such
period expires (Young v. Court of Appeals,
G.R. No. 83271, May 8, 1991).
2. No stated fixed period
(a) Offer is made to a person present –
Acceptance must be made immediately
(Malbarosa v. Court of Appeals, G.R No.
125761, Apr. 30, 2003).
(b) Offer is made to a person absent –
Acceptance may be made within such
time that, under normal circumstances,
an answer can be received from him.
(ERNESTO L. PINEDA, OBLIGATIONS AND
CONTRACTS 425 (2009))
Note: For a contract to arise, the acceptance
must be made known to the offeror. Accordingly,
the acceptance can be withdrawn or revoked
before it is made known to the offeror. (Oesmer v.
Paraiso Development Corporation, G.R. No.
157493, Feb. 5, 2007)
Note: We follow the theory of cognition (CIVIL
CODE, art. 1319) and not the theory of
CIVIL LAW
manifestation. Under our Civil Law, the offer and
acceptance concur only when the offeror comes
to know of, and not when the offeree merely
manifests his acceptance.
Rule on complex offers
1. Offers are interrelated – Contract is
perfected if all the offers are accepted.
2. Offers are not interrelated – Single
acceptance of each offer results in a
perfected contract unless the offeror has
made it clear that one is dependent upon the
other and acceptance of both is necessary.
(CIVIL CODE, art. 1319)
3. Offer interpraesentes must be accepted
immediately. If the parties intended that there
should be an express acceptance, the
contract will be perfected only upon
knowledge by the offeror of the express
acceptance by the offeree of the offer. An
acceptance which is not made in the manner
prescribe by the offeror is not effective, but a
counter-offer which the offeror may accept or
reject. (Malbarosa v. Court of Appeals, G.R
No. 125761, Apr. 30, 2003)
Rule on advertisements as offers
1. Business advertisements – Not a definite
offer, but mere invitation to make an offer,
unless it appears otherwise (CIVIL CODE, art.
1325)
2. Advertisements for bidders – They are
simply invitations to make proposals and the
advertiser is not bound to accept the highest
or lowest bidder, unless the contrary appears
(CIVIL CODE, art. 1326)
Article 1326 of the Civil Code, which specifically
tackles offer and acceptance of bids, provides
that advertisements for bidders are simply
invitations to make proposals, and that an
advertiser is not bound to accept the highest
bidder unless the contrary appears. (PMO v.
STRADEC, G.R. No. 200402, June 13, 2013)
Four (4) theories on acceptance of offer by
telegram or letter
(a) Manifestation – perfected from the moment
the acceptance is declared or made.
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(b) Expedition – perfected from the moment the
offeree transmits the notification of
acceptance.
(c) Reception – perfected from the moment the
offeror receives the letter.
(d) Cognition – perfected from the moment the
acceptance comes to the knowledge of the
offeror. (DESIDERIO P. JURADO, COMMENTS
AND JURISPRUDENCE ON OBLIGATIONS AND
CONTRACTS 402 (2010))
Note: Contracts under the Civil Code generally
adhere to the Cognition Theory while
transactions under the Code of Commerce
adhere to the Manifestation Theory. (DESIDERIO
P. JURADO, COMMENTS AND JURISPRUDENCE ON
OBLIGATIONS AND CONTRACTS 402 (2010))
When the offeror refuses to open the letter or
telegram he is held to have a constructive notice
of the contents thereof and will be bound by the
acceptance of the offeree. (DESIDERIO P. JURADO,
COMMENTS AND JURISPRUDENCE ON OBLIGATIONS
AND CONTRACTS 403-404 (2010))
Options
General rule: If the offeror has allowed the
offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by
communicating such withdrawal. (CIVIL CODE, art.
1324)
Exception: When the option is founded upon a
consideration as something paid or promised.
(CIVIL CODE, art. 1324)
An option, sometimes called an “unaccepted
offer,” is simply a contract by which the owner of
property agrees with another person that he shall
have the right to buy his property at a fixed price
within a certain time. An option is not of itself a
purchase, but merely secures the privilege to buy.
It is not a sale of property but a sale of the right to
purchase. (Adelfa Properties, Inc. v. CA, G.R. No.
111238, Jan. 25, 1995)
Effects of option:
1. Not supported by an independent
consideration (i.e., distinct from the purchase
CIVIL LAW
price) – offeror can withdraw the offer at any
time before acceptance by communicating
such withdrawal
2. Supported by independent consideration –
offeror cannot withdraw his offer (CIVIL CODE,
art. 1324)
Persons incapacitated to give consent (DD-
MI):
i. Minors (CIVIL CODE, art. 1327).
ii. Insane or demented persons (CIVIL CODE, art.
1327), unless the contract was entered into
during a lucid interval (CIVIL CODE, art. 1328)
iii. Deaf-mutes who do not know how to write
(CIVIL CODE, art. 1327).
iv. In a state of Drunkenness or under a hypnotic
spell (CIVIL CODE, art. 1328)
Contracts entered into by the persons above are
in generally valid until annulled; however,
annulment cannot prosper when they have been
ratified. (CIVIL CODE, art. 1390).
Rule on contracts entered into by minors
General rule: Voidable (CIVIL CODE, art. 1391)
Exceptions (MENGS) (These contracts are
valid):
1. If upon reaching age of Majority, they ratify
the same. (Ibanez v. Rodriguez, G.R. No.
23153, Mar. 7, 1925)
2. They were entered unto by a Guardian and
the court having jurisdiction had approved the
same. (Roa v. Roa, G.R. No. 28532, Mar. 4,
1929)
3. They were in the form of Savings account in
the Postal Savings Bank, provided
furthermore that the minor was at least 7
years old. (Rev. Adm. Code, Sec. 2007)
4. They were contracts for Necessaries such as
food, but here the persons who are bound to
give them support should pay therefor (CIVIL
CODE, arts. 1489 & 2164; FAMILY CODE, E.O.
209, art. 194 (1987))
5. Contracts where the minor misrepresented
his age and pretended to be one of major age
and is thus in Estoppel. (Hermosa v. Zobel,
G.R. No. L-11835, Oct. 30, 1958). It is,
however, essential here that the other party
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must have been MISLED (Bambalan v. (ERNESTO L. PINEDA, OBLIGATIONS AND

Maramba, G.R. No. L-27710, Jan. 30, 1928). CONTRACTS 440 (2009))
HOWEVER, minors can set up the defense of
minority to resist the claim when there is only Causes which vitiate consent
passive misrepresentation, as when they did A contract where consent is given through
not disclose their minority because they had Mistake, Violence, Intimidation, Undue Influence,
no juridical duty to disclose their inability. or Fraud is voidable (VIMFU). (CIVIL CODE, art.
(Braganza v. De Villa Abrille, G.R. No. L- 1330)
12471, Apr. 13, 1959)
i. Mistake
Note: If both parties to a contract are minors, the Must include both ignorance, which is the
contract is unenforceable. (CIVIL CODE, art. absence of knowledge with respect to a thing, and
1403(3)). mistake properly speaking, which is a wrong
conception about said thing, or a belief in the
Examples of persons specially disqualified to existence of some circumstance, fact, or event,
enter into contracts (Contracts entered into are which in reality does not exist. (Theis v. Court of
VOID): Appeals, G.R. No. 126013, Feb. 12, 1997)
1. Husband and wife selling to one another
(CIVIL CODE, art. 1490) or donating to one
Requisites (FES):
another (CIVIL CODE, art. 134)
2. Insolvents before they are discharged 1. The error must be Substantial regarding:
cannot, for example, make payments. i. The object of the contract, or
Exception: Payment of administrative ii. The conditions which principally moved
expenses shall be allowed. (An Act Providing or induced one of the parties (error in
For The Rehabilitation Or Liquidation Of quality or in quantity), or
Financially Distressed Enterprises And iii. Identity of qualifications, but only if such
Individuals [Financial Rehabilitation and was the principal cause of the contract
Insolvency Act of 2010], Republic Act No. (CIVIL CODE, art. 1331)
10142, § 57 (2010)) 2. The error must be Excusable (not caused by
3. Persons disqualified because of fiduciary negligence). There is no mistake if the party
relationship (CIVIL CODE, art. 1491) alleging it knew the doubt, contingency or risk
affecting the object of the contract. (CIVIL
INCAPACITY DISQUALIFICATION CODE, art. 1333)
3. The error must be mistake of Fact, and not of
Restrains the Restrains the very
law. (Luna v. Linatoc, G.R. No. L-48403, Oct.
exercise of the right right itself
28, 1942)
to contract
May still enter into Absolutely disqualified
Two (2) General Kinds of Mistake
contract through
(a) Mistake of Fact – When one or both of the
parent, guardian or
contracting parties believe that a fact exists
legal representative
when in reality it does not, or that such fact
Based upon Based upon public
does not exist when in reality it does
subjective policy and morality
(ERNESTO L. PINEDA, OBLIGATIONS AND
circumstance of
CONTRACTS 443 (2009))
certain person
Contracts entered Contracts entered into
(b) Mistake of Law
into are merely are void
• General Rule: Mistake does not vitiate
voidable
consent (CIVIL CODE, art. 1331)

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Reason: Ignorance of the law does not
excuse anyone from compliance
therewith (CIVIL CODE, art. 3)
• Exception: Mutual error as to the legal
effect of an agreement when the real
purpose of the parties is frustrated (CIVIL
CODE, art. 1334).
“Legal effect” here refers to the rights of
the parties as stated in the legal
provisions.
ii. Violence
Requisites (PFR):
1. Serious or irresistible Physical Force
2. Such force is the Reason why the contract
was entered into. (CIVIL CODE, art. 1335)
Note: Violence refers to physical coercion, while
intimidation refers to moral coercion. (EDGARDO L.
PARAS, CIVIL CODE OF THE PHILIPPINES
ANNOTATED: PRESCRIPTION; OBLIGATIONS AND
CONTRACTS 632 (2016))
iii. Intimidation
Requisites (FReT):
1. Reasonable and well-grounded Fear of an
imminent and grave evil upon his person,
property, or upon the person or property of
his spouse, descendants, or ascendants
2. It is the Reason why the contract was entered
into
3. The Threat must be of an unjust act, an
actionable wrong (A threat to enforce a just or
legal claim through competent authority does
not vitiate consent.) (CIVIL CODE, art. 1335)
Example: What the respondent did was
merely inform them of petitioner Edna’s
conviction in the criminal cases for estafa. It
might have evoked a sense of fear or dread
on the petitioners’ part, but certainly there is
nothing unjust, unlawful or evil in the
respondent's act. ... The petitioners must
remember that petitioner Edna's conviction
was a result of a valid judicial process and
even without the respondent allegedly
“ramming it into petitioner Victor's throat,”
CIVIL LAW
petitioner Edna's imprisonment would be a
legal consequence of such conviction.
(Spouses Binua v. Ong, G.R. No. 207176,
June 18, 2014)
Reluctant Consent – It is necessary to
distinguish between real duress and the motive
which is present when one gives his consent
reluctantly. A contract is valid even though one of
the parties entered into it against his wishes or
even against his better judgment. Contracts are
also valid even though they are entered into by
one of the parties without hope of advantage or
profit. (Martinez v. Hongkong and Shanghai
Bank, G.R. No. L-5496, Feb. 19, 1910)
Note: 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. (CIVIL CODE, art. 1336)
iv. Undue Influence
Requisites (DIP):
1. Improper advantage
2. Power over the will of another
3. Deprivation of the latter of a reasonable
freedom of choice. (CIVIL CODE, art. 1337)
Circumstances to be considered (FIRM)
(a) Confidential, family, spiritual, and other
Relations between the parties
(b) Mental weakness
(c) Ignorance
(d) Financial distress (CIVIL CODE, art. 1337).
Fraud
Fraud in Obtaining Consent
In order that fraud may vitiate consent, it must be
the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the
making of the contract. (Ponce de Leon v.
Rehabilitation Finance Corporation, G.R. No. L-
24571, Dec. 18, 1970)
(a) Causal Fraud (Dolo Causante)
This is the use of insidious words or machinations
by one of the contracting parties to induce the
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other party to enter into a contract, which, without
them, he would not have agreed to. (CIVIL CODE,
art. 1338)
Determines or is the essential cause of consent.
It is the deception employed by one party prior to
or simultaneous to the contract in order to secure
the consent of the other (Metropolitan Fabrics,
Inc. v. Prosperity Credit Resources, Inc., G.R. No.
154390, Mar. 17, 2014)
Effects: Voidability of the contract and the
indemnification for damages (Geraldez v.
CA, G.R. No. 108253, Feb. 23, 1994)
Requisites (PS-SOBIA)
1. There must be misrepresentation or
concealment (CIVIL CODE, arts. 1338 & 1339)
by a party Prior to or Simultaneous to the
consent or creation of the contract.
2. Must be Serious. (CIVIL CODE, art. 1344)
3. Must have been employed by only One of the
contracting parties. (CIVIL CODE, art.1342)
4. Must be made in Bad faith or with intent to
deceive. (CIVIL CODE, art. 1343)
5. Must have Induced the consent of the other
contracting party. (CIVIL CODE, art. 1338)
6. Must be Alleged and proved by clear and
convincing evidence, and not merely by a
preponderance thereof. (Tan Sua Sia v.
Sontua, 56 Phil. 711, 1932)
(b) Incidental Fraud (Dolo Incidente)
Deceptions or misrepresentations which are not
serious and without which the other party would
still have entered into the contract.
It is not the cause which induced the party to enter
into a contract and refers only to some particular
or accident of the obligations. (Geraldez v.
CA, G.R. No. 108253, Feb. 23, 1994)
Effect: Only renders the person employing it
liable for damages. (CIVIL CODE, art. 1344)
CIVIL LAW
Simulated Contracts
(a) Absolute – the parties have no intention to
be bound at all (CIVIL CODE, art. 1345); void
from beginning (CIVIL CODE, art. 1346).
(b) Relative – the parties conceal their true
agreement (CIVIL CODE, art. 1345): the real
agreement binds the parties when:
i. There is no prejudice to 3rd persons; and
ii. It is not contrary to law, moral, good
customs, public order or public policy
(CIVIL CODE, art. 1346)
(c) Dealer’s Talk (Dolo bonus)
This oxymoron (literally, good fraud) refers to
dealer’s talk, the kind of exaggerations in
advertisement the public is familiar with. The
ancient principle still governs in this regard:
Caveat emptor -- Buyer beware. But once the
dealer’s talk goes beyond innocent conventional
exaggeration and later the realm of bad faith, then
deceit (either causante or incidental) may set in.
(RUBEN F. BALANE, JOTTINGS AND JURISPRUDENCE
IN CIVIL LAW (OBLIGATIONS AND CONTRACTS) 635-
36 (2020))
NOTE: In absolute simulation, there is a colorable
contract but the parties have no intention to be
bound by it. However, if the parties state a false
cause in the contract to conceal their real
agreement, the contract is relatively simulated
and the parties are still bound by their real
agreement. (CIVIL CODE, art. 1345; Valerio v.
Refresca, G.R. No. 163687, Mar. 28, 2006)
2. SUBJECT MATTER (SM)
Requisites of things as SM (W-PLDT):
1. Within the commerce of man (CIVIL CODE, art.
1347) – either existing or in potency
2. Licit or not contrary to law, morals, good
customs, public order or public policy (CIVIL
CODE, art. 1347)
3. Possible, legally or physically (CIVIL CODE,
art. 1348).
4. Determinate as to its kind or determinable
without need to enter into a new contract
(CIVIL CODE, art. 1349)
5. Transmissible (CIVIL CODE, art. 1347)
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Requisites of services as SM (PWD): Requisites (LET)

1. Within the commerce of man (CIVIL CODE, art. 1. It must Exist at the time the contract is
1347) entered into. (CIVIL CODE, art. 1352 &
2. Possible, physically or legally (CIVIL CODE, 1409[3])
art. 1348) 2. It must be True. (CIVIL CODE, art 1353)
3. Determinate or capable of being made 3. It must be Licit. (CIVIL CODE, art. 1352)
determinate (CIVIL CODE, arts. 1318[2] &
1349) Motive – refers to the particular reason of one
12. party for entering into the contract which does not
Things which cannot be the subject matter of affect the other party nor the validity of the
a contract (I-COFID): contract; however, when the motive
1. Things which are Outside the commerce of predetermines the cause or when the realization
men (CIVIL CODE, art. 1347) of such motive has been made a condition upon
2. Intransmissible rights (CIVIL CODE, art. 1347) which the contract is made to depend, the motive
3. Future inheritance, except in cases expressly may be regarded as the cause (Uy v. CA, G.R.
authorized by law (CIVIL CODE, art. 1347) No. 120465, Sept. 9, 1999).
4. Services Contrary to law, morals, good
customs, public order or public policy (CIVIL Cause distinguished from Motive
CODE, art. 1347) CAUSE MOTIVE
5. Impossible things or services (CIVIL CODE, Immediate or direct Remote or indirect
art. 1348). reason of a contract reason
6. Objects which are not possible of Objective and Psychological or
Determination as to their kind (CIVIL CODE, juridical reason of purely personal
art. 1349) contract; always reason; may be
known to both parties unknown to the other
NOTE: Contracts upon future inheritance are void party
when:
Remains the same May vary although a
• The succession has not yet been regardless of a party enters into the
opened; party’s motive for same kind of contract
• The object of the contract forms part of entering into a
the inheritance; and contract
• The promissor has, with respect to the Legality or illegality of Legality or illegality of
object, an expectancy of a right, which is cause affects the motive does not
purely hereditary in nature. (De Belen existence or validity affect the existence
Vda. De Cabalu v. Tabu, G.R. No. of the contract or validity of contract
188417, Sept. 24, 2012) (HECTOR S. DE LEON & HECTOR M. DE LEON, JR.,
COMMENTS AND CASES ON OBLIGATIONS AND
3. CAUSE OR CONSIDERATION CONTRACTS 673-674 (2014))

Definition Causes in some contracts:

Refers to the immediate, direct and most
proximate reason which justifies the creation of
an obligation through the will of the contracting
parties and is the essential reason for the
contract. (Uy v. CA, G.R. No. 120465, Sept. 9,
1999)
1. Onerous contracts – The prestation of
promise of a thing or service by the other.
(CIVIL CODE, art. 1350)
2. Remuneratory contracts – The service or
benefit remunerated. (CIVIL CODE, art. 1350)

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3. Contracts of Pure Beneficence – Mere 2. In cases

liberality of the donor or benefactor. (CIVIL specified by law
CODE, art. 1350) (the ff. contracts
4. Accessory Contracts Like Mortgage and may be
Pledge – The cause is generally the same as rescinded)
the cause for the principal contract of loan. • Those entered
(China Bank v. Lichauco, G.R. No. L-22001, into by guardians
Nov. 4, 1924) when the wards
5. Accessory Contracts of Personal suffer lesion by
Guaranty – Generally pure liberality but more than ¼ of
sometimes material consideration may be the value of the
given. (Standard Oil Co. v. Arenas, G.R. No. things which are
L-5921, Jul. 25, 1911) the object thereof
(CIVIL CODE, art.
EFFECT IN CAUSE EFFECT 1381, par. 1)
Absence of causa – Void – Contract • Those agreed
Total lack or absence produces no legal upon in
of cause effect (CIVIL CODE, representation of
art. 1352) absentee, if the
Illegality of causa – Void – Contract latter suffer lesion
The cause is contrary produces no legal stated in par. 1
to law, morals, good effect (CIVIL CODE, (CIVIL CODE, art.
customs, public order art. 1352) 1381, par. 2)
and public policy • Partition among
Falsity of causa – A Void IF it should not co-heirs, when
cause is stated but it be proved that the any one of them
is not true contract was founded received things
upon another cause with a value less
which is true and by at least ¼ than
lawful (CIVIL CODE, the share to
art. 1353) which he is
Causa not stated in Presumed to Exist – entitled (CIVIL
the contract Burden of proof is on CODE, art. 1098)
the person assailing
its existence (CIVIL Moral Obligation as Cause
CODE, art. 1354) Where the moral obligation arises wholly from
Inadequacy of General Rule: Does ethical considerations, unconnected with any civil
causa or lesion not invalidate obligations, it cannot constitute a sufficient cause
(CIVIL CODE, art. contract or consideration to support an onerous contract.
1355) (Fisher v. Robb, G.R. No. 46274, Nov. 2, 1939)
Exceptions:
1. When, together Where such moral obligation is based upon a
with lesion, there previous civil obligation which has already been
has been: fraud, barred by the statute of limitations at the time
mistake or undue when the contract is entered into, it constitutes a
influence sufficient cause or consideration to support a
contract. (Villaroel v. Estrada, G.R. No. L-47362,
Dec. 19, 1940)

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B. FORMALITY
FORM refers to the manner in which a contract is
executed or manifested (HECTOR S. DE LEON &
HECTOR M. DE LEON, JR., COMMENTS AND CASES
ON OBLIGATIONS AND CONTRACTS 697 (2014)). In
general, form does not matter for the validity of a
contract. It is enough that there be consent,
object, and cause. (CIVIL CODE, art. 1356)
(a) Informal Contracts – may be entered into
whatever form as long as there is consent,
object and cause
(b) Formal Contracts – required by law to be in
certain specified form, such as donation of
real property, stipulation to pay interest,
transfer of large cattle, sale of land thru
agent, contract of antichresis, contract of
partnership, registration of chattel mortgage,
donation of personal property in excess of
5,000. (HECTOR S. DE LEON & HECTOR M. DE
LEON, JR., COMMENTS AND CASES ON
OBLIGATIONS AND CONTRACTS 699, 701
(2014))
Formal / Solemn Contracts
1. Donation
The donation of a movable may be made orally or
in writing. (CIVIL CODE, art. 748)
An oral donation requires the simultaneous
delivery of the thing or of the document
representing the right donated. (CIVIL CODE, art.
748)
If the value of the personal property donated
exceeds five thousand pesos, the donation and
the acceptance shall be made in writing.
Otherwise, the donation shall be void. (CIVIL
CODE, art. 748)
In order that the donation of an immovable may
be valid, it must be made in a public document,
specifying therein the property donated and the
value of the charges which the donee must
satisfy. (CIVIL CODE, art. 749)
The acceptance may be made in the same deed
of donation or in a separate public document, but
CIVIL LAW
it shall not take effect unless it is done during the
lifetime of the donor. (CIVIL CODE, art. 749)
If the acceptance is made in a separate
instrument, the donor shall be notified thereof in
an authentic form, and this step shall be noted in
both instruments. (CIVIL CODE, art. 749)
2. Partnership
A partnership may be constituted in any form,
except where immovable property or real rights
are contributed thereto, in which case a public
instrument shall be necessary. (CIVIL CODE, art.
1771)
A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by
the parties, and attached to the public instrument.
(CIVIL CODE, art. 1773)
3. Antichresis
The amount of the principal and of the interest
shall be specified in writing; otherwise, the
contract of antichresis shall be void. (CIVIL CODE,
art. 2134)
4. Agency to Sell Real Property
When a sale of a piece of land or any interest
therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall
be void. (CIVIL CODE, art. 1874)
5. Interest
No interest shall be due unless it has been
expressly stipulated in writing. (CIVIL CODE, art.
1956)
6. Ordinary Diligence
A stipulation between the common carrier and the
shipper or owner limiting the liability of the former
for the loss, destruction, or deterioration of the
goods to a degree less than extraordinary
diligence shall be valid, provided it be:
(a) In writing, signed by the shipper or owner;
(b) Supported by a valuable consideration
other than the service rendered by the
common carrier; and
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(c) Reasonable, just and not contrary to
public policy (CIVIL CODE, art. 1744)
7. Chattel Mortgage
By a chattel mortgage, personal property is
recorded in the Chattel Mortgage Register as a
security for the performance of an obligation. If
the movable, instead of being recorded, is
delivered to the creditor or a third person, the
contract is a pledge and not a chattel mortgage.
(CIVIL CODE, art. 2140)
8. Sale of Large Cattle
The form sale of large cattle shall be governed by
special laws. (CIVIL CODE, art. 1581)
General rule: A contract is valid and binding in
whatever form provided that the 3 essential
requisites of a contract (consent, object, and
cause) concur. (CIVIL CODE, art. 1356)
Exceptions:
i. Law requires the contract to be in some form
for validity (e.g., donation and acceptance of
real property) (CIVIL CODE, art. 749).
ii. Law requires the contract to be in some form
to be enforceable – Contracts enumerated in
Art. 1403(2) are valid but cannot be enforced
in court or sued upon unless they are cured
or ratified.
The following agreements 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: (CYS-DLM)
(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
CIVIL LAW
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. (CIVIL CODE, art. 1403)
NOTE: Article 1443 requires an express trust
over an immovable or an interest therein to
be in writing for purposes of proof.
iii. Law requires the contract to be in some form
for convenience - Contracts enumerated in
Art. 1358 are valid. Formal requirements are
only for the benefit of third parties. Non-
compliance therewith does not adversely
affect the validity of neither the contract nor
the contractual rights and obligations of the
parties thereunder. (Fule v. CA, G.R. No.
112212, Mar. 2, 1998)
The following must appear in a public
document:
(a) Contracts whose object is the creation,
transmission, modification or
extinguishment of real rights over
immovables
(b) Cession, repudiation, renunciation of
hereditary rights or those of the conjugal
partnership of gains
(c) Power to administer property for another,
or any other power which has for its
object an act appearing or which should
appear in a public document, or should
prejudice a third person;
(d) Cession of action of rights proceeding
from an act appearing in a public
document.
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(e) All other contracts where the amount
involved exceeds P500 must appear in
writing, even a private one. (CIVIL CODE,
art. 1358)
NOTE: Electronic documents shall have the legal
effect, validity or enforceability as any other
document or legal writing, and where the law
requires a document to be in writing, that
requirement is met by an electronic document if
the said electronic document maintains its
integrity and reliability and can be authenticated
so as to be usable for subsequent reference. (Act
Providing for the Recognition and Use of
Electronic Commercial and Non-commercial
Transactions and Documents, Penalties for
Unlawful Use Thereof and For Other Purposes [e-
Commerce Act of 2000], Republic Act No. 8792,
§ 7 (2000))
————- end of topic ————-
C. REFORMATION OF INSTRUMENTS
As distinguished from annulment where there is
no meeting of the minds, in reformation, there is
meeting of the minds but attended by mistake,
fraud, inequitable conduct, or accident. (CIVIL
CODE, art. 1359)
Requisites for action for reformation (VP-PIM)
1. Meeting of the minds (CIVIL CODE, art. 1359)
2. True Intention is not expressed (CIVIL CODE,
art. 1359)
3. Clear and convincing Proof (HECTOR S. DE
LEON & HECTOR M. DE LEON, JR., COMMENTS
AND CASES ON OBLIGATIONS AND CONTRACTS
713 (2014))
4. Within proper prescriptive Period
5. Not simple unconditional donation inter vivos
or contract where real agreement is Void
(CIVIL CODE, art. 1366)
NOTE: In reformation, no new contract is made.
Contracts that may be reformed: (CM-TIFF)
CIVIL LAW
(a) Mutual mistake fails to disclose the real
agreement (but it must be a mistake of Fact)
(CIVIL CODE, art. 1361)
(b) Unilateral mistake or the other party acted
Fraudulently (CIVIL CODE, art. 1362)
(c) Unilateral mistake and the other party is guilty
of Concealment (CIVIL CODE, art. 1363)
(d) Person drafting the instrument or clerk or
typist through ignorance, lack of skill,
negligence or bad faith, does not show the
True Intention (CIVIL CODE, art. 1364)
(e) Parties agree on Mortgage, pledge of real or
personal property but instrument says that it
is sold absolutely or involves a right to
repurchase (CIVIL CODE, art. 1365)
No reformation is allowed in: (SD-WV)
(a) Simple Donation
(b) Wills
(c) Real agreement is Void (CIVIL CODE, art.
1366)
Who may ask for reformation: (NOT-FE-MM)
(a) The party who is NOT at Fault (i.e., injured
party, heirs or assigns) (CIVIL CODE, art.
1367)
(b) Party who is NOT asked to Enforce the
instrument (CIVIL CODE, art. 1368)
(c) If there is a Mutual Mistake, reformation may
be had by either party or successor in interest
(CIVIL CODE, art. 1368)
Procedure for reformation shall be governed by
the Rules of Court as promulgated by the
Supreme Court. (CIVIL CODE, art. 1369)
————- end of topic ————-
D. INTERPRETATION OF CONTRACTS
If the terms of the agreement are clear and
unequivocal, their plain and literal meanings
should be followed. (CIVIL CODE, art. 1370)
In the construction or interpretation of an
instrument, the intention of the parties is
primordial and is to be pursued. (Valdez v. CA,
G.R. No. 140715, Sept. 24, 2004)
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In order to judge the intention of the contracting
parties, their contemporaneous and subsequent
acts shall be principally considered. (CIVIL CODE,
art. 1371)
In case of doubt concerning the surrounding
circumstances in the execution of a contract, the
least transmission of rights and interest shall
prevail if the contract is gratuitous, and if onerous,
the doubt is to be settled in favor of greatest
reciprocity. (CIVIL CODE, art. 1378)
The terms of an agreement or writing are
presumed to be have been used in their primary
and general acceptation. However, evidence may
be admitted to show that they have a local,
technical, or otherwise peculiar signification and
were used and understood in that particular
instance, in which case, the agreement or writing
must be construed accordingly. (REVISED RULES
ON EVIDENCE, rule 130, § 15)
Only laws existing at the time of the execution of
a contract are applicable to it and not the later
statutes unless the latter are specifically intended
to have retroactive effect. (Vive Eagle Land, Inc.
v. CA, G.R. No. 150308, Nov. 26, 2004)
When there are several provisions in a contract,
the construction to be adopted should be that one
which will give effect to all provisions. A contract
must be read in its entirety. (Rigor v. Consolidated
Orix Leasing Finance Corporation, G.R. No.
136423, Aug. 20, 2002)
The ambiguity in a contract should be construed
against the party who caused the same. (CIVIL
CODE, art. 1377)
CONTRACT OF ADHESION: Its terms are
prepared by only one party while the other party
merely affixes his signature signifying his
admission thereto. It is binding as ordinary
contracts the reason being that the party who
adheres to it is free to reject its entirety. It is
stricken down as void when the weaker party is
imposed upon in dealing with the dominant
bargaining party and is reduced to the alternative
of taking it or leaving it, completely deprived of the
CIVIL LAW
opportunity to bargain on equal footing. (Dio v. St.
Ferdinand Memorial Park, Inc., G.R. No. 169578,
Nov. 30, 2006)
————- end of topic ————-
E. DEFECTIVE CONTRACTS
I. RESCISSIBLE CONTRACTS
Definition
Those which have caused economic damage
either to one of the parties or to a third person and
which may be set aside even if valid. They may
be set aside in whole or in part, to the extent of
the damage caused. (4 ARTURO M. TOLENTINO,
COMMENTARIES AND JURISPRUDENCE ON THE CIVIL
CODE OF THE PHILIPPINES 574 (1991))
Rescissible Contracts under Art. 1381: (ALL-
GF)
(a) Entered into by Guardian whenever ward
suffers damage by more than 1/4 of value of
object;
(b) Agreed upon in representation of Absentees,
if absentee suffers lesion by more than ¼ of
value of property;
(c) Contracts where rescission is based on
Fraud committed on creditors (accion
pauliana);
(d) Objects of Litigation; contract entered into by
defendant without knowledge or approval of
litigants or judicial authority; and
Contracts involving things under litigation are
rescissible. Art. 1381 (4) requires the
concurrence of the following: (1) the
defendant, during the pendency of the case,
enters into a contract which refers to the
subject of litigation; and (2) said contract was
entered into without the knowledge and
approval of the litigants or of a competent
judicial authority. The court then has the duty
to order the rescission of the contract upon
the concurrence of such requisites. (Ada v.
Baylon, G.R. No. 182435, Aug. 13, 2012)
(e) Provided for by Law – e.g. Arts. 1526, 1534,
1539, 1542, 1556, 1560, 1567 and 1659
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i. Art. 1526 – Unpaid seller of goods,
notwithstanding that the ownership in the
goods may have passed to the buyer,
subject to other provisions on Sales
ii. Art. 1534 – Unpaid seller having the right
of lien or having stopped the goods in
transit, where he expressly reserved his
right to do so in case the buyer should
make default, or the buyer has been in
default in the payment of the price for an
unreasonable time
iii. Art. 1539 – In the sale of real estate at a
rate of a certain price for a unit of
measure or number, at the will of the
vendee, when the inferior value of the
thing sold exceeds one-tenth of the price
agreed upon, or if the vendee would not
have bought the immovable had he
known of its smaller area or inferior
quality
iv. Art. 1542 – In the sale of real estate,
made for a lump sum, where the
boundaries are mentioned and the area
or number within the boundaries exceed
that specified in the contract, when the
vendee does not accede to the failure to
deliver what has been stipulated
v. Art. 1556 – Should the vendee lose, by
reason of eviction, a part of the thing sold
of such importance, in relation to the
whole, that he would not have bought it
without said part
vi. Art. 1560 – Vendee may ask for
recession if the immovable sold should
be encumbered with any non-apparent
burden or servitude, not mentioned in the
agreement, of such a nature that it must
be presumed that the vendee would not
have acquired it had he been aware
thereof
vii. Art. 1567 – In cases of breach of
warranty against hidden defects of or
encumbrances upon the thing sold
viii. Art. 1659 – If the lessor or lessee should
not comply with their obligations, the
aggrieved party may ask for rescission
CIVIL LAW
Accion pauliana refers to the action to rescind
contracts in fraud of creditors under Art. 1381.
Requisites: (NR-CAFS)
1. The plaintiff asking for rescission has a Credit
prior to the alienation, although demandable
later;
2. The debtor has made a Subsequent contract
conveying a patrimonial benefit to a third
person;
3. The creditor has No other legal Remedy to
satisfy his claim;
4. The act being impugned is Fraudulent;
5. The third person who received the property
conveyed, if it is by onerous title, has been an
Accomplice in the fraud. (Anchor Savings
Bank v. Furigay, G.R. No. 191178, Mar. 13,
2013; Lee v. Bangkok Bank Public Company,
Limited, G.R. No. 173349, Feb. 9, 2011)
Under Art. 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.
Requisites:
1. The debtor-payer must have been insolvent
(the insolvency need not be a judicially
declared one).
2. The debt was not yet due and demandable
(CIVIL CODE, art. 1382)
Obligation created by the rescission of the
contract
Mutual Restitution
1. Things which are the objects of the contract
and their fruits
2. Price with interest (CIVIL CODE, art. 1385)
NOTE: The obligation of restitution obviously
does not apply to creditors who seek to impugn
fraudulent transactions of their debtors. The
obligation of mutual restitution applies to
OTHERS so that that status quo may be restored.
(EDGARDO L. PARAS, CIVIL CODE OF THE
PHILIPPINES ANNOTATED: PRESCRIPTION;
OBLIGATIONS AND CONTRACTS (2016))
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Requisites: (4-TRR)
1. Plaintiff must be able to Return what has
been received by virtue of the rescissible
contract (CIVIL CODE, art. 1385)
2. Object of the contract is not in the legal
possession of Third persons in good faith.
(CIVIL CODE, art. 1385)
3. Plaintiff has no other legal Remedy. (CIVIL
CODE, art. 1383)
4. Action must be brought within the proper
prescriptive period of 4 years. (CIVIL CODE,
art. 1389)
Badges of fraud are circumstances indicating
that certain alienation has been made in fraud of
creditors. Some examples are:
i. Consideration of the conveyance is
inadequate or fictitious;
ii. Transfer was made by a debtor after a suit
has been begun and while it is pending
against him;
iii. Sale upon credit by an insolvent debtor;
iv. Evidence of indebtedness or complete
insolvency;
v. Transfer of all his property by a debtor when
he is financially embarrassed or insolvent;
vi. Transfer made between father and son where
this fact is considered together with the
preceding circumstances; and
vii. Failure of the vendee to take exclusive
possession of the property (Caltex
Philippines, Inc. v. PNOC Shipping and
Transport Corporation, G.R. No. 150711,
Aug. 10, 2006)
The presumption of fraud in case of alienations
by onerous title of a person against whom a
judgment has been rendered or attachment
issued does not apply to registered lands if the
judgment or attachment made is not also
registered. (Lee v. Bangkok Bank, G.R. No.
173349, Feb. 9, 2011)
CIVIL LAW
2. VOIDABLE CONTRACTS
Definition
Intrinsic defect; valid until annulled; defect is due
to vice of consent or legal incapacity (ERNESTO L.
PINEDA, OBLIGATIONS AND CONTRACTS 601-602
(2009))
Characteristics (ACED)
(a) Effective until set aside
(b) May be assailed or attacked only in an Action
for that purpose
(c) Can be Confirmed
Note: Confirmation is the proper term for
curing the defect of a voidable contract.
(d) Can be assailed only by the party whose
consent was Defective or his heirs or assigns
What contracts are voidable:
Contracts entered into: (SIM-D3)
(a) By Minors (CIVIL CODE, art. 1327)
(b) By Insane unless he/she acted during a lucid
interval (CIVIL CODE, art. 1327 & 1328)
(c) By Deaf mute who can’t read or write (CIVIL
CODE, art. 1327)
(d) By Persons specially Disqualified: civil
interdiction (CIVIL CODE, art. 1329 & 38)
(e) In state of Drunkenness (CIVIL CODE, art.
1328)
(f) In state of hypnotic Spell (CIVIL CODE, art.
1328)
Mistake
False belief of something which is contrary to the
real intention of the parties (ERNESTO L. PINEDA,
OBLIGATIONS AND CONTRACTS 443 (2009))
Requisites: (CP-SEN)
1. Refers to the Subject of the thing which is the
object of the contract
2. Refers to the Nature of the contract
3. Refers to the principal Conditions in an
agreement (ERNESTO L. PINEDA, OBLIGATIONS
AND CONTRACTS 443 (2009))
4. Error as to Person – When it is the principal
consideration of the contract
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5. Error as to legal Effect – When mistake is
mutual and frustrates the real purpose of
parties (CIVIL CODE, art. 1334)
Violence
Serious or irresistible force is employed to wrest
consent (CIVIL CODE, art. 1335)
Intimidation
One party is compelled by a reasonable and well-
grounded fear of an imminent and grave danger
upon person and property of himself, spouse,
ascendants or descendants (moral coercion)
(CIVIL CODE, art. 1335)
Undue Influence
Person takes improper advantage of his power
over will of another depriving latter of reasonable
freedom of choice (CIVIL CODE, art. 1337)
The doctrine on reluctant consent provides that
a contract is still valid even if one of the parties
entered it against his wishes or even against his
better judgment. Contracts are also valid even
though they are entered into by one of the parties
without hope of advantage or profit. (Martinez v.
HSBC, G.R. No. L-5496, Feb. 19, 1910)
Fraud
Thru insidious words or machinations of one of
the contracting parties, the other is induced to
enter into a contract without which he will not
enter it (dolo causante). (Samson v. CA, G.R. No.
108245, Nov. 25, 1994)
Kinds of Fraud in the Performance of
Obligations or Contracts
(a) Causal Fraud (dolo causante)
(b) Incidental Fraud (dolo incidente)
(c) Tolerated Fraud – includes minimizing the
defects of the thing, exaggeration of its good
qualities and giving it qualities it does not
have; lawful misrepresentation (CIVIL CODE,
art. 1340)
Note:
Expression of an opinion – not fraud unless
made by expert and other party relied on the
CIVIL LAW
former’s special knowledge (CIVIL CODE, art.
1341)
Fraud by third person – does not vitiate
consent; only action for damages except if there
is collusion between one party and the third
person, or resulted to substantial mistake, mutual
between parties. (CIVIL CODE, art. 1342)
Causes of Extinction of the Action to Annul
1. Prescription - Period to bring an action for
Annulment
(a) Intimidation, violence, undue
influence – 4 years from time defect of
consent ceases
(b) Mistake, fraud – 4 years from time of
discovery
(c) Incapacity - From time guardianship
ceases (CIVIL CODE, art. 1391)
Discovery of fraud must be reckoned to have
taken place from the time the document was
registered in the office of the register of deeds.
Registration constitutes constructive notice to the
whole world (Carantes v. CA, G.R. No. L-33360,
Apr. 25, 1977).
2. Ratification
Requisites: (Wack)
(a) Knowledge of reason rendering contract
voidable (CIVIL CODE, art. 1393)
(b) Such reason must have Ceased (CIVIL
CODE, art. 1393). Except in case of
ratification effected by the guardian to
contracts entered into by an
incapacitated (CIVIL CODE, art. 1394)
(c) The injured party must have executed an
act which expressly or impliedly conveys
an intention to Waive his right (CIVIL
CODE, art. 1393)
Even assuming that petitioner’s
misrepresentation consists of fraud which
could be a ground for annulling their Contract
to Sell, respondent’s act of affixing her
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signature to the said Contract, after having
acquired knowledge of the property's actual
location, can be construed as an implied
ratification thereof.
Implied ratification may take diverse forms,
such as by silence or acquiescence; by acts
showing approval or adoption of the contract;
or by acceptance and retention of benefits
flowing therefrom. (ECE Realty v. Mandap,
G.R. No. 196182, Sept. 1, 2014)
3. Loss of the Thing which is the object of the
contract through fraud or fault of the person
who is entitled to annul the contract. (CIVIL
CODE, art. 1401)
Note: If the object is lost through a fortuitous
event, the contract can still be annulled, but
the person obliged to return the same can be
held liable only for the value of the thing at the
time of the loss, but without interest thereon.
(4 ARTURO M. TOLENTINO, COMMENTARIES AND
JURISPRUDENCE ON THE CIVIL CODE OF THE
PHILIPPINES 614 (1991))
Ratification cleanses the contract of its
defects from the moment it was constituted.
(CIVIL CODE, art. 1396)
III. UNENFORCEABLE CONTRACTS
Definition
They are valid but the execution cannot be
compelled unless ratified; extrinsic defect;
produce legal effects only after ratified.
Kinds: (URA)
(a) Unauthorized or no sufficient authority –
Entered into in the name of another when:
(CIVIL CODE, art. 1404)
i. No authority conferred (CIVIL CODE, art.
1317)
ii. In excess of authority conferred (ultra
vires) (CIVIL CODE, art. 1317)
(b) Curable by Ratification – Both parties
incapable of giving consent (2 minor or 2
insane persons) (CIVIL CODE, art. 1407)
CIVIL LAW
(c) Curable by Acknowledgment – Failure to
comply with Statute of Frauds. (CIVIL CODE,
art. 1405)
Statute of Frauds
(a) Agreement to be performed within a year
after making contract
(b) Special promise to answer for debt, default or
miscarriage of another
(c) Agreement made in consideration of promise
to marry
(d) Agreement for sale of goods, chattels or
things in action at price not less than 500;
exception: auction when recorded sale in
sales book
(e) Agreement for lease of property for more than
one year and sale of real property regardless
of price
(f) Representation as to credit of another (CIVIL
CODE, art. 1403 (2))
Two Ways of Curing Unenforceable Contracts
(a) Failure of defendant to object in time, to
the presentation of parole evidence in court,
the defect of unenforceability is cured
(b) Acceptance of benefits under the
contract. If there is performance in either
part and there is acceptance of performance,
it takes it out of unenforceable contracts; also
estoppel sets in by accepting performance,
the defect is waived. (CIVIL CODE, art. 1405)
Note: The contracts/agreements under the
Statute of Frauds require that the same be
evidenced by some note or memorandum or
writing, subscribed by the party charged or by his
agent, otherwise, the said contracts shall be
unenforceable. (CIVIL CODE, art. 1403)
The Statute of Frauds applies only to executory
contracts, not to those that are partially or
completely fulfilled. (Carbonnel v. Poncio, G.R.
No. L-11231, May 12, 1958)
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IV. VOID OR INEXISTENT CONTRACTS ones) – essential formalities are not complied
with. Example: Donation propter nuptias –
Definition Should conform to formalities of a donation to
These contracts have no legal effect (Modina v. be valid)
CA, G.R. No. 109355, Oct. 29, 1999) (b) Those which are absolutely simulated or
fictitious – no cause. An absolutely
Characteristics: simulated or fictitious contract is void, and the
parties may recover from each other what
1. It produces no effect whatsoever either
they may have given under the contract. In
against or in favor of anyone; (Modina v. CA,
absolute simulation, there is a colorable
G.R. No. 109355, Oct. 29, 1999)
contract but it has no substance as the
2. There is no action for annulment necessary
parties have no intention to be bound by it.
as such is ipso jure. A judicial declaration to
(Heirs of Dr. Mario S. Intac and Angelina
that effect is merely a declaration;
Mendoza-Intac v. CA, G.R. 173211, Oct. 11,
3. It cannot be confirmed, ratified or cured;
2012).
(c) Those which cause or object did not exist
NOTE: Assuming that the nullified ...
at the time of the transaction – no
resolutions may be deemed as contracts, we
cause/object. This refers to a contract whose
declared in our [previous ruling] that the
cause or object could not have existed or
infirmity in the nullified ... resolutions did not
could not come into existence at the time of
stem from the absence of consent or
the transaction. (RUBEN F. BALANE, JOTTINGS
authority, which would have made them
AND JURISPRUDENCE IN CIVIL LAW
unenforceable contracts under Article 1401
(OBLIGATIONS AND CONTRACTS) 778 (2020))
(1) of the Civil Code. The infirmity comes from
(d) Those whose object is outside the
the failure of the NPC to comply with the
commerce of man – no object
requirements set forth in the EPIRA.
(e) Those which contemplate an impossible
service – no object
On this basis, they cannot be classified as an
(f) Those which intention of parties relative to
unenforceable contract under Article 1403 (1)
principal object of the contract cannot be
of the Civil Code, but as void contracts under
ascertained
Article 1409 (7) of the Civil Code for being
(g) Those expressly prohibited or declared
"expressly prohibited or declared void by
void by law – Contracts w/c violate any legal
law." The last paragraph of Article 1409 of the
provision, whether it amounts to a crime or
Civil Code expressly provides that void
not
contracts cannot be ratified. (NPC DAMA v.
(h) Those whose cause, object or purpose is
NPC, G.R. No. 156208, June 30, 2014)
contrary to law, morals, good customs,
4. If performed, restoration is in order, except if
public order or public policy. Example:
pari delicto will apply; (CIVIL CODE, art. 1411
Contract to sell marijuana
& 1412)
5. The right to set up the defense of nullity
Other void contracts:
cannot be waived; (CIVIL CODE, art. 1409)
(a) Pactum Commissorium (CIVIL CODE, art.
6. Imprescriptible (CIVIL CODE, art. 1410); and
2088, 2130, 1390)
7. Anyone may invoke the nullity of the contract
whenever its juridical effects are asserted
Elements: (MAp)
against him (CIVIL CODE, art. 1421)
i. There should be a property Mortgaged by
way of security for the payment of the
Kinds of void contract: (CIVIL CODE, art. 1409)
principal obligation.
(a) Those lacking in essential elements: No
ii. There should be a stipulation for
consent, no object, no cause (inexistent
automatic Appropriation by the creditor

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of the thing mortgaged in case of non-
payment of the principal obligation within
the stipulated period. (Development
Bank of the Philippines v. CA, G.R. No.
118342, Jan. 5, 1998)
(b) Pactum De Non Alienando (CIVIL CODE, art.
2130)
• A stipulation forbidding the owner from
alienating the immovable mortgaged
shall be void.
• It is a clause in a mortgage giving the
mortgagee the right to foreclose by
executory process directed solely against
the mortgagor and giving him or her the
right to seize and sell the mortgaged
property, regardless of any subsequent
alienations.
(c) Pactum Leonina (CIVIL CODE, art. 1799)
• A stipulation which excludes one or more
partners from any share in profit or loss is
void.
Illegal Contracts
Pari Delicto Doctrine
General Rule:
• Both parties are guilty, no action against
each other; (CIVIL CODE, art. 1412)
• Those who come in equity must come
with clean hands; (Department of Public
Works and Highways v. Quiwa, G.R. No.
183444, Feb. 8, 2012)
• Applies only to illegal contracts and not to
inexistent contracts;
• Does not apply when a superior public
policy intervenes.
The Clean Hands Doctrine states that “a litigant
may be denied relief by a court of equity on the
ground that his conduct has been inequitable,
unfair and dishonest, or fraudulent, or deceitful as
to the controversy in issue.” Bad faith and fraud
are allegations of fact that demand clear and
convincing proof. (Department of Public Works
and Highways v. Quiwa, G.R. No.183444, Feb. 8,
2012)
CIVIL LAW
Exception: If purpose has not yet been
accomplished and if damage has not been
caused to any 3rd person.
Other exceptions:
i. Payment of usurious interest. (CIVIL CODE,
art. 1413)
ii. 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. (CIVIL CODE, art. 1414)
iii. Payment of money or delivery of property
made by an incapacitated person. (CIVIL
CODE, art. 1415)
iv. Agreement or contract which is not illegal per
se and the prohibition is designed for the
protection of the plaintiff. (CIVIL CODE, art.
1416)
v. Payment of any amount in excess of the
maximum price of any article or commodity
fixed by law or regulation by competent
authority. (CIVIL CODE, art. 1417)
vi. Contract whereby a laborer undertakes to
work longer than the maximum number of
hours fixed by law (CIVIL CODE, art. 1418 &
1419)
vii. One who lost in gambling because of
fraudulent schemes practiced on him is
allowed to recover his losses (REVISED PENAL
CODE, art. 313) even if gambling is prohibited.
Requisites of Illegal Contracts:
1. Contract is for an illegal purpose;
2. Contract must be repudiated by any of the
parties before purpose is accomplished or
damage is caused to third parties; and
3. Court believes that public interest will be
served by allowing recovery (discretionary
upon the court).
• Based on remorse;
• Illegality is accomplished when
parties entered into contract;
• Before it takes effect – Party which is
remorseful prevents it.
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Where laws are issued to protect certain
sectors: consumer protection, labor, and
usury law
(a) Consumer Protection – If price of
commodity is determined by statute, any
person paying an amount in excess of the
maximum price allowed may recover such
excess. (CIVIL CODE, art. 1417)
(b) Labor – If the law sets the minimum wage for
laborers, any laborer who agreed to receive
less may still be entitled to recover the
deficiency; if the law sets max working hours
and laborer who undertakes to work longer
may demand additional compensation. (CIVIL
CODE, art. 1418 & 1419)
(c) Interest paid in excess of the interest allowed
by the usury law may be recovered by debtor
with interest from date of payment. (CIVIL
CODE, art. 1413)
Effects of illegal contracts
1. If one party is incapacitated, courts may allow
recovery of money, property delivered by
incapacitated person in the interest of justice.
(CIVIL CODE, art. 1415)
• Pari delicto doctrine cannot apply
because an incapacitated person does
not know what he is entering into and is
unable to understand the consequences
of his own action.
2. If agreement is not illegal per se but merely
prohibited and prohibition is designated for
the protection of the plaintiff – may recover
what he has paid or delivered by virtue of
public policy. (CIVIL CODE, art. 1416)
3. If a subsequent contract results directly
because of a previous illegal contract, the
subsequent contract is also void and
inexistent. “The illegality of the Sub-Contract
Agreement necessarily affects the [resulting]
Deed of Assignment because the rule is that
an illegal agreement cannot give birth to a
valid contract. To rule otherwise is to sanction
the act of entering into transaction the object
of which is expressly prohibited by law and
thereafter execute an apparently valid
CIVIL LAW
contract to subterfuge the illegality. The legal
proscription in such an instance will be easily
rendered nugatory and meaningless to the
prejudice of the general public.” (Gonzalo v.
Tarnate, G.R. No. 160600, Jan. 15, 2014)
Mutual restitution in void contracts
General rule: Parties should return to each other
what they have given by virtue of the void contract
in case
Where nullity arose from defect in essential
elements
1. Return object of contract and fruits
2. Return price plus interest
Exception: No recovery can be had in cases
where nullity of contract arose from illegality of
contract where parties are in pari delicto. (CIVIL
CODE, art. 1412)
Exceptions to the exception:
1. When incapacitated – Not obliged to return
what he gave but may recover what he has
given
2. Other party is less guilty or not guilty. (CIVIL
CODE, art. 1412)
V. DISTINGUISH: RESOLUTION AND
RESCISSION OF CONTRACTS
Similarity and distinction between resolution
or cancellation in Art. 1191; and rescission in
Art. 1383-84
Similarity: Both apply to valid contracts (Cannot
cancel/rescind invalid contracts because there is
nothing to cancel or rescind). Both also require
mutual restitution. (EDGARDO L. PARAS, CIVIL
CODE OF THE PHILIPPINES ANNOTATED:
PRESCRIPTION; OBLIGATIONS AND CONTRACTS 735
(2016))
Mutual restitution is required in cases of
resolution/cancellation under Art. 1191 so as to
bring the parties back to their original
situation, prior to the inception of the contract.
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(Forest Hills Golf & Country Club v. Vertex Sales
and Trading Inc., G.R. No. 202205, Mar. 6, 2013)
Distinction: (Suria v. IAC, G.R. No. 73893, June
30, 1987)
(a) Art. 1191 applies only to reciprocal
obligations, i.e., those that arise from the
same cause, and which each party is a debtor
and creditor of each other. Performance by
one is a condition to performance by the other
party. If one party is unable to perform his
obligation, the other can ask for resolution as
a remedy for the breach. Since this is based
on breach of contract, it is a principal action.
On the other hand, Art. 1383 is a subsidiary
action which is based on lesion or fraud of
creditors (Wellex Group v. U-Land Airlines,
Jan. 14, 2015).
(b) Resolution or cancellation in Art. 1191 is
predicated on breach, and not on injury to
economic interests of a party, that violates
the reciprocity between the parties.
(c) The operation of Arts.1383 and 1384 is
limited to the cases of rescission for lesion
enumerated in Article 1381 of the Civil Code
of the Philippines and does not apply to cases
under Article 1191.
Art. 1191 does not apply to a Contract to Sell
where the condition is breached. Payment is the
condition in a Contract to Sell and if full payment
is not made, it is breach of the condition. Art.
1191 refers to an existing obligation and what
is breached is the obligation, not the
condition. (Rivera v. Del Rosario, G.R. No.
144934, Jan. 15, 2004)
A party may not extrajudicially rescind a
contract without a specific stipulation in the
contract authorizing extrajudicial rescission.
The party needs to file an action for rescission
under Art. 1191. (Eds Manufacturing, v.
Healthcheck International, Inc., Oct. 9, 2013)
But see: Art. 1191 provides that the power to
rescind is implied in reciprocal obligations, in
CIVIL LAW
cases where one of the obligors should fail to
comply with what is incumbent upon him.
Otherwise stated, an aggrieved party is not
prevented from extrajudicially rescinding a
contract to protect its interests, even in the
absence of any provision expressly providing for
such right. (Nissan Car Lease v. Lica
Management, Jan. 13, 2016)
The law definitely does not require that the
contracting party who believes itself injured must
first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach
will have to passively sit and watch its damages
accumulate during the pendency of the suit until
the final judgment of rescission is rendered when
the law itself requires that he should exercise due
diligence to minimize its own damages. (U.P. v.
delos Angeles, Sept. 29, 1970
Whether a contract provides for it or not, the
remedy of rescission is always available as a
remedy against a defaulting party. When done
without prior judicial imprimatur, however, it may
still be subject to a possible court review. (Nissan
Car Lease v. Lica Management, Jan. 13, 2016)
————- end of topic ————-
NATURAL OBIGATIONS
Natural obligations, not being based on positive
law but on equity and natural law, do not grant a
right of action to enforce their performance, but
after voluntary fulfillment by the obligor, they
authorize the retention of what has been
delivered or rendered by reason thereof. (CIVIL
CODE, art. 1423)
Examples of natural obligations enumerated
under the Civil Code:
i. Performance after the civil obligation has
prescribed
ii. Reimbursement of a third person for a debt
that has prescribed
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iii. Restitution by minor after annulment of
contract
iv. Delivery by minor of money or fungible thing
in fulfillment of obligation
v. Performance after action to enforce civil
obligation has failed
vi. Payment by heir of debt exceeding value of
property inherited
vii. Payment of legacy after will has been
declared void. (CIVIL CODE, art. 1423-1430)
————- end of topic ————-
ESTOPPEL
Estoppel – a condition or state by virtue of which
an admission or representation is rendered
conclusive upon the person making it and cannot
be denied or disproved as against the person
relying thereon. (CIVIL CODE, art. 1431)
Estoppel is effective only between the parties
thereto or their successors in interest. (CIVIL
CODE, art. 1439)
Kinds:
1. Estoppel in pais (by conduct)
(a) Estoppel by silence
(b) Estoppel by acceptance of benefits
2. Technical estoppel
(a) Estoppel by deed
(b) Estoppel by record
(c) Estoppel by judgment
(d) Estoppel by laches
Requisites of estoppel in pais
A. As related to the party to be estopped
(CIK)
1. Conduct which amounts to a false
representation or concealment of
material facts, or at least which is
calculated to convey the impression that
the facts are otherwise than, and
inconsistent with those which the party
subsequently attempts to assert;
CIVIL LAW
2. Intention or at least the expectation, that
such conduct shall be acted upon, or
influence, the other party or other
persons;
3. Knowledge, actual or constructive, of the
real facts
B. As related to the party claiming the
estoppel (IRA)
1. Ignorance or lack of knowledge and of
the means of knowledge of the truth as to
the facts in question
2. Reliance in good faith, upon the conduct
or statement of the party to be estopped;
and
3. Action or inaction based thereon of such
a character as to change the position or
status of the party claiming the estoppel,
to his injury, detriment, or prejudice.
(Manila International Airport Authority v.
Ding Velayo Sports Center, Inc., G.R.
No. 161718, Dec. 14, 2011)
Requisites of estoppel by laches (CLID)
1. Conduct on the part of the defendant, or of
one under whom he claims, giving rise to the
situation of which complaint is made;
2. Delay in asserting the complainant’s right, the
complainant having had knowledge or notice
of the defendant’s conduct and having been
afforded an opportunity to sue; actual
knowledge of the commission of the adverse
act is not necessary, it being enough that
such knowledge may be imputed to the
complainant because of circumstances of
which he was cognizant;
3. Lack of knowledge or notice on the part of the
defendant that the complainant would assert
the right on which he bases his suit; and
4. Injury or prejudice to the defendant in the
event relief is accorded to the complainant, or
the suit is not held to be barred. (Cimafranca
v. IAC, G.R. No. L-68687, Jan. 31, 1987)
————- end of topic ————-
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