TITLE II CONTRACTS Article 1315. Contracts are perfected by mere consent, and from
Consent
CHAPTER 1 General Provisions
Article 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to
give something or to render some service.
Article 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1255a)
Article 1307. Innominate contracts shall be regulated by the
stipulations of the parties, by the provisions of Titles I and II of
this Book, by the rules governing the most analogous nominate
contracts, and by the customs of the place. (n)
Article 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
(1256a)
Article 1309. The determination of the performance may be left
to a third person, whose decision shall not be binding until it has
been made known to both contracting parties. (n)
Article 1310. The determination shall not be obligatory if it is
evidently inequitable. In such case, the courts shall decide what
is equitable under the circumstances. (n)
Article 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the
decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. (1257a)
Article 1312. In contracts creating real rights, third persons who
come into possession of the object of the contract are bound
thereby, subject to the provisions of the Mortgage Law and the
Land Registration Laws. (n)
Article 1313. Creditors are protected in cases of contracts
intended to defraud them. (n)
Article 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting
party. (n)
a.
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law. (1258)
Article 1316. Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of the object
of the obligation. (n)
Article 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by law a
right to represent him.
A contract entered into in the name of another by one who has
no authority or legal representation, or who has acted beyond
his powers, shall be unenforceable, unless it is ratified, expressly
or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party.
(1259a)
Contract is the agreement between two or more competent and
capacitated parties, based on mutual promises, to do or refrain
from doing some particular thing which is neither illegal nor
impossible. The agreement results in an obligation or duty that
can be enforced in a court of law.
Meeting of minds
Speaks of the intention of the parties in entering into the
contract respecting the subject matter and the consideration
thereof. As a rule, therefore, a contract is perfected by mere
consent. It does not require any special form, as a rule, and is
binding from the moment that the essential requisites are
present. Thus, the meeting of the minds between the parties rise
to the binding contract although they have not affixed their
signatures to its written form. (Rabuya, 2017).
Obligation Contract
the legal tie/relations itself one of the sources of
that exists after a contract obligation
has been entered into
an obligation may exist there can be no contract if
without a contract there is no obligation
ELEMENTS OF CONTRACT
1. Essential Elements - Those without which there can be
no contract.
b. Subject Matter
c. Cause or consideration
d. In some contracts, FORM is essential
e. In some contracts, DELIVERY is essential
2. Natural Elements - those found in certain contracts and
presumed to exist, unless the contrary has been
stipulated by the parties. Example: warranty against
eviction, warranty against hidden defects in a contract
of sale
3. Accidental Elements - those which exist only when the
contracting parties expressly provide for them.
Example: stipulation to pay interest
STAGES IN THE MAKING OF A CONTRACT
Three stages in the making of a contract (CPC):
1. Conception or Generation – the first stage where the
parties begin their initial negotiation and bargaining for
the formation of the contract ending at the moment of
agreement of the parties.
2. Perfection or Birth – Here, the parties had a meeting of
minds as to the object, cause or consideration and
other terms and conditions of the contract.
3. Consummation or fulfillment – This the last stage
which consists in their performance or fulfillment by the
parties of their obligations under the term of the
perfected contract.
CHARACTERISTICS OF A CONTRACT
The following are the characteristics of a contract (AMOR):
1. Autonomy (NCC, Art. 1306);
2. Mutuality (NCC, Art. 1308);
3. Obligatoriness and consensuality (NCC, Art. 1315);
4. Relativity (NCC, Art. 1311)
5. Consensuality (NCC, Art. 1315)
Principle of Relativity or Principle of Limited Effectivity of
Contracts
General Rule: Contracts take effect only between the parties or
their assigns and heirs.
Res inter alios acta aliis neque nocit prodest (a thing done
between others does not harm or benefit others) – a contract
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can only obligate the parties who entered into it, or their
successors who assumed their personalities, and that,
concomitantly, a contract can neither favor nor prejudice third
persons.
NOTE: With respect to the heir, he shall not be liable beyond the
value of the property he received from the decedent (NCC, Art.
1311).
EXCEPTIONS:
1. Rights and obligations that are not transmissible by
their nature, or by the stipulation or by provisions of
law (NCC, Art. 1311);
NOTE: Determine whether a contract terminates upon
the death of one of the parties.
2. Stipulation pour autrui (stipulation in favor of a third
person) – benefits clearly and deliberately conferred by
parties to a contract upon third persons (NCC, Art.
1311) and which stipulation is merely part of a contract
entered into by the parties, neither of whom acted as
agents of the third person and which favor can be
demanded by the third person if duly accepted by him
before it could be revoked;
Requisites of stipulation pour autrui:
a) Stipulation in favor of a third person;
b) Stipulation is just part and not the whole obligations
of the contract;
c) Contracting parties must have clearly and
deliberately conferred a favor upon third person;
d) Favor or benefit conferred is not just an incidental
benefit or interest; Third person must have
communicated his acceptance; and
e) Neither of the contracting parties bears the legal
representation of the third person (Young v. Court
of Appeals, G.R. No. 79518, January 13, 1989).
NOTE: The fairest test to determine whether the
interest of third person in a contract is a stipulation
pour autrui or merely an incidental interest, is to rely
upon the intention of the parties as disclosed by their
contract. In applying this test, it matters not whether
the stipulation is in the nature of a gift or whether there
is an obligation owing from the promise to the third
person.
3. Third persons coming into possession of the object of
the contract creating real rights subject to the
provisions of Mortgage Law and the Land Registration
Law (NCC, Art. 1312);
4. Contracts entered into in fraud of creditors; (NCC, Art.
1313);
5. When a third person induces a party to violate the
contract (NCC, Art. 1314).
NOTE: This tort or wrongful conduct is known as “interference
with contractual relations”.
Requisites (of Number 5):
1. Existence of a valid contract;
2. Third person has knowledge of such contract;
3. Third person interferes without legal justification or
excuse (De Leon, 2010).
Thus, third person and the breaching party is liable for damages.
It is based on quasi-delict and their liability is solidary.
NOTE: A third person can be held liable for tort interference even
if he does not know the identity of one of the contracting
parties. The interference with lawful contracts by strangers
thereto gives rise to an action for damage in favor of the injured
person. The law does not require that the responsible person
shall have known the identity of the injured person.
OBLIGATORY FORCE OF CONTRACTS
Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for
validity are present (NCC, Art. 1356).
Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good
faith. (NCC, Art. 1159)
NOTE: Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith (NCC, Art. 1159).
Requisites for the application of the principle
Before a contract may be considered obligatory, it is
necessary that:
a) It is perfected;
b) It is valid; and
c) It is enforceable
MUTUALITY OF CONTRACTS
The contract must bind both contracting parties and its validity
or compliance cannot be left to the will of one of them (NCC, Art.
1308).
If a party alleges defects in the contract so that it could be set
aside, he must prove conclusively the existence of the defects
because the validity and fulfillment of the contract cannot be left
to the will of one of the contracting parties.
The binding effect of any agreement between parties to a
contract is premised on two settled principles:
(1) that any obligation arising from contract has the force of law
between the parties; and
(2) that there must be mutuality between the parties based on
their essential equality.
Any contract which appears to be heavily weighed in favor of one
of the parties so as to lead to an unconscionable result is void.
Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is
likewise, invalid. (Sps. Juico vs.
China Banking Corp., G.R. 187678, April 10, 2013)
NOTE: A contract containing a condition whose efficacy or
fulfillment is dependent solely on the uncontrolled will of one of
the parties is void (Garcia v. Rita, G.R. No. L-20175, October 30,
1967; PNB v. CA, G.R. No. 88880, April 30, 1991).
However, the termination of the contract does not necessarily
require mutuality, and it can even be validly left to one party by
agreement or under a resolutory facultative condition.
AUTONOMY OF CONTRACTS/LIBERTY OF CONTRACTS
It is the freedom of the parties to contract and to stipulate
provided the stipulations are not contrary to law, morals, good
customs, public order or public policy (NCC, Art. 1306).
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NOTE: Courts cannot make for the parties better or more
equitable agreements than they themselves have been satisfied
to make, or rewrite contracts because they operate harshly or
inequitably as to one of the parties, or alter them for the benefit
of one party and to the detriment of the other, or by
construction, relieve one of the parties from terms which he
voluntarily consented to, or impose on him those which he did
not. (Angel Bautista v. Court of Appeals, G.R. No. 123655,
January 19, 2000)
An agreement to pay unconscionable interests on a loan is
against morals. (Medel, et al. vs. Ca, 299 SCRA 481)
PERFECTION BY MERE CONSENT
Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good
faith, usage and law. (NCC, Art. 1315)
NOTE: This refers to consensual contracts. However, real
contracts are perfected by delivery and formal contracts are
perfected upon compliance.
EFFECT OF CONTRACTS
Contracts take effect only between the parties, and their assigns
and heirs, the latter being liable only to the extent of the
property received from the decedent (NCC, Art. 1311).
Persons affected by a contract
General Rule:
1. Parties to the contract; and
2. Their corresponding successors.
Exceptions:
1. Contracts containing a stipulation in favor of a third
person (pour autrui) [NCC, Art. 1311 (2)];
2. Contracts containing real rights (NCC, Art. 1312);
3. Contracts entered into to defraud creditors (NCC, Art.
1313);
4. Contracts which have been violated at the inducement
of 3rd persons (NCC, Art. 1314);
5. Quasi-contract of negotiorum gestio (NCC, Art. 2150).
CHAPTER 2 Essential Requisites of Contracts
Article 1318. There is no contract unless the following requisites
concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract;
3. Cause of the obligation which is established. (1261)
NOTE: These three requisites are, therefore, the essential
elements of a consensual contract. In real contracts, however, in
addition to the above, the delivery of the object of the contract
is required as a further requisite.
SECTION 1 Consent
Article 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered into in the place
where the offer was made. (1262a)
Article 1320. An acceptance may be express or implied. (n)
Article 1321. The person making the offer may fix the time,
place, and manner of acceptance, all of which must be complied
with.(n)
Article 1322. An offer made through an agent is accepted from
the time acceptance is communicated to him. (n)
Article 1323. An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed. (n)
Article 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised. (n)
Article 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers, but
mere invitations to make an offer. (n)
Article 1326. Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (n)
Article 1327. The following cannot give consent to a contract:
(1)Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not
know how to write. (1263a)
Article 1328. Contracts entered into during a lucid interval are
valid. Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable. (n)
Article 1329. The incapacity declared in article 1327 is subject to
the modifications determined by law, and is understood to be
without prejudice to special disqualifications established in the
laws. (1264)
Article 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
(1265a)
Article 1331. In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the object of
the contract, or to those conditions which have principally
moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties
will vitiate consent only when such identity or qualifications have
been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
(1266a)
Article 1332. When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or
fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former
Article 1333. There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the contract (n)
Article 1334. Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated, may vitiate
consent. (n)
Article 1335. There is violence when in order to wrest consent,
serious or irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon
the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent. (1267a)
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Article 1336. Violence or intimidation shall annul the obligation,
although it may have been employed by a third person who did
not take part in the contract. (1268)
Article 1337. There is undue influence when a person takes
improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the
fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial
distress. (n)
Article 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would
not have agreed to. (1269)
Article 1339. Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential
relations, constitutes fraud. (n)
Article 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent. (n)
Article 1341. A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has relied
on the former's special knowledge. (n)
Article 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (n)
Article 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
Article 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay
damages. (1270)
Article 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not intend
to be bound at all; the latter, when the parties conceal their true
agreement. (n)
Article 1346. An absolutely simulated or fictitious contract is
void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the
parties to their real agreement. (n)
CONSENT
Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.
(NCC, Art. 1319)
It is the concurrence of the wills of the contracting parties with
respect to the object and cause, which shall constitute the
contract (De Leon, 2010).
NOTE: Consent is essential to the existence of a contract; and
where it is wanting, the contract is non-existent.
Requisites of CONSENT (LM-CR)
1. Legal capacity of the contracting parties;
NOTE: The parties must have full civil capacity. Hence, if
any one party to a supposed contract was already dead
at the time of its execution, such contract is
undoubtedly simulated and false and, therefore, null
and void by reason of its having been made after the
death of the party who appears as one of the
contracting parties therein. The death of a person
terminates contractual capacity (Milagros De Belen Vda.
De Cabalu, et. al. v. Sps. Renato Dolores Tabu and
Laxamana, G.R. No. 188417, September 24, 2012).
2. Manifestation of the conformity of the contracting
parties;
NOTE: Manifestation may be in writing bearing the
signature or marks of the parties, or it may be implied
from the conduct of the parties like the acceptance of
payment.
3. Parties’ Conformity to the object, cause, terms and
condition of the contract must be intelligent,
spontaneous and free from all vices of consent;
NOTE: Intelligence in consent is vitiated by error;
freedom by violence, intimidation or undue influence;
and spontaneity by fraud.
4. The conformity must be Real.
OFFER
An offer is defined as an expression of willingness to contract on
certain terms, made with the intention that it shall become
binding as soon as it is accepted by the person to whom it is
addressed.
Elements of a valid offer and acceptance
1) Definite – unequivocal
2) Intentional
3) Complete – unconditional
NOTE: We follow the cognitive theory and NOT the mailbox
theory. Under our Civil Law, the offer and acceptance concur
only when the acceptance has reached the knowledge of the
offeror (actual knowledge), and not at the time of sending the
acceptance.
Requisites of an effective offer
1. The one offering must have a serious intention to
become bound by his offer;
2. The terms of the offer must be reasonably certain,
definite and complete, so that the parties and the court
can ascertain the terms of the offer; and
3. The offer must be communicated by the offeror to the
offeree, resulting in the offeree’s knowledge of the
offer.
Rules on advertisements as offers
1) Business advertisements – not a definite offer, but mere
invitation to make an offer, unless it appears otherwise
(NCC, Art. 1325).
NOTE: If the advertisement contains all the necessary
date need in a contract, it is a definite offer for the sale
of the thing advertised. Otherwise, it is not a definite
offer, but a mere invitation to make offer.
2) Advertisement for bidders – simply an invitation to
make proposals and advertiser is not bound to accept
the highest or lowest bidder, unless the contrary
appears (NCC, Art. 1326).
4

Grounds that would render the offer ineffective
1. Death, civil interdiction, insanity or insolvency of either
party before acceptance is conveyed;
2. Express or implied revocation of the offer by the
offeree;
3. Qualified or conditional acceptance of the offer, which
becomes counter-offer;
4. Subject matter becomes illegal or impossible before
acceptance is communicated;
5. Period given to the offeree to signify his acceptance has
already lapsed.
Requisites of a valid acceptance
1. Must be absolute; a qualified acceptance constitutes a
counter-offer (NCC, Art. 1319).
2. No specified form but when the offeror specifies a
particular form, such must be complied with.
NOTE: Offer or acceptance, or both, expressed in electronic
form, is valid, unless otherwise agreed by the parties (electronic
contracts).
NOTE: A conditional acceptance is a counter-offer which
extinguishes the offer. If not accepted by the offeror there is no
contract.
NOTE: An acceptance may be express or implied (NCC, Art.
1320).
Mirror Image Rule in law on contracts
This is a common law concept which states that in order for
there to be an acceptance, the offeree must accept the terms as
stated in the offer. Our courts also adhere to the “mirror-image
rule.” Thus, it has been ruled that acceptance must be identical
in all respects with that of the offer so as to produce consent of
meeting of the minds.
Period for acceptance
1) Stated fixed period in the offer
a. Must be made within the period given by the offeror.
b. As to withdrawal of the offer:
i. GR: It can be made by communicating such
withdrawal at any time before the acceptance is made
ii. XPN: When the option is founded upon a
consideration (something paid or promised since
partial payment of the purchase price is considered as
proof of the perfection of the contract). (NCC, Art
1324)
2) No stated period
a. Offer is made to a person present – acceptance must
be made immediately.
b. Offer is made to a person absent – acceptance may
be made within such time that, under normal
circumstances, an answer can be expected from him.
NOTE: If there was an acceptance already, the offeror cannot just
withdraw his offer unilaterally. He will be liable for damages.
Option contract
It is a contract between the offeror and the offeree whereby the
former grants the latter, for a valuable consideration, the
privilege to buy or not to buy certain objects at any time within a
specified period and for a fixed price.
NOTE: The privilege granted to the offeree must be supported by
a consideration, the option is just considered an “offer to sell” to
the offeree which is not binding until accepted.
Persons incapacitated to give consent (DIM)
1. Deaf-mutes who do not know how to read and write
(illiterates);
2. Insane or demented persons, unless the contract was
entered into
3. during a lucid interval;
4. Minors (NCC, Art. 1327) except:
a. Contracts for necessaries (NCC, Art. 1489);
b. Contracts by guardians or legal representatives and
the court having jurisdiction had approved the same;
c. When there is active misrepresentation on the part
of the minor (minor is estopped);
d. Contracts of deposit with the Postal Savings Bank
provided that the minor is over 7 years of age;
e. Contract of an insurance for life, health and the
accident on the minor’s life.
f. Upon reaching age of majority – they ratify the same.
NOTE: Because the law incapacitates them to give their consent
to a contract, the only way by which any one of those
enumerated above can enter into a contract is to act through a
parent or guardian. If this requirement is not complied with, the
result is a defective contract. If only one of the contracting
parties is incapacitated to give his consent, the contract is
voidable. If both of them are incapacitated to give their consent,
the contract is unenforceable [NCC, Art. 1390(1), NCC, Art.
1403(3)].
Vices of consent (MI-VUF)
1) Mistake
2) Intimidation
3) Violence
4) Undue influence
5) Fraud
NOTE: A threat to enforce a just or legal claim through a
competent authority does not amount to intimidation nor vitiate
consent (NCC, Art. 1335).
Mistake
GENERAL RULE: Mistake as a vice of consent refers to mistake of
facts and not of law, thus rendering the contract voidable
(Jurado, 2010).
EXCEPTION: When mistake of law involves mutual error as to the
legal effect of an agreement when the real purpose of the
parties is frustrated (NCC, Art. 1334).
Mistake Distinguished from Ignorance
Mistake is a false impression on something, while Ignorance is
absence of any notion or impression about a particular thing.
Requisites:
1. Mistake must be with respect to the legal effect of the
agreement;
2. It must be mutual; and
3. Real purpose of the parties must have been frustrated.
Kinds of mistakes of fact which vitiate consent
1. Mistake as to the nature of the contract;
2. Mistake as to object of the contract;
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3. Mistake as to the quality or principal conditions of the thing;
4. Mistake or error in quantity; and
5. Mistake as to identity of the person.
Mistake as to the identity or qualifications of one of the parties
will vitiate consent only when such identity or qualifications have
been the principal cause of the contract.
For mistake (as to the qualification of one of the parties) to
vitiate consent, two (2) requisites must concur:
1. The mistake must be either with regard to the identity or
with regard to the qualification of one of the contracting
parties; and
2. The identity or qualification must have been the principal
consideration for the celebration of the contract
Mutual Error
Mutual Error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vititate consent. (NCC,
Art. 1334)
Legal effect refers to the rights of the parties as stated in legal
provisions.
Intimidation
There is intimidation when one of the contracting parties is
compelled by a reasonable and well- grounded fear of an
imminent and grave evil upon his person or property, or upon
the person or property of his spouse, descendants or
ascendants, to give his consent [NCC, Art. 1335(2)].
Requisites of intimidation (CICU)
1. One of the parties is compelled to give his Consent by a
reasonable and well-grounded fear of an evil;
2. The evil must be Imminent and grave;
3. It must be Unjust; and
4. The evil must be the determining Cause for the party
upon whom it is employed in entering into the contract
(NCC, Art. 1335).
NOTE: To determine the degree of the intimidation, the age, sex
and condition of the person shall be borne in mind (NCC, Art.
1335).
Validity of a contract if consent is reluctant
A contract is valid even though one of the parties entered into it
against his wishes and desires 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.
Violence
There is violence when in order to wrest consent, serious or
irresistible force is employed.
Requisites of violence
1. Physical force employed must be serious or irresistible;
and
2. The determining cause for the party upon whom it is
employed in entering into the contract.
A threat to enforce one’s claim through competent authority, if
the claim is just or legal, does not vitiate consent. [NCC, Art.
1335(4)]
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 (NCC, Art. 1336).
Undue influence
There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the
latter of a reasonable freedom of choice (NCC, Art. 1337).
It must in some measure destroy the free agency if a party and
interfere with the exercise of that independent discretion. (4
Tolentino 501)
Circumstances to be considered for the existence of undue
influence
1. Confidential, family, spiritual and other relations
between the parties;
2. Mental weakness;
3. Ignorance;
4. Financial distress (NCC, Art. 1337).
NOTE: The enumeration is NOT exclusive. Moral dependence,
indigence, mental weakness, tender age or other handicap are
some of the circumstances to consider undue influence.
Determination of undue influence
The test to determine whether or not there is undue influence
which will invalidate a contract is to determine whether or not
the influence exerted has so overpowered and subjugated the
mind of the contracting party as to destroy his free agency,
making him express the will of another rather than his own.
Due influence does not vitiate consent
When influence consists in persuasive arguments or in appeals to
the affections which are not prohibited by law or morals, the
consent is not vitiated at all.
Reverential Fear
The fear of displeasing persons to whom respect and obedience
are due does not vitiate consent.
Fraud
There is fraud when through the insidious words or machinations
of one of the contracting parties the other is induce to enter into
a contract which, without them, he would not have agreed to
(NCC, Art. 1338).
NOTE: Insidious words refer to a deceitful scheme or plot with an
evil design, or a fraudulent purpose.
Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes
fraud (NCC, Art. 1339).
Requisites of Fraud to vitiate consent Dolo
1. it was applied or utilized by one contracting party upon
the other;
2. It must be serious deception;
3. It must have induced the victim to enter the contract
without which he would not have agreed to;
4. It must have resulted in damage or injury.
Kinds of Fraud
1. Fraud in the perfection of the contract
a. Causal fraud (dolo causante)
b. Incidental fraud (dolo incidente)
2. Fraud in the performance of an obligation (NCC, Art.
1170).
6
 BASIS DOLO CAUSANTE DOLO INCIDENTE Kinds of simulation of contract
(1338) (1344) 1. Absolute (simulados) – The contracting parties do not
Gravity of Serious in character Not serious intend to be bound by the contract at all, thus the contract
Fraud is void (NCC, Arts. 1345- 1346). In absolute simulation, there
Efficient Efficient cause which Not the efficient is a colorable contract but it has no substance as the parties
Cause induces the party to cause have no intention to be bound by it. The main characteristic
enter into a contract of an absolute simulation is that the apparent contract is not
Effect on Renders the contract Does not affect the really desired or intended to produce legal effect or in any
the status voidable validity of the way alter the juridical situation of the parties. As a result, an
of the contract absolutely simulated or fictitious contract is void, and the
Contract parties may recover from each other what they may have
Remedies Annulment with Contract remains given under the contract (Heirs of Dr. Mario S. Intac and
damages valid. Claim for Angelina Mendoza-Intac v. CA, G.R. No. 173211, October 11,
damages. 2012). They lack the element of true consent.
2. Relative (disimulados) – The contracting parties conceal
Acts considered not fraudulent their true agreement (NCC, Art. 1345); binds the parties to
1. Principle of Tolerated Fraud - The usual exaggerations in their real agreement when it does not prejudice third
trade and the other party had an opportunity to know the persons or is not intended for any purpose contrary to law,
facts are not themselves fraudulent (NCC, Art. 1340). morals, good customs, public order or public policy (NCC,
2. Expert Opinion - A mere expression of an opinion does not Art. 1346). If the concealed contract is lawful, it is absolutely
signify fraud, unless made by an expert and the other party enforceable, provided it has all the essential requisites:
had relied on the former’s special knowledge (NCC, Art. consent, object, and cause (NCC, Arts. 1345-1346).
1341).
3. Misrepresentation by a third person does not vitiate As to third persons without notice, the apparent contract is valid
consent, unless such misrepresentation has created for purposes beneficial to them. As to third persons with notice
substantial mistake and the same is mutual (NCC, Art. 1342); of the simulation, they acquire no better right to the simulated
4. Misrepresentation made in good faith is not fraudulent but contract than the original parties to the same.
may constitute error (NCC, Art. 1343). The primary consideration in determining the true nature of a
contract is the intention of the parties. Such intention is
NOTE: The contract just the same is voidable, not because of the determined from the express terms of their agreement as well as
misrepresentation but because of substantial error. from their contemporaneous and subsequent acts (Tating v.
NOTE: in order that fraud may make a contract voidable, it Tating Marcella, et al., G.R. No. 155208, March 27, 2007).
should be serious and should not have been employer by both
contracting parties. (NCC, Art 1344) NOTE: If the parties state a false cause in the contract to conceal
their real agreement, the contract is only relatively simulated
Simulation of contract and the parties are still bound by their real agreement. Hence,
It is the declaration of a fictitious will, deliberately made by where the essential requisites of a contract are present and the
agreement of the parties, in order to produce, for the purposes simulation refers only to the content or terms of the contract,
of deception, the appearance of a juridical act which does not the agreement is absolutely binding and enforceable between
exist or is different from that which was executed. the parties and their successors in interest.
SECTION 2 Object of Contracts
Article 1347. All things which are not outside the commerce of
men, including future things, may be the object of a contract. All
rights which are not intransmissible may also be the object of
contracts.
No contract may be entered into upon future inheritance except
in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a
contract. (1271a)
Article 1348. Impossible things or services cannot be the object
of contracts. (1272)
Article 1349. The object of every contract must be determinate
as to its kind. The fact that the quantity is not determinate shall
not be an obstacle to the existence of the contract, provided it is
possible to determine the same, without the need of a new
contract between the parties. (1273)
OBJECT
It is the subject matter of the contract. It can be a thing, right or
service arising from a contract.
NOTE: Rights which are not intransmissible can only be the
object of the contract. (NCC, Art. 1347)
Requisites of an object (DELiCT)
1. Determinate as to kind (even if not determinate, provided it
is possible to determine the same without the need of a
new contract);
2. Existing or the potentiality to exist subsequent to the
contract;
3. Must be Licit;
4. Within the Commerce of man; and
5. Transmissible.
NOTE: The most evident and fundamental requisite in order that
a thing, right or service may be the object of a contract, is that it
should be in existence at the moment of the celebration of the
contract, or at least, it can exist subsequently or in the future (De
Leon, 2010).
7
 to law, morals, good customs, public order or public policy. reason in a
Object of contracts (1275a) contract
General Rule: All things or services may be the object of Article 1353. The statement of a false cause in contracts shall As to the kind Objective and Psychological or purely
contracts. render them void, if it should not be proved that they were of reason in juridical reason of personal reason.
Exceptions: founded upon another cause which is true and lawful. (1276) the contract contract.
1. Things outside the commerce of men (NCC, Art. 1347); Article 1354. Although the cause is not stated in the contract, it As to the legal Legality or Legality or illegality of
2. Intransmissible rights; is presumed that it exists and is lawful, unless the debtor proves effect to the illegality of cause motive does not affect
3. Future inheritance, except in cases expressly authorized the contrary. (1277) contract affects the the existence or validity
by law; Article 1355. Except in cases specified by law, lesion or existence or of contract.
4. Services which are contrary to law, morals, good inadequacy of cause shall not invalidate a contract, unless there validity of the
customs, public order or public policy; has been fraud, mistake or undue influence. (n) contract.
5. Impossible things or services; and As to the Cause is always Motive differs for each
6. Objects which are not possible of determination as to CAUSE parties the same for each contracting party.
their kind. Cause is the essential reason which moves the parties to enter contracting party.
into the contract It is the immediate, direct and proximate As to its Always known May be known to the
Exceptions to the rule that no person can enter into a contract reason which justifies the creation of an obligation through the knowability other
with regard to future inheritance will of the contracting parties.
1. Under Art. 130 of the Family Code, which allows the NOTE: The motive may be regarded as the cause when the
future spouses to give or donate to each other in their Requisites of a cause realization of such motive or particular purpose has been made a
marriage settlement their future property to take effect It must: condition upon which the contract is made to depend (Phil.
upon the death of the donor and to the extent laid 1. Exist; National Construction Corp. v. CA, 272 SCRA 183, 1997).
down by the provisions of the NCC relating to 2. Be true; and
testamentary succession; and 3. Be licit. Rules relating to cause on contracts
2. Under Art. 1080 of the Code, which allows a person to 1. Absence of cause – confers no right and produces no legal
make a partition of his estate among his heirs by an act NOTE: Although the cause is not stated in the contract, it is effect.
inter vivos, provided that the legitime of the presumed that it exists and is lawful unless the debtor proves 2. Failure of cause – does not render the contract void.
compulsory heirs is not prejudiced (Jurado,2009; De the contrary. (NCC, art. 1354) 3. Illegality of cause – contract is null and void.
Leon 2010). 4. Falsity of cause – contract is void; unless the parties show
Kinds of cause that there is another cause which is true and lawful.
NOTE: Except in cases authorized by law, future inheritance 1. Cause of onerous contracts – the prestation or promise 5. Lesion or inadequacy of cause – does not invalidate the
cannot be an object of contract because its extent, amount or of a thing or service by the other. e. g. Contract of Sale. contract, unless:
quantity is not determinable (Sta. Maria, 2003). 2. Cause of remuneratory contracts– the service or benefit a) there is fraud, mistake, or undue influence;
remunerated. e. g. Donation in consideration of a past b) when the parties intended a donation or some other
SECTION 3 Cause of Contracts service which does not constitute a demandable debt. contract;
Article 1350. In onerous contracts the cause is understood to be, 3. Cause of gratuitous contracts – the mere liberality of c) in cases specified by law
for each contracting party, the prestation or promise of a thing or the donor or benefactor.
service by the other; in remuneratory ones, the service or 4. Accessory – identical with cause of principal contract, e.g. contracts entered by guardian when ward suffers lesion of
benefit which is remunerated; and in contracts of pure the loan which it derived its life and existence e.g. more than 25% and with court approval, otherwise, if there is no
beneficence, the mere liberality of the benefactor. (1274) mortgage or pledge. approval, the contract is regardless of the amount of lesion.
Article 1351. The particular motives of the parties in entering void.
into a contract are different from the cause thereof. (n) BASIS CAUSE MOTIVE
Article 1352. Contracts without cause, or with unlawful cause, As to Direct and most Indirect or remote
produce no effect whatever. The cause is unlawful if it is contrary proximate proximate reason reasons.
of a contract.

8

CHAPTER 3 Form of Contracts
Article 1356. Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present. However, when the law requires
that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the
right of the parties stated in the following article cannot be
exercised. (1278a)
Article 1357. If the law requires a document or other special
form, as in the acts and contracts enumerated in the following
article, the contracting parties may compel each other to
observe that form, once the contract has been perfected. This
right may be exercised simultaneously with the action upon the
contract. (1279a)
Article 1358. The following must appear in a public document:
1. Acts and contracts which have for their object the
creation, transmission, modification or extinguishment
of real rights over immovable property; sales of real
property or of an interest therein are governed by
articles 1403, No. 2, and 1405;
2. The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
3. The power to administer property, or any other power
which has for its object an act appearing or which
should appear in a public document, or should
prejudice a third person;
4. The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But
sales of goods, chattels or things in action are governed by
articles, 1403, No. 2 and 1405. (1280a)
FORMALITY
Rules on the form of contracts
General Rule: Form is not required in consensual contracts.
(Provided, all the essential requisites for their validity are
present.)
Exceptions: When the law requires a contract be in writing for
its:
1. Validity (formal contracts);
2. Enforceability (under Statute of Frauds); or
3. For the convenience of the parties
NOTE: The parties may compel each other to reduce the verbal
agreement into writing
The parties may required to observe the form required for their
convenience
The contracting parties may compel each other to observe the
required form once the contract has been perfected and is
enforceable under the statute of frauds.
This one of the rights of the creditor.
The right to demand the execute of the document required
under Art.1358 is not imprescriptible. It is subject to
prescription. It must be pursued within the period prescribed by
law which is five (5) years.
NOTE: the right must be exercised once the contract has been
perfected, otherwise, the exercise will be considered as
premature.
Formalities required in specific contracts
1. Donations
a. Personal property – if value exceeds 5,000, the
donation and acceptance must both be written (NCC,
Art. 748).
b. Real property:
i. Donation must be in a public instrument,
specifying therein the property donated and
value of charges which donee must satisfy.
ii. Acceptance must be written, either in the same
deed of donation or in a separate instrument.
iii. If acceptance is in a separate instrument, the
donor shall be notified thereof in authentic
form, and this step shall be noted in both
instruments (NCC, Art. 749).
2. Partnership where real property contributed
a. There must be a public instrument regarding the
partnership;
b. The inventory of the realty must be made, signed by
the parties and attached to the public instrument
(NCC, Art. 1773).
c. Antichresis - the amount of the principal and
interest must be in writing (NCC, Art. 2134).
3. Agency to sell real property or an interest therein -
authority of the agent must be in writing (NCC, Art. 1874).
4. Stipulation to charge interest - interest must be stipulated
in writing (NCC, Art. 1956).
5. Stipulation limiting common carrier's duty of extraordinary
diligence to ordinary diligence:
a. Must be in writing, signed by shipper or owner;
b. Supported by valuable consideration other than the
service rendered by the common carrier;
c. Reasonable, just and not contrary to public policy
(NCC, Art. 1744).
6. Chattel mortgage - personal property must be recorded in
the Chattel Mortgage Register. (NCC, Art. 2140).
Contracts which must be in writing to be valid
1. Donation of personal property whose value exceeds five
thousand pesos (NCC, Art. 748). – the donation and
acceptance must be in writing.
2. Sale of a piece of land or any interest therein through
an agent (NCC, Art. 1874). – the authority of the agent
shall appear in writing.
3. Agreements regarding payment of interest in contracts
of loan (NCC, Art. 1956).
4. Antichresis – the amount of the principal and the
interest shall be specified in writing (NCC, Art. 2134;
Jurado, 2011).
Contracts which must appear in a public document
1. Donation of real properties (NCC, Art. 719);
2. Partnership where immovable property or real rights
are contributed to the common fund (NCC, Arts. 1171 &
1773);
3. Acts and contracts which have for their object the
creation, transmission, modification or extinguishment
of real rights over immovable property; sale of real
property or of an interest therein is governed by Arts.
1403, No. 2, and 1405 [NCC, Art. 1358(1)];
9
 4. The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains
[NCC, Art. 1358(2)];
5. The power to administer property 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; [NCC, Art. 1358(3)];
6. The cession of actions or rights proceeding from an act
appearing in a public document [NCC, Art. 1358(4)].
NOTE: Article 1358 of the Civil Code which requires the
embodiment of certain contracts in a public instrument is only
for convenience, and registration of the instrument only
adversely, affects third parties. Formal requirements are,
therefore, for the benefit of third parties. Non- compliance
therewith does adversely affect the validity of the contract nor
the contractual rights and obligations of the parties (Fule vs. CA,
286 CRA 700)
Contracts that must be registered
1. Chattel mortgages (NCC, Art. 2140).
NOTE: In accordance with Article 2125 of the Civil
Code, an unregistered chattel mortgage is binding between
the parties because registration is necessary only for the
purpose of binding third persons (Filipinas Marble
Corporation v. Intermediate Appellate Court, G.R. No. L-
68010, May 30, 1986).
2. Sale or transfer of large cattle (Cattle Registration Act).
KINDS OF CONTRACTS
According to perfection or formation:
1. Consensual contracts which are perfected by the mere
meeting of the minds of the parties (NCC, Art. 1305). e.g.
Sale, Lease.
2. Real contracts are those which require for their perfection
both the consent of the parties and the delivery of the
object by one party to the other. e.g. creation of real rights
over immovable property must be written, deposit and
pledge.
3. Solemn contracts – contracts which must appear in writing,
such as:
a) Donations of real estate or of movables if the value
exceeds P5,000;
b) Partnership to which immovables are contributed;
c) Contract of antichresis – requires the amount of
principal and interest be specified;
d) Sale of piece of land or interest therein is through an
agent;
e) Stipulation to charge interest;
f) Stipulation limiting common carrier's duty of
extraordinary diligence to ordinary diligence;
g) Chattel mortgage; or
h) Transfer of large cattle (Sec. 22, Act No. 1147; NCC, Art.
1581).
According to the degree of dependence:
1. Principal – that which can exist independently of their
contracts; e. g. contract of loan.
2. Accessory – that which cannot exist without a valid principal
contract; e. g. guaranty, surety, pledge, mortgage.
3. Preparatory – that which is not an end by itself but only a
means for the execution of another contract. e. g. contract
of agency as agency does not stop with the agency because
the purpose is to enter into other contracts.
According to their relation to other contracts:
1. Preparatory Contracts – are those which have for their
object the establishment of a condition in law which is
necessary as a preliminary step towards the celebration
of another subsequent contract. e.g. Partnership,
Agency.
2. Principal Contracts – are those which can subsist
independently from other contracts. e.g. Sale, Lease.
3. Accessory Contracts – those which can exist only as a
consequence of, or in relation with, another prior
contract. e.g. Pledge, Mortgage.
According to their form:
1. Common or Informal Contracts – are those which require
no particular form. e.g. Loan.
2. Special or Formal Contracts – are those which require a
particular form. e.g. Donations, Chattel Mortgage.
3. According to their purpose:
a. Transfer of Ownership
- e.g. Sale.
b. Conveyance of Use
- e.g. Usufruct, Commodatum.
c. Rendition of Services
- e.g. Agency.
According to the nature of the vinculum which they produce:
1. Unilateral Contracts – are those which give rise to an
obligation only to one of the parties. e.g.
Commodatum.
2. Bilateral Contracts – are those which give rise to
reciprocal obligations for both parties. e.g. Sale.
According to their cause:
1. Onerous – contract of sale
2. Gratuitous - commodatum
3. Remuneratory
According to the risks involved:
1. Commutative Contracts – are those where each of the
parties acquire an equivalent of his prestation and such
equivalent is pecuniarily appreciable and already
determined from the moment of the perfection of the
contract. e.g. Lease.
2. Aleatory Contracts – are those which are dependent
upon the happening of an uncertain event, thus,
charging the parties with the risk of loss or gain. e.g.
Insurance.
According to their names or norms regulating them:
1. Nominate Contracts – are those which have their
own name and individuality, and are regulated by
provisions of law. e.g. Sale (2003 BAR).
2. Innominate Contracts – are those which lack name
or individuality, and are not regulated by special
provisions of law.
CHAPTER 4 Reformation of Instruments (n)
Article 1359. When, there having been a meeting of the minds of
the parties to a contract, their true intention is not expressed in
the instrument purporting to embody the agreement, by reason
of mistake, fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the instrument to the end
that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented
a meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.
10
Article 1360. The principles of the general law on the
reformation of instruments are hereby adopted insofar as they
are not in conflict with the provisions of this Code.
Article 1361. When a mutual mistake of the parties causes the
failure of the instrument to disclose their real agreement, said
instrument may be reformed.
Article 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the instrument
does not show their true intention, the former may ask for the
reformation of the instrument.
Article 1363. When one party was mistaken and the other knew
or believed that the instrument did not state their real
agreement, but concealed that fact from the former, the
instrument may be reformed.
Article 1364. When through the ignorance, lack of skill,
negligence or bad faith on the part of the person drafting the
instrument or of the clerk or typist, the instrument does not
express the true intention of the parties, the courts may order
that the instrument be reformed.
Article 1365. If two parties agree upon the mortgage or pledge
of real or personal property, but the instrument states that the
property is sold absolutely or with a right of repurchase,
reformation of the instrument is proper.
Article 1366. There shall be no reformation in the following
cases:
(1) Simple donations inter vivos wherein no condition is
imposed; (2) Wills; (3) When the real agreement is void.
Article 1367. When one of the parties has brought an action to
enforce the instrument, he cannot subsequently ask for its
reformation.
Article 1368. Reformation may be ordered at the instance of
either party or his successors in interest, if the mistake was
mutual; otherwise, upon petition of the injured party, or his heirs
and assigns.
Article 1369. The procedure for the reformation of instrument
shall be governed by rules of court to be promulgated by the
Supreme Court.
REFORMATION OF INSTRUMENTS
It is a remedy to conform to the real intention of the parties due
to mistake, fraud, inequitable conduct, accident (NCC, Art. 1359).
Reformation is a remedy in equity by means of which a written
instrument is made or construed so as to express or confirm the
real intention of the parties when some error or mistake is no meeting of the minds because the consent is vitiated (Jurado,
committed. 2010).
Rationale: It would be unjust and inequitable to allow the Operation and effect of reformation
enforcement of a written instrument which does not reflect or It relates back to, and takes effect from the time of its original
disclose the real meeting of the minds of the parties. execution, especially as between the parties (Tolentino, 2002).
Reformation of instruments may be availed of judicially or
Requisites in reformation of instruments extrajudicially.
1. Meeting of the minds to the contract;
2. True intention is not expressed in the instrument; Basis and nature of the remedy of reformation of instrument
3. By reason of: (MARFI) The remedy of reformation of an instrument is based on the
a. Mistake; principle of equity where, to express the true intention of the
b. Accident; contracting parties, an instrument already executed is allowed by
c. Relative simulation; law to be reformed. The right of reformation is necessarily an
d. Fraud; or invasion or limitation of the parol evidence rule, since, when a
e. Inequitable conduct writing is reformed, the result is that an oral agreement is by
4. Strong, clear and convincing proof of MARFI. court decree made legally effective. The remedy, being an
extraordinary one, must be subject to the limitations as may be
Distinction between Reformation and Annulment provided by law. A suit for reformation of an instrument must be
brought within the period prescribed by law, otherwise, it will be
Reformation Annulment barred by the mere lapse of time (Bentir v. Leanda, G.R. 128991,
There is meeting of the There is no meeting of the April 12, 2000).
minds between the parties as minds. Consent is vitiated.
to the object, cause of the Reformation of instruments; when allowed
contract 1. Mutual mistake. – When the mutual mistake of the
The instrument failed to The meeting of the mids was parties causes the failure of the instrument to disclose
express the true intention of prevented by reason of their agreement (NCC, Art. 1361);
the parties due to mistake, mistake, fraud, inequitable Requisites:
fraud, inequitable conduct or conduct or accident a. The mistake should be of fact;
accident. perpetrated by one party b. The same should be proved by clear and
against the other convincing evidence; and
The purpose of reformation is The purpose of annulment is c. the mistake should be common to both parties
to establish the true to render inefficacious the to the instrument
agreement of the parties and contract in question. 2. Mistake on one party and fraud on the other. – In such
not to create a new one a way that the instrument does not show their true
intention, the party mistaken or defrauded may ask for
NOTE: When there is no meeting of the minds, the proper the reformation of the instrument (NCC, Art. 1362);
remedy is annulment and not reformation (Pineda, 2000). 3. Mistake on one party and concealment on the other. –
The fundamental distinction between reformation of an When one party was mistaken and the other knew or
instrument and annulment of a contract is that the first believed that the instrument did not state their real
presupposes a perfectly valid contract in which there has been a agreement, but concealed that fact from the former
valid meeting of the minds of the contracting parties while the (NCC, Art. 1363);
second is based on a defective contract in which there has been 4. Ignorance, lack of skill, negligence or bad faith. – When
through the ignorance, lack of skill, negligence or bad
11
 faith on the part of the person drafting the instrument
or of the clerk or typist, the instrument does not
express the true intention of the parties (NCC, Art.
1364);
5. Right of repurchase. – If the parties agree upon the
mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or
with a right of repurchase (NCC, Art. 1365).
Reformation of instruments; when not allowed
1. Simple, unconditional donations inter vivos;
2. Wills;
3. When the agreement is void (NCC, Art. 1366);
4. When an action to enforce the instrument is filed
(estoppel);
5. If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties.
NOTE: The remedy here is annulment of contract.
6. When the contract is unenforceable because of failure
to comply with the statute of frauds.
Prescriptive period in reformation of instruments
10 years from the date of the execution of the instrument
NOTE: The prescriptive period within which to bring an action to
set aside or reform a simulated or fictitious written deed of
pacto de retro sale starts only when the alleged vendees made
known their intention by overt acts not to abide by the true
agreement, and not from the date of execution of contract
(Conde v. Cuenca, G.R. No. L- 643, 1956).
Persons who can ask for the reformation of the instrument
It may be ordered at the instance of:
1. Either party or his successors in interest (if the mistake
is mutual);
2. Upon petition of the injured party; or
3. His heirs and assigns.
NOTE: In reformation of contracts, what is reformed is not the
contract itself, but the instrument embodying the contract. It
follows that whether the contract is disadvantageous or not is
irrelevant to reformation and therefore, cannot be an element in
the determination of the period for prescription of the action to
reform (Pineda, 2000).
An action for reformation of an instrument may be brought
under Rule 63 (Declaratory Relief and Similar Remedies) of the
New Rules of Court.
Chapter 5
Interpretation of Contacts
Article 1370. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former. (1281)
Article 1371. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered. (1282)
Article 1372. However general the terms of a contract may be,
they shall not be understood to comprehend things that are
distinct and cases that are different from those upon which the
parties intended to agree. (1283)
Article 1373. If some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual. (1284)
Article 1374. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. (1285)
Article 1375. Words which may have different significations shall
be understood in that which is most in keeping with the nature
and object of the contract. (1286)
Article 1376. The usage or custom of the place shall be borne in
mind in the interpretation of the ambiguities of a contract, and
shall fill the omission of stipulations which are ordinarily
established. (1287)
Article 1377. The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity.
(1288)
Article 1378. When it is absolutely impossible to settle doubts by
the rules established in the preceding articles, and the doubts
refer to incidental circumstances of a gratuitous contract, the
least transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in
such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and
void. (1289)
Article 1379. The principles of interpretation stated in Rule 123
of the Rules of Court shall likewise be observed in the
construction of contracts. (n)
INTERPRETATION OF CONTRACTS
If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulations shall control.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former (NCC, Art. 1370).
In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered (NCC, Art. 1371).
However the general terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases
that are different from those upon which the parties intended to
agree (NCC, Art. 1372).
If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is
most adequate to render it effectual (NCC, Art. 1373).
Principle of effectiveness in contract interpretation
Pursuant to this principle, where two interpretations of the same
contract language are possible, one interpretation having the
effect of rendering the contract meaningless while the other
would give effect to the contract as a whole, the latter
interpretation must be adopted (PNB v. Utility Assurance &
Surety, Co., Inc., 177 SCRA 393, 1989).
The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may
result from all of them taken jointly (NCC, Art. 1374).
Complementary-contracts-construed-together doctrine
The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may
result from all of them taken jointly. (NCC, Art. 1374)
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. (Bank of P.I. vs.
Ty Canco Sabrino, 57 Phil. 804) Piecemeal interpretation must be
avoided.
Under this doctrine, an accessory contract must be read in its
entirety and together with the principal agreement. Thus, a
12
promissory note and a deed of chattel mortgage must be
contrued together (Rigor v. Consolidated Orix Leasing and
Finance Corp., 387 SCRA 270, 2002); and the surety contract,
being an accessory contract, must be interpreted with its
principal contract, for instance, a loan agreement.
Words which may have different significations shall be
understood in that which is most in keeping with the nature and
object of the contract (NCC, Art. 1375).
The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily established (NCC,
Art. 1376).
The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity (NCC, Art.
1377).
When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to
incidental circumstances of a gratuitous contract, the least
transmission of rights and interest shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
If the doubts are cast upon the principal object of the contract in
such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and void
(NCC, Art. 1378).
The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts
(NCC, Art. 1378).
KINDS OF DEFECTIVE CONTRACTS
1. RESCISSIBLE CONTRACTS – valid because all the essential
requisites of a contract exist but by reason of ECONOMIC
INJURY or DAMAGE to one of the parties of third person,
such as creditors, the contract may be rescinded.
2. VOIDABLE CONTRACTS – valid until annulled unless ratified.
Defect is vice of consent.
3. UNENFORCEABLE CONTRACTS – contract cannot be sued
upon or enforced unless they are ratified. It is between void
and voidable.
4. VOID or INEXISTENT CONTRACTS – absolutely null and void.
It has no effect and cannot be ratified.
CHAPTER 6 Rescissible Contracts
Article 1380. Contracts validly agreed upon may be rescinded in
the cases established by law.
Rescissible Contracts
They are those validly agreed upon because all the essential
elements exist, and therefore, legally effective, but in cases
established by law, the remedy of RESCISSION is granted in the
INTEREST OF EQUITY.
Valid and enforceable although subject to rescission by the court
when there is ECONOMIC DAMAGE or PREJUDICE to:
1. One of the Parties; or
2. Third Person
RESCISSION - IS A REMEDY GRANTED BY LAW TO THE
CONTRACTING PARTIES AND SOMETIMES TO THIRD PERSONS IN
ORDER TO SECURE REPARATION OF DAMAGES CAUSED THEM BY
A VALID CONTRACT BY MEANS OF RESTORATION OF THINGS TO
THEIR CONDITION IN WHICH THEY WERE PRIOR TO THE
CELEBRATION OF SAID CONTRACT.
REQUISITES OF RESCISSION:
1. THE CONTRACT MUST BE VALIDLY AGREEN UPON.
(Article 1380)
2. THERE MUST BE LESION or PECUNIARY PREJUDICE TO
ONE OF THE PARTIES OR TO A THIRD PERSON. (Article
1380)
3. THE RESCISSION MUST BE BASED UPON A CASE
ESPECIALLY PROVIDED BY LAW. (Articles 1380 to 1382)
4. THERE MUST BE NO OTHER LEGAL REMEDY TO OBTAIN
REPARATION FOR DAMAGES (Article 1383)
5. THE PARTY ASKING FOR RESCISSION MUST BE ABLE TO
RETURN WHAT HE IS OBLIGED TO RESTORE BY REASON
OF THE CONTRACT. (Article 1385 par 1)
6. THE OBJECT OF THE CONTRACT MUST NOT LEGALLY BE
IN THE POSSESSION OF A THIRD PERSON WHO DID NOT
ACT IN BAD FAITH. (Article 1385 par 2)
7. THE PERIOD FOR FILING WTHE ACTION FOR RESCISSION
MUST NOT PRESCRIBED. (Article 1389)
Article 1381. The following contracts are rescissible:
1. Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the object
thereof;
2. Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
3. Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
4. Those which refer to things under litigation if they have
been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
5. All other contracts specially declared by law to be subject
to rescission. (1291a)
RESCISSIBLE CONTRACTS
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%, a party can rescind the sale by
proper action in court upon reaching the age of
majority
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.
3. Those undertaken in fraud of creditors when the latter cannot
in any other manner collect the claims due them;
a. There must be an existing credit prior to the contract
to be rescinded, although it is not yet due or
demandable;
b. There must be fraud on the part of the debtor which
may be presumed or proved and;
c. The creditor cannot recover his credit in any other
manner, it not being required that the debtor be
insolvent.
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;
13
5. All other contracts specially declared by law to be subject to
rescission.
• The following are examples:
• Article 1098 – Partition may be rescinded on account
of lesion. o Article 1189 – Obligation may be
rescinded if the thing deteriorated.
• Article 1526 – Right of the unpaid seller to rescind
the sale.
Article 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also rescissible.
(1292)
REQUISITES OF PREMATURE PAYMENT UNDER ART. 1182
1. The debtor payor must have been insolvent when payment
was made.
2. The debt was not yet due and demandable.
3. That the insolvency need not be judicially declared.
Article 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. (1294)
SUBSIDIARY REMEDY: “The complainant needs to prove that he
has no other remedy except rescission.”
Article 1384. Rescission shall be only to the extent necessary to
cover the damages caused. (n)
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.
• G 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.
Article 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he
may be obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss. (1295)
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.
Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381
shall not take place with respect to contracts approved by the
courts. (1296a)
Article 1387. All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered
into in fraud of creditors, when the donor did not reserve
sufficient property to pay all debts contracted before the
donation.
Alienations by onerous title are also presumed fraudulent when
made by persons against whom some judgment has been
rendered in any instance or some writ of attachment has been
issued. The decision or attachment need not refer to the property
alienated, and need not have been obtained by the party seeking
the rescission.
In addition to these presumptions, the design to defraud creditors
may be proved in any other manner recognized by the law of
evidence. (1297a)
REQUISITES FOR RESCISSION ON CONTRACTS TO DEFRAUD
CREDITORS
1. There exists a credit.
2. There is alienation subsequent to such credit.
3. The party alienating must be in good faith.
4. The creditor cannot collect his credit in any other manner.
PRESUMPTIONS OF FRAUD IN RESCISSIBLE CONTRACTS
1. GRATUITOUS ALIENATION – When debtor did not reserve
sufficient property to pay all his debts contracted before
donation.
2. ONEROUS ALIENATION – when debtor still sold the property
in spite of the following:
a. Judgement against him was rendered
b. A writ of attachment has been issued to him.
Article 1388. Whoever acquires in bad faith the things alienated
in fraud of creditors, shall indemnify the latter for damages
suffered by them on account of the alienation, whenever, due to
any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be
liable first, and so on successively. (1298a)
LIABILITY OF PURCHASER IN BAD FAITH.
• The purchaser in bad faith, who acquired the object of the
contract alienated in fraud of creditors, must return the
same if the sale is rescinded.
• If it is impossible for him to return it due to ANY CAUSE, the
must indemnify the former.
• If there are 2 or more alienations, the first acquirer shall be
liable first and so on and so fort.
Article 1389. The action to claim rescission 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. (1299)
PERIOD FOR FILING ACTION FOR RESCISSION
As a general rule, the action to claim rescission must be
commenced within FOUR (4) YEARS from the date the contract
was entered into Except:
1. The person under GUARDIANSHIP – begin from
termination of incapacity.
2. For ABSENTEES – from the time domicile is known.
PERSONS ENTITLED TO BRING ACTION
1. The injured party or the defrauded creditors;
2. The heirs, assigns, or successors in interest; or
3. The creditors of the above entitled to subrogation.
14
 ANNULMENT vs RESCISSION 2. IN CASE OF FIMVU
CHAPTER 7 Voidable Contracts a. Party whose consent is vitiated
Article 1390. The following contracts are voidable or annullable, Article 1391. The action for annulment shall be brought within
even though there may have been no damage to the contracting four years. This period shall begin: Article 1393. Ratification may be effected expressly or tacitly. It is
parties: In cases of intimidation, violence or undue influence, from the understood that there is a tacit ratification if, with knowledge of
1. Those where one of the parties is incapable of giving time the defect of the consent ceases. the reason which renders the contract voidable and such reason
consent to a contract; In case of mistake or fraud, from the time of the discovery of the having ceased, the person who has a right to invoke it should
2. Those where the consent is vitiated by mistake, violence, same. execute an act which necessarily implies an intention to waive his
intimidation, undue influence or fraud. And when the action refers to contracts entered into by minors or right. (1311a)
These contracts are binding, unless they are annulled by a proper other incapacitated persons, from the time the guardianship
action in court. They are susceptible of ratification. (n) ceases. (1301a) KINDS OF RATIFICATION
1. EXPRESS – when the ratification is manifested in words
VOIDABLE CONTRACTS RATIFICATION Articles 1392 to 1396 or in writing.
• Contracts which possess all the essential requisites (can be 2. IMPLIED or TACT – it may take diverse forms such as by:
binding) of a valid contract but one of the parties is Article 1392. Ratification extinguishes the action to annul a a. SILENCE or ACQUIESCENCE;
INCAPABLE OF GIVING CONSENT or CONSENT IS VITIATED BY voidable contract. (1309a) b. Acts showing ADOPTION or APPROVAL; or
MISTAKE, VIOLENCE, INTIMIDATION, UNDUE INFLUENCE or c. ACCEPTANCE and RETENTION OF BENEFITS
FRAUD. RATIFICATION flowing therefrom.
• They are valid and binding unless ANNULLED by a proper • one voluntarily adopts or approves some defective or
action in court by the INJURED PARTY. unauthorized act or contract which, without his subsequent REQUISITES OF RATIFICATION
• ANNULMENT: approval or consent, would not be binding on him. 1. There must be knowledge of the reason which renders the
o Remedy provided by law for reason of public • Intention of the ratifier to be bound by the provisions of the contract as voidable;
interest for the declaration of the inefficacy of a contract. 2. Such reason must have ceased; and
contract based on a defect or vice of consent of • It cleanses contract of all its defects (ARTICLE 1396) 3. The injured party must have executed an act which
one of the contracting parties in order to restore necessarily implies an intention to waive his right.
them to their original position in which they were KINDS OF RATIFICATION
before the contracts was executed. 1. EXPRESS Article 1394. Ratification may be effected by the guardian of the
• Voidable Contracts can be RATIFIED. a. When ratification is manifested in words or in incapacitated person. (n)
• Once Ratified, the voidable contract will become valid. writing Article 1395. Ratification does not require the conformity of the
• Economic Damage is not essential. 2. IMPLIED contracting party who has no right to bring the action for
a. It may take diverse form annulment. (1312)
ANNULMENT RESCISSION b. Silence or acquiescence
BASIS OF ACTION: INCAPACITY BASIS OF ACTION: LESSION or c. Act showing adoption or approval of the CONFORMITY OF THE GUILTY PARTY IN RATIFICATION
TO CONSENT or VITIATED DAMAGE contract • RATIFICATION IS A UNILATERAL ACT BY WHICH A PARTY
CONSENT d. Acceptance and retention of benefits WAIVES THE DEFECT IN HIS CONSENT.
DEFECT IS INTRINSIC: Meeting MAY BE INTRINSIC or e. Applicable when the reason ceases • CONSENT OF THE GUILTY PARTY IS NOT REQUIRED.
of the Minds EXTRINSIC
IT IS A SANCTION IT IS A REMEDY RATIFICATION MAY BE EFFECTED BY THE GUARDIAN or THE Article 1396. Ratification cleanses the contract from all its defects
PUBLIC INTEREST GOVERNS PRIVATE INTEREST ONLY INCAPACITATED PERSON (ART 1394) from the moment it was constituted. (1313)
PRINCIPAL ACTION SUBSIDIARY A CTION 1. Who may ratify a contract entered into by incapacitated
person ANNULMENT Articles 1397 to 1402
PLAINTIFF MUST BE PLAINTIFF MAY BE PARTY or
a. The Guardian Article 1397. The action for the annulment of contracts may be
PRINCIPAL 3rd PERSON
b. The Incapacitated provided he is already instituted by all who are thereby obliged principally or
Capacitated subsidiarily. However, persons who are capable cannot allege the

15
incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these
flaws of the contract. (1302a)
PARTY ENTITLED TO BRING ACTION TO ANNUL
• The plaintiff with interest to the contract
• The victim and not the responsible person
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
Article 1398. An obligation having been annulled, the contracting
parties shall restore to each other the things which have been the
subject matter of the contract, with their fruits, and the price with
its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the
basis for damages. (1303a)
Article 1399. 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 he has been
benefited by the thing or price received by him. (1304)
RESTITUTION BY AN INCAPACITATED PERSON
• EXCEPTION TO THE RULE ON RESTITUTION ON ANNULMENT
• INCAPACITATED PERSON IS OBLIGED TO MAKE RESTITUTION
ONLY TO THE EXTENT THAT HE WAS BENEFITED TO THE
CONTRACT.
• IF HE WAS NOT BENEFITED, HE IS NOT OBLIGED TO RETURN
WHAT HE RECEIVED.
Article 1400. Whenever the person obliged by the decree of
annulment to return the thing can not do so because it has been
lost through his fault, he shall return the fruits received and the
value of the thing at the time of the loss, with interest from the
same date. (1307a)
EFFECTS OF LOSS OF THE THING TO BE RETURNED
(1) WITHOUT THE FAULT OF THE PERSON OBLIGED TO
MAKE RESTITUTION - NO RESTITUTION
(2) WITH THE FAULT OF THE PERSON OBLIGED TO MAKE A
RESTITUTION - Not Extinguished, but is converted into
an indemnity for damages consisting of the value of the
thing at the time of the lost with interest from the same
date and the fruits received from the time the thing was
given to him to time to the time of the loss.
Article 1401. The action for annulment of contracts shall be
extinguished when the thing which is the object thereof is lost
through the fraud or fault of the person who has a right to
institute the proceedings.
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, unless said loss took place through
the fraud or fault of the plaintiff. (1314a)
Article 1402. As long as one of the contracting parties does not
restore what in virtue of the decree of annulment he is bound to
return, the other cannot be compelled to comply with what is
incumbent upon him. (1308)
CHAPTER 8
UNENFORCEABLE CONTRACTS
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.
Article 1404. Unauthorized contracts are governed by article 1317
and the principles of agency in Title X of this Book.
Article 1405. Contracts infringing the Statute of Frauds, referred
to in No. 2 of article 1403, are ratified by the failure to object to
the presentation of oral evidence to prove the same, or by the
acceptance of benefit under them.
Article 1406. When a contract is enforceable under the Statute of
Frauds, and a public document is necessary for its registration in
the Registry of Deeds, the parties may avail themselves of the
right under Article 1357.
16

UNENFORCEABLE CONTRACTS
• CONTRACTS THAT CANNOT BE ENFORCED OR GIVEN EFFECT
IN COURT or LAW or SUED UPON BY REASON OF CERTAIN
DEFECTS PROVIDED UNDER BY LAW UNTIL and UNLESS THEY
ARE RATIFIED ACCORDING TO LAW.
• CONTRACTS THAT ARE VALID BUT CANNOT BE ENFORCED IN
COURT UNLESS THEY ARE CURED or RATIFIED.
• ONE RATIFIED, THEY CAN BE ENFORCED.
STATUTE OF FRAUD
• Most contracts need not be in writing to be enforceable.
• Exception is Statue of Fraud
• The SOF requires that CERTAIN contracts be in writing in
order to be enforceable.
• The requirement of SOF may be waived by acceptance of
benefits or by failure to object to the presentation of oral
evidence.
BASIC PRINCIPLES OF THE STATUTE OF FRAUD
1. The SOF applies only to EXECUTORY CONTRACTS and
not to Partially or Completely Executed Contracts.
2. The SOF cannot apply if the action is neither for
damages for breach of agreement nor for specific
performance of the same.
3. SOF is Personal Defense; Contract infringing it cannot
be assailed by 3rd person.
4. Contracts infringing the SOF are not void but merely
unenforceable.
Article 1407. In a contract where both parties are incapable of
giving consent, express or implied ratification by the parent, or
guardian, as the case may be, of one of the contracting parties
shall give the contract the same effect as if only one of them were
incapacitated.
If ratification is made by the parents or guardians, as the case may
be, of both contracting parties, the contract shall be validated
from the inception.
Article 1408. Unenforceable contracts cannot be assailed by third
persons.
Those where both parties are incapable of giving consent to a
contract.
• UNENFORCEABLE – when both parties are incapable of
giving consent.
• VOIDABLE – if one party (himself or guardian) ratifies.
• VALID – if both parties or guardian ratifies it.
Illustrations: from HECTOR DE LEON
1. S sells his parcel of land to B. The contract is oral. C
binds himself in writing for the performance by B of his
obligation to pay the purchase price. In an action by S
to recover the purchase price, C cannot assail the
contract between S and B for being unenforceable
under the SOF. C is a stranger.
2. Under a verbal contract, S sells a parcel of land to B.
In an action for ejectment by B against C, the person in
possession, the latter cannot set up the defense of the
SOF.
CHAPTER 9
Void and Inexistent Contracts
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 CONTRACTS
• CONTRACTS, WHICH BECAUSE OF CERTAIN DEFECTS
GENERALLY PRODUCED NO EFFECT AT ALL.
• INEXISTENT FROM THE VERY BEGINNING.
• “Void CONTRACT” – the term seems to be
contradictory.
INEXISTENT CONTRACTS
• Agreements which lack some or all the essential
elements or
• Do not comply with the formalities which are essential
for the existence of the contract.
CHARACTERISTIC OF A VOID OR INEXISTENT CONTRACTS
1. Generally, produces no force and effect whatsoever;
2. It cannot be ratified; (Art. 1409 par 2)
3. The right to set up the defense of illegality cannot be
waived.
4. The action or Defense for the declaration of its
inexistence does not prescribe. (Art. 1410)
5. The defense of illegality is not available to third
persons whose interest is not directly affected. (Article
1421); and
6. It cannot give rise to a valid contract, (Art. 1422)
Article 1410. The action or defense for the declaration of the
inexistence of a contract does not prescribe.
Article 1411. When the nullity proceeds from the illegality of the
cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable to
the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty;
but the innocent one may claim what he has given, and shall not
be bound to comply with his promise. (1305)
RULES WHERE CONTRACT IS ILLEGAL and THE ACT CONSTITUTE
CRIMINAL OFFENSE
1. WHEN BOTH PARTIES ARE IN PARI DELICTO:
a. The parties shall have no action against each
other;
b. Both party shall be prosecuted; and
c. The things or the price of the contract as the
instruments or effects of the crime shall be
confiscated in favor of the government.
2. WHEN ONLY ONE PARTY IS AT FAULT:
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 a. The one who should suffer should be the guilty
or more guilty party.
b. Sanctioned is based on the previous
paragraph.
c. The innocent or less guilty party will not be
required to comply with his obligation.
Article 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following rules
shall be observed:
1. When the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the
contract, or demand the performance of the other's
undertaking;
2. When only one of the contracting parties is at fault, he
cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
demand the return of what he has given without any
obligation to comply his promise. (1306)
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT DOES NOT
CONSTITUTE CRIMINAL OFFENSE
1. WHEN BOTH PARTIES ARE IN PARI DELICTO
a. Neither party may recover what he has given
by virtue of the contract; and
b. Neither party may demand the performance of
the other’s undertaking.
2. WHEN ONLY ONE PARTY IS AT FAULT:
a. The guilty party loses what he has given by
reason of the contract;
b. The guilty party cannot ask for the fulfillment
of the other’s undertaking;
c. The innocent party may demand the return of
what he has given; and
d. The innocent party cannot be compelled to
comply with his promise.
Article 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.
Article 1414. When money is paid or property delivered for an
illegal purpose, the contract may be repudiated by one of the
parties before the purpose has been accomplished, or before any
damage has been caused to a third person. In such case, the
courts may, if the public interest will thus be subserved, allow the
party repudiating the contract to recover the money or property.
APPLICABILITY OF THE ARTICLE
1. The Contract is for an illegal purpose.
2. The Contract is repudiated before the purpose has been
accomplished or before any damage has been caused to a
third person; and
3. The court considers that public interest will be SUBSERVED
by allowing recovery.
Illustration:
“For P 1,000.00 paid by A to B, B promised to hide C who is a
murder suspect. Before B could hide C, A changed his mind. In the
court, the court allow A to recover the P 1,000.00 he paid to B to
hide C.”
Article 1415. Where one of the parties to an illegal contract is
incapable of giving consent, the courts may, if the interest of
justice so demands allow recovery of money or property delivered
by the incapacitated person.
Article 1416. When the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is designed for
the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.
RECOVERY WHEN CONTRACT NOT ILLEGAL PER SE
Exception to PARI DELICTO RULE. Recovery is permitted despite of
the fact that both parties are at fault:
1. The agreement is not illegal per se but prohibited;
2. The prohibition is for the protection of the Plaintiff; and
3. Public Policy will be enhanced by allowing the plaintiff
to recover what he has paid or delivered.
Example: “Prohibition on the sale of land to aliens.”
Article 1417. When the price of any article or commodity is
determined by statute, or by authority of law, any person paying
any amount in excess of the maximum price allowed may recover
such excess.
Article 1418. When the law fixes, or authorizes the fixing of the
maximum number of hours of labor, and a contract is entered into
whereby a laborer undertakes to work longer than the maximum
thus fixed, he may demand additional compensation for service
rendered beyond the time limit.
Article 1419. When the law sets, or authorizes the setting of a
minimum wage for laborers, and a contract is agreed upon by
which a laborer accepts a lower wage, he shall be entitled to
recover the deficiency.
Article 1420. In case of a divisible contract, if the illegal terms can
be separated from the legal ones, the latter may be enforced.
Illustration:
• “S sold to B his CAR and SHABU for P 100,000.00.
o Whole contract void as the legal and illegal
objects cannot be separated”
• “S sold to B his CAR for P 100,000.00 and an Endangered
Specie for P 50,000.00.
o Only the sale of endangered specie is void.
Article 1421. The defense of illegality of contract is not available
to third persons whose interests are not directly affected.
THIRD PERSON
• 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.
Article 1422. A contract which is the direct result of a previous
illegal contract, is also void and inexistent.
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