INTRODUCTION TO CHAPTERS 6, 7, 8, AND 9
null and void, having no legal effect and essential elements exist. However, they can be
Overview: The introduction provides a
classification of defective contracts into four
categories based on their degree of defectiveness
or efficacy. It aims to clarify terminology and bring
clarity to the law regarding contractual relations.
1. Rescissible Contracts (Chapter 6)
• Definition: Contracts in this category are
valid, but they can be rescinded due to
injury or damage suffered by one of the
parties or third parties, such as creditors.
• Nature of Defect: The defect is external.
• Validity: Rescissible contracts remain valid
and binding until rescinded through a legal
proceeding.
2. Voidable Contracts (Chapter 7)
• Definition: These contracts are initially
valid but can be annulled due to defects in
consent.
• Nature of Defect: The defect is caused by a
vice of consent.
• Validity: Voidable contracts are valid until
annulled, unless ratified.
3. Unenforceable Contracts (Chapter 8)
• Definition: Contracts in this category
cannot be enforced unless ratified.
• Degree of Defectiveness: They are less
defective than voidable contracts but more
defective than enforceable contracts.
• Validity: Unenforceable contracts occupy
an intermediate position between voidable
and void contracts.
4. Void or Inexistent Contracts (Chapter 9)
• Definition: These contracts are absolutely
cannot be ratified.
• Nature of Defect: They are inherently
defective and lack legal validity.
• Validity: Void contracts have no legal effect
and cannot be ratified.
Rationale for Clarity and Classification
• The Code Commission recognized the
confusion in the old Civil Code regarding
defective contracts.
• The present Civil Code seeks to provide
clear and unequivocal classification and
definition of defective contracts to
eliminate uncertainty.
• Parties and legal professionals are entitled
to know the effectiveness of their
contractual relations with certainty.
Conclusion
The introduction sets the stage for understanding
the subsequent chapters by defining and classifying
defective contracts based on their degree of
defectiveness or efficacy. It aims to provide clarity
and certainty in contractual relations.
Chapter 6
RESCISSIBLE CONTRACTS
ART. 1380. CONTRACTS VALIDLY AGREED UPON
MAY BE RESCINDED IN THE CASES ESTABLISHED BY
LAW. (1290)
Article 1380 of the Civil Code of the Philippines
addresses the concept of rescission in contracts.
Rescissible contracts are those that are validly
agreed upon and legally effective because all
rescinded in certain cases established by law,
typically for reasons of equity or fairness.
Rescissible contracts remain binding and
enforceable until the court intervenes to rescind
them due to damage or prejudice suffered by one
of the parties or a third person. The existence of a
rescissible contract implies no defect in the
contract itself but rather external circumstances
that render its enforcement unjust.
Rescission, as a remedy, aims to restore parties to
their pre-contractual position and provide
reparation for damages caused by the valid
contract. It's essential to differentiate rescission
from other forms of contract termination, such as
rescission under Article 119 for breach of obligation
or by mutual consent, which are governed by
different legal provisions.
For rescission to be granted under Chapter 6 of the
Civil Code, several requisites must be met:
1. The contract must be validly agreed upon.
2. There must be pecuniary prejudice or
damage to a party or third person.
3. The rescission must be based on a case
provided by law.
4. No other legal remedy is available for
reparation.
5. The party seeking rescission must be able
to return what they are obliged to restore
under the contract.
6. The object of the contract must not be in
the possession of third parties acting in
good faith.
 7. The action for rescission must be filed
within the prescribed period.
It's noteworthy that contracts explicitly providing
for rescission due to the failure of one party to fulfill
obligations are not governed by Articles 1380 and
onwards but rather by Articles 1191 and 1603 of
the Civil Code.
ART. 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
ONEFOURTH 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;
2. Contracts Undertaken
(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)
Article 1381 of the Civil Code of the Philippines
outlines the conditions under which contracts can
be rescinded. Let's break down each provision:
3. Contracts Referring to Things Under
1. Contracts Entered into by Guardians or
Representatives of Absentees (Art.
1381(1) and (2)):
• Guardians representing wards or
representatives of absentees may
rescind contracts if the ward or
absentee suffers a lesion (loss) of
more than one-fourth of the value
of the object of the contract.
Lesion refers to a significant loss or
disadvantage suffered by one party
in a contract.
• The powers of a guardian
regarding a ward's property are
typically limited to acts of
administration, with certain
transactions needing court
approval.
• Example: If a guardian sells the
ward's property for less than its
value by one-fourth, the ward can
rescind the sale upon reaching the
age of majority.
in Fraud of
Creditors (Art. 1381(3)):
• Rescission can occur if a contract is
made with the intent to defraud
creditors, and creditors cannot
collect their claims in any other
way.
• Requirements for fraud of
creditors include an existing credit,
conveyance of a benefit to a third
party, fraud on the debtor's part,
and the lack of other legal
remedies for the creditor.
Litigation (Art. 1381(4)):
• Rescission is possible if a contract
concerns property under litigation
and is entered into by a defendant
without the knowledge or
approval of the litigants or
competent judicial authority.
• Example: If a defendant sells
property under litigation to a third
party without informing the
plaintiff or court, the sale can be
rescinded if the plaintiff wins the
case.
4. Other Contracts Subject to Rescission (Art.
1381(5)):
• Includes partitions, contracts of
sale with gross inadequacy of
price, lease agreements, breach of
warranty, and violation of the right
of first refusal.
• The right of first refusal must offer
identical terms to the lessee and
other prospective buyers, and a
sale violating this right can be
rescinded.
In summary, Article 1381 provides various grounds
for rescinding contracts in the Philippines, including
when there's significant loss to wards or absentees,
fraud against creditors, involvement of property
under litigation, or violation of certain contractual
rights. Rescission aims to restore parties to their
original positions before entering into the contract.
RESCISSION FOR BREACH OF CONTRACT VS.
RESCISSION BY REASON OF LESION
In Philippine law, it's crucial to differentiate
between rescission for breach of contract as
outlined in Article 1991 and rescission by reason of
lesion or economic prejudice as per Article 1381 et
seq. These actions have distinct causes and
outcomes.
 1. Rescission for breach of contract is initiated
when one party fails to fulfill their
obligations, breaching the agreement. This
action is not based on economic harm but
on the breach of faith, disrupting the
reciprocity between the parties. It is a
primary action, driven by retaliation
against the unjust party who violated their
commitments. Therefore, the focus is on
rectifying the breach rather than
compensating for damages.
2. Conversely, rescission by reason of lesion
or economic prejudice hinges on the
existence of economic harm suffered by
one party. The right to rescind is directly
tied to the extent of this prejudice. If the
party causing the harm compensates for
the damages, the rescission action may not
proceed further. However, this provision
applies specifically to rescission for lesion
enumerated in Article 1381 and does not
extend to cases under Article 1191.
Comparison with the Old Civil Code:
Under the old Civil Code, the terms "resolve" and
"resolution" were used instead of "rescind" and
"rescission." Resolution referred to the primary
action taken by a party due to non-performance by
the other party, even in unilateral obligations (now
under Article 1191). Rescission, on the other hand,
was a subsidiary action that could be demanded by
a party or a third person prejudiced by a contract,
based on specific legal grounds (now under Articles
1380, 1381, 1382, 1383).
Current Legal Framework:
The present Civil Code uses the term "rescission"
for what was previously termed "resolution" under
Article 1191. Both concepts presuppose valid and
subsisting contracts and entail mutual restitution
when appropriate.
Conclusion:
Rescission under Article 1191 constitutes a primary
action triggered by a breach of contract, while
rescission under Article 1383 is a subsidiary action.
The former centers on breach and reciprocity
between parties, while the latter focuses on
economic prejudice. However, it's important to
note that the provisions on rescissible contracts
aim to regulate all such contracts comprehensively,
as indicated by the Code Commission's
memorandum.
ART. 1382. PAYMENTS MADE IN A STATE OF
INSOLVENCY FOR OBLIGATIONS TO WHOSE FULFI
LLMENT THE DEBTOR COULD NOT BE COMPELLED
AT THE TIME THEY WERE EFFECTED, ARE ALSO
RESCISSIBLE. (1292)
Article 1382 of the Civil Code discusses the
rescission of payments made by a debtor in a state
of insolvency for obligations to which the debtor
could not be compelled at the time of payment.
Here's a detailed breakdown:
1. Nature of Payments: The article pertains
specifically to payments made by a debtor,
not necessarily within the context of a
formal contract. Insolvency refers to a
situation where the debtor lacks sufficient
assets to fulfill their obligations. It's
important to note that the debtor's
insolvency doesn't require a formal judicial
declaration.
2. Conditions for Rescission: Payments made
by an insolvent debtor for obligations that
couldn't be legally enforced at the time
they were made are subject to rescission.
This includes obligations that were not yet
due and demandable, such as those with
suspensive periods or conditions, as well as
obligations that cannot legally be
demanded, such as natural obligations or
those that have already prescribed.
3. Legal Context: Section 70 of the Insolvency
Law (Act No. 1956, as amended)
complements Article 1382. It addresses
transactions made by an insolvent debtor
within 30 days before the filing of an
insolvency petition, aiming to give
preference to specific creditors or
claimants. Such transactions are
considered fraudulent and void under
Section 70, without the possibility of being
rescinded. However, this provision does
not apply to transactions conducted in
good faith and for valuable consideration.
4. Case Law Reference: The explanation
includes references to legal precedents,
such as the Union Bank of the Philippines
vs. Ong case, to illustrate the application
and interpretation of the law in practice.
Overall, Article 1382 provides a mechanism for
rescinding payments made by insolvent debtors for
obligations that couldn't be legally enforced at the
time of payment, aiming to protect creditors and
maintain fairness in financial transactions.
ART. 1383. THE ACTION FOR RESCISSION IS
SUBSIDIARY; IT CANNOT BE INSTITUTED EXCEPT
WHEN THE PARTY SUFFERING DAMAGE HAS NO
OTHER LEGAL MEANS TO OBTAIN REPARATION
FOR THE SAME. (1294)
1. Nature of Action for Rescission:
• Article 1383 establishes the nature
of the action for rescission as
subsidiary. It clarifies that this
 action can only be pursued when
there are no other legal means
available for obtaining reparation
for the damage suffered due to a
contract.
• Rescission, as defined in this
article, differs from rescission of
reciprocal obligations under Article
1191. While both require contracts
that are validly entered into and
existing, they serve distinct
purposes and have specific
conditions for application.
2. Subsidiary Nature of Rescission:
• Rescission under Article 1383 is
not the primary remedy but a
subsidiary one. It can only be
sought if the injured party
demonstrates the absence of
alternative legal avenues for
seeking satisfaction or redress for
the damage incurred.
• Even if a contract falls under the
scope of Article 1381 (pertaining to
rescissible contracts), the action
for rescission cannot be pursued if
alternative remedies, such as
foreclosure in the case of a
mortgage contract, are available
and specified in the contract.
3. Exceptions to Rescission:
• Rescission cannot occur if the
damage incurred has been
repaired, such as in cases involving
lesion suffered by a ward or
absentee. This highlights the
limitation of the rescission remedy
in specific circumstances.
• Rescission under Article 1191
applies to reciprocal obligations
and is considered a principal action
triggered by a party's breach of
obligation.
4. Procedures for Rescission:
• Before initiating an action for
rescission, the creditor must
exhaust certain measures,
including levying attachment and
execution on the debtor's
properties, exercising the debtor's
rights and actions (accion
subrogatoria), and seeking
rescission of contracts executed
fraudulently by the debtor (accion
pauliana).
5. Direct Action in Court:
• A rescissible contract can only be
challenged directly through a
proper action in court, rather than
indirectly or collaterally through
defense in another proceeding.
This emphasizes the need for an
independent action to establish
the rescissibility of a contract.
Conclusion: Article 1383 of the Civil Code provides
crucial guidelines regarding the nature, scope, and
procedures for seeking rescission of contracts. It
underscores the subsidiary nature of rescission, the
importance of exhausting alternative remedies,
and the requirement for a direct action in court to
challenge rescissible contracts.
ART. 1384. RESCISSION SHALL BE ONLY TO THE
EXTENT NECESSARY TO COVER THE DAMAGES
CAUSED. (N)
1. Extent of Rescission:
• Article 1384 outlines the principle
that rescission should only be
applied to the extent necessary to
cover the damages caused by the
contract. It emphasizes that the
goal of rescission is not to entirely
nullify the contract but to address
the harm inflicted by it.
2. Partial Rescission and Damage Coverage:
• The law allows for partial
rescission if it is sufficient to repair
or cover the damages caused. This
means that only the portion of the
contract necessary to satisfy the
creditor's unsatisfied credit should
be rescinded.
• The overarching policy is to
preserve the contract to the extent
possible, rather than completely
extinguishing it.
Examples:
1. Guardian's Sale of Property:
• In the scenario where a guardian
(G) authorized to sell two parcels
of land valued at P200,000.00
each, sells them both to a buyer (B)
for only P200,000.00 total,
rescission need not invalidate the
entire contract. Rescission may be
applied only to one parcel to cover
the damage caused by the
guardian's actions. However, if
 either party (G or B) is willing to
pay the difference, rescission can
be avoided.
2. Fraudulent Sale to Defraud a Creditor:
• If a person (S) sells their only
property to a buyer (B) to defraud
a creditor (C), and the value of a
portion of the land is sufficient to
cover the damage to the creditor,
rescission should only be applied
to that extent. The remaining
portion of the sale, even if done in
bad faith by the buyer, would
remain valid.
3. Beneficiaries of Rescission:
• Article 1384 clarifies that only the
creditor who initiated the action
for rescission can benefit from its
effects. Those who are not parties
to the action cannot benefit from
the rescission.
Conclusion: Article 1384 of the Civil Code provides
guidance on the extent and application of
rescission, emphasizing partial rescission to cover
damages and the preservation of contracts where
possible. The examples provided illustrate how
rescission should be tailored to address specific
instances of harm caused by contracts.
ART. 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)
Article 1385 of the Civil Code - Rescission and
Mutual Restitution:
Article 1385 outlines the effects and obligations
arising from the rescission of a contract. It states
that rescission creates the obligation to return the
objects of the contract, along with their fruits, and
the price with its interest. This establishes the
principle of mutual restitution between the parties
involved in the rescinded contract.
Indemnity for Damages:
In cases where it's impossible to return the object
of the contract, indemnity for damages serves as a
form of restitution. The aim is to ensure that the
injured party is restored to their original position as
much as possible. The law seeks to rectify the harm
caused by the contract's rescission through
appropriate compensation.
Abrogation of Contract:
Rescission results in the complete abrogation of the
contract. The party seeking rescission cannot
demand performance for part of the contract while
seeking rescission for the remainder, except as
provided in Article 1384. This ensures clarity and
finality in the resolution of contractual disputes.
Obligation of Third Person to Restore:
The obligation to restore also extends to third
persons involved in the contract. However, if the
third person has nothing to restore, this obligation
does not apply. The law does not require the
impossible, and restitution is contingent upon the
ability of the parties to fulfill their obligations.
Illustrative Case - MT, Inc. v. ERD:
The case of MT, Inc. v. ERD illustrates the
application of Article 1385 in a dispute involving the
sale of property. Despite the sale being rescinded,
ERD, the buyer, was not entitled to back rentals, as
it never took actual control and possession of the
property. The court's decision reflects the
principles of mutual restitution and the limitations
of restitution in cases where possession and
control are not transferred.
Dissenting Opinions:
Dissenting opinions by Justices Vitug and Sandoval-
Gutierrez present alternative interpretations of the
case law and legal principles involved. They argue
for ERD's entitlement to back rentals based on the
transfer of ownership and the actions of MT, Inc.
during the dispute. These dissenting opinions offer
valuable insights into differing perspectives on the
interpretation and application of Article 1385.
Conclusion:
Article 1385 of the Civil Code provides a framework
for the effects of rescission and the obligations of
the parties involved. It emphasizes mutual
restitution, indemnity for damages, and the
abrogation of the contract. The illustrative case and
dissenting opinions offer valuable context and
interpretation of these principles in real-world legal
scenarios, highlighting the complexities and
nuances involved in contractual disputes and
rescission proceedings.
UNDER ARTICLE 1385 OF THE CIVIL CODE,
RESCISSION MAY NOT BE ALLOWED IN CERTAIN
CIRCUMSTANCES:
1. Inability to Achieve Mutual Restitution:
Rescission necessitates mutual restitution,
meaning both parties must be able to
return to their original positions.
 Therefore, if the party seeking rescission
cannot fulfill their obligation to restore
what they received under the contract,
rescission cannot be granted.
2. Property in Possession of a Third Person
Acting in Good Faith: Rescission is not
permitted if the property subject to the
contract is legally in the possession of a
third party who acted in good faith. Good
faith here refers to the third party's
unawareness of any defect in their title or
mode of acquisition. In such cases, the
remedy would be to seek indemnity for
damages from the party responsible for
the loss. However, if the alienation of the
property was gratuitous (without
consideration) and not by onerous title
(with consideration), the transferee cannot
claim good faith. Allowing a gratuitous
transferee to claim good faith would
unjustly enrich them at the expense of the
creditor.
These provisions aim to ensure fairness and
prevent unjust enrichment in cases where
rescission is sought but cannot be effectively
carried out due to practical or legal constraints.
They uphold the principle of equity and protect the
rights of all parties involved in the contract.
RESCISSION AND MUTUAL DISSENT ARE TWO
DISTINCT CONCEPTS IN CONTRACT LAW:
1. Rescission: Rescission is a legal remedy
provided by Article 1385 for contracts that
are rescissible due to specific causes
outlined in Articles 1381 and 1382 of the
Civil Code. Rescission aims to protect one
of the contracting parties or third persons
from any harm or damage caused by the
contract. It is a remedy granted by law to
restore parties to their original positions as
much as possible. Rescission is applicable
when a contract is valid but is deemed
rescissible due to certain circumstances.
2. Mutual Dissent: Mutual dissent occurs
when the parties to a contract agree to
cancel the contract and mutually return
the object and cause thereof. Unlike
rescission, which is based on legal grounds
and specific causes, mutual dissent arises
from the voluntary agreement of the
parties. When a contract is dissolved by
mutual consent, the parties are required to
surrender whatever they have received
from each other to restore them, as far as
practicable, to their original situation.
An illustrative case highlights the difference
between rescission and mutual dissent:
Case Example: Facts: B purchased lands from S and
took possession of them, collecting their products.
Later, B and S mutually agreed to "rescind" the sale
contract. B returned the lands to S, who agreed to
refund a portion of the price paid by B. Issue:
Whether B is obligated to return the products of
the land collected during their possession. Held: In
this case, the "rescission" occurred by mutual
consent and for the mutual convenience of the
parties. It did not originate from any of the causes
specified in Articles 1381 and 1382 for rescission.
Therefore, Article 1385, which deals with
rescissible contracts, does not apply. The effects of
such mutual dissent should be determined by the
agreement of the parties or other legal provisions,
not by Article 1385.
Additionally, B, being a possessor in good faith, is
entitled to the fruits received before the contract
was dissolved. As a result, B is not obliged to return
them in the absence of any specific agreement or
covenant to do so.
In summary, while both rescission and mutual
dissent involve the cancellation of a contract, they
differ in their legal basis and effects. Rescission is a
remedy provided by law for rescissible contracts,
whereas mutual dissent arises from the voluntary
agreement of the parties.
ART. 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 1386 of the Civil Code specifies that
rescission, as outlined in Nos. 1 and 2 of Article
1381, shall not apply to contracts approved by the
courts. This means that if a contract has been
sanctioned or ratified by a court, rescission cannot
take place regarding that contract.
Contracts approved by the courts typically include
those entered into on behalf of a ward or absentee,
which have been subject to court approval. In such
cases, even if there is a lesion (a disadvantageous
or unfair condition) present in the contract,
rescission cannot occur because the contract is
deemed valid by virtue of court approval.
The rationale behind this provision is that when a
court approves a contract made on behalf of a ward
or absentee, it is presumed to have acted in the
best interests of the ward or absentee. This
presumption holds true even if there is a lesion in
the contract. This principle is reflected in Section 1,
Rule 95 of the Rules of Court, which underscores
the court's role in safeguarding the interests of
wards or absentees when approving contracts.
ART. 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 SUFFI CIENT
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)
Article 1387 of the Civil Code pertains to contracts
where a debtor transfers property under either
gratuitous (without payment) or onerous (with
payment) terms, and such transfers are presumed
to be fraudulent if certain conditions are met.
Here's a breakdown and explanation for a lawyer:
1. Presumption of Fraud: The article begins
by stating that contracts where a debtor
transfers property gratuitously are
presumed fraudulent if the donor did not
reserve enough property to pay off existing
debts. Similarly, alienations by onerous
title are presumed fraudulent if the debtor
has a judgment against them or if there's a
writ of attachment issued, even if it doesn't
specifically relate to the property in
question.
2. Proving Fraud: While fraud is generally not
presumed, Article 1387 provides specific
instances where it is presumed. However,
these instances are not exclusive, and
fraud can be proven through other means
recognized by the law of evidence. Fraud
must be proved by clear and
preponderance of evidence.
3. Non-Exclusive Instances: The instances
mentioned in Article 1387 are not the only
ones where fraud can be presumed. Other
evidence can also be used to establish
fraudulent intent, and these presumptions
are disputable and can be rebutted with
contrary evidence.
4. Conditions for Application: The
presumption of fraud applies only when
there has been an actual transfer of
property. If a sale or transfer has occurred,
the burden of proof shifts to the one who
transferred the property to prove that the
transfer was not fraudulent.
5. Right to Rescission: Only actual creditors
can request the rescission of a conveyance
made by their debtors in favor of others. If
a creditor has waived or released their
claim against the debtor, they lose the legal
basis for seeking rescission.
6. Indispensable Party: In actions for
rescission under Article 1387, the vendor
(the one who transferred the property) is
an indispensable party in court
proceedings. Any decision on the action
would affect the vendor, and they have the
right to be heard and defend the validity of
the transfer.
7. Examples and Illustrative Cases: The text
provides examples and illustrative cases to
clarify the application of Article 1387 in
different scenarios, such as transfers of
property by gratuitous or onerous title, and
the requirements for rescission actions.
Overall, Article 1387 establishes important legal
principles regarding the presumption of fraud in
certain types of contracts involving property
transfers by debtors, and it outlines the conditions
and procedures for seeking rescission in such cases.
THIS PASSAGE OUTLINES THE TEST FOR
DETERMINING WHETHER A CONVEYANCE
(TRANSFER OF PROPERTY OR RIGHTS) IS
FRAUDULENT.
Here's a breakdown and explanation for a lawyer:
1. Bona Fide Transaction vs. Trick to Defeat
Creditors: The key question in assessing
the validity of a conveyance is whether it
was a genuine transaction or a scheme to
defraud creditors. The court evaluates
whether the conveyance was made in good
faith or as a deceptive maneuver to avoid
obligations to creditors.
2. Requirement of Both Good Consideration
and Bona Fide Intent: Merely having a
valid consideration or genuine intent is not
sufficient. A conveyance must possess both
elements: it must be based on good
consideration (such as payment or
exchange) and executed with genuine
intent. If either of these elements is
lacking, even if the conveyance is valid
between the parties involved, it may still be
rescinded as to creditors.
3. Prejudice to Creditors: The fundamental
criterion for assessing the validity of a
conveyance is whether it harms the rights
of creditors. If a conveyance prejudices the
rights of creditors, it may be considered
fraudulent and subject to rescission.
 4. Legal Precedents: The passage references
legal precedents, such as the case of Oria
vs. McMicking and China Banking
Corporation vs. Court of Appeals, to
illustrate the application of this test in
judicial decisions.
Overall, the test for determining the validity of a
conveyance focuses on whether it was a genuine
transaction or a fraudulent scheme, with a crucial
consideration being whether it prejudices the
rights of creditors. This test underscores the
principle that justice will invalidate conveyances
that are fraudulent or unfairly disadvantage
creditors.
THIS PASSAGE DISCUSSES THE EVIDENCE
REQUIRED TO OVERCOME THE PRESUMPTION OF
FRAUD ESTABLISHED IN PARAGRAPH 2 OF ARTICLE
1387.
Here's a breakdown and explanation for a lawyer:
1. Public Instruments Do Not Automatically
Invalidate: Merely because a deed of sale
is a public document does not
automatically invalidate it. However, when
a third party, not involved in the contract
but harmed by it, brings an action to
challenge the contract, the presumption of
validity conferred by the public nature of
the document may not apply. In such cases,
strong and convincing evidence is required
to overcome the presumption of fraud.
2. Burden of Proof on the Transferee: To
overcome the presumption of fraud, the
burden rests on the transferee (the
recipient of the property) to demonstrate
affirmatively, with satisfactory and
convincing evidence, that the conveyance
was executed in good faith and for a
valuable consideration. Legal precedents,
such as Gana vs. Sheriff of Laguna and
Yatco, Oria vs. McMicking, and China
Banking Corporation vs. Court of Appeals,
emphasize the importance of establishing
good faith and valid consideration.
3. Consequences of Failure to Prove Good
Faith: If the transferee fails to provide
sufficient evidence to demonstrate good
faith and valid consideration, the
fraudulent nature of the conveyance
prevails. This means that the conveyance
may be deemed fraudulent and subject to
rescission, as established in legal cases
such as Bachrach vs. Peterson, Panlileo vs.
Victorio, Alpuerto vs. Perez Pastor, and
National Exchange Co. vs. Katigbak.
Overall, the passage highlights the stringent
evidentiary requirements for overcoming the
presumption of fraud in cases involving
conveyances of property, emphasizing the
importance of demonstrating good faith and valid
consideration to uphold the validity of the
transaction.
THIS PASSAGE DISCUSSES CIRCUMSTANCES,
TERMED AS "BADGES OF FRAUD," WHICH MAY
INDICATE THE EXISTENCE OF FRAUD IN CERTAIN
TRANSACTIONS.
Here's a breakdown and explanation for a lawyer:
1. Fraud Shown by Circumstantial Evidence:
Fraud can often be proven through
circumstantial evidence, as direct evidence
of fraud is typically elusive due to its
secretive and deceptive nature.
2. Badges of Fraud: Courts have identified
certain circumstances, termed as "badges
of fraud," which may indicate fraudulent
transactions. These include:
• Fictitious or inadequate
consideration.
• Transfers made by debtors after a
lawsuit has been initiated against
them.
• Sales made on credit by insolvent
debtors.
• Transfer of all or nearly all of the
debtor's property, especially when
insolvent or financially distressed.
• Large indebtedness or complete
insolvency of the debtor.
• Transactions between family
members, especially when
accompanied by other suspicious
circumstances.
• Failure of the buyer to take
exclusive possession of the
property.
• Other specific circumstances such
as inadequate documentation,
discrepancies in the sale process,
or suspicious timing.
3. Effectiveness of Badges of Fraud: When
these badges of fraud are clear and
unmistakable, they can invalidate the
apparent validity of a contract. They serve
as evidence to demonstrate the fraudulent
nature of a transaction.
4. Presumption of Fraud: It's important to
note that the mere presence of certain
badges of fraud does not automatically
prove fraud. Each case must be evaluated
based on its specific circumstances. In the
illustrative case provided, the court ruled
 that the sale was not fraudulent solely
because it occurred after a lawsuit had
been initiated against the seller, as there
was no evidence that the buyer was aware
of the pending action.
Overall, this passage provides guidance on
identifying potential indicators of fraud in
transactions, highlighting the importance of
carefully examining the circumstances surrounding
a transaction to determine its validity.
THIS PASSAGE DISCUSSES THE CONVEYANCE OF
PROPERTY BY AN INSOLVENT DEBTOR AND THE
CONDITIONS UNDER WHICH SUCH CONVEYANCES
ARE CONSIDERED VALID OR FRAUDULENT.
Here's a breakdown and explanation for a lawyer:
1. Validity of Conveyance by an Insolvent
Debtor:
• An insolvent debtor may still
convey their property for a
valuable consideration in good
faith.
• However, the debtor cannot
alienate their property in a manner
that removes it from the reach of
creditors unless the transfer was
made for full and fair consideration
and in good faith.
• Any transfer made in anticipation
of insolvency is treated as invalid,
similar to transfers made by a
debtor who is already insolvent.
2. Disparity between Consideration and Real
Value:
• A significant disparity between the
consideration received for the
property and its actual value is
considered a badge of fraud.
• Equity may intervene to subject
the property to the claims of
creditors to the extent that the real
value exceeds the consideration.
• If the disparity in consideration is
deliberate with the intent to
defraud creditors, the transaction
is void as to creditors, and such
gross disparity may itself indicate
fraud.
3. Evaluation of Consideration:
• Courts do not use overly stringent
criteria when evaluating the value
of consideration versus the real
value of the property.
• While there may be differences in
opinion regarding price,
inadequacy of price refers to a
consideration significantly below
the real value of the property, to
the extent that it would be
considered startling by a
reasonable person.
4. Legal Precedents:
• The passage cites legal precedents,
such as Asia Banking Corp. vs.
Noble Jose and Asia Banking Corp.
vs. Corcuera, to support the
principles outlined regarding the
validity of conveyances by
insolvent debtors and the
significance of disparities in
consideration.
Overall, the passage provides guidance on the
conditions under which conveyances by insolvent
debtors are considered valid or fraudulent,
highlighting the importance of fair consideration
and good faith in such transactions and the
consequences of significant disparities in
consideration.
ART. 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 FI RST ACQUIRER SHALL BE
LIABLE FI RST, AND SO ON SUCCESSIVELY. (1298A)
This excerpt from the Civil Code of the Philippines,
specifically Article 1388, deals with the liability of
individuals who acquire property in bad faith,
particularly when such acquisition is done to
defraud creditors. Let's break down the text and
provide explanations suitable for a lawyer:
Article 1388:
• Summary: This article outlines the
responsibility of individuals who knowingly
acquire property that has been transferred
to them fraudulently in order to avoid
creditors. It stipulates that such individuals
must indemnify the creditors for any
damages suffered due to the fraudulent
transfer, even if it becomes impossible for
the property to be returned.
Explanation:
• The article establishes that individuals who
acquire property knowing that it was
transferred fraudulently to evade creditor
claims are legally liable to compensate
 those creditors for any losses incurred as a
result of the fraudulent transfer.
• It emphasizes that even if circumstances
arise that make it impossible to return the
property, such as destruction or loss, the
person who acquired it fraudulently is still
obligated to provide compensation to the
creditors for their damages.
• In cases where there are multiple
fraudulent transfers, the responsibility falls
on the first acquirer, and subsequent
acquirers are liable in succession.
Liability of Purchaser in Bad Faith:
• Summary: This section elaborates on the
obligations of a purchaser who knowingly
acquires property that has been
fraudulently transferred to them in order
to evade creditors.
Explanation:
• It states that purchasers who acquire
property with knowledge of its fraudulent
transfer must return the property if the
sale is rescinded, as outlined in Article 1383
of the Civil Code. If returning the property
is not feasible due to any reason, the
purchaser is still required to compensate
the original owner.
• Similar to Article 1388, if there are multiple
fraudulent transfers, the liability starts with
the first acquirer and extends successively
to subsequent acquirers.
Examples:
• Example 1: Illustrates a scenario where a
car is sold to a buyer (B) with the intention
to defraud a creditor (C). B must return the
car if the sale is rescinded, and if the car is
destroyed, B is obligated to indemnify C for
damages.
• Example 2: Expands on the concept of
successive liability in cases of multiple
fraudulent transfers. It outlines the liability
of each party involved in the chain of
fraudulent transactions.
• Example 3: Discusses the concept of good
faith and highlights that buyers must
exercise due diligence, especially when
purchasing property from non-registered
owners.
These explanations aim to provide a clear
understanding of the legal principles outlined in the
texts for a lawyer or legal professional.
THE TERM "BAD FAITH" HOLDS SIGNIFICANT
LEGAL WEIGHT AND IS CRUCIAL IN VARIOUS
LEGAL CONTEXTS.
Here's a breakdown of its meaning as outlined in
the provided texts:
Definition:
• Summary: Bad faith is more than just
making poor decisions or showing
negligence. It implies a deliberate intention
to deceive or act dishonestly, often driven
by personal gain, ill will, or a breach of a
known duty. It involves consciously doing
wrong, with a motive or interest that goes
against ethical or legal principles.
Essentially, it encompasses fraudulent
behavior.
Explanation:
• Dishonest Purpose: Bad faith entails
having a dishonest purpose, which means
knowingly engaging in actions that are
contrary to what is morally or legally right.
• Moral Obliquity: It involves moral
obliquity, suggesting a deviation from
moral rectitude or a sense of integrity.
• Conscious Wrongdoing: Bad faith involves
a conscious effort to do wrong, indicating
an awareness of breaching ethical or legal
duties.
• Breach of Known Duty: It often involves a
breach of a known duty, indicating a
disregard for legal obligations or
responsibilities.
• Motives or Interests: Bad faith can be
driven by motives such as personal gain,
self-interest, or ill will towards others.
• Nature of Fraud: The essence of bad faith
is likened to fraud, suggesting that it
involves deceitful or deceptive behavior.
Legal Significance:
• State of Mind: Bad faith is a state of mind
that is inferred from a person's actions and
the circumstances surrounding those
actions.
• Demonstration: It can be proven not only
through direct evidence but also through
circumstantial evidence. This means that
even if there is no explicit proof of
dishonesty, it can be inferred from the
surrounding circumstances and the
conduct of the parties involved.
Case Law References:
• The provided texts reference legal cases
such as Board of Liquidators vs. Heirs of
M.M. Kalaw and Ong Yiu vs. Court of
 Appeals, which have established
precedents for understanding bad faith in
Philippine law.
• These cases emphasize that bad faith goes
beyond mere negligence and requires a
deliberate intention to deceive or act
dishonestly.
In summary, bad faith is a concept that
encompasses deliberate dishonesty, moral
deviation, conscious wrongdoing, and breach of
known duties, often motivated by personal gain or
ill will. It holds significant legal implications and can
be proven through both direct and circumstantial
evidence in legal proceedings.
THE TERM "PURCHASER IN GOOD FAITH" HOLDS
SIGNIFICANCE IN LEGAL CONTEXTS,
PARTICULARLY IN PROPERTY TRANSACTIONS.
Let's delve into its meaning as outlined in the
provided texts:
Definition:
• Summary: A purchaser in good faith is
someone who buys property from another
party without being aware of any
competing claims or interests in that
property. Additionally, they pay a full and
fair price for the property at the time of
purchase or before they become aware of
any conflicting claims or interests.
Explanation:
• Lack of Notice: A key characteristic of a
purchaser in good faith is their lack of
notice regarding any conflicting claims or
interests in the property. They buy the
property without being informed of any
competing rights or titles.
• Full and Fair Price: Another important
aspect is that they pay a price that is
considered full and fair for the property.
This implies that the purchaser is not taking
advantage of the situation or paying an
unfairly low price.
• Timing of Purchase: The purchaser must
pay the full and fair price at the time of
purchase or before they receive notice of
any conflicting claims or interests. This
emphasizes the importance of the timing
of the transaction in determining good
faith.
• Refusal to Believe or Willful Ignorance:
Mere refusal to believe that a defect exists
in the title, or willfully ignoring the
possibility of a defect, does not qualify
someone as a purchaser in good faith. If it
later becomes evident that the title is
defective, the purchaser cannot claim
innocence solely based on their refusal to
acknowledge the defect.
Legal Significance:
• The concept of purchaser in good faith is
crucial in property law as it determines the
rights and protections afforded to buyers in
property transactions.
• It serves to protect innocent buyers who, in
good faith, purchase property without
knowledge of any defects or competing
claims.
Case Law References:
• The provided texts cite legal cases such as
De Recinto vs. Inciong, Barrios vs. Court of
Appeals, and J.M. Tuazon & Co., Inc. vs.
Court of Appeals, which have established
precedents for understanding the concept
of purchaser in good faith in Philippine law.
• These cases emphasize that mere
ignorance or refusal to acknowledge
defects in the title does not suffice to
qualify someone as a purchaser in good
faith.
In summary, a purchaser in good faith is someone
who buys property without knowledge of any
competing claims, pays a full and fair price, and
does so before becoming aware of any conflicting
interests. This concept is crucial in property
transactions and serves to protect innocent buyers
from defects in the title.
ART. 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)
Article 1389 of the Civil Code discusses the
timeframe within which the action to claim
rescission of a contract must be initiated. It
specifies that this action must be commenced
within four years from a particular event, such as
the formation of the contract. However, there are
exceptions for certain individuals. For persons
under guardianship, the four-year period does not
start until their incapacity ends. Similarly, for
absentees, the period begins when their domicile
becomes known.
The period for filing an action for rescission is
generally four years from the date of the contract's
formation. However, there are exceptions outlined
in the law:
 1. For individuals under guardianship, the
four-year period starts after their
incapacity ends.
2. For absentees, the period begins when
their domicile is discovered.
It's important to note that the doctrine of laches,
discussed in Title IV of the Civil Code, can prevent
the initiation of an action for rescission or
annulment of a contract if there has been an
unreasonable delay in asserting one's rights. (See
Article 1391 for more information on laches.)
In summary, Article 1389 sets forth the general rule
regarding the timeframe for initiating an action to
rescind a contract, while also providing exceptions
for certain individuals. Additionally, it emphasizes
the importance of timely action and warns against
delays that could result in the loss of the right to
rescind the contract due to laches.
THE COMPUTATION OF THE FOUR-YEAR PERIOD
FOR INITIATING AN ACTION TO RESCIND A
CONTRACT UNDER ARTICLE 1389 PRESENTS
VARIOUS INTERPRETATIONS AND
CONSIDERATIONS:
1. Date from which the period is counted:
Article 1389 does not explicitly state from
which point the four-year period should be
counted. There are differing opinions on
this matter:
• The Code Commission suggests
that the period should start from
the time the creditor becomes
aware of the contract. This
interpretation aligns with justice
and is implied by the provision
regarding absentees, as they
cannot know of the contract until
their domicile is known.
• In cases of fraud (as outlined in
Articles 1381[3, 4] and 1382), it is
argued that the period should
begin from the celebration of the
contract.
• A case decided under Article 1911
establishes that if the fulfillment of
the seller's obligation becomes
impossible due to a judgment
against the seller, the buyer's
action for rescission must
commence within four years from
the date the judgment becomes
final and executory.
2. General rule for when the period
commences: Since Article 1389 is silent on
the commencement of the prescriptive
period, the Supreme Court applies the
general rule that the period begins when
the cause of action accrues. This is in line
with Article 1150, which states that
prescription starts from the day the action
can be brought.
In summary, the computation of the four-year
period for initiating an action to rescind a contract
involves considering various factors, including the
nature of the contract, the presence of fraud, and
when the creditor becomes aware of the contract.
Ultimately, the interpretation may vary depending
on the specific circumstances of each case and the
relevant legal principles applied by the courts.
THE DETERMINATION OF WHEN THE ACTION TO
RESCIND A CONTRACT OR BRING AN ACCION
PAULIANA (ALSO KNOWN AS A "PAULINE
ACTION") ACCRUES IS CRUCIAL FOR COMPUTING
THE PRESCRIPTIVE PERIOD FOR INITIATING SUCH
ACTIONS.
Article 1383 emphasizes that these actions should
only be pursued after all other legal remedies have
been exhausted and proven futile.
1. Requisites for an Accion Pauliana to
Accrue: To initiate an accion pauliana,
certain conditions must be met:
• The plaintiff seeking rescission
must have a credit that predates
the alienation of the property.
• The debtor must have entered into
a subsequent contract that
benefits a third party.
• The creditor must lack other legal
remedies to satisfy their claim but
would benefit from rescinding the
conveyance to the third party.
• The impugned act must be
fraudulent.
• If the third party received the
property under an onerous title,
they must have been complicit in
the fraud.
2. Action of Last Resort: An accion pauliana
accrues only when the creditor realizes
that they have exhausted all other legal
remedies against the debtor. It is
considered a last resort, and the creditor
must have no other recourse under the law
to enforce their claim against the debtor.
3. Exhaustion of Debtor's Property: An
accion pauliana presupposes obtaining a
judgment against the debtor and the
failure of the sheriff to enforce it. This
implies that the creditor has fully
exhausted the debtor's assets to satisfy the
judgment.
 4. Priority of Credit: The date of the trial
court's decision against the debtor is
irrelevant. What matters is that the
plaintiff's credit predates the fraudulent
alienation by the debtor. The court's
decision will retroact to the time when the
debtor incurred the debt, establishing the
priority of the creditor's claim.
In summary, the accrual of the action to rescind a
contract or bring an accion pauliana is contingent
on the exhaustion of other legal remedies, the
creditor's priority in credit, and the fraudulent
nature of the transaction. Understanding these
principles is essential for determining when the
prescriptive period for initiating such actions
begins.
THE CIVIL CODE SPECIFIES THE INDIVIDUALS OR
ENTITIES ENTITLED TO BRING AN ACTION FOR
RESCISSION OF A CONTRACT:
1. The Injured Party or Defrauded Creditor:
The primary individual who can initiate the
action for rescission is the injured party or
the creditor who has been defrauded by
the contract. This includes any party
directly harmed by the fraudulent or
injurious nature of the contract.
2. Heirs, Assigns, or Successors in Interest:
The right to bring an action for rescission
can also extend to the heirs, assigns, or
successors in interest of the injured party
or defrauded creditor. This ensures that the
right to seek rescission can be passed on to
those who inherit or acquire the interests
of the original party.
3. Creditors Entitled to Subrogation (Accion
Subrogatoria): Additionally, creditors who
are entitled to subrogation, as outlined in
Article 1177 of the Civil Code, have the
right to bring an action for rescission.
Subrogation refers to the substitution of
one person or group by another in relation
to a claim, right, or debt. These creditors
step into the shoes of the original creditor
and can exercise the same rights, including
the right to rescind a contract if necessary.
In summary, the individuals or entities entitled to
bring an action for rescission include the injured
party or defrauded creditor, their heirs, assigns, or
successors in interest, and creditors entitled to
subrogation. This ensures that those directly
affected by the contract or who have acquired the
rights to enforce it can seek rescission if warranted.
THE RIGHT OF ORDINARY CREDITORS, SUCH AS
LENDERS, TO SUE FOR RESCISSION OF A
CONTRACT IS LIMITED, PARTICULARLY IN THE
CONTEXT OF A CONTRACT FOR THE SALE OF REAL
PROPERTY BY THEIR DEBTOR.
The reasoning behind this limitation is as follows:
1. Material Interest Requirement: Ordinary
creditors, unlike certain other parties
mentioned earlier, do not typically have a
material interest that would justify them
suing for rescission of a contract. Their
interest in the transaction is primarily to
receive repayment for the loan they
extended to the debtor. This interest is
considered a personal right, not a real right
over the property subject to the sale.
2. Nature of the Right: The creditor's right to
repayment of the loan does not confer any
direct claim or ownership interest in the
specific property sold by the debtor.
Therefore, while the creditor certainly has
an interest in ensuring repayment, this
interest is not tied to any particular portion
of the debtor's assets.
3. Remedies Prior to Rescission: Before an
ordinary creditor can file an action for
annulment or rescission of a sale contract,
they must first exhaust the remedies
provided in Article 1177 of the Civil Code.
These remedies typically involve seeking
repayment through the debtor's available
assets or subrogating themselves in the
debtor's rights and actions.
In summary, the right of ordinary creditors to sue
for rescission of a contract, particularly in the
context of a real property sale, is restricted due to
their lack of a direct material interest in the
property itself. They must first pursue other
avenues for repayment before seeking rescission of
the contract. This limitation helps maintain clarity
and fairness in contractual relationships while
ensuring that creditors follow appropriate legal
procedures to enforce their rights.
COMPULSORY OR FORCED HEIRS, WHO HAVE A
LEGAL ENTITLEMENT TO A PORTION OF THE
DECEASED'S ESTATE KNOWN AS THE LEGITIME,
POSSESS CERTAIN RIGHTS AKIN TO THOSE OF
CREDITORS.
These rights are particularly relevant when
fraudulent contracts threaten their inheritance.
Here's an analysis:
1. Similarity to Creditor's Rights: Compulsory
heirs' rights to their legitime share bear
resemblance to the rights of creditors,
especially concerning situations where
fraudulent contracts could diminish or
nullify their inheritance.
2. Right to Rescind Contracts: Compulsory
heirs, especially those specifically named
as such in the deceased's will, have a clear
and unequivocal right to initiate legal
action to rescind contracts entered into by
 the deceased if those contracts unfairly
prejudice their inheritance. This right is
based on legal precedents and
interpretations provided by court cases
such as Concepcion vs. Sta. Ana, Armentia
vs. Patriarca, and Velarde vs. Paz.
In essence, compulsory heirs have the authority to
challenge and seek the rescission of contracts
made by the deceased if those contracts unjustly
diminish their legitime share. This right is essential
for protecting their inheritance and ensuring that
they receive what is rightfully theirs under the law.
CHAPTER 7
VOIDABLE CONTRACTS
ART. 1390. THE FOLLOWING CONTRACTS ARE
VOIDABLE OR ANNULLABLE, EVEN THOUGH
THERE MAY HAVE BEEN NO DAMAGE TO THE
CONTRACTING PARTIES:
(1) THOSE WHERE ONE OF THE PARTIES IS
INCAPABLE OF GIVING CONSENT TO A CONTRACT;
(2) THOSE WHERE THE CONSENT IS VITIATED BY
MISTAKE, VIOLENCE, INTIMIDATION, UNDUE INFL
UENCE OR FRAUD. THESE CONTRACTS ARE
BINDING, UNLESS THEY ARE ANNULLED BY A
PROPER ACTION IN COURT. THEY ARE
SUSCEPTIBLE OF RATIFI CATION. (N)
Article 1390 of the Civil Code outlines the
characteristics of voidable or annullable contracts.
These are contracts that, despite having all the
necessary elements of a valid contract, can be
declared void or annulled under certain
circumstances. The article identifies two main
scenarios where a contract falls into this category:
1. Incapacity to Consent: Contracts where
one of the parties involved is incapable of
giving consent are considered voidable.
This could occur due to factors such as
mental incapacity or legal incapacity, which
prevent the individual from fully
understanding or entering into the
contract voluntarily.
2. Consent Vitiating Factors: Contracts where
consent is tainted by factors such as
mistake, violence, intimidation, undue
influence, or fraud are also classified as
voidable. In these situations, although the
contract may appear valid on the surface,
the consent of one party is compromised
by external pressures or deceit.
It's essential to note that while voidable contracts
are initially binding, they can be challenged and
annulled through legal action in court. However, if
not annulled, these contracts remain valid and
enforceable. Additionally, voidable contracts are
open to ratification, meaning that the parties
involved can choose to reaffirm the contract's
validity even after its initial challenge.
In summary, voidable contracts are those that meet
the requirements of a valid contract but are subject
to being declared void or annulled due to
incapacity to consent or the presence of consent-
vitiating factors.
THE EXCERPT PROVIDES FURTHER CLARIFICATION
ON THE BINDING FORCE OF VOIDABLE
CONTRACTS, EMPHASIZING KEY POINTS
REGARDING THEIR VALIDITY, ANNULMENT, AND
RATIFICATION:
1. Existence and Validity: Voidable contracts
are initially considered existent, valid, and
obligatory until they are annulled or set
aside by a proper legal action initiated in
court. This means that despite any flaws in
consent or other vitiating factors, the
contract remains legally binding until
challenged through legal proceedings.
2. Annulment Process: Voidable contracts
can be annulled through a legal action
specifically filed for that purpose. In the
case provided, the Supreme Court ruled
that if consent is entirely absent, rendering
the contract void altogether, it can be
attacked at any time. However, contracts
that are merely voidable due to vices of
consent can still be enforced until annulled
through the proper legal channels.
3. Distinction from Null and Void Contracts:
It's important to distinguish between
contracts that are voidable and those that
are null and void. In the case of conjugal
property sales, for example, the absence of
consent from one spouse renders the sale
null and void, not merely voidable. This
distinction is crucial as it determines the
legal consequences and remedies
available.
4. Effect of Ratification: Once a voidable
contract is ratified, either explicitly or
implicitly, it becomes absolutely valid and
cannot be annulled thereafter. Ratification
essentially confirms and reaffirms the
contract's validity, removing any grounds
for annulment.
5. Absence of Damage Requirement: Unlike
rescissible contracts, the annulment of
voidable contracts does not require the
existence of damage. In other words, a
voidable contract can be annulled even if
no harm or loss has been incurred by the
parties involved.
In summary, the excerpt provides insights into the
legal principles governing voidable contracts, their
annulment process, the distinction from null and
void contracts, the effect of ratification, and the
absence of a damage requirement for annulment.
THE PROVIDED TEXT OFFERS A COMPREHENSIVE
EXPLANATION OF THE CONCEPT OF ANNULMENT
WITHIN THE CONTEXT OF CONTRACT LAW.
Here's a breakdown of its meaning:
1. Remedy and Sanction: Annulment serves
both as a remedy and a sanction under the
law. It is a legal mechanism designed to
address situations where a contract is
deemed ineffective or invalid due to a
defect or vice in the consent of one of the
contracting parties. As a remedy,
annulment aims to rectify the
consequences of a flawed contract and
restore the parties to their original position
prior to the contract's execution.
Additionally, as a sanction, it serves the
public interest by upholding the integrity
and fairness of contractual agreements.
2. Declaration of Inefficacy: Annulment
entails a formal declaration by a competent
authority, usually a court, stating that the
contract is void or ineffective due to the
identified defect or vice in consent. This
declaration serves to nullify the legal
effects of the contract, rendering it legally
unenforceable.
3. Restoration of Original Position: The
primary objective of annulment is to
restore the parties to the contractual
relationship to the position they were in
before the contract was executed. By
nullifying the contract, annulment aims to
eliminate any unjust consequences
resulting from the flawed agreement and
allow the parties to move forward as if the
contract never existed.
In summary, annulment in contract law is a legal
remedy and sanction aimed at declaring the
inefficacy of a contract due to defects or vices in
consent. Its purpose is to restore the parties to
their original position and uphold the public
interest in maintaining the integrity of contractual
agreements.
THE TEXT OUTLINES THE DIFFERENCES BETWEEN
AN ACTION FOR ANNULMENT AND AN ACTION
FOR RESCISSION IN CONTRACT LAW.
Here's a breakdown of the distinctions:
1. Basis for Legal Action:
• Annulment: This action is based on
the vitiation of consent, as
specified in Article 1390 of the Civil
Code. It focuses on instances
where consent to the contract is
compromised by factors such as
mistake, violence, intimidation,
undue influence, or fraud.
• Rescission: In contrast, rescission is
based on lesion (injury) to one of
the parties or to a third person, as
stated in Article 1381. It centers on
situations where one party suffers
harm due to the contract, either
directly or indirectly.
2. Parties Authorized to File the Action:
• Annulment: Typically, only a party
directly involved in the contract
can initiate an action for
annulment, as outlined in Articles
1390 and 1397.
• Rescission: Unlike annulment, a
third person who has suffered
damage by reason of the contract
can also bring an action for
rescission, as stated in Article
1381.
3. Nature of the Legal Action:
• Annulment: It is considered a
principal action, as specified in
Article 1390.
• Rescission: On the other hand,
rescission is deemed a subsidiary
action, as stated in Article 1383.
4. Presupposition of Contract Validity:
• Annulment: This action
presupposes that the contract is
legally defective, as per Article
1390.
• Rescission: In contrast, rescission
assumes that the contract was
validly entered into, as specified in
Article 1380.
5. Purpose and Legal Grounds:
• Annulment: The primary objective
of annulment is to impose a legal
sanction on the guilty party for
reasons of public interest, as
indicated in Article 1390.
• Rescission: Rescission, however, is
considered a remedy allowed by
law on the grounds of equity, as
noted in Article 1383.
6. Effect of Indemnification:
 • Annulment: An action for influence, the four-year
annulment can proceed even if the period begins from the
plaintiff has been indemnified, as cessation of the
per Article 1390. intimidation, etc.
• Rescission: Conversely, an action • For contracts affected by
for rescission is barred by mistake or fraud, the
indemnification, as specified in period starts from the
Articles 1383 and 1384. discovery of the mistake or
fraud.
In summary, while both actions involve challenging
the validity or effects of a contract, they differ in • In the case of contracts
their legal basis, parties authorized to file the entered into by minors or
action, nature of the legal action, presuppositions incapacitated persons, the
about contract validity, purpose, and the effect of period commences from
indemnification. the cessation of
guardianship.
ART. 1391. THE ACTION FOR ANNULMENT SHALL
BE BROUGHT WITHIN FOUR YEARS. THIS PERIOD 2. Direct Court Action and Effect of
SHALL BEGIN: IN CASES OF INTIMIDATION, Annulment:
VIOLENCE OR UNDUE INFL UENCE, FROM THE
• Annulment of a voidable contract
TIME THE DEFECT OF THE CONSENT CEASES. IN
CASE OF MISTAKE OR FRAUD, FROM THE TIME OF requires a direct court action. Until
THE DISCOVERY OF THE SAME. AND WHEN THE the contract is annulled by the
ACTION REFERS TO CONTRACTS ENTERED INTO BY court, the parties involved cannot
MINORS OR OTHER INCAPACITATED PERSONS, absolve themselves from the
FROM THE TIME THE GUARDIANSHIP CEASES. obligations arising from the
(1301A) contract. A voidable contract may
also be challenged collaterally as a
The provided text elucidates the period and defense in legal proceedings
procedures for filing an action for the annulment of related to the contract.
voidable contracts, as well as the implications of
such actions. Here's a breakdown of the key points: 3. Calculation of the Four-Year Period:
• The commencement of the four-
1. Period for Filing an Action for Annulment:
year period varies depending on
• The action for annulment must be the circumstances:
initiated within four years from
• For intimidation, violence,
specific trigger events, depending
on the circumstances surrounding or undue influence, the
the contract: period starts when the
intimidating actions cease.
• In cases of intimidation,
violence, or undue
• For mistake or fraud, the
period begins upon the
discovery of the mistake or
fraud.
• For contracts involving
minors or incapacitated
persons, the period starts
when guardianship ends.
4. Effect of Extrajudicial Demands:
• Extrajudicial demands made by the
affected party do not interrupt the
prescription period for filing an
action for annulment. Such
demands do not create an
obligation because the contract is
still binding unless annulled by a
court. Therefore, the affected
party cannot be considered a
creditor, and the rules governing
extrajudicial demands do not
apply.
In summary, the text provides detailed guidance on
the procedures, timelines, and implications
associated with filing an action for the annulment
of voidable contracts, including the triggering
events for the commencement of the four-year
period and the effect of extrajudicial demands on
prescription.
THE PROVIDED TEXT ELABORATES ON THE
DETERMINATION OF WHEN THE DISCOVERY OF
FRAUD IS CONSIDERED TO HAVE OCCURRED IN
LEGAL CONTEXTS.
Here's a breakdown of the key points:
1. Discovery of Fraud:
• In legal contemplation, the
discovery of fraud is reckoned to
 have occurred under certain
circumstances:
• If there's an allegation that
the contract does not
reflect the true intention
of the parties, discovery is
deemed to have taken
place from the execution
of the contract.
• If the alleged fraudulent
document is registered
with the assessor's office
for the purpose of
transferring the tax
declaration, discovery is
considered to have
occurred from the
registration of the
document.
• Similarly, if the document
is registered in the office
of the register of deeds,
discovery is reckoned from
the time of registration, as
registration serves as
notice to the whole world.
2. Application in Specific Cases:
• In actions for reconveyance of real
property resulting from fraud in
obtaining an original certificate of
title through free patent grants,
discovery is deemed to have taken
place from the issuance of the title,
as registration of the patent serves
as constructive notice.
• In cases where the annulment of a
contract of sale is based on fraud
in obtaining the signature of the
vendor and lack of consideration at
the time of the transaction, the
action seeks a declaration that the
deed of sale is void from the
beginning, making it an
imprescriptible action.
In summary, the text provides guidance on
determining when the discovery of fraud is
considered to have occurred in legal proceedings,
emphasizing the importance of registration as
notice to the public. It also highlights specific
scenarios where the timing of discovery is
significant in determining the legal implications of
fraudulent actions.
ART. 1392. RATIFI CATION EXTINGUISHES THE
ACTION TO ANNUL A VOIDABLE CONTRACT.
(1309A)
Article 1392 of the Civil Code deals with the
concept of ratification and its effect on voidable
contracts. Here's a breakdown of its meaning and
implications:
1. Meaning of Ratification:
• Ratification occurs when a party,
who initially had the right to annul
a voidable contract due to defects
such as lack of consent or
authorization, voluntarily adopts
and gives sanction to the contract.
This adoption is made knowingly
and voluntarily, essentially
confirming and approving the
previously defective or
unauthorized contract.
• Ratification transforms the
unauthorized or defective contract
into an authorized act of the party
making the ratification.
2. Effect of Ratification:
• Ratification cleanses the contract
from all its defects retroactively
from the moment it was
constituted. This means that from
the point of ratification onwards,
the contract is considered valid
and binding, free from any defects
that existed prior to ratification.
• Consequently, the action to annul
the contract is extinguished. Once
ratified, the contract cannot be
challenged or annulled on the
grounds that initially rendered it
voidable.
• This principle is supported by case
law, such as Tan Ah Chan vs.
Gonzalez, where the Supreme
Court upheld the validity of a
ratified contract and extinguished
the right to annul it.
In summary, ratification is the voluntary adoption
and approval of a previously defective or
unauthorized contract, which cleanses the contract
from its defects and renders it valid and
enforceable. Once ratified, the contract cannot be
annulled, as the right to annul is extinguished by
the act of ratification.
ART. 1393. RATIFI CATION MAY BE EFFECTED
EXPRESSLY OR TACITLY. IT IS UNDERSTOOD THAT
THERE IS A TACIT RATIFI CATION IF, WITH
KNOWLEDGE OF THE REASON WHICH RENDERS
THE CONTRACT VOIDABLE AND SUCH REASON
HAVING CEASED, THE PERSON WHO HAS A RIGHT
TO INVOKE IT SHOULD EXECUTE AN ACT WHICH
NECESSARILY IMPLIES AN INTENTION TO WAIVE
HIS RIGHT. (1311A)
Article 1393 of the Civil Code discusses the kinds of
ratification that can occur for voidable contracts,
whether it's through express or implied means.
Here's a breakdown of each kind:
1. Express Ratification:
• Express ratification occurs when
the ratification is explicitly
manifested through words or in
writing. In other words, the party
explicitly states their intention to
adopt and approve the previously
voidable contract.
2. Implied or Tacit Ratification:
• Implied or tacit ratification can
take various forms, such as:
• Silence or acquiescence: If
the party, with knowledge
of the reason that
rendered the contract
voidable, remains silent or
fails to invoke their right to
annul the contract, it can
imply an intention to
waive their right.
• Acts showing adoption or
approval of the contract:
Actions taken by the party
that indicate acceptance
or approval of the contract
can imply ratification.
• Acceptance and retention
of benefits: If the party
accepts and retains
benefits or advantages
flowing from the contract,
it can imply their
ratification of the
contract's validity.
The provided cases illustrate examples of implied
ratification. For instance, in Acuna vs. Batac
Producers Cooperative Marketing Assoc., Inc., the
Court recognized implied ratification through acts
showing adoption or approval of the contract.
Similarly, in Francisco vs. Herrera, the Court
emphasized that a seller of property cannot seek
an increase in the price while simultaneously
claiming that the contract of sale is void, implying
ratification through conduct inconsistent with
challenging the contract's validity.
In summary, ratification of a voidable contract can
occur either explicitly through words or writing
(express ratification) or implicitly through silence,
acts indicating adoption or approval, or acceptance
and retention of benefits (implied or tacit
ratification). The type of ratification depends on the
manner in which the party demonstrates their
intention to adopt and approve the contract.
REQUISITES OF RATIFICATION:
1. Implied Ratification: a. Knowledge of the
reason which renders the contract
voidable. b. Cessation of the reason that
rendered the contract voidable. c.
Execution of an act implying an intention to
waive the right to annul the contract.
Examples:
1. S, a minor, sells his land to B. Upon
reaching the age of majority, S, fully aware
of his rights, instead of repudiating the
contract, disposes of the proceeds or
collects the unpaid balance from B. Here,
S's actions imply tacit ratification.
2. In an action to annul a contract of sale, S
alleges the sale was made under threat and
intimidation by B. However, S deposits the
purchase price check and withdraws the
money periodically. In this case, S's actions
amount to ratification.
3. Express Ratification:
• The requisites for express
ratification mirror those of implied
ratification, except that express
ratification is manifested explicitly.
In summary, both implied and express ratification
require the party to have knowledge of the reason
making the contract voidable, cessation of that
reason, and the execution of an act indicating an
intention to waive the right to annul the contract.
The key difference lies in how the ratification is
manifested: implicitly through actions or explicitly
through words or writing.
UNDER THE OLD CIVIL CODE, THERE EXISTED A
CLEAR DISTINCTION BETWEEN CONFIRMATION
AND RATIFICATION, WITH RECOGNITION OR
ACKNOWLEDGMENT SERVING A SEPARATE
PURPOSE. HOWEVER, UNDER THE PRESENT CIVIL
CODE, THE TERM RATIFICATION ENCOMPASSES
THE MEANING OF BOTH CONFIRMATION AND
RATIFICATION AS UNDERSTOOD IN THE PREVIOUS
CODE.
1. Confirmation:
• Confirmation referred to the act by
which a person entitled to bring an
action for annulment validated a
voidable contract, either expressly
or impliedly. It aimed to cure a vice
of nullity in the contract.
2. Ratification:
 • Ratification, under the old Civil
Code, referred to the act by which
an unauthorized contract was
approved by the person in whose
name it was entered into. Its
purpose was to give authority to a
person who had previously acted
in the name of another without
authority.
3. Recognition or Acknowledgment:
• Recognition or acknowledgment,
in contrast, was an act by which a
defect of proof was remedied. For
example, it occurred when an oral
contract, falling under the Statute
of Frauds, was put in writing.
In summary, confirmation aimed to cure a vice of
nullity in a contract, ratification was for approving
an unauthorized contract entered into on behalf of
another, and recognition or acknowledgment
aimed to remedy a defect of proof. However, under
the present Civil Code, the distinction between
confirmation and ratification has been eliminated,
and the term ratification now encompasses both
concepts.
ART. 1394. RATIFI CATION MAY BE EFFECTED BY
THE GUARDIAN OF THE INCAPACITATED PERSON.
(N)
Article 1394 of the Civil Code deals with the parties
who may effectuate ratification, particularly
concerning contracts entered into by incapacitated
persons. Here's a breakdown of its provisions:
1. Party Who May Ratify: a. Guardian: The
guardian of an incapacitated person has
the authority to ratify contracts entered
into by their ward. Guardians, as legal
representatives of their wards, possess the
power to contract on their behalf.
Therefore, they also have the ability to
ratify contracts on behalf of the
incapacitated person. b. Injured Party
Himself: Alternatively, the injured party, if
already capacitated, may ratify the
contract entered into by the incapacitated
person. This provision allows the
incapacitated party, once they regain
capacity, to ratify the contract themselves
if they choose to do so.
2. Ratification in Case of Voidable Contracts:
• If the contract is voidable due to
grounds such as mistake,
ratification can be made by the
party whose consent was vitiated.
This provision allows the party
whose consent was affected by
mistake or similar grounds to ratify
the contract once the mistake has
been rectified or the ground for
voidability has ceased to exist.
In summary, Article 1394 outlines the parties who
have the authority to ratify contracts entered into
by incapacitated persons, emphasizing the role of
guardians as legal representatives and allowing the
injured party themselves to ratify once capacitated.
Additionally, it specifies that in the case of voidable
contracts, ratification can be made by the party
whose consent was vitiated.
ART. 1395. RATIFI CATION DOES NOT REQUIRE THE
CONFORMITY OF THE CONTRACTING PARTY WHO
HAS NO RIGHT TO BRING THE ACTION FOR
ANNULMENT. (1312)
Article 1395 of the Civil Code addresses the
requirement of conformity from the contracting
party who has no right to bring an action for
annulment in the context of ratification. Here's an
explanation of its content:
1. Unilateral Act of Ratification:
• Ratification is considered a
unilateral act wherein one party,
typically the injured or aggrieved
party who has the right to bring an
action for annulment due to
defects in consent, waives the
defect in their consent. This
unilateral act allows the party to
affirm the contract despite its
initial defectiveness.
2. No Requirement for Conformity from
Guilty Party:
• Article 1395 specifies that the
consent or conformity of the guilty
party, the one who may have
caused the defect in consent, is not
necessary for ratification.
• This provision prevents the guilty
party from conveniently
disregarding the contract by
refusing to give their conformity to
the ratification process. Essentially,
it ensures that the injured party
has the ability to ratify the contract
independently, without being
hindered by the actions or refusal
of the guilty party.
In summary, Article 1395 emphasizes that
ratification is a unilateral act by which the injured
party waives the defect in their consent, and it
clarifies that the consent of the guilty party is not
required for ratification to take effect. This
provision safeguards the ability of the injured party
to affirm the contract independently, without being
dependent on the cooperation of the guilty party.
ART. 1396. RATIFI CATION CLEANSES THE
CONTRACT FROM ALL ITS DEFECTS FROM THE
MOMENT IT WAS CONSTITUTED. (1313)
Article 1396 of the Civil Code stipulates that
ratification has a retroactive effect, cleansing the
contract of all its defects from the moment it was
constituted. Here's an explanation of its effect and
some illustrative examples:
1. Effect of Ratification:
• Ratification purges the contract of
all its defects, as outlined in Article
1390 of the Civil Code, from the
moment the contract was
executed.
• It extinguishes the action to annul
the contract, as stated in Article
1392. In essence, ratification
validates the contract from its
inception, subject to the prior
rights of third persons.
2. Retroactive Effect of Ratification:
• Ratification has a retroactive
effect, meaning it validates the
contract from the date of its
execution, regardless of when the
ratification occurs.
Examples:
1. If B forced S to sell a horse, and S later
ratifies the contract after the horse gives
birth to a colt, B would be entitled to the
colt. This is because ratification
retroactively validates the contract from its
execution date.
2. If S, in a state of drunkenness, sells land to
B and later sells the same land to C,
ratification of the sale to B by S cannot
prejudice C. The retroactive effect of
ratification means that C's subsequent
purchase is not affected.
Illustrative Cases:
1. In a case where the seller was not yet the
owner of the property at the time of the
sale, but later acknowledged the seller's
title through an affidavit, the sale to a third
party was not annulled. The affidavit
served as confirmation, giving full effect to
the transfer of ownership.
2. In another case, a wife gave her approval to
the extension of the period for repurchase
of conjugal property sold by the husband
without her consent. This act constituted
implied ratification of the sale, purging the
contract of any defects from its execution
date.
In summary, Article 1396 underscores the
retroactive effect of ratification, which validates the
contract from its inception, thereby extinguishing
any defects in consent or validity present at the
time of execution.
ART. 1397. THE ACTION FOR THE ANNULMENT OF
CONTRACTS MAY BE INSTITUTED BY ALL WHO ARE
THEREBY OBLIGED PRINCIPALLY OR SUBSIDIARILY.
HOWEVER, PERSONS WHO ARE CAPABLE CANNOT
ALLEGE THE INCAPACITY OF THOSE WITH WHOM
THEY CONTRACTED; NOR CAN THOSE WHO
EXERTED INTIMIDATION, VIOLENCE, OR UNDUE
INFL UENCE, OR EMPLOYED FRAUD, OR CAUSED
MISTAKE BASE THEIR ACTION UPON THESE FL AWS
OF THE CONTRACT. (1302A)
Article 1397 of the Civil Code delineates the parties
entitled to bring an action for the annulment of
contracts and establishes certain limitations on
who can invoke specific defects of the contract.
Here's an explanation of its provisions:
1. Entitlement to Bring an Action for
Annulment:
• Any party who is obliged, either
principally or subsidiarily, under
the contract may institute an
action for its annulment.
• However, individuals who are
capable of contracting cannot
invoke the incapacity of the other
party as a defense. Likewise, those
who employed intimidation,
violence, undue influence, or fraud
in the formation of the contract
cannot base their action for
annulment on these flaws.
2. Requisites for Capacity to Bring an Action
for Annulment:
• Two requirements must be met to
confer the necessary capacity to
bring an action for annulment:
• The plaintiff must have an
interest in the contract.
• The victim, not the guilty
party or the one
responsible for the defect,
must assert the flaw in the
contract.
3. Real Parties in Interest:
• In an action for the annulment of
contracts, the real parties in
 interest are those who are directly
involved in the contract or are
adversely affected by it. This
includes parties bound by the
contract, those prejudiced in their
rights, or individuals who claim a
right to participate in a public
bidding but have been unlawfully
excluded.
4. Limitation on the Guilty Party:
• The guilty party, along with their
successors-in-interest, cannot seek
annulment of the contract. This
principle is grounded in the
requirement that parties
approaching the court must do so
with clean hands.
Illustrative Case:
• In a case where a lessor objected to the
exercise of an option to buy a factory,
arguing that the lessee, being a Spanish
citizen, had no right to purchase under the
Constitution, the objection was deemed
untenable. The lessor's attempt to
invalidate the option based on the lessee's
citizenship was considered an afterthought
and barred by legal and moral
considerations. The lessor, having capacity
to contract, could not invoke the lessee's
incapacity as a defense against
performance.
In summary, Article 1397 outlines the parties
entitled to bring an action for annulment of
contracts and imposes limitations on who can
invoke specific defects of the contract as a basis for
annulment.
THE RIGHT OF SUCCESSORS-IN-INTEREST TO
BRING AN ACTION FOR THE ANNULMENT OF A
VOIDABLE CONTRACT IS RECOGNIZED UNDER
CERTAIN CIRCUMSTANCES, AS ELUCIDATED BY
LEGAL PRECEDENTS:
1. Successors-in-Interest's Right to Sue:
• The successors-in-interest of a
party to a voidable contract
possess the legal standing to sue
for the annulment of the contract.
This means that individuals who
inherit the rights and obligations of
a deceased party to the contract
can initiate legal proceedings to
invalidate the contract if it is
deemed voidable. (Descutido vs.
Baltazar, 1 SCRA 1174 [1961]).
2. Continuity of Rights and Obligations:
• Upon the death of a person, their
testamentary or legal heir inherits
their legal personality and
continues to represent their
interests. This successor-in-
interest receives the rights,
actions, and obligations of the
deceased from the moment of
their death, except those that are
extinguished by law.
• Consequently, a successor-in-
interest can bring an action to
annul a contract entered into by
their predecessor in
representation of the latter's
interests.
3. Limitations on Capacity to Challenge
Contracts:
• However, it's essential to note that
not all successors-in-interest may
have the legal capacity to
challenge the validity of contracts
executed by their predecessors.
• For instance, individuals who are
not compelled or forced heirs of
the deceased, such as nephews or
nieces, may lack the legal capacity
to contest the validity of deeds of
sale executed by the deceased.
• If the successor-in-interest is not a
party to the contract and is not
bound by it, they may not have the
requisite legal standing to
challenge its validity in court. This
limitation applies particularly
when the deceased had the
freedom to dispose of their estate
without any restrictions beyond
those established by law. (Velarde
vs. Paez, 101 Phil. 376 [1957]).
In summary, while successors-in-interest generally
have the right to challenge voidable contracts
entered into by their predecessors, the capacity to
do so may be subject to certain legal limitations and
requirements based on the specific circumstances
of the case.
THE RIGHT OF STRANGERS TO BRING ACTION FOR
THE ANNULMENT OF A CONTRACT IS SUBJECT TO
CERTAIN CONDITIONS AND LIMITATIONS, AS
OUTLINED BELOW:
1. Persons without Material Interest in the
Contract:
• Individuals who are not parties to
the contract, assignees under the
contract, or representatives of
 those involved in the contract lack
the legal capacity to challenge the
validity of the contract unless they
have a material interest in it.
Material interest refers to an
interest that will be directly
affected by the contract, rather
than merely incidental interest.
• For instance, a person who is not a
party to a contract and whose
benefit was not expressly
considered in the contract cannot
maintain an action on the contract,
even if the performance of the
contract would incidentally affect
them.
2. Creditors of the Victim or Aggrieved Party:
• Even creditors of the victim or
aggrieved party in the contract
generally do not have the right or
legal standing to bring an action for
annulment unless they can
demonstrate that they are
prejudiced in their rights with
respect to one of the contracting
parties and can show detriment
resulting from the contract in
which they had no involvement.
• However, creditors of the
aggrieved party may bring an
action for rescission of the contract
if the aggrieved party has no other
property.
3. Plaintiffs in a Representative Suit:
• In certain cases, such as
representative suits filed on behalf
and for the benefit of a city or
other entity, the rule limiting the
right to bring an action for
annulment to those obliged by the
contract principally or subsidiarily
may not apply.
Illustrative Cases:
1. Right of Owner of Forfeited Property:
• A person whose property was
forfeited and sold at public auction
by the government retains the
right to question the sale if the
seizure case is still pending, as long
as the order of seizure has not
been set aside.
2. Right of Actual Occupant of a Lot:
• An occupant of a lot may have the
right to challenge the sale thereof
to another person if the sale
appears to have been made in
violation of a policy adopted by the
seller-government corporation
giving preference to qualified
actual occupants.
3. Right of Partnership Creditors:
• Creditors of a partnership may
challenge contracts prejudicial to
their rights entered into by the
remaining partners with a partner
who has withdrawn from the
partnership, particularly if such
contracts impair their rights.
These cases illustrate the application of the legal
principles governing the right of strangers to bring
actions for the annulment of contracts under
specific circumstances.
ART. 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 1398 of the Civil Code outlines the duty of
mutual restitution upon the annulment of a
contract. Here are the key points regarding this
provision:
1. Restoration of Subject Matter and Price:
• Upon the annulment of a contract,
the parties are generally required
to restore to each other the
subject matter of the contract
along with its fruits and the price
paid, along with legal interest,
unless provided otherwise by law.
• The purpose of mutual restitution
is to return the parties to their
original positions before the
contract was entered into.
2. Void Contracts:
• A contract declared void by law is
considered to be no contract at all.
Therefore, the parties and the
subject matter of the contract
remain unchanged from their
original state.
3. Minor's Right to Rescind:
• A minor has the right to rescind a
contract entered into during
minority upon reaching majority,
 provided that certain conditions
are met, including making the
election to rescind within a
reasonable time after reaching
majority and returning all
consideration received while a
minor.
4. No Duty of Restitution if No Performance:
• If neither party has performed
their obligations under the
contract, there is no duty of
mutual restitution.
5. Personal Obligations:
• In cases of personal obligations
where services have been
rendered, the value of the services
rendered, along with
corresponding interest, serves as
the basis for damages recoverable
from the party benefited by the
service.
6. Prospective Effects of Annulment:
• The effects of annulment generally
operate prospectively and do not
retroact to the time the contract
was made. Therefore, third parties
who acquired rights in good faith
during the period before
annulment may retain those
rights.
These provisions ensure fairness and equity in the
process of contract annulment and aim to restore
the parties to their rightful positions as much as
possible.
ART. 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 BENEFI TED BY THE
THING OR PRICE RECEIVED BY HIM. (1304)
Article 1399 of the Civil Code addresses the
restitution obligations of an incapacitated person in
cases where the defect of the contract arises from
the incapacity of one of the parties. Here are the
key points regarding this provision:
1. Restitution Obligations Limited to
Benefits Received:
• An incapacitated person is only
obliged to make restitution to the
extent that they have been
benefited by the thing or price
received under the contract.
• If the incapacitated person did not
benefit from the contract, they are
not obliged to return what they
received. However, the other
contracting party is still obligated
to return what they received,
regardless of whether they
benefited or not.
2. Benefit Received Defined:
• It is not necessary for the
incapacitated person to have
invested or utilized the thing or
amount received to be considered
benefited. Simply keeping the
received item or amount is
sufficient to establish benefit.
3. Burden of Proof:
• The party with capacity bears the
burden of proving the benefit or
profit received by the
incapacitated person. Enrichment
of the incapacitated party is not
presumed.
4. Exception to Mutual Restitution Rule:
• Article 1399 provides an exception
to the general rule of mutual
restitution outlined in Article 1398.
Another exception is also provided
in Article 1427.
Overall, Article 1399 ensures that restitution
obligations in cases involving an incapacitated
person are proportionate to the benefits received,
promoting fairness and equity in such situations.
ART. 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)
Article 1400 of the Civil Code addresses the
situation where the person obligated to return a
thing under a decree of annulment is unable to do
so because the thing has been lost. Here are the key
points regarding the effect of the loss of the thing
to be returned:
1. Loss Without Fault:
• If the thing to be returned is lost
without the fault of the person
obligated to make restitution,
there is no obligation to return the
thing. However, in such cases, the
other party cannot compel the
return of what they are obligated
to return due to the decree of
annulment.
 2. Loss Through Fault:
• If the loss of the thing occurs due
to the fault of the person obligated
to return it, their obligation is not
extinguished. Instead, it is
converted into an indemnity for
damages.
• The indemnity for damages
consists of:
• The value of the thing at
the time of the loss.
• Interest from the same
date.
• The fruits received from
the time the thing was
given to them until the
time of its loss.
Example:
• If S sold a plow carabao to B and the
contract was later annulled by the court,
but the carabao died in B's possession due
to B's fault, B would be obligated to pay S
the value of the carabao at the time of its
death, along with interest from that date.
If the carabao had produced offspring, B
would also be required to deliver the
young as the fruit of the animal.
Article 1400 ensures that even if the thing to be
returned is lost, appropriate compensation or
indemnity is provided, depending on whether the
loss occurred through fault or without fault.
ART. 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 1401 of the Civil Code deals with the
extinguishment of the action for the annulment of
contracts under certain circumstances:
1. Loss Due to Fraud or Fault:
• If the thing which is the object of
the contract is lost due to the fraud
or fault of the person who has the
right to institute proceedings for
the annulment of the contract,
then the action for annulment
shall be extinguished.
• This means that if the person
seeking annulment cannot restore
the thing lost due to their own
fraud or fault, their right to annul
the contract is extinguished.
2. Loss and Incapacity:
• If the right to action for annulment
is based on the incapacity of one of
the contracting parties, the loss of
the thing does not prevent the
success of the action unless the
loss occurred through the fraud or
fault of the plaintiff (the person
seeking annulment).
• This provision ensures that the loss
of the thing does not hinder the
action for annulment if it was not
caused by the fault or fraud of the
plaintiff.
It's important to note that under the second
paragraph, the requirement that the fraud or fault
leading to the loss must have occurred "after
having acquired capacity," as stated in the old
Code, has been removed in the current provision,
making the second paragraph somewhat
redundant.
ART. 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)
Article 1402 of the Civil Code addresses the effect
when one party to a contract cannot fulfill their
obligation to return what is required by the decree
of annulment:
1. Reciprocal Obligation of Restitution:
• When a contract is annulled, both
parties have reciprocal obligations
to restore what they have
received.
• If one party fails to restore what
they are bound to return by the
decree of annulment, the other
party cannot be compelled to
comply with what is incumbent
upon them.
• Essentially, the fulfillment of one
party's obligation to return what is
required serves as a condition for
the other party to fulfill their
obligation.
2. Effect of Inability to Restore:
 • If a party cannot restore what they
are bound to return, even if the
loss is due to a fortuitous event,
the other party cannot enforce
their obligation.
• However, if the party who lost the
thing through a fortuitous event
offers to pay its value along with
any fruits received, the other party
can be required to make
restitution.
• In the case of a fortuitous event,
there is no liability to pay interest
since the loss is not due to the fault
of the party.
3. Illustrative Case:
• The case cited illustrates the
nature of possession of a buyer
who knew that the sale was in
violation of the law. In this
situation, the buyer, being aware
of the defect in their title, is
considered a possessor in bad faith
and is obligated to account for the
fruits received from the property.
Additionally, they may be required
to reimburse the lawful possessor
for any necessary expenses
incurred.
CHAPTER 8
UNENFORCEABLE CONTRACTS (N)
ART. 1403. THE FOLLOWING CONTRACTS ARE
UNENFORCEABLE, UNLESS THEY ARE RATIFI ED:
(1) THOSE ENTERED INTO 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 SUFFI CIENT 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 1403 of the Civil Code outlines three
categories of contracts that are considered
unenforceable unless they are ratified:
1. Contracts Entered into Without Authority:
• Contracts entered into in the name
of another person by someone
who has not been given authority
or legal representation, or who has
acted beyond their powers, are
unenforceable unless ratified.
2. Statute of Frauds:
• Certain agreements are
unenforceable unless they are in
writing and subscribed by the
party charged or their agent. These
include:
• Agreements not to be
performed within a year
from the making thereof.
• Special promises to
answer for the debt,
default, or miscarriage of
another.
• Agreements made in
consideration of marriage,
other than a mutual
promise to marry.
 • Agreements for the sale of
goods, chattels, or things
in action at a price not less
than Five hundred pesos,
unless certain conditions
are met.
• Agreements for the
leasing for a longer period
than one year or for the
sale of real property or an
interest therein.
• Representations as to the
credit of a third person.
3. Contracts Where Both Parties Are
Incapable of Giving Consent:
• Contracts where both parties are
incapable of giving consent are
also considered unenforceable.
Meaning of Unenforceable Contracts:
Unenforceable contracts are those that cannot be
enforced in court or sued upon due to defects
provided by law until and unless they are ratified
according to the law. Essentially, these contracts
lack legal enforceability until they are ratified by
the parties involved.
INDEED, THE BINDING FORCE OF
UNENFORCEABLE CONTRACTS DIFFERS FROM
RESCISSIBLE AND VOIDABLE CONTRACTS.
While rescissible and voidable contracts are initially
valid and enforceable until they are rescinded or
annulled, unenforceable contracts, although still
considered valid, cannot be enforced unless they
are ratified.
The defect that renders a contract unenforceable is
typically of a permanent nature and cannot be
remedied solely by the passage of time. Unlike
some defects in contracts that might be cured over
time or through subsequent actions, the defect in
an unenforceable contract persists until the
contract is ratified by the appropriate party.
Therefore, even if time passes, the unenforceable
contract remains unenforceable until it is ratified.
Ratification of an unenforceable contract involves
the express or implied confirmation of the
contract's validity by the party in whose name the
contract was executed or by another authorized
party. Once ratified, the contract gains
enforceability and may be acted upon as if it were
initially valid. However, until such ratification
occurs, the contract remains unenforceable,
regardless of the passage of time.
INDEED, UNDER ARTICLE 1403 OF THE CIVIL CODE,
THE FOLLOWING ARE CONSIDERED
UNENFORCEABLE CONTRACTS:
1. Contracts entered into in the name of
another by a person without authority or
acting in excess of their authority.
2. Contracts that do not comply with the
Statute of Frauds, which includes
agreements falling under specific
categories such as those not to be
performed within a year, special promises
to answer for the debt of another,
agreements made in consideration of
marriage, agreements for the sale of goods
above a certain value, agreements for the
leasing or sale of real property, and
representations regarding the credit of a
third person.
3. Contracts where both parties are incapable
of giving consent, such as contracts
involving minors, mentally incapacitated
individuals, or contracts entered into under
duress or undue influence.
Despite being unenforceable, a party to such a
contract may still attempt to bring an action to
enforce it. However, this action is subject to the
defense of lack of the required form, such as failure
to comply with the Statute of Frauds, or lack of
authority or acting in excess thereof. It's important
to note that while a party to the contract may seek
to enforce it, a third person cannot assail the
contract's validity under Article 1408 of the Civil
Code.
UNAUTHORIZED CONTRACTS
Refer to agreements made in the name of another
person by someone who lacks the authority or legal
representation to do so, or who exceeds their
powers when making the agreement. These
contracts are governed by Article 1317 of the Civil
Code and the principles of agency outlined in
Articles 1868, 1869, 1881, 1882, 1883, 1900, and
1901. In essence, unauthorized contracts involve a
party acting on behalf of another without the
proper authorization or legal capacity to do so.
THE STATUTE OF FRAUDS REFERS TO STATUTES
THAT REQUIRE CERTAIN CLASSES OF CONTRACTS
TO BE IN WRITING. ITS PURPOSE IS TO PREVENT
FRAUD AND PERJURY BY REGULATING THE
FORMALITIES OF CONTRACTS NECESSARY TO
RENDER THEM ENFORCEABLE.
The statute does not prohibit parties from entering
into contracts but rather establishes requirements
for their enforceability in court.
Here are some key points regarding the Statute of
Frauds:
1. History: Originating in 1677 in England, the
statute aimed to prevent perjury by making
specific contracts unenforceable unless
evidenced in writing. It has since been
 adopted in various forms in different
jurisdictions, including the Philippines.
2. Purpose: The statute aims to prevent fraud
and mistakes by requiring certain
agreements to be in writing. Without
written evidence, there may be no
palpable evidence of the parties'
intentions, leading to unreliable testimony.
3. Application:
• The statute applies to specific
kinds of transactions listed in
Article 1403(2) of the Civil Code of
the Philippines.
• It applies to executory contracts,
not to those that are totally or
partially performed.
• The defense of the statute can be
waived and is personal to the
parties involved.
4. Types of Contracts Covered: The statute
applies to various types of contracts,
including agreements not to be performed
within a year, promises to answer for the
debt of another, agreements in
consideration of marriage, contracts for
the sale of goods above a certain value,
agreements for the sale or lease of real
property, and representations regarding
the credit of a third person.
5. Enforcement: Contracts subject to the
Statute of Frauds cannot be enforced in
court unless they comply with its
requirements. Oral evidence of such
contracts cannot be admitted unless there
is a writing or secondary evidence of its
contents.
6. Exceptions: Some contracts, despite being
related to real property, may not fall under
the Statute of Frauds, such as partitions
among heirs or easements of right-of-way.
In essence, the Statute of Frauds serves to protect
parties from fraudulent or mistaken claims by
requiring certain agreements to be in writing to be
enforceable in court.
The Statute of Frauds encompasses various types
of agreements that require written documentation
for enforceability. Here's a breakdown of the
agreements within its scope:
1. Agreement not to be performed within
one year: Contracts that cannot be
completed within a year from their making
must be in writing to be enforceable.
Partial performance does not take such
contracts out of the statute's purview
unless full performance by one party
occurs within a year.
2. Promise to answer for the debt, default,
or miscarriage of another: Guarantees or
promises to pay another's debt are covered
by the statute unless they are original and
independent promises, making the
promisor primarily liable.
3. Agreement in consideration of marriage:
Agreements made in consideration of
marriage, except mutual promises to
marry, must be in writing. Oral evidence
may be admissible for mutual promises to
marry.
4. Agreement for sale of goods or services
exceeding P500.00: Contracts for the sale
of goods or services above a specified
amount must be in writing. Oral evidence
may be admissible if there is partial or full
performance.
5. Agreement for leasing for a period
exceeding one year: Leases for periods
longer than one year must be in writing
unless partially executed.
6. Agreement for the sale of real property or
an interest therein: Contracts for the sale
of real estate or any interest therein must
be in writing. Oral agreements may be
enforceable if partially executed.
7. Representation as to the credit of a third
person: Representations regarding the
creditworthiness of another must be in
writing if made to induce a creditor to
extend credit.
8. Express trusts concerning an immovable
or any interest therein: Express trusts over
real property must be evidenced in writing
for purposes of proof, but not necessarily
for validity.
These provisions aim to prevent fraud and ensure
clarity and enforceability in contractual
arrangements.
THE STATUTE OF FRAUDS ENCOMPASSES VARIOUS
TYPES OF AGREEMENTS THAT MUST BE IN
WRITING TO BE ENFORCEABLE.
Here are the key types of agreements covered by
the Statute of Frauds:
1. Agreement not to be performed within
one year: This applies to contracts that
cannot be completed within a year from
the time of making the agreement.
However, if the contract can be fully
performed within a year, it falls outside the
scope of the Statute of Frauds.
 2. Promise to answer for the debt, default,
or miscarriage of another: Guarantees or
promises to pay the debts of another
person must be in writing to be
enforceable under the Statute of Frauds.
3. Agreement in consideration of marriage
other than a mutual promise to marry:
Contracts made in consideration of
marriage, such as agreements to build a
house if someone gets married, are
covered by the Statute of Frauds.
4. Agreement for the sale of goods
exceeding a certain value: Contracts for
the sale of goods above a certain value
(typically $500 or its equivalent) must be in
writing to be enforceable.
5. Agreement for leasing for a longer period
than one year: Leases exceeding one year
in duration must be in writing to be
enforceable.
6. Agreement for the sale of real property or
of an interest therein: Contracts for the
sale of real estate or any interest in real
estate must be in writing to be enforceable.
7. Representation as to the credit of a third
person: Representations made to induce
credit extended to another person must be
in writing to be enforceable.
8. Express trusts concerning an immovable
or any interest therein: Trusts concerning
real estate or any interest in real estate
must be in writing for proof, though not
necessarily for validity.
These provisions aim to prevent fraud and ensure
that important agreements are properly
documented for clarity and enforceability.
IN DETERMINING WHETHER A PROMISE IS
ORIGINAL OR COLLATERAL, BOTH LEGAL
PRINCIPLES AND FACTUAL CIRCUMSTANCES MUST
BE CONSIDERED.
The distinction between an original and a collateral
promise is crucial, as it determines whether the
promise falls within the scope of the Statute of
Frauds.
1. Legal Principles:
• An original promise is one where
the promisor is directly liable for
the obligation stated in the
promise.
• A collateral promise, on the other
hand, is one where the promisor's
liability is contingent upon the
default or failure of another party
to fulfill their obligation.
2. Factual Circumstances:
• The language used in making the
promise.
• The context and circumstances
under which the promise was
made.
• The understanding and intentions
of the parties involved.
While the form of the words used in the promise
can provide some indication, it's not always
conclusive. For example:
• An absolute promise, such as "I will pay,"
may be deemed collateral under certain
circumstances.
• Conversely, a promise that appears
collateral on its face, such as "I will see you
paid," may be found to be original
depending on the context.
In the illustrative case provided:
• The promise made by X to stand good for
the purchase price of lumber needed for
the repair of his house was found to be an
original promise, not collateral.
• This determination was based on the fact
that the credit for the lumber was
extended solely and exclusively to X, even
though the lumber was delivered to a third
party (the contractor, Y).
• The circumstances revealed that the credit
was extended by the lumber supplier (T)
based on X's verbal agreement with him. X
was fully aware of the arrangement and
actively participated in approving invoices
and overseeing the transactions.
• Therefore, X's promise was not subject to
the Statute of Frauds and did not need to
be in writing to be enforceable.
In summary, the distinction between original and
collateral promises depends on both legal
principles and the specific facts and circumstances
of each case.
THE EFFECT OF THE STATUTE OF FRAUDS ON THE
ENFORCEABILITY OF A CONTRACT FOR THE SALE
OF CHATTELS CAN VARY DEPENDING ON
WHETHER THE CONTRACT IS DIVISIBLE OR
INDIVISIBLE.
This distinction is crucial in determining the
applicability of the Statute and the enforceability of
the contract. Here's how it works:
1. Divisible Contracts:
 • In a divisible contract, the parties
intend to treat each item or part of
the contract separately.
• If the contract involves separate
chattels, each sold for a price
below the statutory limit (e.g.,
below P500.00), then the Statute
of Frauds does not apply to each
separate sale.
• However, if the transaction is
considered one entire sale and the
total price exceeds the statutory
limit, the Statute applies, even if
separate chattels are involved.
• If part of one lot of chattels is
received and accepted, or partial
payment is made, it satisfies the
Statute as to all chattels sold under
that contract.
2. Indivisible Contracts:
• In an indivisible contract, the
parties intend to treat the contract
as a whole, without separating its
parts.
• If the contract is considered one
entire sale, any action or receipt
and acceptance of part payment
that satisfies the Statute for one
chattel applies to all chattels sold
under that contract.
• The intention of the parties, as
evidenced by the terms of the
contract and the circumstances of
the case, determines whether the
contract is divisible or indivisible.
Examples:
1. Entire Sale: If S and B enter into an oral
contract for the sale of two distinct articles,
and the transaction is considered one
entire sale, the receipt or payment for one
item satisfies the Statute for the other item
as well.
2. Separate Sales: If the sales are treated as
separate transactions, each below the
statutory limit, the Statute does not apply.
Therefore, receipt of one item does not
satisfy the Statute for the other item unless
it is received and accepted as part of the
same transaction.
In summary, whether a contract for the sale of
chattels is divisible or indivisible determines the
application of the Statute of Frauds and the
enforceability of the contract, with divisible
contracts offering more flexibility in avoiding the
requirements of the Statute.
THE SUFFICIENCY OF A NOTE OR MEMORANDUM
TO SATISFY THE REQUIREMENTS OF THE STATUTE
OF FRAUDS HINGES ON SEVERAL KEY PRINCIPLES:
1. Form and Content: There is no specific
form required for a note or memorandum
under the Statute of Frauds. It can be
formal or informal, written with pen and
ink or lead pencil, or even made on a
printed form. The essential elements of the
contract must be stated with reasonable
certainty, and it must be signed by the
party to be charged or their authorized
agent.
2. Consideration: While it's not necessary for
the note or memorandum to state the
consideration for the contract, its existence
is presumed unless proven otherwise by
the debtor.
3. Written Correspondence: An exchange of
written correspondence between the
parties can serve as sufficient writing to
evidence the agreement and comply with
the Statute of Frauds.
4. Divisibility of Contracts: The divisibility of
contracts plays a role in determining the
sufficiency of the note or memorandum. If
a contract involves separate chattels sold
under separate transactions, each below
the statutory limit, the Statute does not
apply to each separate sale. However, if the
transaction is considered one entire sale
and exceeds the statutory limit, the Statute
applies.
5. Combining Documents: Multiple
documents or writings may be considered
together to satisfy the Statute's
requirements if they are properly
connected and together meet the
requirements for content and signature.
In an illustrative case where the contract of sale
was entered into orally, but all the requirements
were present in two separate instruments signed
by both parties, the applications filed separately
with the Treasury Department for the purchase and
sale of a property satisfied the requirements of the
Statute as to content and signature. Therefore,
they constituted sufficient proof to evidence the
agreement in question.
In summary, the sufficiency of a note or
memorandum under the Statute of Frauds
depends on whether it contains the essential
elements of the contract, is signed by the party to
be charged, and can be considered together with
other documents to meet the requirements of the
Statute.
THE ENFORCEABILITY OF ELECTRONIC
TRANSACTIONS IS GOVERNED BY R.A. NO. 8792,
THE ELECTRONIC COMMERCE ACT OF 2000,
WHICH PROVIDES LEGAL RECOGNITION TO
ELECTRONIC COMMERCIAL AND NON-
COMMERCIAL TRANSACTIONS, BOTH
DOMESTICALLY AND INTERNATIONALLY.
Here are key provisions regarding the enforceability
of electronic transactions:
1. Legal Recognition of Electronic Data
Message: Information in the form of
electronic data messages shall not be
denied validity or enforceability solely
because it is electronic or merely
incorporated by reference in such
electronic data message.
2. Legal Recognition of Electronic
Documents: Electronic documents have
the same legal effect, validity, and
enforceability as any other document or
legal writing.
3. Legal Recognition of Electronic Signatures:
An electronic signature on an electronic
document is equivalent to a handwritten
signature if certain conditions are met,
including the use of a reliable method to
identify the party, the reliability of the
method used, and the authorization of the
other party to verify the electronic
signature.
4. Admissibility and Evidential Weight:
Electronic data messages or electronic
documents are admissible in legal
proceedings, and their admissibility cannot
be denied solely because they are in
electronic form. They are considered the
best evidence of the agreement and
transaction contained therein. The
reliability of their generation, storage,
communication, and identification of the
originator is considered in assessing their
evidential weight.
5. Recognition by Parties: Declarations of will
or statements in the form of electronic
data messages or electronic documents
shall not be denied legal effect, validity, or
enforceability solely because of their
electronic form. A contract formed through
electronic means is not invalid solely
because it is in electronic form or because
elements required for its formation are
expressed through electronic means.
These provisions ensure that electronic
transactions are legally recognized and
enforceable, providing a framework for the
conduct of business and transactions in the digital
age.
ART. 1404. UNAUTHORIZED CONTRACTS ARE
GOVERNED BY ARTICLE 1317 AND THE PRINCIPLES
OF AGENCY IN TITLE X OF THIS BOOK.
ART. 1405. CONTRACTS INFRINGING THE STATUTE
OF FRAUDS, REFERRED TO IN NO. 2 OF ARTICLE
1403, ARE RATIFI ED BY THE FAILURE TO OBJECT
TO THE PRESENTATION OF ORAL EVIDENCE TO
PROVE THE SAME, OR BY THE ACCEPTANCE OF
BENEFI TS UNDER THEM.
Article 1404 of the Civil Code states that
unauthorized contracts are governed by Article
1317 and the principles of agency in Title X of the
Civil Code. This means that contracts entered into
without proper authority or authorization are
subject to the rules regarding unauthorized acts
and agency relationships as specified in the Civil
Code.
Article 1405 deals with contracts that infringe the
Statute of Frauds, as referenced in Article 1403, No.
2. According to this article, such contracts can be
ratified in two ways:
1. Failure to Object to Oral Evidence: If a
party does not object to the presentation
of oral evidence to prove the contract, it is
considered a waiver. This failure to object
makes the contract as binding as if it had
been reduced to writing. Cross-examining
a witness who testifies orally about the
contract but on matters inadmissible under
the Statute also constitutes a failure to
object.
2. Acceptance of Benefits: If a party accepts
benefits under the contract, the contract is
no longer executory, and therefore the
Statute of Frauds does not apply. This
principle is based on the idea that one who
has enjoyed the benefits of a transaction
should not be allowed to repudiate its
burdens. Accepting partial payment or
delivery of the subject matter of the
contract indicates consent to the contract
and precludes the party from rejecting its
binding effect.
These rules provide mechanisms for ratifying
contracts that would otherwise be unenforceable
due to the Statute of Frauds, ensuring fairness and
equity in contractual relationships.
ART. 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.
Article 1406 of the Civil Code provides a right to
parties in cases where a contract is enforceable
under the Statute of Frauds and requires a public
document for registration in the Registry of Deeds.
This right is outlined in Article 1357 of the Civil
Code.
For this provision to apply, two conditions must be
met:
1. There must be a valid agreement.
2. The agreement must not infringe the
Statute of Frauds.
Here are two scenarios illustrating the application
of this provision:
1. In the case of an oral sale of real property,
one party cannot compel the other to put
the contract in a public document for
registration because it is unenforceable
under the Statute of Frauds unless it has
been ratified. This means that if the
contract is not ratified, it cannot be
enforced, and therefore the right to
compel the other party to execute a public
document for registration does not apply.
2. Similarly, in the case of a donation of real
property made through a private
instrument, the right of one party to have
the other execute a public document for
registration is not available because the
donation is void. Donations of real
property must be made through a public
document to be valid. Therefore, if the
donation is not made through a public
document, it is considered void, and the
right to compel the other party to execute
a public document does not apply.
In both scenarios, the enforcement of the contract
or donation is contingent upon compliance with
the requirements of the Statute of Frauds and
other relevant provisions of the Civil Code
regarding the form and validity of contracts.
ART. 1407. IN A CONTRACT WHERE BOTH PARTIES
ARE INCAPABLE OF GIVING CONSENT, EXPRESS OR
IMPLIED RATIFI CATION 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 RATIFI CATION 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 1407 of the Civil Code addresses contracts
where both parties are incapable of giving consent.
In such cases, if the parent or guardian of one of
the contracting parties ratifies the contract, it will
have the same effect as if only one party were
incapacitated. Furthermore, if the parents or
guardians of both contracting parties ratify the
contract, it will be validated from the inception.
Here are the key points regarding Article 1407:
1. Ratification by Parent or Guardian: If the
parent or guardian of one of the
incapacitated parties ratifies the contract,
it becomes valid as if only one party were
incapacitated.
2. Ratification by Parents or Guardians of
Both Parties: If the parents or guardians of
both incapacitated parties ratify the
contract, it is validated from the beginning.
3. Transformation to Voidable Contract:
Contracts where both parties are incapable
of giving consent are initially
unenforceable. However, if ratification
occurs as outlined in Article 1407, the
contract becomes voidable rather than
unenforceable.
4. Effect on Restitution: In cases where the
contract is deemed unenforceable and not
voidable, restitution may not be ordered.
This means that parties cannot claim
restitution for any portion of the purchase
price or benefits derived from the contract.
An illustrative case cited in legal literature further
clarifies the application of Article 1407. In the case
of Badillo vs. Ferrer, a deed of extrajudicial partition
and sale was entered into by a surviving widow
who acted beyond her powers as a natural
guardian. The contract pertained to the individual
shares of her minor children, who were not parties
to the contract. Since the deed was not ratified and
was questioned for its validity, it remained
unenforceable under Article 1403(1) and Article
1317. Therefore, no restitution could be ordered
from the minors regarding the portion of the
purchase price related to their share in the
property or any portion that benefited them.
WHEN BOTH CONTRACTING PARTIES OR THEIR
PARENTS OR GUARDIANS RATIFY THE CONTRACT
AFTER ATTAINING OR REGAINING CAPACITY, THE
PREVIOUSLY UNENFORCEABLE CONTRACT
BECOMES VALIDATED. IMPORTANTLY, ITS
VALIDITY RETROACTS TO THE TIME WHEN THE
CONTRACT WAS INITIALLY ENTERED INTO.
This means that once ratified, the contract is
considered valid from the moment it was made, as
if it had been legally binding from the start.
Here's a breakdown of the key points regarding the
validation of an initially unenforceable contract:
1. Ratification: Ratification can occur either
by both contracting parties themselves or
 by their parents or guardians, depending
on the circumstances.
2. Timing of Ratification: The ratification
must take place after the parties have
attained or regained capacity. It essentially
confirms and approves the contract after
the parties are capable of giving consent.
2. Benefit of the Statute: The benefit of the
3. Validation of Contract: Once ratified, the
contract is considered validated. This
means that it is legally recognized and
enforceable.
4. Retroactive Validity: Importantly, the
validation of the contract has a retroactive
effect. This means that its validity is
recognized from the time the contract was
3. Examples:
initially entered into, not just from the time
of ratification. Therefore, any rights and
obligations arising from the contract are
considered to have existed since its
inception.
This provision ensures that contracts, which may
have been initially unenforceable due to incapacity
or other reasons, can become legally valid and
enforceable once the necessary conditions for
ratification are met.
ART. 1408. UNENFORCEABLE CONTRACTS
CANNOT BE ASSAILED BY THIRD PERSONS.
Under Article 1408 of the Civil Code, unenforceable
contracts cannot be assailed by third persons. This
means that individuals who are not parties to the
contract or directly involved in it cannot challenge
the validity of the contract based on its
unenforceability.
Here's a breakdown of the key points regarding the
right of third persons to assail an unenforceable
contract:
1. Strangers to the Contract: Third persons
who are not parties to the contract,
referred to as strangers, cannot bring an
action to annul or challenge the contract's
validity due to its unenforceability. They
are not directly affected by the contract's
terms and conditions.
Statute of Frauds, which renders certain
contracts unenforceable if not in writing,
can only be claimed or waived by those
who are parties to the oral contract or privy
to it. Third persons are not entitled to
invoke or challenge the application of the
Statute of Frauds.
• If person C binds themselves in
writing for the performance by B of
their obligation under an oral
contract between S and B, C
cannot challenge the contract's
unenforceability. C is considered a
stranger to the contract.
• In a scenario where B brings an
action for ejectment against
person C, who is in possession of
the land sold under a verbal
contract between S and B, person
C cannot use the defense of the
Statute of Frauds.
• Even if person C maliciously
induces S not to sell the land to B,
resulting in S selling the land to
another party, B cannot plead the
Statute of Frauds in an action
against person C for damages.
In essence, the law protects the sanctity of
contracts by limiting challenges to their validity to
those who are directly involved in the contractual
relationship. Third persons are generally not
afforded the right to assail contracts based on their
unenforceability.
CHAPTER 9
VOID OR INEXISTENT CONTRACTS
ART. 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 FI CTITIOUS;
(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 RATIFI ED.
NEITHER CAN THE RIGHT TO SET UP THE DEFENSE
OF ILLEGALITY BE WAIVED.
Article 1409: Inexistent and Void Contracts
1. Categories of Void Contracts:
• Contrary to Law or Morals: Contracts with
causes, objects, or purposes that go
against legal principles, morals, good
customs, public order, or public policy.
• Absolutely Simulated or Fictitious:
Contracts that are entirely fabricated or
falsely represented.
• Non-existent Cause or Object: Contracts
where the cause or object did not exist at
the time of the transaction.
• Outside the Commerce of Men: Contracts
with objects that are not within the realm
of commerce.
• Impossible Service: Contracts that involve
services that cannot be performed.
• Uncertain Intention of Parties: Contracts
where the parties' intention regarding the
main object cannot be determined.
• Expressly Prohibited by Law: Contracts
explicitly forbidden or declared void by
legal statutes.
2. Irrevocable Nature and Illegality:
• No Ratification: These contracts cannot be
ratified, meaning they cannot be validated
or confirmed after their inception.
• Inability to Waive Illegality Defense: The
right to invoke the defense of illegality
cannot be waived.
3. Understanding Void Contracts:
• Definition: Void contracts are those that,
due to certain defects, have no legal effect
whatsoever.
• Inexistence from Inception: They are
considered non-existent from their very
beginning.
• Contradiction in Terms: The term "void
contract" is a contradiction since a contract
that is void is essentially non-existent.
• Loose Usage: Despite its contradiction, the
term "void contract" is often used
colloquially to describe agreements tainted
with illegality.
Explanation:
Article 1409 outlines the various circumstances
under which contracts are considered inexistent
and void from their inception. It provides examples
of such contracts and emphasizes their irrevocable
nature. Additionally, it clarifies the meaning of void
contracts, highlighting the contradiction in the
term and its colloquial usage.
MEANING OF INEXISTENT CONTRACTS:
Definition:
• Inexistent contracts are agreements that
lack one or more of the essential elements
required for the existence of a valid
contract. These essential elements
typically include consent, object, and
cause.
• Additionally, inexistent contracts may fail
to comply with the formalities necessary
for a contract to be legally recognized.
Essential Elements:
• Consent: The agreement between the
parties must be genuine and free from
coercion, fraud, or mistake.
• Object: There must be a specific subject
matter or object of the contract upon
which the agreement is based.
• Cause: There must be a lawful reason or
consideration for the parties to enter into
the contract.
Formalities:
• Contracts may also be deemed inexistent if
they fail to meet certain formal
requirements prescribed by law, such as
writing, notarization, or registration,
depending on the type of contract and
jurisdiction.
Consequences:
• Inexistent contracts are considered to have
never existed legally. Therefore, they do
not create any rights or obligations
between the parties.
• Unlike void contracts, which may have
defects but still exist, inexistent contracts
lack the fundamental elements necessary
for recognition as a contract.
Explanation:
The explanation provided clarifies that inexistent
contracts are those that lack essential elements or
fail to meet formalities required for the existence
of a contract. Without these elements or
formalities, the agreement is deemed to have
never legally existed, resulting in no rights or
obligations for the parties involved.
CHARACTERISTICS OF A VOID OR INEXISTENT
CONTRACT:
1. No Legal Effect:
• Generally, a void or inexistent
contract produces no effect
whatsoever and is considered null
and void from the beginning.
2. Cannot Be Cured or Validated:
• The defect in a void or inexistent
contract cannot be cured or
validated either by the passage of
time or by ratification.
3. Non-Waivable Defense:
• The right to set up the defense of
illegality, inexistence, or absolute
nullity cannot be waived by the
parties involved.
4. Prescription of Action or Defense:
• The action or defense for the
declaration of illegality,
inexistence, or absolute nullity of
the contract does not prescribe,
meaning there is no time limit for
challenging its validity.
5. Limited Availability of Defense:
• The defense of illegality,
inexistence, or absolute nullity is
not available to third parties
whose interests are not directly
affected by the contract.
6. Inability to Create Valid Contract:
• A void or inexistent contract
cannot give rise to a valid contract.
It lacks the essential elements or
formalities required for legal
recognition.
7. Questionable Validity by Affected Parties:
• The invalidity of a void or
inexistent contract can be
questioned by anyone affected by
it, ensuring that those affected
have the opportunity to challenge
its legality.
Significance:
• These characteristics distinguish a void or
inexistent contract from other defective
contracts, emphasizing its complete lack of
legal effect and inability to be validated or
cured.
EFFECTS OF A VOID OR INEXISTENT CONTRACT:
1. No Legal Effect:
• A void or inexistent contract
produces no effect whatsoever,
whether against or in favor of
anyone.
• It vests no rights and creates no
obligations for any party involved.
2. No Modification or Extinguishment of
Juridical Relation:
Clarification:
• Such a contract does not create,
modify, or extinguish the legal
relationship to which it pertains.
• Courts cannot enforce or lend
themselves to the enforcement of
rights or obligations arising from a
void or inexistent contract.
3. Equivalent to Nothing:
• A void or inexistent contract holds
no legal weight and is considered
equivalent to nothing in terms of
legal significance.
• Parties have no enforceable rights,
and the court cannot enforce the
terms of the contract.
4. Restoration of Performance:
• If a void contract has already been
performed, the restoration of what
has been given is appropriate.
• However, there is nothing to ratify,
as the contract itself is void from
its inception.
5. Contrast with Illegal Contracts:
• Illegal contracts may produce
effects under certain
circumstances, especially when
one party is less guilty than the
other.
• Unlike void or inexistent contracts,
other defective contracts may be
ratified, and the corresponding
actions may prescribe over time.
• The distinction between void/inexistent
contracts and illegal contracts lies in their
legal effects and potential for enforcement.
• While illegal contracts may have some legal
effects, void or inexistent contracts are
 deemed null and void ab initio, having no
legal effect whatsoever.
EQUITY AND VOID CONTRACTS:
1. Role of Equity:
• Equity, often described as "justice
outside legality," is applied in the
absence of statutory law or judicial
rules of procedure.
• Courts of equity are bound by legal
rules and cannot disregard them
arbitrarily. Equitable reasons
cannot override well-settled rules
of law or public policy.
2. Equity vs. Law:
• While equity may favor one party
in a dispute, it cannot contravene
positive provisions of law or give
validity to a void contract.
• The principle of "dura lex sed lex"
(the law is harsh but it is the law)
dictates that legal rules must
prevail, even if they seem harsh.
Illustrative Case:
Facts:
• S violated the Public Land Act by selling a
homestead land to B within the prohibitory
period, rendering the sale void.
• Subsequently, S sold the remaining portion
of the land to T, who acted in bad faith.
Issue:
• Who is entitled to ownership of the portion
of the land in question?
Held:
• Upholding T's claim would contradict the
principle against unjust enrichment.
• While equity may favor B, who has been in
possession of the land, he too transgressed
the law by entering into the prohibited
transaction.
• Equity follows the law, and upholding B's
claim based on the void contract would
essentially give life to a void contract,
which is prohibited by law.
• Therefore, both sales (to B and T) are null
and void, and the Register of Deeds is
ordered to cancel T's title and reissue the
original title to S.
Conclusion:
• The case illustrates the principle that
equity cannot override legal rules or give
validity to void contracts. Even if equitable
considerations seem to favor one party, the
law must prevail.
INSTANCES OF VOID OR INEXISTENT CONTRACTS:
1. Contracts Contrary to Law, etc.:
• Contracts with causes, objects, or
purposes contrary to law, morals,
good customs, public order, or
public policy are void. Example: A
sale of property in violation of
statutory law.
2. Absolutely Simulated or Fictitious
Contracts:
• Contracts where the price stated
has never been paid are void.
Example: A sale agreement where
no actual payment is made.
Illustrative Cases:
3. Contracts Without Cause or Object:
• Contracts lacking consideration or
where the object did not exist at
the time of the transaction are
void. Example: A contract without
a lawful purpose or where
consideration is absent.
4. Contracts with Objects Outside
Commerce:
• Contracts whose object is outside
the scope of legal commerce are
void. Example: A contract to sell
illegal substances.
5. Contracts Contemplating Impossible
Service:
• Contracts involving services that
are impossible to perform are void.
Example: A contract to deliver
goods already acquired by the
buyer from the rightful owner.
6. Contracts with Uncertain Objectives:
• Contracts where the intention of
the parties regarding the object
cannot be ascertained are void.
Example: A vague contract where
the terms are unclear.
7. Contracts Prohibited or Declared Void by
Law:
• Contracts expressly prohibited or
declared void by law are void.
Example: Contracts involving
future inheritance, sale between
spouses without separation of
property, etc.
 1. Property Purchased in Collusion:
• A contract entered into through
collusion to prejudice third parties
with legitimate claims is void ab
initio.
2. Ratification of Void Sale:
• A second sale entered into to ratify
or confirm a void first sale is
invalid. The second sale cannot
ratify a void contract.
ART. 1410. THE ACTION OR DEFENSE FOR THE
DECLARATION OF THE INEXISTENCE OF A
CONTRACT DOES NOT PRESCRIBE.
Action or Defense for Declaration of Inexistence of
a Contract:
1. Imprescriptible Action or Defense:
• A contract that is void or inexistent
can always be challenged,
regardless of the passage of time.
The defect in such contracts is
permanent and incurable, so the
action or defense does not
prescribe.
• The right to challenge a void
contract cannot be waived, and
laches cannot be invoked to resist
its enforcement.
2. Necessity of Judicial Declaration:
• Since a void contract has no effect
at all, it's unnecessary to bring an
action to declare it void. However,
obtaining a judicial declaration of
nullity can provide peace of mind
and prevent parties from taking
the law into their own hands.
3. Rule for Voidable Contracts:
• Voidable contracts can only be
annulled through a proper court
action within the prescribed
period. The defendant cannot
attack the validity of a voidable
contract by way of defense but can
do so through a counterclaim.
Illustrative Cases:
1. Action for Declaration of Inexistence due
to Lack of Consideration:
• An action to declare a contract
void for lack of consideration is
subject to prescription if
consideration was not entirely
absent.
2. Vendor's Right to Challenge Sale Against
Bona Fide Successors:
• The vendor can challenge a void
sale, even against bona fide
successors, as long as there was a
total absence of title in the vendor.
3. Dismissal of Complaint Based on
Prescription:
• Courts should not summarily
dismiss complaints for the
declaration of the inexistence of a
contract based solely on
prescription but should proceed to
trial on the merits.
4. Action for Annulment of Deed Based on
Fraud and Absence of Consideration:
• An action to declare a contract
void and inexistent due to fraud
and absence of consideration is
imprescriptible.
Conclusion:
Article 1410 ensures that contracts lacking
essential elements or contravening legal principles
can be challenged without limitation, emphasizing
the permanence of defects in void or inexistent
contracts. These provisions protect parties from
the enforcement of contracts that are
fundamentally flawed or contrary to law.
ART. 1411. WHEN THE NULLITY PROCEEDS FROM
THE ILLEGALITY OF THE CAUSE OR OBJECT OF THE
CONTRACT, AND THE ACT CONSTITUTES A
CRIMINAL OFFENSE, BOTH PARTIES BEING IN PARI
DELICTO, THEY SHALL HAVE NO ACTION AGAINST
EACH OTHER, AND BOTH SHALL BE PROSECUTED.
MOREOVER, THE PROVISIONS OF THE PENAL
CODE RELATIVE TO THE DISPOSAL OF EFFECTS OR
INSTRUMENTS OF A CRIME SHALL BE APPLICABLE
TO THE THINGS OR THE PRICE OF THE CONTRACT.
THIS RULE SHALL BE APPLICABLE WHEN ONLY ONE
OF THE PARTIES IS GUILTY; BUT THE INNOCENT
ONE MAY CLAIM WHAT HE HAS GIVEN, AND SHALL
NOT BE BOUND TO COMPLY WITH HIS PROMISE.
(1305)
Article 1411 of the Civil Code addresses the legal
principle of pari delicto, which means "in equal
fault." Here's a breakdown of its key points:
Rule on Pari Delicto:
1. Nullity due to Illegality of Cause or Object:
• If the nullity of a contract arises
from the illegality of its cause or
object, and this constitutes a
criminal offense, both parties
being in pari delicto, they cannot
bring an action against each other.
 • Instead, both parties shall be
prosecuted. Additionally, the
provisions of the Penal Code
regarding the disposal of effects or
instruments of a crime shall apply
to the things or the price of the
contract.
2. Application When Only One Party is
Guilty:
• If only one party is guilty of the
illegal act, the innocent party may
claim what they have given and is
not obligated to fulfill their
promise.
3. Doctrine of In Pari Delicto:
• Generally, parties to a void
agreement cannot expect legal aid
because they are considered in
pari delicto, or "in equal fault."
• No action arises from an illegal
contract, and no relief, whether in
equity or at law, will be given to
one party against the other.
• The principle emphasizes that
those seeking equity and justice
must approach the court with
clean hands.
Exceptions to the Rule:
• Despite the general rule of pari delicto,
there are exceptions outlined in Articles
1411-1419 of the Civil Code that allow for
the return of what may have been given
under a void contract.
Illustrative Case:
• The case of Hulst vs. PR Builders, Inc.
illustrates the application of exceptions to
the pari delicto rule, permitting the return
of assets or considerations exchanged
under a void contract.
Conclusion:
Article 1411 underscores the legal consequences
when a contract's nullity stems from an illegal
cause or object, emphasizing the principle of pari
delicto. However, exceptions exist to this rule,
allowing for the return of assets or considerations
exchanged under void contracts in certain
circumstances.
RULES REGARDING CONTRACTS INVOLVING
CRIMINAL OFFENSES:
Under Article 1411 of the Civil Code, contracts
involving criminal offenses have specific legal
implications:
1. Both Parties Equally Guilty (In Pari
Delicto):
• If both parties are equally guilty of
a criminal offense related to the
contract:
• They cannot bring an
action against each other.
• Both parties shall be
prosecuted.
• The things or the price of
the contract, treated as
the effects or instruments
of the crime, shall be
confiscated in favor of the
government.
• The principle of pari delicto holds
that parties in such contracts
cannot seek relief from the courts,
and each must bear the
consequences of their actions.
2. Exceptions to the Rule:
• Exceptions exist to the pari delicto
rule, particularly when it would
violate established public policy or
when applied to inexistent
contracts.
• Parties may not be equally guilty,
or the innocent party may have a
valid claim despite the contract's
illegality.
Illustrative Cases:
1. Salvage Charges for Salvaging Burning
Vessel:
• Salvage charges were recoverable
even if the contract's purpose was
illegal (to aid in illegal importation)
because the salvage was
independent of the illegal
agreement.
• However, if both parties
participated in the illegal activity,
they would have no action against
each other.
2. Loan for Corrupt Election Practices:
• Money knowingly loaned for
corrupt election practices cannot
be recovered.
• Both parties were considered
equally guilty in violating election
laws, leading to the dismissal of
their respective claims for
damages.
 3. Deposit Contract Violating Central Bank
Circular:
• A contract violating a Central Bank
circular was void as it went against
mandatory/prohibitory law.
• Neither party had a cause of action
against the other under Article
1411; the only remedy was
prosecution by the State.
Conclusion:
Contracts involving criminal offenses have serious
legal implications, especially regarding the
principle of pari delicto. However, exceptions exist,
and the application of the law depends on the
specific circumstances of each case.
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 Regarding Contracts Involving Unlawful or
Forbidden Causes:
When the cause of a contract is unlawful or
forbidden but does not constitute a criminal
offense, Article 1412 of the Civil Code provides the
following rules:
1. Both Parties Equally Guilty (In Pari
Delicto):
• If both parties are equally guilty:
• Neither party may recover
what they have given by
virtue of the contract.
• Neither party may
demand the performance
of the other's undertaking.
• Courts will not grant relief to either
party, leaving them where they are
bound by their wrongful
transaction.
2. Exceptions and Illustrative Cases:
• Various cases illustrate the
application of these rules, such as
mortgage arrangements in breach
of stipulated conditions,
transactions to circumvent legal
prohibitions, and agreements
involving kickbacks or illicit
arrangements.
• The principle of pari delicto non
oritur actio (No action arises out of
an illicit bargain) guides these
cases, denying relief to parties
engaged in illegal contracts.
• Exceptions exist when only one
party is guilty, allowing the
innocent party to demand the
return of what they have given
without obligation to comply with
their promise.
3. Restoration When Both Parties Are Not
Guilty:
• If both parties have no fault or are
not guilty, the restoration of what
was given by each of them to the
other is in order.
• The declaration of nullity of a
contract restores things to the
state and condition in which they
were found before the execution
of the contract.
Conclusion:
Contracts involving unlawful or forbidden causes
carry legal consequences, with the principle of pari
delicto guiding the allocation of relief. Exceptions
exist depending on the guilt of the parties, and
restoration may occur if both parties are found to
be without fault. Understanding these rules is
crucial for navigating legal disputes arising from
such contracts.
EXCEPTIONS TO THE APPLICATION OF THE PARI
DELICTO RULE:
The principle of pari delicto, which denies relief to
parties equally guilty in an illegal contract, has
several exceptions, as outlined below:
1. Breach of Warranty Cases:
• In cases involving breach of
warranty arising from a valid
contract of sale, the pari delicto
rule does not apply.
• The vendor is obligated to warrant
the thing sold, and the vendee may
be entitled to remedies such as the
 return of the value of the thing
sold in case of eviction.
2. Simulated Contracts:
• The pari delicto rule does not apply
to simulated or fictitious contracts
or contracts devoid of
consideration.
• Simulated contracts lack a lawful
consideration and are null and void
per se.
3. Parties Not Equally Guilty:
• Relief may be granted to the more
excusable party, especially where
the conveyance was wrongfully
induced by false representations
or imposition by one party.
4. Against the Government:
• The government is not estopped
by the neglect or omission of its
officers, so the pari delicto rule
does not apply in cases involving
the government.
5. Prohibited Conveyances under the Law:
• Certain conveyances prohibited by
law, such as alienation or sale of
homesteads within the prohibitory
period, are void. The pari delicto
rule does not apply in such cases.
6. Constitutional Prohibition Against Alien
Landholding:
• The invalidity of a sale of land to an
alien may be corrected by
subsequent sale to a citizen, or if
the alien later acquires Philippine
citizenship.
7. Other Exceptions:
• American jurisprudence provides
additional exceptions, some of
which may be contained in Articles
1413 to 1419.
• Innocent or less guilty parties may
invoke these exceptions.
Understanding these exceptions is crucial for
determining the applicability of the pari delicto rule
and the availability of remedies in cases involving
illegal contracts.
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 1413 of the Civil Code addresses the
recovery of usurious interest, which refers to
interest charged in excess of the maximum rate
allowed by the Usury Law. Here's an analysis of the
key points outlined in the article:
1. Recovery of Usurious Interest:
• The article stipulates that interest
paid in excess of the interest
allowed by the usury laws can be
recovered by the debtor.
• Furthermore, the debtor is entitled
to recover interest on the excess
amount from the date of payment.
2. Void Stipulation for Usurious Interest:
• Any stipulation in a contract for the
payment of usurious interest is
considered void under the law.
• Consequently, the person who
paid the usurious interest has the
right to recover it through an
independent civil action.
3. Extent of Recovery:
• In cases of usurious interest, the
debtor can not only recover the
interest paid in excess of the lawful
rate but also the entire interest
amount.
• This ensures that the debtor is fully
compensated for any usurious
interest paid.
4. Central Bank Circular No. 905:
• The analysis includes a note
regarding Central Bank Circular No.
905, issued on December 10, 1982.
• This circular removed the ceiling
on interest rates and other charges
for loans or forbearances of
money, goods, or credit previously
set by the Usury Law.
In summary, Article 1413 provides debtors with a
legal recourse to recover usurious interest paid in
violation of the Usury Law. It emphasizes the
voidness of stipulations for usurious interest and
ensures full compensation for debtors who have
been charged such interest. Additionally, the note
highlights the regulatory changes brought about by
Central Bank Circular No. 905 regarding interest
rate ceilings.
1. Recovery of Principal:
• Explanation: In usurious loan
transactions where the interest
charged exceeds the legal limit,
 borrowers are still obligated to
repay the principal amount. This
means that even if the interest is
considered usurious and therefore
unenforceable, the borrower
remains liable for repaying the
principal amount borrowed.
• Example: If a borrower takes out a
loan of $10,000 with a usurious
interest rate, the borrower is still
required to repay the $10,000
principal amount borrowed,
regardless of the illegality of the
interest charged.
2. Nullity of Usurious Contracts:
• Explanation: Usurious contracts,
where the interest rate charged
exceeds the legal limit, are
considered null and void in their
entirety under the Civil Code
provisions. This nullity extends to
both the principal amount and the
interest charged.
• Example: If a loan agreement
stipulates an interest rate above
the legal limit, the entire contract,
including both the principal
amount borrowed and the interest
charged, is deemed void and
unenforceable by law.
3. Distinction Between Principal and
Interest:
• Explanation: The nullity of
usurious interest does not affect
the validity of the principal debt in
loan contracts. This means that
even if the interest portion of the
loan agreement is found to be
usurious, the principal amount
borrowed remains valid and
enforceable.
• Example: If a loan agreement
contains a usurious interest rate,
the principal amount borrowed is
still legally binding, and the
borrower remains obligated to
repay it, despite the
unenforceability of the usurious
interest.
4. Nature of Loan Contracts:
• Explanation: Loan contracts
primarily involve the acquisition of
the loaned amount by the
borrower and the lender's right to
demand repayment. The interest
stipulation is considered
secondary to the principal debt,
and the nullity of usurious interest
does not render the entire
contract invalid.
• Example: In a loan agreement, the
primary purpose is for the
borrower to receive funds from
the lender, with the obligation to
repay the principal amount
borrowed. The interest charged
serves as compensation for the
lender's provision of funds but
does not invalidate the entire
contract if found to be usurious.
5. Entitlement to Recovery:
• Explanation: Creditors (lenders)
are entitled to recover the
principal amount of usurious
loans, along with legal interest as
prescribed by statutory provisions.
This means that despite the nullity
of usurious interest, lenders can
still seek repayment of the
principal amount borrowed, along
with legal interest determined by
applicable laws.
• Example: If a lender extends a
usurious loan to a borrower, the
lender has the right to pursue legal
action to recover the principal
amount of the loan, along with
legal interest as provided by
relevant statutes or regulations.
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.
Article 1414 of the Civil Code of the Philippines
deals with contracts entered into for an illegal
purpose. Let's break down the text and its
implications:
1. Overview of Article 1414: This article
stipulates that when money is paid or
property delivered for an illegal purpose,
the contract can be repudiated by one of
the parties before the illegal purpose is
accomplished or before any damage is
caused to a third person. Additionally, the
courts have the discretion to allow the
party repudiating the contract to recover
 the money or property if it serves the
public interest to do so.
2. Conditions for Application:
• The contract must be for an illegal
purpose.
• The repudiation of the contract
must occur before the illegal
purpose is accomplished or before
any damage is caused to a third
person.
• The court must determine that
allowing recovery serves the public
interest.
3. Purpose of the Rule: The underlying
reasons for allowing recovery when the
agreement is still merely executory
include:
• Encouragement of abandoning
illegal agreements.
• Prevention of the violation of the
law.
4. Example:
• Suppose X pays Y ₱10,000 for the
purpose of hiding Z, who is
accused of murder. Before Y can
hide Z, X changes his mind.
• In this scenario, the court may
allow X to recover the ₱10,000
given to Y because the purpose of
the contract was illegal, no harm
was done, and allowing recovery
serves the public interest.
5. Legal Implications:
• This article provides an avenue for
parties to disassociate themselves
from illegal contracts without
suffering irreparable harm.
• It emphasizes the importance of
upholding the law and
discouraging illegal activities by
allowing recovery before the illegal
purpose is carried out.
In summary, Article 1414 of the Civil Code of the
Philippines provides a mechanism for parties to
void contracts entered into for illegal purposes and
recover any money or property exchanged,
provided certain conditions are met and it serves
the public interest.
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 1415 of the Civil Code of the Philippines
deals with the situation where one party to an
illegal contract is incapable of giving consent. Let's
break down and explain the text provided:
1. Recovery by an incapacitated person: This
article allows for the recovery of money or
property delivered by an incapacitated
person in cases where one party to an
illegal contract lacks the capacity to
consent.
2. Exception to the in pari delicto rule: This
article creates an exception to the principle
of in pari delicto, which means "in equal
fault." Under Articles 1411-1412, parties
who are equally at fault in an illegal
contract are generally not entitled to
recover. However, Article 1415 provides an
exception to this rule in cases where one
party is incapacitated.
3. Requirement of the interest of justice:
Recovery under Article 1415 is contingent
upon the interest of justice. This means
that the courts will consider whether it is
fair and just to allow the incapacitated
party to recover the money or property
delivered.
4. Not dependent on the accomplishment of
illegal purpose or harm to a third person:
Unlike some other provisions related to
void or inexistent contracts, Article 1415
does not require that the illegal purpose of
the contract was not achieved or that no
damage was caused to a third party.
Example: Suppose X, a minor or an insane person,
enters into a contract with Y for an illegal purpose.
If X delivers money to Y but later seeks to recover
it, the court may allow recovery if it is deemed fair
and just, despite the illegal nature of the contract.
This is because X is considered incapacitated to give
consent, and the interest of justice may demand
the return of the money.
In summary, Article 1415 provides a remedy for
incapacitated persons who have entered into illegal
contracts, allowing them to recover money or
property delivered if the interest of justice warrants
it.
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.
Article 1416 of the Civil Code of the Philippines
addresses situations where an agreement is not
illegal per se but is merely prohibited by law. This
article provides an exception to the general rule
that parties who are both at fault (in pari delicto)
will not be granted relief. Instead, it allows the
plaintiff to recover what they have paid or
delivered if certain conditions are met.
Here's a breakdown of the key points and an
explanation:
1. Agreement Not Illegal Per Se: This means
that the agreement itself is not inherently
illegal under the law. Instead, it is
prohibited by law due to certain
circumstances.
Example: A contract to sell certain goods that are
restricted by government regulations but not illegal
in themselves.
2. Prohibition Designed for Plaintiff's
Protection: The prohibition imposed by
law is intended to protect the plaintiff's
interests or rights.
Example: A law prohibiting unfair contract terms
that favor one party over the other.
3. Enhancement of Public Policy: Allowing
the plaintiff to recover what they have paid
or delivered would serve to enhance public
policy.
Example: Allowing consumers to recover payments
made under unfair or deceptive contracts
promotes fair trade practices and consumer
protection.
To illustrate how Article 1416 works, let's consider
a hypothetical scenario:
Scenario: A buyer purchases goods from a seller,
unaware that the seller does not have the legal
authority to sell those goods. The sale is not illegal
per se, but it is prohibited by law because the seller
lacks the proper authorization.
Application of Article 1416:
• The agreement (sale of goods) is not illegal
per se but is merely prohibited due to the
seller's lack of authority.
• The prohibition is designed to protect the
buyer from fraudulent transactions.
• Allowing the buyer to recover what they
have paid would enhance public policy by
discouraging unauthorized sales and
protecting consumers.
In this scenario, Article 1416 would likely allow the
buyer to recover the payments made to the seller,
despite both parties being at fault for entering into
an unauthorized transaction.
THE DOCTRINE OF PARI DELICTO IN THE CONTEXT
OF PROHIBITED LAND SALES AND RELATED LEGAL
PRINCIPLES.
Let's break down the key points and provide
explanations:
1. Doctrine of Pari Delicto:
• Under this doctrine, parties
involved in wrongdoing have no
action against each other.
• However, the rule applies only
when the fault on both sides is
roughly equivalent.
• It doesn't apply when one party is
literate or intelligent and the other
is not. (Mangayao vs. Lasud, 11
SCRA 158 [1964])
2. Prohibited Sale of Land:
• Land sold in violation of
constitutional prohibitions against
transfer to aliens may be
recovered.
• The general rule of pari delicto
should not be applied in such cases
to avoid defeating public policy.
• Contracts circumventing the
constitutional ban against alien
landholding are deemed void.
• Presidential Decree No. 471 sets
the maximum lease duration for
private lands to aliens at 25 years,
renewable for another 25 years.
3. Homestead and Illegal Sale:
• The principle of pari delicto does
not apply to homesteads illegally
sold within a prohibited period.
• The law allows homesteaders to
reacquire land even if it has been
sold within the prohibited period.
• The right to recover the land
cannot be waived, and actions to
recover do not prescribe.
• Government action may be taken
against violations of public land
laws.
4. Amendment to Section 122 of the Public
Land Act:
 • The maximum area of public land
an individual can acquire has been
reduced to 24 hectares.
• Conveyance of public land
exceeding this limit is null and void,
although not illegal per se.
5. Illustrative Case:
• Conveyance of agricultural land by
an illiterate, non-Christian without
approval from the provincial
governor is void.
• Approval by the provincial
governor after the fact does not
validate the sale if consent was
withdrawn.
Explanation: The text provides legal principles
surrounding prohibited land sales, emphasizing the
consequences of violating constitutional and
statutory provisions. It illustrates how doctrines
such as pari delicto apply in various scenarios,
including the sale of land to aliens, homesteads,
and conveyance of public land. Additionally, it
highlights the importance of governmental
approval in certain transactions, particularly
involving illiterate or non-Christian individuals.
IN LEGAL TERMS, DISTINGUISHING BETWEEN
CONTRACTS THAT ARE ILLEGAL PER SE AND THOSE
THAT ARE AGAINST PUBLIC POLICY IS ESSENTIAL
FOR UNDERSTANDING THE ENFORCEABILITY AND
VALIDITY OF AGREEMENTS.
Let's break down the concepts outlined in the
provided text:
1. Illegal Per Se Contracts:
• These contracts are inherently or
by universally recognized
standards deemed bad, improper,
immoral, or contrary to good
conscience.
• They are viewed as inherently
unlawful, regardless of the
circumstances or the parties
involved.
• Examples of illegal per se contracts
include contracts for illegal
activities such as drug trafficking,
human trafficking, or contracts
that involve fraud or deceit.
• These contracts are void ab initio,
meaning they are void from the
beginning and cannot be enforced
by any party.
2. Contracts Against Public Policy:
• Contracts that are against public
policy are not necessarily
inherently unlawful but are
deemed unacceptable due to their
conflict with public interests.
• Public policy can be derived from
various sources such as the
Constitution, statutes, official
declarations, or societal norms.
• These contracts may not be
expressly prohibited by law but are
deemed unenforceable because
they undermine societal welfare or
interests.
• Examples of contracts against
public policy include contracts that
promote discrimination, contracts
that encourage illegal behavior, or
contracts that violate
environmental regulations.
• Courts may refuse to enforce these
contracts or may declare them
void if they are found to be
contrary to public policy.
3. Distinction:
• The distinction between illegal per
se contracts and contracts against
public policy lies in their nature
and scope.
• Illegal per se contracts are
universally recognized as
inherently unlawful, while
contracts against public policy are
determined based on the
prevailing norms and interests
within a particular jurisdiction.
• The example provided in the text
illustrates this point by highlighting
the differences in land disposition
policies among different countries.
Each country may have its own
distinct policy based on its internal
interests and circumstances.
In summary, while both illegal per se contracts and
contracts against public policy involve agreements
that may be unenforceable, they differ in their
inherent nature and the basis for their invalidity.
Illegal per se contracts are universally recognized as
inherently unlawful, while contracts against public
policy are determined based on the prevailing
societal interests within a particular jurisdiction.
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 1417 of the Civil Code of the Philippines
addresses the situation where the price of a
particular article or commodity is set by statute or
by authority of law. Here's a breakdown and
explanation:
1. Recovery of Excess Payment: The article
states that if someone pays an amount in
excess of the maximum price allowed as
determined by law, they have the right to
recover that excess amount. This provision
protects consumers from being
overcharged and ensures compliance with
price regulations.
2. Ceiling Law: The text explains that a statute
fixing the maximum price of any article or
commodity is commonly referred to as a
"ceiling law." This law sets a limit on how
much can be charged for certain goods or
services, aiming to prevent profiteering
and black marketing.
3. Authority of Law: Additionally, the
maximum price can be determined by
other authorities, such as an Executive
Order issued by the President. This means
that the government has the power to
regulate prices to promote fairness and
prevent exploitation of consumers.
Example: Suppose the government passes a law
setting the maximum price for a liter of gasoline at
50 pesos. If a gas station charges 60 pesos per liter,
any customer who pays that amount can demand
to recover the excess 10 pesos per liter they were
charged.
Purpose: The purpose of such laws is to protect
consumers from unfair pricing practices, such as
price gouging during times of crisis or market
manipulation by unscrupulous individuals or
businesses. By imposing maximum prices, the
government aims to ensure that essential goods
remain affordable and accessible to the public.
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 1418 of the Civil Code of the Philippines:
Examples:
Summary: This article deals with the situation
where a laborer agrees to work beyond the
maximum number of hours fixed by law and seeks
additional compensation for the extra hours
worked.
Explanation:
1. Maximum Hours of Labor: When the law
sets or allows the setting of the maximum
number of hours a laborer can work, any
contract that exceeds this limit may entitle
the laborer to demand extra compensation
for the service provided beyond the set
limit.
2. Presidential Decree No. 442 (Labor Code):
Implications:
• The Labor Code, specifically
Presidential Decree No. 442, as
amended, establishes that the
regular hours of work for any
employee should not surpass eight
(8) hours per day.
• This provision applies to
employees across all types of
establishments and enterprises,
regardless of whether they are
operated for profit.
• However, certain categories of
individuals are exempt from the
provisions of the Labor Code,
including government employees,
managerial employees, field
personnel, family members
dependent on the employer,
domestic helpers, individuals in
personal service, and workers paid
based on results.
• If a laborer agrees to work for ten hours a
day in a factory where the maximum
allowed by law is eight hours, they can
demand additional compensation for the
two extra hours worked beyond the legal
limit.
• For instance, if a construction worker
agrees to work twelve hours a day,
exceeding the legal maximum of eight
hours, they have the right to demand extra
payment for the additional four hours of
work performed beyond the statutory
limit.
• This provision ensures that laborers are
adequately compensated for any
additional work performed beyond the
legally established maximum hours,
safeguarding their rights and promoting
fair labor practices.
 • Employers should be cautious not to
require or encourage employees to work
beyond the prescribed legal limits without
providing appropriate compensation, as
this could lead to legal disputes and
liabilities.
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.
The text you provided consists of legal provisions
regarding the minimum wage for laborers in the
Philippines and the consequences for employers
who pay less than the minimum wage. Let's break
it down and explain each part:
1. ART. 1419:
• This article states that when the
law establishes or allows the
establishment of a minimum wage
for laborers, and a contract is
made where the laborer agrees to
receive a wage lower than the
minimum, the laborer has the right
to recover the difference between
the agreed wage and the minimum
wage.
2. Recovery of amount of wage less than
minimum fixed:
• This section clarifies that if an
employee or worker is paid less
than the minimum wage rate set
by law, they are entitled to recover
the shortfall, along with legal
interest. This provision is found in
Article 128 of Presidential Decree
No. 442, as amended.
3. Legal Interest:
• Legal interest refers to the interest
rate imposed by law on the
amount of money owed. In the
context of wage recovery, it means
that not only is the employer
obligated to pay the deficient
amount, but they must also pay an
additional amount as interest on
that deficiency.
4. Criminal Liability of Employers:
• The text also mentions that
employers who fail to pay the
minimum wage can face criminal
liability. This means that they can
be subject to criminal prosecution
for violating the law. The specific
articles referenced here are 278
and 279 of Presidential Decree No.
442, which outline the penalties
for non-compliance with labor
standards.
Example: Let's say the minimum wage set by law
for a particular job is PHP 500 per day. However, an
employer and an employee agree to a wage of PHP
400 per day. According to ART. 1419, the employee
is entitled to recover the deficiency of PHP 100 per
day. Additionally, the employer would be liable for
criminal charges under the relevant provisions of
Presidential Decree No. 442.
Summary: In essence, these provisions ensure that
laborers are not exploited by being paid less than
the minimum wage established by law. They
provide legal recourse for employees to recover
any shortfall in their wages and impose penalties
on employers who violate minimum wage
regulations.
ARTICLE 1420. IN CASE OF A DIVISIBLE CONTRACT,
IF THE ILLEGAL TERMS CAN BE SEPARATED FROM
THE LEGAL ONES, THE LATTER MAY BE ENFORCED.
ART. 1420 discusses the effect of illegality in
contracts, specifically addressing whether a
contract is divisible or indivisible and how illegal
terms affect the enforceability of the contract. Let's
dissect the key points:
1. Divisible and Indivisible Contracts:
• The article distinguishes between
divisible and indivisible contracts
based on whether the
consideration is entire and single
or made up of several parts.
2. Effect of Illegality in Indivisible Contracts:
• In an indivisible (or entire)
contract, where the consideration
is single and illegal, the entire
contract becomes void and
unenforceable. This means that if
any part of the consideration is
illegal, the entire contract is
invalidated.
3. Effect of Illegality in Divisible Contracts:
• In a divisible (or severable)
contract, where the consideration
is composed of several parts and
the illegal ones can be separated
from the legal ones without
violating the parties' intention, the
legal portions may still be
enforced. However, this is subject
to the contrary intention of the
parties.
 4. Examples:
• The text provides examples to
illustrate these principles:
• Example 1 demonstrates a
situation where the
contract involves the sale
of a car and a prohibited
drug. If the price can be
separated for each item,
the legal portion (sale of
the car) may still be valid.
• Example 2 involves a
promissory note for
money won in both legal
and illegal games. The
burden of proof lies on the
creditor to show the legal
portion won in the legal
game.
• Example 3 deals with a
loan with usurious
interest. The legal portion
(the principal debt)
remains enforceable, but
the illegal portion
(usurious interest) is void.
5. Illustrative Case:
• The case presented involves a sale
of land and improvements where
the vendor is not the sole owner.
Due to the indivisible nature of the
prestation and the involvement of
bad faith, the sale is deemed
entirely void.
Summary: ART. 1420 outlines the consequences of
illegality in contracts, depending on whether they
are divisible or indivisible. It emphasizes the
principle that if any part of the consideration is
illegal in an indivisible contract, the entire contract
becomes void. However, in divisible contracts, legal
portions may still be enforced if they can be
separated from the illegal ones without violating
the parties' intentions. Examples and a case study
help illustrate these principles in practical
scenarios.
THIS TEXT EXPLAINS THE DISTINCTION BETWEEN
A DIVISIBLE CONTRACT AND A DIVISIBLE
OBLIGATION, EMPHASIZING THE DIFFERENCE
BETWEEN THE CAUSE OF THE CONTRACT AND THE
PRESTATION OR OBJECT.
Let's break down the key points:
1. Divisible Contract vs. Divisible Obligation:
• Article 1420 is mentioned, which
specifically addresses divisible
contracts, not divisible obligations.
This distinction is crucial in
understanding the nature of
contractual agreements.
• Divisible contract: Refers to a
contract where the cause or
consideration can be divided into
distinct parts. In other words, the
reason or motive for entering into
the contract is divisible.
• Divisible obligation: Refers to an
obligation where the performance
can be partially fulfilled. In this
case, it's not about the cause or
reason for the contract but about
the ability to partially fulfill the
obligation.
2. Test for Divisible Contract and Divisible
Obligation:
• The test for a divisible contract is
the divisibility of its cause,
meaning that the cause or motive
behind the contract can be divided
into parts.
• The test for a divisible obligation is
its susceptibility to partial
fulfillment, indicating that the
performance or obligation under
the contract can be partially
completed.
3. Cause vs. Prestation/Object:
• In a divisible contract, the focus is
on the cause, which refers to the
motive or reason for entering into
the contract.
• In a divisible obligation, the focus
is on the prestation (performance)
or object, which refers to what is
being promised or provided under
the contract.
Example: Let's consider an example to illustrate the
difference between a divisible contract and a
divisible obligation:
• Scenario 1: S pays P1,000.00 as an annual
subscription to a weekly magazine to be
delivered every week. The contract is
indivisible because the entire sum is paid
upfront for the entire year, and the cause
(annual subscription) cannot be divided.
• Scenario 2: If the agreement states that the
publisher will deliver the magazine every
week, and S will pay P25.00 upon each
delivery, the contract becomes divisible. In
this case, both the contract and the
obligations of the parties are divisible
 because they can be divided into weekly
increments.
Summary: Understanding the distinction between
a divisible contract and a divisible obligation is
important in contract law as it impacts the rights
and obligations of the parties involved. It clarifies
whether the contract itself can be divided into
parts or if the obligations under the contract can be
partially fulfilled.
ARTICLE 1421. THE DEFENSE OF ILLEGALITY OF
CONTRACT IS NOT AVAILABLE TO THIRD PERSONS
WHOSE INTERESTS ARE NOT DIRECTLY AFFECTED.
This text explains the principle regarding the
defense of illegality in contracts and who is entitled
to raise such a defense. Let's go through the key
points and examples provided:
1. Defense of Illegality:
• Article 1421 states that the
defense of illegality of contracts
cannot be invoked by third persons
whose interests are not directly
affected.
• In the case of voidable and
unenforceable contracts, third
persons are generally not allowed
to annul or challenge the
contracts.
• However, if a contract is illegal or
void, even a third person may use
the defense of illegality if their
interest is directly affected by the
contract.
2. Example:
• In the example provided, H
(husband) sells a parcel of land to
W (wife), which is illegal and void
because under the law, spouses
cannot sell property to each other.
• Third parties, like C, who became a
creditor of H before the
transaction, can question the sale
because their right or interest is
directly affected. However, if C
became a creditor after the
transfer, the defense of illegality is
not available to them.
3. Illustrative Case:
• The case involves the sale of a
homestead land in violation of the
Public Land Act, where S sold the
land to B within the prohibited
period. Subsequently, S sold the
same property to T.
• The issue is whether T, the
subsequent buyer, can avail of the
prohibition in the law.
• The court held that T can indeed
avail of the prohibition because it
is precisely T's interest in the
disputed land that is in question.
Summary: Article 1421 clarifies the principle
regarding the defense of illegality in contracts,
specifying who can raise such a defense and under
what circumstances. It emphasizes that third
persons can only raise the defense if their interests
are directly affected by the illegal or void contract.
The provided examples and illustrative case help
illustrate the application of this principle in real-life
scenarios.
ARTICLE 1422. A CONTRACT WHICH IS THE DIRECT
RESULT OF A PREVIOUS ILLEGAL CONTRACT, IS
ALSO VOID AND INEXISTENT.
The text you provided explains Article 1422 of the
Civil Code of the Philippines, which deals with void
or inexistent contracts that arise as a result of a
previous illegal contract. Let's dissect the key points
and provide an explanation:
1. Article 1422: Void or Inexistent Contracts:
• This article states that a contract
which is the direct result of a
previous illegal contract is also void
and inexistent. In simpler terms, if
a contract is formed as a
consequence of another contract
that is illegal, then the subsequent
contract is also void.
2. Novation and Void Contracts:
• It's mentioned that a void contract
cannot be novated. Novation
refers to the substitution of an
existing contract with a new one,
either by changing the parties,
obligations, or terms. However, a
void contract cannot be subject to
novation because it lacks legal
validity from the beginning.
3. Requisites of Valid Novation:
• The provision is based on the
requisites of valid novation, which
means that for novation to occur,
certain legal requirements must be
met. If one of the original contracts
is void, novation cannot take place
because it requires the existence
of valid contracts.
4. Illustrative Case:
• The text provides an illustrative
case involving the renewal of a
 management contract, which was
made possible through the
transfer of shares of stocks,
deemed null and void.
• In this case, AR acquired a
significant portion of ER, Inc.'s
equity to conduct government
transactions through nominal
owners. However, AR's
involvement was prohibited by law
due to his relationship with the
President.
• ER transferred shares to AR with
the expectation of receiving favors,
particularly the renewal of a
management contract with the
Philippine Ports Authority (PPA).
• The court ruled that the
management contract was not
valid because it directly resulted
from the illegal transfer of shares,
rendering it null and void under
Article 1422.
Summary: Article 1422 of the Civil Code of the
Philippines establishes that contracts arising from
previous illegal contracts are themselves void and
inexistent. It emphasizes the principle that illegality
taints the entire transaction, rendering subsequent
contracts invalid. This provision aims to uphold the
integrity and legality of contractual agreements by
prohibiting the enforcement of contracts rooted in
illegality.