TITLE II. CONTRACTS Art. 5.

Acts executed against the provisions of

mandatory or prohibitory laws shall be void,
Chapter I. General Provisions except when the law itself authorizes their
validity. (4a)
A. DEFINITION Art. 6. Rights may be waived, unless the waiver is
Art 1305 A contract is a meeting of minds between contrary to law, public order, public policy,
two persons whereby one binds himself, morals, or good customs, or prejudicial to a
with respect to the other, to give third person with a right recognized by law.
something or to render some service.  However, a contract may be separable; in
 Sanchez Roman: "a juridical convention such a case, only those provisions that are
manifested in legal form, by virtue of which one illegal, immoral, etc. are void.
or more persons bind themselves in favor of
Exceptions: What parties cannot stipulate
another or others, or reciprocally, to the
 Note that the concepts of contrariness to law,
fulfillment of a prestation to give, to do or not
morals, good customs, public order and public
to do" policy are not mutually exclusive.
 Limited to that which produces patrimonial  For instance, a stipulation can be contrary both
liabilities to morals and public order
 Binding effect of contract based on the following a. Contrary to law
principles: Laws a contract must not contravene:
 Obligations arising from the contract 1. Expressly declaring their obligatory character
have the force of law between the 2. Prohibitive
contracting parties 3. Express fundamental principles of justice which
 There must be mutuality between the cannot be overlooked by the contracting
parties based on their essential equality, to parties
which is repugnant to have one party 4. Impose essential requisites without which the
bound by the contract leaving the other contract cannot exist
free therefrom
B. ELEMENTS OF A CONTRACT Provisions especially demonized, and therefore void:
1. Essential elements(Chapter II, infra) - without I. Pactum commissorium - automatic foreclosure
which there can be no contract Art 2088 (pledge or mortgage) The creditor cannot
a) Consent appropriate the things given by way of
b) Object pledge or mortgage, or dispose of them.
c) Cause Any stipulation to the contrary is null and
2. Natural elements - exist as part of the void.
contract even if the parties do not provide Art. 2137. (antichresis) The creditor does not acquire
for them, because the law, as suppletory to the ownership of the real estate for non-
the contract, creates them. payment of the debt within the period
E.g. warranty against hidden defects or eviction in agreed upon.
the contract of purchase and sale Every stipulation to the contrary shall be void. But
3. Accidental elements-agreed upon by the parties the creditor may petition the court for the payment
and which cannot exist without being stipulated of the debt or the sale of the real property. In this
E.g. mortgage, guaranty, bond case, the Rules of Court on the foreclosure of
mortgages shall apply.
C. CHARACTERISTICS OF A CONTRACT  In both cases here, the provision in the
1, Freedom-entering into contracts is a guaranteed contract is that the creditor automatically
right of the citizens. They are free to do so as long acquires ownership of the real property
as it is not contrary to law, good morals, customs, pledged, mortgaged or under antichresis.
public order and public policy.  Antichresis
Art. 1306. The contracting parties may establish Agreement where the fruits of the

such stipulations, clauses, terms and land under antichresis is given to
conditions as they may deem the creditor until the debt is fully
convenient, provided they are not paid off.
contrary to law, morals, good  Goes against the right of the pledger or
customs, public order, or public mortgagor to redeem his property.
policy  The mortgage or pledge must first be
foreclosed before the pledgee/
General Rule: The contracting parties can mortgagee can dispose of the property
stipulate whatever they want, subject to the in order to get net proceeds from the
general rules of the New Civil Code. sale.
  Note that ownvership is never whom the right pertains, cannot be left to
transferred. his own will
 In the case of antichresis, would constitute the
outlawed custom of pagsasangla ng lupa. e. Contrary to public policy
 Court must find that the contract contravenes
II. Pactum leonina - one party bears the lion's share of some established interest of the society
the risk  E.g. Ferrazzini v Gsel - stipulation not
Art 1799 A stipulation that excludes one or more parties to engage in competitive enterprise
from any share in the profits or losses is void. after leaving the employment.
 Applicable only to partnerships.  Those stipulations must be limited to
 In this agreement, one or some partners time, place and extent
either shares only in losses or only in profits.  Includes contracts involving
 Violates principle that partners  future support and inheritance,
should share risk in obligations.
 an agreement not to sue for the
breach of contract.
III. Pactum de non alienando - not to alienate
Art 2130 A stipulation forbidding the owner from 1. Obligatory force--constitutes the law as between the
alienating the immovable mortgaged shall parties
be void.
Art 1308 The contracts must bind both contracting
 However, if the owner/ mortgagor is to sell the parties; its validity or compliance cannot be left
mortgaged property, he must sell with a notice to the will of one of them.
of lien against the property.
 In actuality, he cannot really sell the property, 2. Mutuality-validity and performance cannot be left to
because of the encumbrance upon it caused the will of only one of the parties
by his debt.  Purpose is to render void a contract
 Instead, he is selling ownership of the containing a condition which makes
property, and thus the right to redeem fulfillment dependent exclusively upon the
it in case of foreclosure. uncontrolled will of the one of the contracting
parties.
b. Contrary to morals
 Man's innate sense or notion of what is right and Art 1308 The contracts must bind both contracting
wrong; more or less universal. parties; its validity or compliance cannot be left
 May be considered as meaning those to the will of one of them.
generally accepted principles of morality
which have received some kind of social Art 1309 The determination of the performance may
and practical confirmation. be left to a third person, whose decision shall
not be binding until it has been made known
to both contracting parties.
c. Contrary to good customs
 Custom pertains to certain precepts that Art 1310 The determination shall not be obligatory if
cannot be universally recognized as moral, it is evidently inequitable . In such case,
sometimes they only apply to certain
the courts shall decide what is equitable
communities or localitie
under the circumstances.
 Also considered are contracts which limit in
an excessive manner the personal or Art 1473 The fixing of the price can never be left to
economic freedom of a person, such as the discretion of one of the contracting parties.
contract not to engage in work or labor, or However, if the price fixed by one of the parties is
a promise to vote in a particular way, or accepted by the other, the sale is perfected.
promise to do something at the risk of life
(except for a very high purpose justifying
CONTRACT OF ADHESION: A contract in which one
such risk)
party has already prepared a form of a
contract containing stipulations desired by
d. Contrary to public order
him and he simply asks the other party to
 Consideration of the public good, will or agree to them if he wants to enter into the
public weal (welfare), peace and safety contract.
of the public and health of the community
 Valid, so long as the consent of the other party
 Represents the public, social, and legal was not vitiated.
interests in private law, that which is
permanent and essential in institutions, 3. Consensuality
which even if favoring some individual to
Art. 1315. Contracts are perfected by mere
 consent, and from that moment the  Unenforceable unless ratified expressly or
parties are bound not only to the impliedly (Unenforceable Contracts, Art 1302 Par 1)
fulfillment of what has been expressly  Exception: Stipulations pour autrui (discussed infra.)
stipulated but also to all the
consequences which, according to D. PARTIES IN A CONTRACT
their nature, may be in keeping with
good faith, usage and law 1. Auto-contracts
 See discussion on consent, infra.  Necessary for the existence of a contract that
two distinct persons enter into it
4. Relativity - binding only upon the parties and their
successors in interest  No general prohibitions, only special prohibitions
a) Contracts take effect only between the parties, such as Art 1491 (Persons who cannot acquire
their assignments and heirs by purchase, even at a public or judicial
auction)
Art 1311 Par 1 Contracts take effect only between  Auto-contracts are generally VALID, so long as
the parties, assigns and heirs EXCEPT in case there are two distinct patrimonies, even if
where the rights and obligations arising from they are represented by the same person.
the contract are not transmissible by their  Existence of a contract is not determined by
nature or by stipulation or by provision of the number of persons who intervene in it,
law. The heir is not liable beyond the value but by the number of parties; not by the
of property he received from the decedent. number of individual wills but by the number of
declarations of will.
General Rule: Contracts take effect only between the
contracting parties 2. Freedom to contract (see discussion above)
Extension of Rule: However, their assignees and heirs Art 1306 The contracting parties may establish
can take on the effects of the such stipulations, clauses, terms and conditions
contract as they may deem convenient, provided they
 Can be used as a defense invoke privity of are not contrary to law, morals, good customs,
contracts. public order and public policy.
Exceptions:
1. Special disqualifications
E. CLASSIFICATION OF CONTRACTS
i. Art 87, Family Code - inter vivos donation
between spouses
1. According to subject matter
ii. Art 1490 husband and wife generally cannot
a. Things
sell property to each other, subject to
exceptions b. Services
2. According to name
iii. Art 1491 special prohibition as to who cannot
acquire by purchase a. NOMINATE - have their own
iv. Art 1782 persons prohibited from giving individuality (names) and are
each other any donation or advantage, regulated by special provisions of law
cannot enter into universal partnership i. E.g. sale, agency, pledge, mortgage,
lease, etc.
b. INNOMINATE -without particular names
3. Intransmissible contracts: Art 1307 Innominate contract shall be regulated by
a. Purely personal e.g. partnership and agency the stipulations of the parties, by the
b. Very nature of obligation that requires special provisions of Titles I and II of this Book,
personal qualifications of the obligor by the rules governing the most
c. Payment of money debts not transmitted to the analogous nominate contracts and
heirs but to the estate by customs of the place.

2. Actions available to creditor in case of breach of I. Do ut des - I give and you give
obligation (discussion supra.) II. Do ut facias - I give and you do
a. Accion subrogatoria III. Facio ut facias - I do and you do
b. Accion pauliana IV. Facio ut des - I do and you give
c. Accion directa
3. According to perfection
b) No one may contract in the name of another
a. By MERE CONSENT (consensual) e.g. purchase and
Art 1317 No one maycontract in the name of another sale
without being authorized by the latter or Art 1315 Contracts are perfected by mere
unless he has by law a right to represent him. consent, and from that moment, the parties
 are bound not only to fulfillment of what has b. Special or formal e.g. donations and
been expressly stipulated but also to all the mortgages of immovable property
conseguences which, according to their
nature, may be in keeping with good faith, 2. According to purpose
usage and law. a. Transfer of ownership e.g. sale or barter
b. Conveyance of use e.g. commodatum
b.By DELIVERY OF THE OBJECT (real) simple c. Rendition of services e.g. agency
loan, loan for use, real contract of deposit,
real contract of pledge 3. According to the nature of the vinculum produced,
Art 1316 Real contracts such as deposit, pledge and nature of obligation produced
commodatum, are not perfected until the a. Unilateral - e.g. commodatum or
delivery of the object of obligation. gratuitous deposit
b. Bilateral/Reciprocal or
 Quick descriptions of each:
sinalagmatico(perfectly reciprocal) e.g.
 Simple loan (mutuum)-one party rents out purchase and sale
his property for a monetary consideration
Note: a contract may be bilateral, though
 Loan for use (commodatum)-one party the obligation that arises is unilateral.
rents out the use of his property for free.
 Real contract of deposit-one party is 4. According to cause
obliged to hold the property of
a. Onerous-pecuniary interests involved
another without authority to use it.
b. Gratuitous or lucrative--out of mere
 Real contract of pledge-one party delivers liberality
his property to another as security for a
c. Remuneratory-one party intends to
debt.
repay a debt of gratitude
C. By formal title.
5. According to risk
 See discussion on Formalities required by law,
a. Commutative-exchange of values.
under Cause of contracts, infra.
b. Aleatory--chance or risk involved for one
of the parties.
CONTRACT PERFECTED IMPERFECT
PROMISE PROMISE F. STAGES OF CONTRACTS
a. Preparation - period of negotiation
Establishes Tends only to A mere and bargaining, ending at the
and assure and unaccepted moment of agreement of the parties
determines pave the offer. b. Perfection - moment when the parties
the obligations way for the come to agree on the terms of the
arising celebration contract
therefrom of a contract c. Consummation - or death; fulfillment
in the future; or the performance of the terms
until the agreed upon in the contract
contract is
actually
made, the
rights and
obligations
are not yet
determined. G. AS DISTINGUISHED FROM A PERFECTED PROMISE
AND AN IMPERFECT PROMISE (policitation)
H. WITH RESPECT TO THIRD PERSONS
4. According to its relation to other contracts, degree
of dependence 1. Stipulations in favor of third persons (stipulation
a. Preparatory e.g. agency, pour autrui)-third persons may demand fulfillment
partnership provided the acceptance is made prior to
b. Principal e.g. lease or sale most revocation.
contracts fall under this
c. Accessory e.g. pledge, mortgage, Art 1311 Par 2 If a contract should contain some
suretyship, guaranty, securities, stipulation in favor of a third person, he may
antichresis demand its fulfillment provided he
communicated his acceptance to the
1. According to form
obligor before its revocation. A mere
a. Common or informal e.g. loan
 incidental interest or benefit of a person is a. Existence of a valid contract
not sufficient. The contracting parties must b. Knowledge by a third person of the existence
have clearly and deliberately conferred of a contract
favor upon third person. c. Interference by the third person in the
contractual relation without legal justification

 Test of beneficial stipulation - A mere

Chapter II. Essential Requisites of Contracts
incidental interest of a 3rd person is not within CONSENT
the doctrine; it must be the purpose and intent
Art 1319 Consent is manifested by the MEETING of the
of the stipulating parties to benefit the third offer and the acceptance upon the thing
person and the cause which are to constitute the
contract. The offer must be certain and the
REQUISITES OF STIPULACION POUR AUTRUI acceptance absolute. A qualified
acceptance constitutes a counter-offer.
1. Stipulation in favor of third person is a part, not the
whole of the contract  Acceptance made by letter or telegram does
2. Favorable stipulation not conditioned or not bind the offerer except from the time it
compensated by any kind of obligation whatever came to his knowledge. The contract, in such a
3. Neither of the contracting parties bear the legal case, is PRESUMED to have been entered into
representation or authorization of the third party in the place where the offer was made .
4. Benefit to the 3rd person was clearly and
deliberately conferred to by parties REQUISITES OF CONSENT
5. Third person communicated his acceptance 1. Free
to the obligor before the latter revokes the 2. Intelligent
same (primary element for a valid stipulation 3. Real
pour autrui) 4. Spontaneous
5. Note: Vitiated consent is lacking Freedom(duress),
2. Possession of the object of contract by third Intelligence(mistake of fact) or Spontaneity(fraud)
persons 1. only
Mustforbe
realMANIFESTED
rights by the concurrence of the
offer and acceptance: with respect to object and
Art 1312 In contracts creating real rights, third cause.
persons who come into possession of the
object of the contract are bound thereby, OFFER - unilateral proposition which one party makes to
the other for the celebration of the contract.
subject to the provisions of the Mortgage
a.Must be Certain (Art 1319)
Law and the Land Registration laws.
---► Sir Labitag's acr01rym: DIC
 Thus, even if the third person was not the
DEFINITE-so that upon acceptance an
original contracting party, for the purposes of
agreement can be reached on the whole
the real rights that arise from it, he is bound by
contract; not definite if object is not
the contract.
determinate
COMPLETE-indicating with sufficient clearness
3. Creditors of the contracting parties
the kind of contract intended and definitely
Art 1313 Creditors are protected in cases of contracts
stating the essential conditions of the
intended to defraud them.
proposed contract, as well as the non-essential
 Art 1387 - in rescissible contracts, ones desired by the offeror INTENTIONAL-
presumption of fraudulent alienation when should be serious and not made for fun or in
debtor does not leave sufficient property to
jest
cover his obligations
 Creditor may ask for rescission through accion b. What may be fixed by the offeror: time, place and
subrogatoria and accion pauliana manner of acceptance
Art 1321 The person making the offer may fix the
4. Interference by third persons time, place and manner of acceptance, all of
Art 1314 Any third person who induces another to which must be complied with.
violate his contract shall be liable for ---► Acceptance not made in the manner
damages to the other contracting party. provided by the offeror is ineffective. Such
 Liability for damages: third person's liability acceptance is construed as a counter-offer by
cannot be more than the party he induced the acceptor.
(Daywalt v Recoletos)
c. When made through the agent: accepted from the
Requisites of Interference With Contractual Relation by time acceptance communicated to the agent
Third Person Art 1322 An offer made through an agent is
 accepted from the time acceptance is certain period to accept..."
communicated to him.  Offeree may accept any time until such
period expires
d. Circumstances when offer becomes defective:  Acceptance beyond the time fixed is not
death, civil interdiction, insanity or insolvency legally an acceptance but constitutes a new
Art 1323 An offer becomes ineffective upon the offer.
death, civil interdiction, insanity or insolvency of  Acceptance not made in the manner
either party before acceptance is conveyed. provided by the offeror is ineffective.
 If offeror has not fixed the period, the offeree
e. Business advertisements of things for sale not must accept immediately within a reasonable
definite offers tacit period.
Art 1325 Unless it appears otherwise, business  Offer implies an obligation on the part of
advertisements of things for sale are not definite the offeror to maintain it for such a length
offers, but mere invitations to make an offer . of time as to permit the offeree to decide
whether to accept it or not.
Extinguishment or annulment of offer
f. Advertisement for bidders
Art 1326 Advertisements for bidders are simply  Withdrawal by the offeror
invitations to make proposals , and the  Lapse of the time for option period
advertiser is not bound to accept the  Legally incapacitated to act
highest or lowest bidder, UNLESS the  Offeree makes counter-offer
contrary appears.
 Contract becomes illegal
 Not applicable to judicial sale wherein the highest
bid must necessarily be accepted e. Contract of option
Art 1324 the offer may be withdrawn at any time
ACCEPTANCE: an unaccepted offer does not give rise before acceptance by communicating
to consent such withdrawal, EXCEPT when the option
 Consent, and therefore, contract is perfected is founded upon a consideration, as
when the offer is accepted something paid or promised.
Four theories on when the contract is perfected  Preparatory contract in which one party
1. Manifestation theory - counterofferee manifests his grants to the other, for a fixed period and
acceptance under specified conditions, the power to
2. Expedition Theory - sending of the letter decide whether or not to enter into a principal
3. Reception Theory - receipt of the message of contract
acceptance  Must be supported by an independent
4. Cognition Theory - knowledge of offeror of the consideration and the grant must be exclusive
acceptance  If the option is not supported by an
 seems to be the theory best supported by law independent consideration, offeror can
Art 1319 Par 2 "...except from the time of his knowledge" withdraw the privilege at any time by
communicating the withdrawal to the other
a) Must be absolute (Art 1319) party, even if the option had already been
 If acceptance is QUALIFIED (Art 1319), it is accepted.
not an acceptance but merely a counter-
offer 2. Necessary LEGAL CAPACITIES of the parties
b) Must fall among the following Kinds of Who cannot give consent
acceptance: Art 1327 The following cannot give consent to a contract:
 EXPRESS (Art 1320) 1. Unemancipated minors
 IMPLIED (Art 1320) arise from acts 2. Insane or demented persons
or facts which reveal the intent to 3. Deaf-mutes who do not know how to
accept such as the consumption of write
things sent to the offeree, or the fact of
immediately carrying out the contract When offer and/or acceptance is made
offered  During a lucid interval: VALID
 If made by letter or telegram  In a state of drunkenness: VOIDABLE if there
Art 1319 Par 2: Acceptance made by letter or telegram was utter want of understanding
does not bind the offerer except  During a hypnotic spell: VOIDABLE if there was
from the time it came to his utter want of understanding
knowledge
3. The consent must be INTELLIGENT, FREE,
c) Period of acceptance SPONTANEOUS and REAL
Art 1324 "When the offerer has allowed the offeree a Basis: Art 1330 A contract where consent is given
through mistake, violence, intimidation, undue
f. As to quality (in Generally does not invalidate,
influence, or fraud is VOIDABLE.
qualitate) especially if it is with respect to
value of the thing.
Vices of Consent:
• The law will not protect
one from bad bargains.
a. Mistake or Error: a wrong or false notion
about such matter, a belief in the existence of Mistakes that do not qffect the validity ofthe contract
some circumstance, fact or event which in reality a. Error with respect to accidental qualities of the
does not exist. object of the contract
c. Error which refers not to conditions of the
Art 1331 In order that MISTAKE may invalidate thing, but to accessory matters in the contract,
consent, it should refer to the substance foreign to the determination of the objects
of the thing which is the object of the  Error of law mistake as to the existence of a legal
contract, or to those conditions which provision or as to its interpretation or application
have principally moved one or both
parties to enter into the contract. GENERAL RULE: Ignorantia legis neminem excusat Art 3
Mistake as to the identity or qualifications Ignorance of the law excuses no one from
of one of the parties will vitiate compliance therewith.
consent only when such identity or EXCEPTION: Mutual error oflaw
qualifications have been the principal Basis: Art 1334 Mutual error as to the legal effect of an
cause of the contract . agreement when the real purpose of
A simple mistake of account shall give rise to its the parties is frustrated, may vitiate
correction. consent.
Requisites for mutual error of law
KINDS OF MISTAKE a. Error must be as to the legal effect of an
 Mistake of fact agreement includes rights and obligations
 Generally not a ground for annulment of of the parties, not as stipulated in the
contracts. If it is to be so, then it must be contract but as provided by law
serious. b. Must be mutual
 Must be the very reason for c. Real purpose of the parties is frustrated
giving consent such that if the
consenting party knew the truth When one of the parties is unable to read and
he would not have entered into fraud is alleged, the burden of proof is on the party
the contract. enforcing the contract
Kinds of mistakes of fact Art 1332 \Vhen one of the parties is unable to
read, or if the contract is in a language
a. As to substance of Invalidates consent not understood by him, and mistake or
object (in fraud is alleged, the person enforcing
the contract must show that the terms
substantia)
thereof have been fully explained to the
b. As to principal Invalidates consent former.
conditions (essential
or substantial m
Inexcusable mistake: knew the doubt, contingency or
character) (in risk
negotio) Art 1333 There is no mistake if the party alleging it
knew the doubt, contingency or risk
c. As to identityor For identity/ error as to person - affecting the object of the contract.
qualifications of generally does not invalidate
 Party cannot allege error which refers to a fact
one of the parties consent, except when the qualification is the principal cause of the contract especia
known to him or which he should have known by
(in personae) - For qualifications Invalidates
ordinary diligent examination of the facts
consent
 Courts consider not only the objective aspect of
- Solvency of the party not a the case but also the subjective e.g.
cause of nullity
intellectual capacity of the person who made
d. As to quantity as Error of account is a mistake in the mistake
distinguished from computation make proper
E.g. Caused by manifest negligence
simple mistake of correction
account (in Error as to quantity may v1t1ate
quantitate) a contract if the primary b. Violence and Intimidation
consideration is the quantity e.g. Art 1335 There is VIOLENCE when in order to wrest
parcel of land was actually only consent, serious or irresistible force is
10 ha and not 30 ha
employed.
e. As to the identity of Only if the identity of the specific
the thing (in corpore) thing moved one of the parties There is INTIMIDATION when one of the
to enter into the contract contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and threatened injury
grave evil upon his person or property, or upon
the person or property of his spouse, descendants -Person ("upon his person") not limited to life and
or ascendants, to give his consent. physical integrity but also includes liberty
To determine the degree of intimidation, the ad honor, covers all injuries which are not
age, sex and condition of the person shall be borne patrimonial in nature
in mind.
A threat to enforce one's claim through
competent authority, if the claim is just or legal, does Effect of Violence and Intimidation
NOT vitiate consent. Art 1336: Violence or intimidation shall ANNUL the
obligation, although it may have been
DURESS: broader term encompassing violence and employed by a third person who did not
intimidation take part in the contract.
 Degree of constraint or danger actually c. Undue Influence
inflicted (violence) or threatened Art 1337 There is UNDUE INFLUENCE when a person
(intimidation) sufficient to overcome the takes improper advantage of his power
mind and will or a person of ordinary firmness. over the will of another, depriving the latter
 Seriousness of the duress measured both of a reasonable freedom of choice. The
 Objectively-degree of harm that the following circumstances shall be
evil itself is likely to produce, and considered: the confidential, family,
 Subjectively-effect of the threat upon spiritual and other relations between the
the mind of the victim under the parties, or the fact that the person alleged
circumstances) to have been unduly influenced was
suffering from mental weakness , or was
VIOLENCE ignorant or in financial distress .
 Definition: Serious or irresistible force employed in  Definition: taking improper advantage of one's
order to wrest consent. power over the will of another, thereby depriving
 Physical force and compulsion the latter of a reasonable freedom of choice.
 Must be to a serious enough degree  Any means employed upon a party that, under
that the victim has no choice but to the circumstances, he could not well resist, and
which controlled his volition and induced him to
UNDUE INFLUENCE INTIMIDATION give his consent to the contract which otherwise
he would not have entered into.
Moral coercion  Destroys exercise of independent discretion
necessary for determining the advantages and
There need not be an Unlawful or unjust act disadvantages of entering into a contract.
unjust or unlawful act which is threatened
and which causes
Distinguished from intimidation
consent to be given
consent under the circumstances.  By analogy, undue influence by a third person may
INTIMIDATION also vitiate consent (Art 1336)
 Definition: Compulsion by a reasonable and  The influence must be undue. All transactions
well-grounded fear of an imminent and grave must necessarily involve some form of influence
evil.
to entice a party to enter into a contract.
 Moral force or compulsion  o Thus, reverential fear is not undue
 Influences the mind to choose between influence.
two evils, between the contract and
the imminent injury Requisites of d. Fraud or Dolo:
Intimidation  Definition: insidious words and machinations of
1. Intimidation must be the determining cause of the one of the contracting parties by which the
contract, or must have caused the consent to be other is induced to enter a contract, without
given which he would not have agreed to the
2. That the threatened act be unjust or unlawful contract.
3. That the threat be real and serious, there being
 Every kind of deception, whether in the
an evident disproportion between the evil and
form of insidious machinations, manipulations,
the resistance which all men can offer, leading to
the choice of the contract as the lesser evil concealments, or misrepresentation, for the
4. That it produces a reasonable and well-grounded purpose of leading a party into error and
fear from the fact that the person from whom it thus executing a particular act.
come has the necessary means or ability to inflict the  Includes false promises, exaggeration of hopes
 or benefits, abuse of confidence, fictitious Obligations, supra. Failure to disclose facts; duty to
reveal them: FRAUD
names, qualifications or authority, all the Art 1339 Failure to disclose facts, when there is a duty
thousand and one forms of deception which to reveal them, as when the parties are
may influence the consent of a contracting bound by confidential relations, constitutes
party, without necessarily constituting FRAUD.
estafa or some offense under the penal
GENERAL RULE: Silence or concealment does not
laws.
constitute a fraud
 Must have a determining influence on the EXCEPTIONS:
consent of the victim to vitiate it. 1. There is a special duty to disclose certain facts
(minimum requirement)
Art 1338: There is FRAUD when, through insidio11s 1vords or
2. According to good faith and usages of
machinations of one of the contracting parties, commerce, the communication should have
the other is induced to enter into a contract been made
which, without them, he would not have
 E.g. agent-principal, lawyer-client
agreed to.

Usual exaggeration in trade; opportunity to know the

Compared with error facts: NOT FRAUD
ERROR FRAUD Art 1340 The usual exaggerations in trade, when the
other party had an opportunity to know the
Vitiate the consent Mistake induced by facts , are NOT in themselves fraudulent
only when it refers to fraud will always vitiate  Aka tolerated fraud or lawful
the matters consent when fraud has misrepresentation (dolus bonus) as long as
mentioned in Art a decisive influence on they do not go to the extent of malice or
1331 such consent bad faith such as changing the
appearance of the thing by false devices
Requisites of Fraud and of preventing all verification or discovery
1. Must have been employed by one contracting of truth by the other party
party upon the other (Art 1342 and Art 1344)  Principle of Caveat emptor
 If both parties, they cannot have action  Do not give rise action for damages
against each other, fraud is compensated because of their insignificance OR
(see discussion on the in pari delicto rule, because the stupidity of the victim is
infra.) the real cause of his loss.
2. Induced the other party to enter into a contract  import of opportunity to know facts
(Art 1338)  The difference between true
3. Must have been serious (Art 1344) fraud and sales talk is the
4. Must have resulted in damage or injury to the opportunity to know the facts, and
party seeking annulment
the corresponding duty of due
diligence in investigation of the
Question: What is the relationship of mistake of fact
buyer.
and fraud?
The person who is being defrauded always
Mere expression of an opinion - NOT FRAUD, unless
suffers under a mistake of fact, but a mistake of
made by an expert and relied upon by the
fact does not always always arise from fraud.
plaintiff Art 1341 A mere expression of an
opinion DOES NOT signify fraud, unless
Kinds of Fraud
made by an expert and the other party
has relied on the farmer's special knowledge.
1. Dolo causante: when subject of fraud
determines or is the essential cause of the
consent; this is a ground for annulment of Effects of Fraud
contract 1. Voidability of the contract
a. Art 1338: "without them, he would not 2. Indemnification for damages
have agreed to."
2. Dolo incidente: subject of fraud does not have Art 1344: In order that fraud may make a contract
such a decisive influence and by itself cannot voidable, it should be serious and should not
cause the giving of consent, but only refers to have been employed by BOTH contracting
some particular or accident of the obligation; parties. Incidental fraud only obliges the
only gives rise to action for damages person employing it to pay damages.
Art 1344 Par 2: "Incidental fraud only obliges the person See also discussion on badges of fraud under rescissible
employing it to pay damages. contracts, infra.
See also comparison of kinds of fraud under Breach of
e. Misrepresentation
 1. By a third person
ABSOLUTE (simulados) RELATIVE (disimulados)
Art 1342 Misrepresentation by a third person does
NOT vitiate consent, unless such
Color of contract, Parties have an
misrepresentation has created
without any substance agreement which they
substantial mistake and the same is
thereof, the parties not conceal under the guise
mutual.
having intention to be of another contract
GENERAL RULE: Fraud by third person does not
bound
vitiate the contract
EXCEPTIONS: VOID - Does not VALID except when it
a. If 3rd person is in collusion with one of legally exist. Illusory, prejudices 3 persons or
the parties, he is considered an accomplice mere phantom,injuring has an illicit purpose,
to the fraud and contract becomes 3rd persons, generally provided it has all the
VOIDABLE fraudulent essential elements of a
b. If 3rd person not in connivance with any of contract.
the parties but leads them both into error 1. Ostensible acts -
(mutual error), the consent is vitiated, contract Purported Contract
is VOIDABLE. • VOID
• apparent or
-In contrast, VIOLENCE AND INTIMIDATION BY fictitious;
3rd PERSON always makes contract voidable. contract that
JUSTIFICATION FOR THE DIFFERENCE: the parties
 Party has nothing to do with fraud by a third pretend to have
person and cannot be blamed for it executed
 Fraud can be more easily resisted than force or 2. Hidden act - Real
intimidation. Contract (not to be
confused
2. Made in good faith with contracts involving
Art 1343 Misrepresentation made in good faith is not real property or real rights)
fraudulent but may constitute error. • may be VALID
• real; true
3. Active/ passive agreement
between the
 Applicable to legal capacity especially age
parties
 See discussion on estoppel, infra.
Recovery under simulated contract in absolute simulation
f. Simulation of Contracts: declaration of a 1. If does not have illicit purpose: prove simulation to
fictitious will, deliberately made by agreement of recover what may have been given
the parties in order to produce, for the purposes of 2. If simulated has illegal object: IN PARI DELICTO rules
deception the appearance of a juridical act which apply (see discussion infra.)
does not exist or is different from that which was
really executed.

Kinds of Simulated Contracts OBJECT OF CONTRACTS

 Thing, right or service which is the subject-matter
Art 1345: Simulation of a contract may be of the obligation arising from the contract
ABSOLUTE or RELATIVE. The former takes  Object of the contract and object of the
place when the parties do not intend obligation created thereby are identical
to be bound at all; the latter, when the Sir Labitag: most important element of a contract.

parties conceal their true agreement. Without it, there is nothing to agree upon.
What may be the Object of Contracts
Effects of simulation of contracts Art 1347 All things which are not outside the
commerce of men , including future
Art 1346: An absolutely simulated or fictitious things, may be the object of a
contract is void. A relative simulation, contract. All rights which are not
when it does not prejudice a third intransmissible may also be the object
person and is not intended for any of contracts.
purpose contrary to law, morals, good No contract may be entered into upon future
inheritance except in cases expressly authorized by
customs, public order or public policy law.
binds the parties to their real agreement. All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract.  o Sacred things e.g. air and sea
4. Intransmissible rights
1. All things not outside the commerce of man  e.g. future support tantamount to a waiver of
 Includes all things and services that are fit to be right to live.
the subject matter of legal relations. 5. Future inheritance, except when authorized by law
 Including future things  Reason the one to whom future
 do not belong to the obligor at the inheritance is sold will wish to expedite the
time the contract is made; they may death of the testators to ensure a faster,
be made, raised or acquired by the surer, bigger share.
obligor after the perfection of the  Exception: partition contract under Art. 1080
contract  While their decedent is still alive, the heirs
 Includes past support, as opposed to future divide his future estate among themselves
support, which cannot be the object of a  Succession must not have been opened
contract. at the time of the contract.
6. Impossible things or services
 Conditional-subject to the coming into Art 1348 Impossible things or services cannot be the
existence of the thing object of contracts.
 Aleatory-one of the parties bears the risk of the  Kinds of impossible things:
thing never coming into existence o Not susceptible of existing (physical
Requisite of Object of Contracts impossibility)
1. Within the commerce of man (Art 1347), i.e. the o Outside the commerce of man
object is transmissible (legal impossibility)
2. Licit, not contrary to law, morals, good customs, o Beyond the ordinary strength of
public policy or public order (Art 1347) power of man
3. Possible (Art 1348)
 Liability for damages
4. Determinate or determinable as to its kind o Debtor knew of impossibility-liable
Art 1349 The object of every contract must for damages
be determinate as to its kind . The fact that o Debtor is ignorant of impossibility and
the quantity is not determinate shall not be ignorance is justifiable-no liability for
an obstacle to the existence o f the damages
contract, provided it is possible to determine o Both parties have knowledge of
the same, without the need of a new impossibility-no liability for damages
contract between the parties.  Impossibility must be actual and
contemporaneous with the making of
the contract and not subsequent
What may NOT be the Objects of Contracts
 Extent of impossibility:
1. Contrary to law, morals, good customs, public
policy or public order  ABSOLUTE or objective: nobody can
2. Indeterminable as to their kind, or requiring a new perform it
agreement to be determined.  RELATIVE or subjective: due to the
3. Outside the commerce of man special conditions or qualification of
the debtor it cannot be performed
 All kinds of things and interests whose
 TEMPORARY does not nullify the
alienation or free exchange is restricted by
contract
law or stipulation, which parties cannot
 PERMANENT nullifies the contract
modify at will
 Services which imply an absolute
CAUSE OF CONTRACTS
submission by those who render them,
sacrificing their liberty, independence Meaning of CAUSE - Why of a contract; the
or own beliefs or disregarding in any immediate and most proximate purpose
manner the equality and dignity of of the contract, the essential reason
persons e.g. perpetual servitude or which impels the contracting parties to
slavery enter into it and which ex plains and
 Personal rights e.g. patria postestas, justifies the creation of the obligation
marital authority, status, capacity of through such contract
persons, honorary titles  Essential reason that moves the parties to enter into
 Public offices, inherent attributes of a contract
the public authority, political rights of  -broader concept than object
Requisites of Cause
individuals e.g. right of suffrage
 o Property while they pertain to the 1. Existent
public dominion 2. True
 3. Licit
CAUSE MOTIVE
 As distinguished from object
 Object is the starting point of agreement, Objective, intrinsic and Psychological, individual
without which the negotiations or juridical reason for the or personal purpose of
bargaining between the parties would existence of the a party to the contract
never have begun contract itself
 Object may be the same for both of the
parties Essential reason for the Particular reason for a
contract contracting party, which
 Cause is different with respect to each
does not affect the other
party
and which does not
impede the existence of
-As distinguished from consideration
CONSIDERATION< CAUSE a true distinct

cause
CONSIDERATION CAUSE
Objective of a party Person's reason for
rn entering into the wanting to get such
Reason or motive or Why of contracts; objective
contract
inducement by which a essential reaso n that
man is moved into bind compels contracting Always the same for Differs with each person
himself by agreement parties to celebrate the both parties
contract
GENERAL RULE: Motive does not affect the validity of
Requires a legal detriment Never rejects any cause
the contract.
to the promisee more than a as insufficient; need not
EXCEPTIONS:
moral duty be material at all and
1. When the motive of a debtor in alienating property
may consist in moral is to defraud his creditors, alienation is rescissible
satisfaction for the 2. When the motive of a person in giving his
promissory consent is to avoid a threatened injury, in case of
intimidation the contract is voidable.
Art 1350 In onerous contracts the cause is 3. When the motive of a person induced him to
understood to be, for each contracting act on the basis of fraud or misrepresentation by
party, the prestation or promise of a the other party, the contract is likewise voidable.
thing or service by the other; in
remuneratory ones, the service or However, motive can sometimes be the same as the
benefit which is remunerated; and in cause.
contracts of pure beneficence , the
mere liberality of the benefactor. Defective causes and their effects
a. Onerous Contracts
 Prestation or promise of a thing or a.Absence of cause and unlawful cause produces
service by the other no effect whatever
 Need not be adequate or an exact Art 1352 Contracts without cause, or with unlawful
equivalent in point of actual value cause, produce no effect whatever .
especially in dealing with objects which The cause is unlawful if it is contrary to
have rapidly fluctuating price law, morals, good customs, public order
b. Remuneratory Contracts or public policy.
 One where a party gives something E.g. simulated contracts
to another because of some service or
benefit given or rendered by the latter to b. Statement of a false cause in the contract VOID if
the former where such service or benefit was there is no other true and lawful cause
not due as a legal obligation Art 1353 The statement of a false cause in
 E.g. bonuses contracts shall render them VOID , if it
should not be proved that they were
c. Contracts of pure beneficence (Gratuitous)
founded upon another cause which is
 Essentially agreements to give donations
true and lawful.

As distinguished from motive

c. Lesion or inadequacy of cause - VALID unless fraud,
Art 1351 The particular motives of the parties in
mistake or undue influence is present
entering into a contract are different from
the cause thereof. Art 1355 Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a
 contract, UNLESS there has been fraud, Art 1773 Partnership; inventory of immovable property
mistake or undue influence. contributed
Art 1956 Interest for using someone else's money
Gross inadequacy suggest fraud and is evidence
Art 2140 Chattel mortgage; must have affidavit of good
thereof
faith; in order to be effective against 3rd
Presumption of the existence and lawfulness of a persons, must be registered in chattel
cause, though it is not stated in the contract mortgage register.
Art 1354 Although the cause is not stated in the Special Law (PD 533) Sale of large cattle; transfer
contract , it is presumed that it exists certificate of registration at Cattle
and is lawful , unless the debtor Administrative Court
proves the contrary.
2. Those required, not for the validity, but to
Chapter III. Form of Contracts make the contract effective as against third
• Must be dovetailed with Statute of Frauds persons , such as those covered by Art 1357 (if law
requires a special form, parties may compel each
A. GENERAL RULE: Contracts shall be other to observe that form upon perfection of the
obligatory, in whatever form they may contract) and Art 1358 (documents which must
have been entered into, provided all appear in a public document; it also constitutes
essential requisites for their validity are constructive delivery)
present.
 (Spiritual system of the Spanish Code) (1) Acts and contracts which have for their
object the creation, transmission, modification or
Art 1356 Contracts shall be obligatory, in whatever form extinguishment of real rights over immovable
they may have been entered into, provided property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and
all the essential requisites for their validity are
1405;
present.
(2) The cession, repudiation or renunciation of
B. EXCEPTION: When the law requires that a hereditary rights or of those of the conjugal
partnership of gains;
contract be in some form in order that it
(3) The power to administer property , or any
may be VALID or ENFORCEABLE
other power which has for its object an act
 (Anglo-American principle in Statutes of Fraud)
appearing or which should appear in a public
indispensable and absolute; parties
document, or should prejudice a third person;
(4)The cession of actions or rights proceeding from an
act appearing in a public document.
Art 1356 However, when the law requires that a
contract be in some form in order that it All other contracts where the amount involved
may be valid or enforceable, or that a
exceeds five hundred pesos must appear in writing,
contract be proved in a certain way, that
requirement is absolute and indispensable. even a private one. But sales of goods, chattels or
In such cases, the right of the parties things in action are governed by Articles, 1403, No. 2
stated in the following article cannot be and 1405.
exercised.

C. KINDS OF FORMALITIES REQUIRED BYLAW 3. Ad probationem-Those required for the

purpose of proving the existence of the contract,
1. Ad esentia, ad solemnitatem-Those such as those under the Statute of Frauds in Art 1403
required for the validity of contracts, such as
those referred to in (Sir refers to these as formal Finals question:
contracts) What are the requisites to make an unenforceable
Art 748 Donation of movable contract enforceable?
Art 749 Donation of immovable If the contract is one of those listed under
Art 1874 Sale of piece of land through an agent; the Statute of Frauds (Art 1403), then a memorandum
regarding authority of agent is needed to make it enforceable against other
Art 2134 Contract of antichresis; amount of principal
parties, but always subject to Art 1191 (tacit resolutory
and of the interest
condition of reciprocal contracts). Thus, if the
Art 1744 Contract of carriage; limiting liability for
contract is a reciprocal one, the party seeking to
consideration other than the service
enforce the contract must have already performed
itself-must be reasonable, just, and not
his obligation, or at the very least, must be ready to
against public policy
comply with his obligation so that the other party
Art 1771 Partnership; immovable property or real rights
are contributed; includes real property does not have the implied right to rescind the
obligation.  Court does not attempt to make a new
contract for the parties, but only to make
the instrument express their real agreement
Chapter IV. Reformation of Instruments
 Statute of Frauds is no impediment to the
 Action under Rule 63 of the Rules of Court
reformation of an instrument
 RULE 63: "declaratory relief and
Distinguished from Annulment
several remedies" -- several remedies
REFORMATI ANNULMENT
include reformation of instrument,
ON
quieting of title and consolidation of Action presupposes a No meeting of the
ownership (of the vendee) under a valid existing contract minds or the consent
pacto de retro sale. between the parties and of either one was
only the document or vitiated by mistake or
Question: What is the extinctive prescription of instrument which was fraud
action to reformation? Wretz' answer: 5 years, in drawn up and signed
accordance with Art 1149) by them does not
correctly express the terms
Art 1359 When, there having been a meeting of the of the agreement
minds of the parties to a contract, their Gives life to the contract Involves a complete
true intention is not expressed in the upon certain corrections nullification of contracts
instrument purporting to embody the
agreement, by reason of mistake, fraud, Requisites for Reformation of Instruments
inequitable conduct or accident, one of 1. Meeting of the minds upon the contract
the parties may ask for the reformation 2. There is a written contract, not void
of the instrument to the end that such a. The contract must have all the essential
true intention may be expressed elements; the only defect is that a mistake
If mistake, fraud, inequitable conduct, was made in the expression of the true intent
or accident has prevented a of the parties.
meeting of the minds of the b. If the contract is void, the correct
parties, the proper remedy is not remedy is for a declaration of nullity, not
reformation of the instrument but reformation of contract.
annulment of the contract. 3.The true intention of the parties is not expressed in
the instrument
4. The failure of the instrument to express the
 1359 par 2: if these prevented meeting of the
true agreement is due to mistake, fraud,
minds, consent was vitiated. hence, the
inequitable conduct or accident
contract is voidable so the remedy is not
reformation but annulment.
Are damages awarded after the reformation of a
 Of the 4, only in fraud and inequitable
contract ?
conduct can the party ask for damages in
addition to the action for reformation If the reformation is needed because of mistake or
 note that fraud here is committed in accident, generally not.
reducing the agreement to writing (vs. in However, if it is needed because of fraud or inequitable
obtaining consent and in performance) conduct, damages may be awarded.
 inequitable conduct can be committed
by the draftsman/lawyer of the vendee/ Causes for Reformation
creditor in changing the agreement of 1. Mutual instrument includes something which should
pacto de retro sale (sale with right to not be there or omit what should be there
repurchase) to a contract of absolute i. Mutual
sale, OR the real estate mortgage to a ii. Mistake of fact
conditional deed of sale iii. Clear and convincing proof
 accident involves wrong typing iv. Causes failure of instrument to express true
intention
Reason for Reformation of Instruments 2. Unilateral
 Equity dictates the reformation of instrument in i. One party was mistaken
order that the true intention of the ii. Other either acted fraudulently or inequitably
contracting parties may be expressed. Unjust or knew but concealed
and inequitable to allow the enforcement of iii. Party in good faith may ask for reformation
a written instrument which does not reflect or 3. Mistake by 3rd persons due to ignorance, lack of skill,
disclose the real meeting of the minds of the negligence, bad faith of drafter, clerk or typist
parties 4. Others specified by law to avoid frustration of true
intent Art 1369 The procedure for the reformation of instrument
shall be governed by ROC to be
Example of cases where reformation is allowed promulgated by the Supreme Court.
1. Art 1361 When a mutual mistake of the parties
causes the failure of the instrument to disclose
their real agreement, said instrument may be
reformed.
2. Art 1363 When one party was mistaken and
Chapter V. Interpretation of Contracts
(Compare with Rules on Statutory Construction)
the other knew or believed that the instrument
did not state their real agreement, but  More or less the same with rules on evidence
concealed that fact from the former, the and statutory construction rules (ex. 1371 is
instrument may be reformed. similar to the contemporaneous construction
3. Art 1364 When through the ignorance, of law)
lack of skill, negligence or bad faith on the  EXCEPT 1377 & 1378 which are applicable only to
part of the person contracts and not statutes drafting the instrument or of
 literal interpretation is strict interpretation
Cases where no reformation is allowed  As an aside, Sir mentioned that
1. Oral contracts there's nothing to reform at all! analogy and doctrine of necessary
2. When specified by law. implication are the only liberal rules of
Art 1366 There shall be no reformation in the f ollowing statutory construction.
cases:
(1) Simple donations inter vivas wherein no Primacy of intention
condition is imposed; (including DPNs)  Verba intentione non e contradebent
 Does not include donations mortis causa. inservare - words ought to be subservient to
 "no condition is imposed" refers to onerous the intent, not the intent to the word
conditions  Look for the contractual intent
 hence, (1) includes donation propter
nuptias whose consideration is marriage Art 1370 If the terms of a contract are clear and
only, and sir's example: donation given by leave no doubt upon the intention of the
parents to the bride after she accepted contracting parties, the literal meaning of its
their son's proposal stipulations shall control.
 * Sir mentioned that the provision stating that
Art 1372 However general the terms of a contract may
DPN is covered by the statute of frauds was be, they shall not be understood to
repealed by the family code. comprehend things that are distinct and
(2) Wills; cases that are different from those upon
(3) When the real agreement is void. which the parties intended to agree .
 Generalia verba sunt generaliter intelligencia
Implied ratification general things are to understood in a general
Art 1367 \Xlhen one of the parties has brought an sense
action to enforce the instrument , he
cannot subsequently ask for its reformation. How to determine intention
 There has been election between two Art 1371 In order to judge the intention of the
inconsistent remedies, one in contracting parties, their
affirmance, the other in disaffirmance contemporaneous and subsequent acts
 shall be principally considered.
Who may ask for reformation  Also take note of the usage and customs of the
MUTUAL MISTAKE: either party or successor in interest place
MISTAKE BY ONE: injured party, heirs or assigns
1. Art 1368 Reformation may be ordered How to interpret a contract
at the instance of either party or his
successors in interest, if the mistake was 1. When it contains stipulations that admit of several
mutual; otherwise, upon petition of the meanings
injured party, or his heirs and assigns. Art 1373 If some stipulation of any contract
2. Art 1362 If one party was mistaken and the should admit of several meanings, it shall be
other acted fraudulently or inequitably in understood as bearing that import which is most
such a way that the instrument does not adequate to render it effectual .
show their true intention, the former may ask
for the reformation of the instrument.
2. When it contains various stipulations, some of which
Procedure of reformation are doubtful
 Art 1374 The various stipulations of a contract Rule 123 of the Rules of Court shall likewise
shall be interpreted together, attributing to the be observed in the construction of
doubtful ones that sense which may contracts.
result from all of them taken jointly .  Law on evidence; interpretation of documents)

3. When it contains words that have different

significations
In between VALID and DEFECTIVE contracts is RELATIVELY
Art 1375 \Vords which may have different
INEFFECTIVE ineffective only with respect to certain
significations shall be understood in that which
parties, but are effective as to other persons.
is most in keeping with the nature and object of
(1) assignment of the lease by the lessee
the contract . When it contains ambiguities and
without the consent of the lessor is ineffective only
omission of stipulations
as regards the lessor,
Art 1376 The usage or custom of the place shall be
borne in mind in the interpretation of the (2) transfer of a debt by the debtor to
another, without the consent of the creditor is
ambiguities of a contract, and shall fill the
ineffective as to the creditor,
omission of stipulations which are
ordinarily established. (3) the payment by a debtor to his creditor after
the credit has been garnished or attached by a
third person is ineffective to the latter
4. With respect to the party who caused the obscurity
Art 1377 The interpretation of obscure words or
stipulations in a contract shall not favor the DEFECTIVE CONTRACTS
party who caused the obscurity .
 Contracts of adhesion-resolved against 1. RESCISSIBLE - contract that has caused a
the party who prepared the contract particular damage to one of the parties or to a
and in favor of the one who merely third person and which for EQUITABLE REASONS
adhered to it may be set aside even if valid
2. VOIDABLE OR ANNULLABLE (contrato nulo)-
5. When it is absolutely impossible to settle doubts by contract in which CONSENT of one of the parties is
the rules above
defective, either because of WANT OF CAPACITY or
Art 1378 Par 1 When it is absolutely impossible to
because it is VITIATED , but which contract is VALID
settle doubts by the rules established in
until JUD ICIALLY set aside
the preceding articles, and the doubts
3. UNENFORCEABLE - contract that for some
refer to incidental circumstances of a
reason CANNOT BE ENFORCED, UNLESS
gratuitous contract , the least transmission
of rights and interests shall prevail. If the RATIFIED in the manner PROVIDED BY LAW
contract is onerous, the doubt shall be 4. VOID AND NON-EXISTENT (contrato inexistente)
settled in favor of the greatest reciprocity contract which is an ABSOLUTE NULLITY and
of interests . produces NO EFFECT, as if it had never been
executed or entered into
a. In gratuitous contracts, incidental circumstances
least transmission of rights and interests Chapter VI. Rescissible Contracts
 Restrictive interpretation against done for RESCISSION
gratuitous contracts Art 1380 Contracts validly agreed upon may be
b. In onerous contracts greatest reciprocity of rescinded in the cases established by law.
interests Definition
 Liberal interpretation on both parties for  Remedy granted by law to the contracting
onerous contracts parties and even to third persons, to secure
the reparation of damages caused to them
by a contract, even if this should be valid, by
6. When the doubts are cast upon the principal means of the restoration of things to their
objects so that the intention cannot be known condition at the moment prior to the
Art 1378 Par 2 If the doubts are cast upon the celebration of said contract.
principal object of the contract in such a  Relief for the protection of one of the
way that it cannot be known what may contracting parties AND third persons from all
have been the intention or will of the
injury and damages the contract may cause
parties, the contract shall be null and
OR protect some incompatible and
void .
preferential right created by the contract
 Implies a contract which, even if initially valid,
Applicability of Rule 12, Rules of Court (now Secs. 10-19,
produces a lesion or pecuniary damage to
Rule 130)
someone
Art 1379 The principles of interpretation stated in
  Sets aside the act or contract for justifiable Art 1385 Par 3 Neither shall rescission take place
reasons of equity when the things which are the object of
the contract are legally in the possession of
 Grounds for rescission can only be for legal third persons who did not act in bad faith.
cause
5. The action for rescission is brought within the
Characteristics of Rescissible Contracts prescriptive period of four years
1. Their defect consist in injury or damage either to
Art 1389 The action to claim rescission must be
one of the contracting parties or to third persons
commenced within four years. For
LESION: injury which one of the parties suffers by
persons under guardianship and for
virtue of contract that is disadvantageous to
absentees, the period of four years shall
him; must be known or could have been
not begin until the termination of the
known at the birth of contract and not due to
subsequent thereto or unknown to the parties, former s incapacity or until the domicile of
the latter is known.
e.g. Art 1098 Partition, judicial and extra-judicial may
 o Period commences on the termination of
be rescinded on account oflesion Art 1539 Sale of
the ward s incapacity or when absentee s
real estate of inferior thing
domicile is known
Art 1542 Sale of real estate made for a lump sum
2. They are valid before rescission
Kinds of Rescissible Contracts
3. They can be attacked directly only, not collaterally
The following are rescissible contracts (Art 1381):
 However, in the case of rescissible contracts 1. Entered into by guardians whenever the wards suffer
entered into on behalf of a minor or lesion by more than ¼ of value of things object
otherwise incapacitated person a third party,
 For this article, the guardians are acting within
or a guardian ad /item, may file the action their legal authority as guardians.
for rescission on the ward's behalf.  Authorized only to manage ward's property,
1. They can be attacked only either by a no power to dispose without prior
contracting party, or by a third person who is approval of court.
injured or defrauded  If sold, mortgaged or otherwise
encumbered without approval of the
Requisites for Rescission court, contract is unenforceable.
 If sold with the misrepresentation that
1. The contract is rescissible the property is the guardian's, and not
Art 1381 Must fall under the kinds of rescissible contracts the wards, the contract is void.
as specified
 Sir Labitag: thin band of contracts" - for
Art 1382 Payments made in a state of insolvency
power of administration where the ward
for obligations to whose fulfillment the
suffers, in that if the guardian sells without
debtor could not be compelled at the
court authorization, he becomes liable
time (has not yet matured) they were
under art. 1403 in excess of authority, and
effected, are also rescissible.
the contract becomes unenforceable
 25% threshold for lesion is problematic.
2. The party asking for rescission has no other legal  Value changes according to time
means to obtain reparation
 Dependent on appraiser.
Art 1383 The action for rescission is subsidiary ;
 More usually, litigants will claim around 50%
it cannot be instituted except when the party lesion.
suffering damage has no other legal means to
obtain reparation for the same. 2. Agreed upon in representation of absentee,
suffer lesion by more than ¼ of the value of
3. He is able to return whatever he may be obliged things object
to restore if rescission is granted Same principles as the contracts under
Art 1385 Rescission creates the obligation to paragraph 1.
return the things which were the object of
the contract,together with their fruits, and 3. In fraud of creditors who cannot collect claims due
the price with its interest them

4. The object of the contract has not passed legally Presumptions of Fraud
to the possession of a third person acting in good Art 1387 All contracts by virtue of which the debtor
faith alienates property by gratuitous title are
Art 1385 consequently, it can be carried out only presumed to have been entered into in
when he who demands rescission can fraud of creditors , when the donor did
return whatever he may be obliged to not reserve sufficient property to pay all
restore. debts contracted before the donation.
Alienations by onerous title are also presumed Rescission (Art 1380) As Distinguished from Resolution
fraudulent when made by persons (Art 1191)
against whom some judgment has
been issued . The decision or Art 1191 Resolution Art 1380
attachment need not refer to the Similarities 1. Presuppose contracts validly
entered into and existing
property alienated, and need not
have been obtained by the party  Recission v. Annulment: in thelatter,there is
seeking the rescission. a defect which vitiates/invalidates the
In addition to tl1ese presumptions, the design to
contract
defraud creditors may be proved in any other
2. Mutual restitution when proper
manner recognized by the law of evidence.
Who Only by a party to Party to the contract
 Rebuttal by evidence that conveyance was made: the contract suffering lesion
may Third parties
 In good faith
demand prejudiced by the
 For a sufficient cause
contract
 Effect of Fraud: Does not necessarily make the Grounds Non-performance Various reasons of
alienation rescissible. It is only one of the (implied tacit equity provided by
condition the
requisites
in reciprocal grounds, mainly
for accion pauliana. Can be overruled by a obligation) economic injury or
transferee in good faith and for valuable lesions
consideration. Scope of Court determines Sufficiency of reason
judicial sufficiency of does not affect right
Badges of Fraud (indicia of fraud) - rules by which control reason to justify to ask for rescission
fraudulent character of transaction may be extension (cannot be refused
determined (Oria v. McMicking) if
1. Fictitious/insufficient consideration of all the requisites are
2. Conveyance is after suit is filed and while it is satisfied)
pending time
3. Sale on credit by insolvent debtor
4. Evidence of insolvency or large indebtedness to
5. Transfer of All or nearly all of debtors property
6. Transfer is between father and son when some of perform
above is present obligation (whether
7. Failure of vendee to take exclusive possession of slight or casual
the property Relief for defrauded creditor: Accion breach
Pauliana (see discussion, supra.) Kind of Only to reciprocal Unilateral, reciprocal
obligation Even when contract
applicable to is fully fulfilled
4. Things under litigation, without knowledge and
Character Principal Remedy Secondary/Subsidiary
approval of litigant or of competent judicial
authority
MUTUAL DISSENT not the same as rescission, because
 To secure the possible effectivity of a claim
mutual dissent is tantamount to a simple
 Transferee of property in good faith
creation of new contract for the
who acquires property for valuable
dissolution of the previous one. In order
consideration, without knowledge of the
for rescission to take place, the
litigation or claim of the plaintiff, cannot
requisites must first be satisfied.
be deprived of property.
Effect of Rescission
5. Specially declared by law to be subject of rescission
Art 1385 Rescission creates the obligation to
6. Obligation made in favor of creditor to the
prejudice of the other creditors return the things which were the
object of the contract together with
 According to Sir Labitag, but not in Tolentino,
found in 1382 their fruits, and the price with its interest;
consequently, it can be carried out only
 Debtor is insolvent, but instead of paying
when he who demands rescission can
a creditor who has made a demand on
return whatever he may be obliged to
him, or whose debt is already due, he
restore.
pays a creditor whom he cannot be
General Rule: Mutual restitution
compelled to pay at that moment.
Special Case: Accion Pauliana
  Alienated property reverts to the patrimony of him to return them.
the debtor. If there are two or more alienations, the first acquirer
shall be liable first, and so on successively.
 It becomes available as guaranty for the
debtor's obligation once more. How to Attack
 Sir Labitag: "frontal, from the point of view of the
With respect to third persons who acquired the thing in
good faith debtor"
 If the third party who acquired the thing did  File a direct action for rescission proper (as
so for valuable consideration, and without distinguished from resolution of 1191)
knowledge of the action for rescission, he
Cure
cannot be deprived of property.
1. For contract of guardians - by ratification/
Art 1385 Par 2 Neither shall rescission take place
confirmation of the ward
when the things which are the object of
the contract are legally in the possession 2. For contracts in representation of absentees -
of third persons who did not act in bad By prescription
faith 3. For contracts entered into by debtor in state of
Art 1385 Par 3 In this case, indemnity for damages may insolvency - prescription
be demanded from the person causing the 4. For contracts which refer to things in litigation -
loss. by prescription
5. For all other contracts declared by law - by
Right of transferee to retain alienation: ratification/ confirmation of the ward
Nature of transfer 6. For contracts made in favor of one creditor -
ONEROUS by ratification by creditor not preferred.
 Good faith - no rescission
 Bad faith - rescissible because of his Chapter VII. Voidable or Annullable Contracts
complicity in the fraud not entitled for
reimbursement because in pari delicto; if Kinds of Voidable/ Annullable Contracts
not possible to return, indemnify the Art 1390 Although no damage to contracting parties:
plaintiff; 1. Want of capacity
GRATUITOUS 2. Vitiated consent
 Good faith - does not protect him
because he gave nothing; rescissible, Characteristics of Voidable/ Annullable Contracts
though not required to restore the fruits 1. Their defect consists in the vitiation of consent of
 Bad faith - rescissible because of his one of the contracting parties
complicity in the fraud; if not possible to 2. They are binding until they are annulled by a
return, must indemnify the plaintiff competent court
3. They are susceptible of convalidation by
Who may bring action for rescission ratification or by prescription
1. Creditor injured
2. Heirs of creditor injured Question:
3. Creditors of creditor injured (by virtue of accion What if there is mutual force?
subrogatoria) Then there would be no contract at all.

Extent of Rescission What if there is mutual fraud?

Art 1384 Rescission shall be only to the extent necessary Similar to the situation with mutual force, there
to cover the damages caused. would be no contract at all. If both parties are
 As to the excess, alienation is maintained even if fraudulent in acquiring the consent of the other, the
transferee is in bad faith in pari delicto rule would apply. (see unenforceable
 Benefits only the plaintiff creditor, not everyone contracts, infra.)
 BUT if transferee is willing to pay, no rescission
ANNULMENT
Liability for acquiring in bad faith the things alienated in Annulment distinguished from Rescission
fraud of creditors ANNULMENT RESCISSION
Art 1388 Whoever acquires in bad faith the things (Voidable) (Rescissible)
alienated in fraud of creditors, shall Declares inefficiency Merely produces
indemnify the latter for damages suffered by which contract already inefficiency, which did
them on account of the alienation , whenever, carries in itself (intrinsic not exist essentially
due to any cause, it should be impossible for defect) (external defect, i.e.
 pecuniary damages or 3. Incapacity: from the time guardianship ceases
prejudice to one of Extinctive prescription applies not only to
the contracting parties action for annulment, but also to the defense
or 3rd of nullity.
persons) Applies to the parties of to the contract, but
Requires act of Needs no ratification to NOT to third persons.
ratification to be cured be effective
Based on a vice of the Compatible with the Effects of Annulment The contract is set aside; the
contract which perfect validity of the parties are to restore themselves to the positions
invalidates it contract
they were in before the contract was made.
Annulment is a sanction Rescission is a remedy
a. MUTUAL RESTITUTION Art 1398 Restore to each
based on law based on equity
other:
Demandable only by Demandable even by 3rd
a. things which have been the subject matter of the
the parties to the parties affected by it
contract,
contract
Public interest Private interest b. together with fruits and
predominates predominates c. the price with interest,
 EXCEPT in cases provided by law (principle of
Grounds for Annulment Art 1390 unjust enrichment): e.g. compensation,
1. Incapacity to consent services rendered in contracts of service
Capacity to consent is not an essential requisite of  ELIMINATES AWARD FOR DAMAGES. But when
a contract; want is only a ground for annulment there is loss or suffered damages, injured party
2. Vices of consent: violence, intimidation, undue may be entitled to recover indemnity for
influence, mistake or fraud damages.

Who may and may not institute an Action for B.WHEN MUTUAL RESTITUTION CANNOT BE COMPELLED
Annulment Art 1397 Art 1402 as long as one does not restore what he is
A. MAY: All who are obliged principally or subsidiarily bound to return, the other cannot be
Art 1395: action does not require conformity of the compelled to return
other party who has no right to bring action General Rule: After annulment of contract, the parties
for annulment must return the things or amounts they have
Requisites: received complete with fruits, accessions, and
a. Interest in the contract bound to the contract interest on the purchase price.
either principally or subsidiarily Exceptions:
b. Victim and not the party responsible for  LOSS THROUGH PLAINTIFF'S (party entitled to
the defect bring action) FAULT or FRAUD: Action for
c. he who comes to the court must come annulment is extinguished, even if at the
with clean hands (so not applicable to the time of the loss the plaintiff is still a minor or
successor in interest of one who has contracted insane (Art 1401) therefore no restitution.
with a minor)  LOSS THROUGH FORTUITOUS EVENT, BUT
PLAINTIFF WILLING TO PAY: Defendant
B. MAYNOT: should return the object, but does not pay
1. Capable parties cannot allege the incapacity the interestr.estitution does not include
of those with whom they contracted interest.
2. Those who caused the vitiation of consent  LOSS OF FRUITS AND ACCESSIONS: Apply Art
of the other party, i.e. parties who exerted 1400, pay value if they cannot return (both
intimidation, violence or undue influence or plaintiff and defendantr) estitution does not
employed fraud or caused mistake
include fruits and accessions.
3. Third person who is a stranger to the
 Cases stated below.
contract. UNLESS he can prove that the
contract prejudiced his rights with respect to
one of the contracting parties, he may ask
1. When one of the parties is incapacitated
Art 1399 not obliged to make any restitution EXCEPT
for annulment e.g. guarantors and sureties
insofar as he has been benefited by the
price/thing received
Prescription of Action for Annulment - after prescription,  Incapacitated party is generally not required to
contract can no longer be set aside make any restitution
Art 1391 - Within 4 years Period shall begin:  Exception: He has been benefited by the
1. Intimidation, violence or undue influence: from
the time consensual defect ceases price/thing received.
2. Mistake or fraud: from the time of discovery of  Benefit not necessarily a material and permanent
the same increase in fortune
  Benefit must be proven by incapacitated intention to waive his rights
person, in the absence of such proof, the E.g. of IMPLIED:
presumption is there is no benefit/ profit.  Silence or acquiescence
 If the amount is still in the patrimony at the  Acts showing approval or adoption of the
time incapacity ceases, the incapacitated contract
party is deemed to have been benefited.  Acceptance and retention of benefits fl.owing
 If he asks for annulment, he must return it therefrom
to the other party. b. Art 1394
 If he squanders it, the contract is By the parties themselves or by the guardian in
considered ratified. behalf of an incapacitated party
2. When the thing is lost through the fault of the party  During the existence of incapacity
obliged to return the same (i.e. defendant)  Right to ratify is transmitted to the heirs of the
Art 1400 Whenever the person obliged by the party entitled to such right.
decree of annulment to return the
thing can not do so because it has Effects of Ratification
been lost through his fault, he shall a. Art 1392 Action to annul is extinguished
return the fruits received and the value b. Art 1396 The contract is cleansed retroactively from
of the thing at the time of the loss, v,,ith all its defects from the time it was constituted
interest from the same date. EXCEPTION: Right of 3rd persons acquired prior to
LOSS THROUGH FORTUITOUS EVENT: pay for the value ratification
of the thing lost but not fruits and interests.
Summarized form of Sir's Table
Extinguishment of the Action Nature of Defect:
a. Art 1392 By ratification  Want of capacity (age, insanity)
 Confirmation/ ratification: cures a defect of
nullity  Vitiated Consent
 Acknowledgment: remedies deficiency of Effect on Contract
proof
b. Art 1401 When the thing is lost through the fault of  Valid until annulled by court action
the person who has the right to file the action Assailable? How?
 Extinguishment can only come about due to
the loss by fault of plaintiff.  Yes, both directly and collaterally in an action
for annulment
 Unjust enrichment if the loss is returned for the
defendant to bear. Who Can Assail?
 Hence, the defendant cannot be  Victims in both cases
obliged to make restitution to the  All who are obliged principally or subsidiarily
plaintiff because of Art 1402 (cannot When to Assail?
compelled to return if the other party does
 In case of want of capacity: within 4 years of
not return) gaining/regaining capacity
 Cannot extinguish action for annulment  In case of vitiated consent: within 4 years of
for any event not imputable to the fault cessation of duress or undue influence
or fraud of the plaintiff  In case of fraud or error: within 4 years of
discovery
RATIFICATION Curable? How?
 Yes, by ratification (express or implied) or by
Requisites of Ratification prescription
a. Contract is voidable/ annullable Who can Cure?
b. Ratification is made with the knowledge of the  Parties themselves
cause for nullity
 Guardians ad litem in cases of want of capacity
c. At the time of the ratification, the cause of nullity
has already ceased to exist When to Cure?
 Within 4 years of gaining or regaining capacity
Forms of Ratification  Within 4 years of cessation of duress or undue
a) Art 1393 influence
I. Express: : any oral or written manifestation  Within 4 years of discovery of error or fraud
of the person entitled to ask for
annulment that he agrees to be bound
by the contract or that he will not seek its
annulment.
b) Tacit: execute an act which necessarily implies an
Chapter VIII. Unenforceable Contracts Gabe's answer:
Art. 1403. The following contracts are unenforceable, Par 1-contract between principal and 3rd party void;
unless they are ratified: however, agent is liable to both principal and
1. Those entered into in the name of another
3rd party. Par 2-valid only between parties,
person by one who has been given no but cannot be enforced.
authority or legal representation, or who has Par 3-valid between incapacitated parties only; void as
acted beyond his powers; to all others.
2. Those that do not comply with the Statute of
Frauds as set forth in this number. In the Unenforceable distinguished from Rescissible and
following cases an agreement hereafter made Annullable UNENFORCEABLE
shall be unenforceable by action, unless the  Produces NO legal effect unless ratified by
same, or some note or memorandum, thereof, competent court
be in writing, and subscribed by the party RESCISSIBLE AND ANNULLABLE
charged, or by his agent; evidence, therefore,  Produce legal effects unless set aside by
of the agreement cannot be received without competent court
the writing, or a secondary evidence of its 
contents: Kinds of Unenforceable Contracts (Art. 1403) Art 1403 Par
a) An agreement that by its terms is not to be 1: Unauthorized contracts
performed within a year from the making  The agent does not act for himself but on behalf of
thereof;
someone
b) A special promise to answer for the debt,
default, or miscarriage of another;  Unenforceable at the instance of the true
c) An agreement made in consideration of owner/principal and the defense should be
marriage, other than a mutual promise to interposed at the time the other is trying to
marry; enforce the contract and NOT after full
d) An agreement for the sale of goods, compliance on one side or
chattels or things in action, at a price not  Binds only the AGENT and not the principal
less than five hundred pesos, unless the unless he ratifies it, thereby curing the
buyer accept and receive part of such unauthorized contract. Note that the intention of
goods and chattels, or the evidences, or the parties to bind someone should be given
some of them, of such things in action or effect.
pay at the time some part of the purchase  If the principal executes the contract or asks for
money; but when a sale is made by specific performance, there is ratification or
auction and entry is made by the implied waiver of defense.
auctioneer in his sales book, at the time of  EXCEPTION: negotiorum gestio = owner
the sale, of the amount and kind of is liable to officious manager (see
property sold, terms of sale, price, names discussion above)
of the purchasers and person on whose  Officious manager, not previously
account the sale is made, it is a sufficient having contractual relation with
memorandum; the owner of the property, has no
e) An agreement of the leasing for a longer period authority to manage. However, law
than one year, or for the sale of real property or
of equity governs.
of an interest therein;
 Example of in excess of authority: authority
f) A representation as to the credit of a third
person. given is only up to acts of administration /
3. Those where both parties are incapable of giving acts for better use and enjoyment on property in
consent to a contract. case of co-ownership, BUT he exercises acts of
ownership.
Characteristics of Unenforceable Contracts  Sale of ward's property in the latter's name without
authority regardless of lesion is unenforceable
 They cannot be enforced by a proper action
 However, if agent sold the land
in court
but he is only authorized to
 They are susceptible of ratification mortgage it = VOID, not
 They cannot be assailed by third persons Art enforceable because of Art. 1874
1408
Question: Are unenforceable contracts valid, void, or in Governing rules in Unauthorized Contracts:
between? Wretz' answer:
 Art 1404: Governed by Art 1317 (no one may
Par 1 - void as to principal and 3rd party contract in the name of the other without being
Par 2 - valid as to parties unless involves a formal contract authorized or unless he has by law a right to
Par 3 -void represent him; representation without authority or
 legal representation makes the contract contract or the intention of the parties and not
unenforceable unless ratified before being natural/physical impossibility)
revoked) AND principles of Agency in Title X of  outside SoF if no time is fixed & nothing in the
this Book agreement suggests that it cannot be
 Sale of property WITHOUT authority of the performed within 1 year
owner is VOID from the beginning BUT can be
made perfectly valid if the owner ratifies it b. Special Promise to answer for another's DEBT,
upon his stating under oath in court that he DEFAULT or MISCARRIAGE
himself consented to the other's making the  An undertaking by a person, previously not
said sale liable, to secure/perform the same duty for
which the original debtor continues to be
Art 1403 Par 2: Contracts covered by the Statute of liable
Frauds  Why is it included in SoF? To offer protection
Statute of Frauds: to the promisor who, receiving none of the
 descriptive of statutes which requires certain benefits for which the debt was incurred,
classes of contracts to be in a written should be bound only by the exact terms of
memorandum or note containing the following his promise.
minimum information (essential elements of the Question: What is included in miscarriage?
contract):  MISCARRIAGE = species of wrongful act,
 signature of the parties -to show consent
the consequences for which the law
 sufficient description of the object to
render it capable of identification would
(e.g., location of the property which is  make the party civilly responsible
the subject matter of the sale)  includes liability arising from TORT and not
 dates IF: just those out of contracts E
 EXAMPLE: The wrongful riding the horse of
 under par2 (a) where the
another, without his leave or license, and
agreement is not to be
thereby causing its death, is clearly an
performed within a year: date
act for which the party is responsible for
of making the agreement is
damages, and therefore, falls within the
important.
meaning of the word miscarriage
 under par2 (e) where the lease
covers a period longer than 1  Tesst of Guaranty: Is the promise original or
year: period of the lease and collateral? Fall under SoF if it is collateral to
the date it begins another's agreement. --- a question of law &
fact to be determined from language used
 consideration (cause) VS. cause is presumed to (though not always conclusive especially if
exist & to be legal. parties are unaware of legal & technical
 Other data that can be included: differences of words used) and the
 Names of the parties surrounding circumstances
 Terms and conditions of the agreement
 Place of the making of the agreement c. In consideration of MARRIAGE (other than mutual
 Note: written memorandum/note is the promise to marry)
evidence of the agreement and is used to  Marriage should not be a mere incident;
show the intention of the parties. No there should not be any other consideration
particular form of language or instrument is sufficient to support the oral agreement.
necessary to constitute a memorandum  Covers agreements between the parties to
under SoF. the contemplated marriage AND promised by
 Merely regulates the formalities of the contract 3rd persons to one of the contracting parties
necessary to render it enforceable. (ex. Gift of bride's father to groom)
 Question: What is the consideration in a promise
a. Performance NOT within 1 year to marry?
 time begins to run from the day the Another promise to marry.
contract 1s entered into and NOT from the
time that performance is entered upon d. Sale of GOODS, CHATTELS or THINGS IN ACTION
 How to compute the period: exclude 1st day,  Price should be at least PS00
include last day (Art 13, CC)  Covers both tangible & intangible personal
 intention for non-performance within 1 year property
should exist at the time of the parties made  Includes assignment of choses in action over
the contract (impossibility of the terms of the PS00
 CHOSES or THINGS in ACTION
  movables not susceptible of  Does not distinguish between real and
possession (credits and other personal personal rights.
rights) (see Art. 417) [sottrce: An otttline if  Duration of the term and the date it is to begin
Philippine Civil Law !:ry Rryes & Pttno] should be designated in the memorandum
 A right to receive or recover a debt,  Lease confers right to possess, use and enjoy
demand, or damages on a cause of the property, BUT does not create real rights
action ex contractu, or for a tort until recorded. Recording serves as
connected with contract, but which constructive notice to the whole world.
cannot be made available without
 Note: personal rights are those binding to
recourse to an action [sottrce: Black's
the contracting parties, their privies in
Law Dictionary]
interest and people with actual knowledge
 sottrce: The Free Dictionary !:ry Farlex:
of the contract ONLY, whereas real rights are
 The right to bring a lawsuit to recover also binding as against third persons.
chattels, money, or a debt.
 Property right or the right to possession e. (2) Sale of REAL property / of an INTEREST therein
of something that can only be  Evidence to prove an oral contract of sale
obtained or enforced through legal of real estate must be disregarded IF timely
action. It is used in contradistinction to objections are made to its introduction
chose in possession, which refers to
 Land sold should be sufficiently described
cases where title to money or
and the statement of interest therein
property is in one person but
should not be uncertain. Otherwise, oral
possession is held by another.
evidence is NOT admissible in aid of the
 Examples of a chose in action are memorandum.
the right of an heir to interest in the
 Interest of lessee in an unrecorded lease=
estate of his or her decedent; the right
interest in real property
to sue for damages for an injury; and
Question: What are the real rights?
the right of an employee to unpaid
wages. 1. Ownership
 Question: For a purchase of a number of 2. Real right of possession
articles priced at less than PS00 each, is the 3. Usufruct
contract covered by the Statute of Frauds? 4. Easement
 Only if the contract is inseparable and the total price 5. Retention(as security)
exceeds PS00 will it fall under SoF. 6. Real Mortgage
 Partial delivery OR payment removes the 7. Chattel Mortgage
8. Pledge
contract from the operation of SoF; payment
9. Antichresis
made at the time of making the contract
10. Pre-emption
removes it from the operation of SoF
11. Redemption
 EXCEPTIONS:
12. Recorded lease
 when the buyer accepts/receives part of
13. Other rights provided by law
such goods and chattels, or the
a. Under the IPRA
evidences, or some of them, of such
i. Community Ancestral Domain Title
things in action, OR
ii. Community Ancestral Domain Claim
 the buyer pays at the time some part of the
purchase money 6. Under the Constitution
 the entry made by the auctioneer in his i. Stewardship over forest lands
sales book at the time of sale is 14. Interest over real property
SUFFICIENT memorandum (despite lack of a. E.g. lessee in an unrecorded lease
the contracting parties' signatures) IF it
contains the ff. data: f. REPRESENTATION as to another's credit
 the amount and kind of property sold  A representation made by a stranger to
 terms of sale the contract with the intent that the person
 pnce for whom it is made SHOULD OBTAIN CREDIT
 names of purchasers and persons on = must be in writing in order to be a basis of
whose account the sale is made an action for damages against the party
Question: There's something missing in paragraph d. who made the representation if it turns out
What is it? to be false.
Gabe's Answer: There's no provision for services to be  False representations are not within SoF and
provided. may be proven by oral evidence
 Not applicable to representations tending to
e. (1) Leasing for a period LONGER than 1 year induce action for the benefit of the person
 making them parol evidence)
 Protects only those who honestly and in  Recognition of limits of human memory
good faith make assurances respecting  Principal aims: (1) prevent commission of
another's credit or standing injustice due to faulty memory, (2)
discouraging intentional misrepresentations
Applicability of Statute of Frauds
 Applies only when actions for specific Effect of noncompliance with SoF:
performance or for violation thereof are The contract is unenforceable at the instance
instituted (e.g., action for recovery of of any party. Thus, if the vendor demands the payment
purchase price, action for damages for of the purchase price, the vendee can interpose the
breach). defense that the contract is unenforceable.
o Hence, SoF inapplicable if verbal  1408 Unenforceable contracts cannot be
contract is used as basis. assailed by third persons
 APPLICABLE TO: Executory contracts  Statute of Frauds is a personal defense and the
 N/ A to contracts where: same may be waived
 Completed or executed contracts  Can only be relied upon by the contracting
 One of the parties have fully complied parties or their representatives
with his/her prestation
 Both parties have partially complied Question: Can one ask for a declaration of
with their prestation unenforceability?
No. There is no such action for that.
 Why is SoF applicable to executory and not
executed contracts? How to ratify contracts under Statute of Frauds? Art 1405
 Because there is a wide field of  Failure to object to the presentation of
commission of frauds in executory oral/parol evidence to prove the contract
but such is reduced in executed covered by SoF
since the intention of the parties  Objection is already too late if all the essential
becomes apparent by their elements of the contract have been testified to.
execution and execution  Acceptance of benefits under them
concludes, in most cases, the rights  The contract has already been partly executed
of parties. However, to render SoF
inapplicable, partial performance Art 1406 \'vhen a contract is enforceable under SoF
must be proven by either BUT a public document is NECESSARY for its
documentary or oral evidence. registration in the Registry of Deeds, the
 Exclusive list of agreements/ contracts parties may avail of their rights under Art
enumerated; Rule of exclusion 1357 (parties may compel each other to
 Does not determine credibility or weight of observe the necessary form once the
the evidence, merely concerned with the contract has been perfected)
admissibility thereof Written memorandum makes the contract enforceable
whereas the public document transfers real rights
Purpose of Statute:
Example: SALE OF LAND by owner (only needs to
 Prevent (and not encourage) fraud and comply with statute of frauds)
perjury in the enforcement of obligations terms were written on a tissue paper --> consensual
depending for their evidence upon the contract is perfected; valid but only executory
unassisted memory of witnesses, by  a written memorandum should first be made
requiring certain enumerated contracts before the buyer can enforce the seller's
and transactions to be evidenced by a obligation to execute a public document to
writing signed by the party to be charged.
transfer ownership of the real property
 Provides for the manner which contracts  [NOTE: seller can willingly execute such public
under it shall be proved
document without the written memorandum in
 Does not attempt to make contracts invalid which case the seller ratifies the contract,
if not executed in writing, only makes making it enforceable]
ineffective the action for specific
 applying 1191 (tacit resolutory condition), the
performance
seller can still assert that if the buyer does not
 Cannot be used to prevent one of the pay the purchase price and any other obligation
contracting parties from proving the true he is required to perform, the seller may want to
interest and agreement (e.g., deed of sale resolve the contract after he executes such
is actually a mortgage even when the public instrument. Hence, the buyer should also
agreement for redemption rests entirely on
 perform his obligations. performance of oral contract, by failure to
object seasonably to presentation of oral
Art 1403 Par 3: Both parties are incapable of giving evidence, by acceptance of benefits under
consent to a contract the contract
 Neither party or his representative can enforce  par 3: by confirmation
the contract unless this has been previously Who
ratified  par 1: person in whose name the contract was
entered into
Art 1407  par 2: party against whom the contract is
 Effect of ratification by the parent or guardian being enforced
of one of the parties: (express or implied)  par 3: parents / guardians of BOTH parties, OR
 Converts the contract into a voidable both parties after regaining capacity to act
contract, at the option of the party who has When
not ratified. Question: What is the period for expressly/impliedly
 Sir added: UNLESS the subject matter ratifying unenforceable contracts?
has been consumed by the Wretz' answer: none because there is no extinctive
incapacitated in good faith and for prescription for merely interposing
necessaries. the defense of unenforceability,
unlike direct action for rescission and
 The non-ratifying party may: enforce the
annulment.
contract OR ask for the annulment on
the ground of his incapacity
Question: How is the Statute of Frauds dovetailed with
 Effect of ratification by the parents or Laws on Formality?
guardians of both parties: validated from the
inception Art. 1406. When a contract is enforceable under the
Statute of Frauds, and a public document
Effect on Contract: VALID but cannot be enforced is necessary for its registration in the
by a proper action in court (e.g., action for Registry of Deeds, the parties may avail
specific performance and action for damages themselves of the right under Article 1357.
due to non-performance) UNTIL ratified. Art. 1357. If the law requires a document or other
special form, as in the acts and contracts
Question: What happens if ONE party regains consent? enumerated in the following article, the
The contract becomes a voidable one. contracting parties may compel each
other to observe that form, once the
SIR'S TABLE SUMMARIZED contract has been perfected. This right
Assail the Unenforceable contract: may be exercised simultaneously with the
How: DEFENSE of its unenforceability (not a direct action upon the contract
attack) through: Gabe's Answer: Art. 1406 is the bridge between the
 For pars 1, 2 & 3: motion to dismiss complaint SoF and the Laws of Formality. If the
 Additional for par 2: motion to exclude contract needs to be in written form under
oral evidence (e.g., testimony of the the SoF to be enforceable, but no such form
plaintiff about the contents of the oral has been followed, then the parties can
contract) compel one another to follow the form
Who: once the contract has been perfected.
 par 1: by owner of property
 par 2: by plaintiff & his privies (heirs, Question: How is paragraph (f) different from paragraph
representatives and assigns) (b)?
 par 3: by other party & his privies (heirs, In paragraph (f), the 3rd party merely
representatives and assigns) & by guardian represents himself as to a credit, such as endorsing a
/ parents during incapacity check, while in paragraph (b), he is collateral for a
When primary obligation of a debtor. Thus, while in the
 For pars 1, 2 & 3: at any time one party former, he cannot really be considered as liable for
attempts to enforce the contract against anything, in the latter, he is subsidiarily liable.
the other through a court action (defense
should be raised immediately)
Chapter IX. VOID OR INEXISTENT CONTRACTS
Cure the Unenforceable contract:
How Art. 1409. The following contracts are inexistent and void
 par 1: by ratification: express or implied (e.g., from the beginning:
owner tries to enforce the obligation)
 par 2: by acknowledgement, by (1) Those whose cause, object or purpose is contrary
 to law, morals, good customs, public order or NULLITY Matter of law Based on equity
public policy; and public and more of private
(2) Those which are absolutely simulated or fictitious; interest interest
(3) Those whose cause or object did not exist at the IF NO ACTION There are no Remains valid and
time of the transaction; IS TAKEN legal effects produces all its
(4) Those whose object is outside the commerce of
even if effects
men; no action is
(5) Those which contemplate an impossible service; taken to set it
aside
(6) Those where the intention of the parties relative
ACTION TO Never Prescribes
to the principal object of the contract cannot be
RESCIND prescribes
ascertained;
(7) Those expressly prohibited or declared void by
law. VOID UNENFORCEABL
E
RATIFICATION Can never be Can be ratified and
These contracts cannot be ratified. Neither can ratified therefore can
the right to set up the defense of illegality be waived.
be enforced
 Void ab initio, as if it had never been entered
EXISTENCE No contract There 1s a
into
at all contract, which
 Includes not only those in which one of the however, cannot
essential requisites are wanting, but also
be
those which are declared void by positive
enforced
provision of law or statute
unless properly
ratified
Examples ofVoid or Inexistent Contracts:
1. Those which are simulated or fictitious
SIMILARITY: Void/Inexistent and Unenforceable are
2. Those in which consent was not produced
similar in that they cannot be the basis of action to
by the concurrence of the offer and
enforce compliance.
acceptance, and did not pass the stage
of generation to the point of perfection VOID VOIDABLE/
3. When the object of the contract is ANNULLABLE
impossible, illegal, or outside the VALIDITY Implies that Valid until set aside
commerce of man, or when it is not there is no and its validity
determined in kind as required in Art. 1349 contract can be assailed only
but only the in an action for that
Art. 1349. The object of every contract must be appearance of purpose by a party
determinate as to its kind. The fact that one, and it to the contract and
the quantity is not determinate shall not produces no never by a third
be an obstacle to the existence of the effect even if not person
contract, provided it is possible to
set aside by a
determine the same, without the need
direct action
of a new contract between the parties.
NULLITY Can be set up Nullity can only be
(1273) against anyone set up against a
who party thereto
4. When the contract has no cause or asserts a right
consideration, or when such cause or arising from it;
consideration is illicit. not only the first
5. When the contract, although the cause or but against all
object may not be illegal, violates some his successors
mandatory provisions of the law, such as a
who are not
contract for the separation of property,
affected by
executed after the celebration of marriage,
the law
or a sale of a homestead within the 5-yr
RATIFICATION Not susceptible May be rendered
prohibitory period provided by law.
cannot be cured Valid by ratification
of
HOW TO DISTINGUISH ratification;
PRESCRIPTION Does not Prescribes
DIFFERE VOID RESCISSIBLE prescribe
NCE
DEFECT Inherent in In effects, either to IN SUM: Characteristics of a Void Contract:
the contract one of the parties
 The contract produces no effect whatsoever
itself or to a third party
 either against or in favor of anyone, hence, of the contract.
it does not create, modify, or extinguish the
juridical relation to which it refers. This rule shall be applicable when only one of the
 No action for annulment is necessary parties is guilty; but the innocent one may claim what
because the nullity exists IPSO JURE; a he has given, and shall not be bound to comply with
judgment of nullity would merely be his promise. (1305)
declaratory
 It cannot be confirmed or ratified
 If it has been performed, the restoration of what IN PARI DELICTO RULE
has been given is in order 1. BOTH are in pari delicto
 The right to set up the defense of illegality  No action against each other
cannot be waived.  BOTH will be prosecuted
 RPC provision relative to the disposal of
ACCION REINVIDICATORIA - recovery of a property effects/instruments of a crime shall apply
where there has been void transfer, and
any possessor may refuse to deliver it to the 2. ONLY ONE is guilty
transferee, who cannot enforce the  INNOCENT PARTY may claim what he has
transfer. given
 Creditors may attach property of the  INNOCENT PARTY not bound to comply with
debtor which has been alienated by the his promise
latter under a void contrac;
 A mortgagee can allege the inexistence of a B. Art 1412 When the act is unlawful but does not
prior encumbrance constitute a criminal offense
 A debtor can assert the nullity of an assignment Art. 1412. If the act in which the unlawful or
of credit as a defense of an action by the forbidden cause consists does not
assignee. constitute a criminal offense, the following
rules shall be observed:
ACTION TO DECLARE NULLITY
1. \'vhen the fault is on the part of both
 No need of an action to set aside a void or
contracting parties, neither may recover
inexistent contract. In fact, such action
cannot logically exist. However, an action to what he has given by virtue of the contract,
declare the non-existence of the contract or demand the performance of the other's
can be maintained; and in the same action undertaking;
the plaintiff may recover what he has given 2. \'vhen only one of the contracting parties is at
by virtue of the contract. fault, he cannot recover what he has given
by reason of the contract, or ask for the
 If the void contract is still executory , no need
to bring an action; but if one party brings fulfillment of what has been promised him.
action to enforce it, nullity can be set up as The other, who is not at fault, may demand
defense the return of what he has given without any
 Power to ask for declaration of a nonexistent obligation to comply his promise. (1306)
contract - can't be assigned
IN PARI DELICTO RULE
CONTRACTS THAT ARE VOID: 1. BOTH parties at fault
1. Those whose cause, object or purpose is
 Neither party may recover what he has given
contrary to law, morals, good customs, by virtue of the contract
public order, or public policy:
 Neither party may demand the performance
A. When the act constitutes a criminal offense
of the others undertaking
(illegality of cause or object)
2. ONLY ONE is guilty
Art. 1411. When the nullity proceeds from the  INNOCENT PARTY may demand the return of
what he has given without obligation to
illegality of the cause or object of the
comply
contract, and the act constitutes a
criminal offense, both parties being in  with his promise
pari delicto, they shall have no action  PARTY AT FAULT cannot recover what he has
given by reason of the contract
against each other, and both shall be
prosecuted. Moreover, the provisions of  PARTY AT FAULT cannot ask for the fulfillment of
the Penal Code relative to the disposal what has been promised to him
of effects or instruments of a crime shall
be applicable to the things or the price  Not applicable to fictitious contracts
 because they refer to contracts with an applied.
illegal cause or subject-matter (criminal  Public policy favors the Usury Law. Policy
offense OR only illegal), OR to contracts is to discourage usury. Allowing the debtor to
that are null and void ab initio. Fictitious or recover the full amount of the usurious interest
simulated contracts don t have cause. paid and not only the excess over what the
law permits will discourage usury. And limiting
EXCEPTIONS TO THE IN PARI DELICTO RULE the action to 2 yrs after payment of usurious
 General Statement of the Exception interest will encourage debtors to expose as
(Art 1416): Agreement is not illegal per soon as possible the usurious transaction so
se, but merely prohibited they may still recover what they have paid as
 Prohibition is designed for the protection interest.
of the plaintiff
 Plaintiff may recover what he paid or OTHER SPECIFIC EXCEPTIONS
delivered if public policy is enhanced
 ILLEGAL PER SE- one that by a. Art 1414 When the PURPOSE is illegal and
universally recognized standards is money is paid or property delivered therefore
inherently or by its very nature bad, maybe repudiated by one of the parties before
improper, immoral or contrary to the purpose has been accomplished OR before
good conscience. any damage has been caused to a 3rd person.
Courts may allow the party repudiating the
IN CASES OF USURY: contract to recover the money or property, if the
Usury Law limits his right to recovery of usurious public interest will thus be subserved.
interest paid during the 2 years b. Art 1415 When the CONTRACT is illegal and one
preceding the making of the claim. But of the parties is INCAPABLE of giving consent courts
where the only consideration is the may allow recovery of money/property delivered
usurious interest, the entire consideration by the incapacitated person, if interest of justice
is illicit, the contract is null and void, and so demands
the borrower may recover the property c. Art 1417 When the amount paid exceeds
conveyed, with its fruits. the maximum fixed by law any person paying in
excess of the maximum price may recover such
Art. 1413 Interest paid in excess of the interest excess
allowed by the usury laws may be
recovered by the debtor, with interest
d. Art 1418 When by virtue of contract a
thereon from the date of payment (n)
laborer undertakes to work longer than the
maximum number of hours of work fixed by law
 This article, as opposed to Sec 6 of ct 2655 or worked may demand additional compensation
the Usury Law (in such case that the person who for service rendered beyond the limit
paid usurious interest "may recover the whole
interest, commissions, premiums, penalties,
e. Art 1419 When a laborer agrees to accept a lower
and surcharges paid or delivered" if the action is
wage than that set by law entitled to recover
brought within 2 yrs after such payment or deficiency
delivery, or in other words the whole usurious
interest paid within the last 2 yrs preceding the
f. Art 1420 When the contract is divisible if illegal
action can be recovered under the Usury Law),
terms can be separated from legal ones, enforce
allows the recovery only of the excess over the
latter
interest allowed by the Usury Law, and not the
entire interest paid, but interest on such excess
4.In case of doubt, contract is considered as divisible or
from the time payment is allowed. Furthermore, separable.
in this article, recovery is not limited to interest
paid within the last 2 yrs, hence the excess in all EXCEPTIONS to Art 1420:
payments may be recovered.
 SO WHICH WOULD PREVAIL? Tolentino says Usury 1. Nature of contract requires indivisibility e.g.
Law provision: contract of compromise
 Because of irreconcilable differences 2. Intention of the parties is that the contract
with Art 1961, 1957, and 1175, the intention of be entire e.g. if what is void be the essential part,
the Civil Code cant be ascertained; it is the void the entire contract. Divisibility will only be
same as if there is no rule in the Civil Code on followed when the nullity affects only the
the recovery of Usurious interest. This leaves secondary or accessory obligations.
the Usury Law as the only law that can be
 g. Art 1422 When the contract is the
DIRECT RESULT of a previous illegal contract also void and inexistent
1. Those whose object is outside the commerce
of man Art 1409 Par 4
2. Those which contemplate an impossible
service Art 1409 Par 5
3. Those where the intention of the parties
relative to the principal object of the
contract cannot be ascertained Art
1409 Par 6
4. Those expressly prohibited are declared void
by law Art 1409 Par 7

Contracts that are INEXISTENT

1. Those which are absolutely simulated or fictitious -

Art 1409 Part 2 :
Art 1345 Simulation of contracts may be
ABSOLUTE (parties do not intend to be bound
at all) or RELATIVE (parties conceal their true
agreement) (see discussion supra.)
Art 1346 Absolute or Fictitious: void
 Those whose cause or object did not exist at
the time of the transaction - Art 1409

The action or defense for the declaration of the

inexistence of a contract
1. Art 1410 Does not prescribe, defect is
permanent and incurable
2. Art 1421 Is NOT available to 3rd persons
whose interest is not directly affected
* Ratification may take the form of a new contract,
in which case its validity shall be determined only by
the circumstances at the time of the execution of
the new contract. However, the same does not
retroact to the constitution of the first contrac
 TITLE III. NATURAL OBLIGATIONS reputation.
QUESTION: What are other natural
Original Four types of obligations in juridical science obligations aside from those enumerated
reduced to two by jurisprudence (just civil and natural) in the Civil Code? Bettina's answer:
1. Moral obligations - duties of conscience  The support of a natural child who has not been
completely outside the field of law recognized
2. Natural obligations - duties not sanctioned by any  The indemnification of a woman seduced, even
action but have a relative judicial effect when the seduction does not constitute a crime
3. Civil obligations - juridical obligations that are in  The support of relatives, by consanguinity or
conformity with positive law but are contrary to affinity, for whom the law makes no provision for
juridical principles and susceptible of being support
annulled; enforceable by action  Indemnity for damages caused under
4. Mixed obligations - full juridical effect; falls under circumstances which do not give a right of action
civil obligations to the injured party

Definition Art 1423 Not being based on positive law Requisites of Natural Obligation
but on equity and natural law, do not 1. Juridical tie between two persons. (distinguishes
grant a right of action to enforce their natural obligations from moral ones)
performance, but after voluntary fulfillment 2. Tie is not given effect by law but instead by the
by the obligor, they authorize the retention conscience of man. (distinguishes natural obligations
of what has been delivered or rendered from civil ones)
 This binding tie is in the conscience of man, for
by reason thereof.
under the law they do not have the necessary
efficacy to give rise to an action. (revealing a
 Moral but not a legal duty to perform or pay, conflict between equity and law)
but the person who performs or pay feels that  Leaves it entirely to his conscience whether he
in good conscience he should comply with his shall pay or not. If he does not want to pay, he
undertaking which is based on moral grounds cannot be compelled; if he pays, he cannot
 He cannot recover what he has voluntarily paid recover.
 The moral law, which is the necessary
standard of all human action, cannot permit As distinguished from Civil Obligations
any lawmaker to grant the protection of public NATURAL CIVIL
force to one who seeks to undo the fulfillment,
As to toN by court actions, court action
not
already effected, of a debt of conscience
Enforceability but by good the coercive
 Based on natural law, which is immutable and
conscience of debtor power
independent of all human regulations. Also
Does not give rise Of Public authority
called rational law, which includes rules that are to an action to
neither written nor promulgated, but are derived compel performance to compe
from reason and nature. Equity and natural Positive law
As to basis
 Midway between civil and the purely moral justice
obligation. "Obligation without a sanction,"
susceptible of voluntary performance, but not
As distinguished from Moral Obligations
through compulsion by legal means.
 Real obligation which law denies action, but
NATURAL PURELY MORAL
which the debtor may perform voluntarily.
 Patrimonial and presupposes a prestation.
 It may not be enforced by judicial action;
however, whatever has been freely performed in
compliance with a natural obligation may not
There is a juridical tie There is no juridical tie
be reclaimed, and a contract made for the
Within domain of law, with a Moral duty
performance of a natural obligation is ONEROUS.
legal tie but cannot be
 Recognizes voluntary payment; debtor cannot
enforced because of certain
recover what he has paid voluntary because of
solutio indebiti. causes
 Since natural obligations are always voluntary, Produces some juridical
debtor cannot be legally forced. He can raise effects, such as the right to
the defense of natural obligation (not retain what has
enforceable). been voluntarily paid
 However, debtor may choose to fulfill the Performance by the debtor is
obligation because of his conscience, word of a legal fulfillment
honor, or his desire to maintain his business of the obligation
 e recognize the natural character of the
s obligation. And there being no civil obligation
t either, he can recover what he has paid.
s However, he has the burden of proving the
mistake.
e
n
Conversion to Civil Obligation
t
i
GENERAL RULE: Partial payment of a natural obligation
r
does not make it civil; the part paid cannot be
e
recovered
l but the payment of the balance cannot be
enforced.
y
Applicable only to natural obligation because of
prescription
o or lack of formalities (nullity due to form e.g.
Art n1430) and NOT to natural obligation subject to
ratification or confirmation.
 c
Payment by mistake is not voluntary and may be
o
recovered. Payment is voluntary when the debtor
n
knew that the obligation is a natural one. One who
s
pays a natural obligation, believing it to be civil,
c
does not thereby recognize the natural obligation;
i
and there being no civil obligation either, he can
e
recover
n what he has paid. The debtor however has
the
c burden of proving the mistake.
e
A true obligation with a legal Matter is entirely within the 1. By novation
tie between domain of morals 2. By confirmation or ratification
debtor and creditor
The signing of a document has the effect of
Produces certain civil effects:
converting a natural into a civil obligation. The natural
1. what has been paid
obligation is a valid cause for a civil obligation. A
cannot be recovered
prescribed debt of a deceased mother of the debtor
2. obligation can be was held to be a sufficient consideration to make
novated valid and effective the promise of the person to pay
3. it can be guaranteed the same.
4. and in some cases it
can even be ratified Examples
(as a prescribed
obligation) Art 1424 When the right to sue upon a civil
Fulfillment of Natural Obligations obligation has lapsed by extinctive
"Fulfillment" does not refer only to the delivery of things, prescription, the obligor who voluntarily
but also to the performance of an act, the performs the contract cannot recover
giving of a security, the execustion of a what he has delivered or the value of
document, the abandonment of a right... in the service he has rendered.
other words, the FULL EXTENT of the juridical
meaning of PAYMENT. Art 1425 When without the knowledge OR against
the will of the debtor, a 3rd person pays
"Voluntary fulfillment" is spontaneous, free from fraud or a debt which the obligor is not legally
coercion. With knowledge, free from error. bound to pay because the action
Recovery can then occur if what has been thereon has prescribed, but the debtor
paid is actually paid by mistake. Voluntary later voluntarily reimburses the third
here means that there is knowledge that person the obligor cannot recover what
one is not compelled to pay, distinguishing he has paid.
from payment by mistake (solutio indebiti,
which is a quasi-contract). There is a distinction
Art 1426 When a minor 18-21 entered into a
between solutio indebiti and voluntary
contract without the consent of the
payment of natural obligations. Thus, a
payment by mistake is not voluntary and may parent or guardian, after the annulment
be recovered. Payment is voluntary when the of the contract, voluntarily returns the
debtor knew that the obligation is a natural whole thing or price received,
one. Believing it to be civil, he does not norwithstanding that he has not been
 benefited thereby, there is no right to
demand the thing or price thus returned. Art 1428 \X'hen after an action to enforce a civil
obligation has failed, the defendant
voluntarily performs the obligation, he
 After a decree of annulment, parties are
cannot demand the return of what he
generally bound to make mutual restitution.
has delivered or the payment of the
When the ground for annulment is the
value of the service he has rendered.
incapacity of the plaintiff, he is not bound to
make restitution except to the extent that he
was benefited. If there was no benefit derived Art 1429 \'vhen a testate or intestate heir voluntarily
from the incapacitated from the thing pays a debt of a decedent exceeding
received by him from the other party, no legal the value of the property which he
obligation to make restitution. HOWEVER, HE received by will or by the law of testacy
HAS THE NATURAL OBLIGATION TO DO SO; from the estate of the deceased, the
hence, if he voluntarily makes the restitution, payment is valid and cannot be
he cannot recover what he ahs delivered, if rescinded by the payer.
he is a minor over
 18. Deemed to have sufficient mental and Art 1430 When a will is declared void because it
moral development to be aware of his debt of has not been executed in accordance
conscience. with the formalities required by law, but
 Cannot recover what he has voluntarily one of the intestate heirs, after the
returned, consummable or not, and whether settlement of the debts of the deceased,
or not the other party still has it in possession. pays a legacy in compliance with a
clause in the defective will, the payment
is effective and irrevocable.
Art 1427 When a minor 18-21 entered into a
contract without the consent of the  Nullity due to form: includes licit obligation which
parent or guardian, voluntarily pays a is unenforceable because of the lack of proper
sum of money or delivers a fungible thing formalities. However, once such obligation is
in fulfillment of an obligation, there shall voluntarily paid, the debtor cannot recover.
be no right to recover the same from the
oblige who has spent or consumed it in
good faith.

 Voluntary payment under an annullable contract.

No natural obligation, it is civil: it exists and is
enforceable unless set aside.
 Not the voluntary payment that prevents
recovery, but the consumption or spending of
the thing or money in good faith.
 Annullable, but until so annulled it is a civil
obligation still.
 This article creates an exception to the rule of
mutual restitution. Generally, the party who
contracted with a minor would have been
required to return whatever he received upon
annulment of contract. But in this case, he is
exempted from this obligation to restore if the
payment was made by a minor over 18, and the
thing or money paid was consumed or spent in
good faith.
 Good faith: belief that debtor has capacity to
deliver the object of contract
 Fungible thing: consumable
 Non-consummable: debtor cannot recover if
no longer in the possession of the creditor,
because the right to recover presupposes
existence of thing. Alienation in good faith is an
exercise of the right of the creditor, and he
cannot be held liable for it, much less if the thing
was lost without his fault.