Contract’ Defined The free entrance into contracts generally without restraint is

Art. 1305. A contract is a meeting of minds between two one of the liberties guaranteed to the people. However, the
persons whereby one binds himself, with respect to the other, constitutional prohibition against the impairment of contractual
to give something or to render some service. obligations refers only to contracts which are legal, not to void
A contract, is “a juridical convention manifested in legal form, or inexistent ones.
by virtue of which, one or more persons (or parties) bind Limitations on Nature of the Stipulations:
themselves in favor of another or others, or reciprocally, to the The law
fulfillment of a prestation to give, to do or not to do. Morals
Kinds of Elements of a Contract: Good Customs
Essential Elements – without which contract cannot exist. (Eg. Public Order
Consent, Subject Matter, Cause or Consideration) Public Policy
Natural Elements – those found in certain contracts and Innominate Contracts
presumed to exist unless contrary is stipulated. Art. 1307. Innominate contracts shall be regulated by the
Accidental Elements – Various particular stipulations that may stipulations of the parties, by the provisions of Titles I & II of
be agreed upon by the contracting parties. this Book, by the rules governing the most analogous nominate
Stages of Contracts: contracts, and by the customs of the place.
Preparation (or Conception) – the parties are progressing with Governing Rules for Innominate Contracts:
their negotiations; they have not yet arrived at a definite Stipulations
agreement. Titles I and II of Book IV – Obligations and Contracts
Perfection (or Birth) – the parties come to a definite agreement, Rules on the most Analogous Nominate Contracts
the elements of definite subject matter and valid cause have Customs of the Place
been accepted by mutual consent.
Kinds of Innominate Contracts:
Consummation (or Termination) – the terms of the contract are
do ut des (I give that you may give)
performed and the contract may be said to have been fully
do ut facias (I give that you may do)
executed.
facio ut des (I do that you may give)
Basic Principles of a Contract
facio ut facias (I do that you may do)
Freedom to Stipulate (Art. 1306)
Mutuality of Contracts
Obligatory Force and Compliance in Good Faith (Art. 1159 and
Art. 1308. The contract must bind both contracting parties; its
1315)
validity or compliance cannot be left to the will of one of them.
Perfection by Mere Consent (Art. 1315)
Both Parties are Mutually Bound (Art. 1308) Principle of Mutuality of Contracts:

Principle of Relativity (Art. 1311) This principle is based on the essential equality of the parties. It

Principle of Freedom is repugnant to bind one party and yet leave the other free.
Both parties are therefore bound by the contract.
Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem Consequences of Mutuality:

convenient, provided they are not contrary to law, morals, good General Rule: Just as nobody can be forced to enter into a

customs, public order, or public policy. contract, in the same manner once a contract is entered into,
no party can renounce it unilaterally or without the consent of
the other.
Exception: However, stipulation expressly giving to one party affect another, except as otherwise provided by law or
the right to cancel the contract is valid. agreement.

Determination by Third Person Exceptions to the Principle of Relativity:

Art. 1309. The determination of the performance may be left to Where the obligations arising from the contract are not

a third person, whose decision shall not be binding until it has transmissible by their nature, stipulation, or provision of law;

been made known to both contracting parties. Where there is a stipulation pour autrui;

When Decision is Binding: Where a third person induces another to violate his contract;
Where, in some cases, third persons may be adversely affected
Decision binds the parties only after it is made known to both of
by a contract where they did not participate;
them.
Where the law authorizes the creditor to sue on a contract
Determination When Evidently Inequitable
entered into by his debtor.
Art. 1310. The determination shall be obligatory if it is evidently
Contracts Creating Real Rights
inequitable. In such case, the courts shall decide what is
Art 1312. In contracts creating real rights, third persons who
equitable under the circumstances.
come into possession of the object of the contract are bound
Evidently Inequitable
thereby, subject to the provisions of the Mortgage Law and the
‘Inequitable’ means ‘Unfair’ or ‘Unjust’.
Land Registration laws.
What is inequitable is a question of fact, to be ascertained
This Article constitutes one of the exceptions to the general rule
from the attendant circumstances.
that a contract binds only the parties.
The court is called upon to decide what is equitable. Reason for the rule: A real right binds the property over which it
Effectivity of Contracts is exercised.
Art 1311. Contracts take effect only between the parties, Right of Defrauded Creditors
their assigns and heirs, except in case where the rights and Art 1313. Creditors are protected in cases of contracts intended
obligations arising from the contracts are not transmissible to defraud them

by their nature, or by stipulation or by provision of law. The This Article represents another instance when an outsider can,

heir is not liable beyond the value of the property he in a sense, interfere with another’s contract.

received from the decedent. Liability When Third Person Induced

If a contract should contain some stipulation in favor of a third Art 1314. Any third person who induces another to violate his

person, he may demand its fulfillment provided he contract shall be liable for damages to the other contracting

communicated his acceptance to the obligor before its party.

revocation. A mere incidental benefit or interest of a person is This Article gives an instance when a stranger to a contract can
not sufficient. The contracting parties must have clearly and be sued in view of their unwarranted interference.
deliberately conferred a favor upon a third person. Whoever is injured may properly sue for damages.

Principle of Relativity: Consensuality of Contracts

The Principle of Relativity states that Contracts are generally Art 1315. Contracts are perfected by mere consent, and from
effective only between the Parties, their Assigns, and their that moment the parties are bound not only to the fulfillment
Heirs. of what has been expressly stipulated but also to all the
Reason for the rule: Res inter alios acta aliis neque nocet consequences which, according to their nature, may be in
prodest. The act, declaration, or omission of another, cannot keeping with good faith, usage and law.
How Contracts are Perfected: Contracting in the Name of Another
Consensual contracts – by mere consent. Art 1317. No one may contract in the name of another without
Real contracts – perfected by mere delivery. being authorized by the latter, or unless he has by law a right to
Formal or Solemn contracts – a special form is required for represent him.
perfection. A contract entered into in the name of another by one who has
Perfection of Consensual Contracts: no authority or legal representation, or who has acted beyond
Consensual contracts are perfected from the moment there is his powers, shall be unenforceable, unless it is ratified,
agreement (Consent) on the subject matter, and the cause or expressly or impliedly, by the person on whose behalf it has
consideration. been executed, before it is revoked by the other contracting

Consequences of Perfection: party.

The parties are bound to the fulfillment of what has been Requisite for a person to contract in the name of another:

expressly stipulated, and compliance thereof must be in good They must be duly authorized (expressly or impliedly);
faith. OR they must have by law a right to represent the other person
The parties are also bound to all the consequences which, (example: as a guardian or administrator);
according to their nature, may be in keeping with good faith, OR the contract must be subsequently ratified (expressly or
usage, and law. impliedly, by word or by deed).

Perfection of Real Contracts Ratification:

Art 1316. Real contracts, such as deposit, pledge or Ratification cleanses the contract from all its defects from the
commodatum, are not perfected until the delivery of the object moment the contract was entered into.
of the obligation. Ratification can be implied from acts, such as when the owner

Delivery as a Requisite: of a piece of land which was sold to strangers without his

Real contracts require consent, subject matter, cause or authority collected the amount in a promissory note given as

consideration, and Delivery. purchase price.

Delivery is required of the very nature of the contract. Essential Requisites of Contracts

Examples of Real contracts: Deposit, Pledge, Commodatum. Art. 1318. There is no contract unless the following requisites

Future Real Contracts: concur:

A contract “to make a deposit, to make a pledge, or to make a (1) Consent of the contracting parties;

commodatum” is a consensual contract. (2) Object certain which is the subject matter of the contract;

Only after delivery does it become a real contract. (3) Cause of the obligation which is established.

An agreement to constitute a deposit is binding, but the deposit Additional Requisites:

itself is not perfected until the delivery of the thing. Real Contracts require the fourth requisite of Delivery.

Contract of Carriage: Solemn or Formal Contracts require the fourth requisite of

A contract “to carry” (at some future time) is consensual and is Compliance with the Formalities required by Law.

perfected by mere consent. Consent Presupposes:

A contract of “carriage” is a real contract, for it is not until the Consent presupposes legal capacity and fulfillment of
carrier is actually used can we consider the contract perfected. conditions, should any be attached.
Until the moment of actual use, the carrier cannot be said to Effect of Non-Consent:
have assumed the obligation of a carrier.
•If there is absolutely no consent, there is no contract. The •If the offer is withdrawn before it is accepted, there is no
agreement is considered inexistent or void. meeting of the minds.

•If there is a vice of consent (vitiated consent) such as error, Acceptance Unqualified and Absolute
fraud, or undue influence, the contract is not void; It is merely (a)If there is completely no acceptance or if the offer is
voidable. expressly rejected, there is no meeting of the minds.
SECTION 1. Consent (b)If the acceptance be qualified or not absolute, there is no
Essential Requisite of Consent concurrence of minds.

•Art. 1319. Consent is manifested by the meeting of the offer Acceptance through Correspondence:
and the acceptance upon the thing and the cause which are to •Acceptance made by letter or telegram does not bind the
constitute the contract. The offer must be certain and the offered except from the time it came to his knowledge. The
acceptance absolute. A qualified acceptance constitutes a contract in such a case is presumed to have been entered into
counter-offer. in the place where the offer was made.
•Acceptance made by letter or telegram does not bind the •Knowledge of acceptance may be actual or constructive.
offerer except from the time it came to his knowledge. The Forms of Acceptance
contract, in such a case, is presumed to have been entered into
•Art. 1320. An acceptance may be express or implied.
in the place where the offer was made.
Acceptance may be:
Consent Defined:
(a)Express
•Consent is the meeting of the minds between the parties on
(b)Implied
the subject matter and the cause of the contract, even if
(c)Presumed (by law)
neither one has been delivered.
Implied Rejection
•Consent is the manifestation of the meeting of the offer and
•Refusal or rejection of an offer may also be inferred from acts
the acceptance upon the thing and the cause which are to
and circumstances.
constitute the contract.
Things That May Be Fixed By Offeror
Requisites of Consent:
•Art. 1321. The person making the offer may fix the time, place,
(a)There must be two or more parties.
and manner of acceptance, all of which must be complied with.
(b)The parties must be capable and capacitated.
What may be fixed by offeror:
(c)There must be no vitiation of consent.
(a)The time;
(d)There must be no conflict between what was expressly
(b)The place;
declared and what was really intended.
(c)The manner of acceptance.
(e)The intent must be declared properly.
Acceptance Through An Agent
Requisites for Meeting of the Minds:
•Art. 1322. An offer made through an agent is accepted from
(a)An offer that must be Certain;
the time acceptance is communicated to him.
(b)An Acceptance that must be Unqualified and Absolute.
Application of Art. 1322:
When if Offer Certain?
•Art. 1322 applies when both the offer and the acceptance are
•In order than an offer can be considered Certain, it must not
made through an agent.
be vague, misleading, or made as a joke.
•Any other intermediary is merely a sort of messenger who •Art. 1325. Unless it appears otherwise, business
must communicate to the person who sends him, otherwise advertisements of things for sale are not definite offers, but
there is no meeting of the minds. mere invitations to make an offer.

When Offer Becomes Ineffective Business Ads as definite offers:

•Art. 1323. An offer becomes ineffective upon the death, civil (a)If the Business Ad appears to be a definite offer containing all
interdiction, insanity, or insolvency of either party before the specific particulars needed in a contract, it is a definite
acceptance is conveyed. offer.

Option Founded Upon A Consideration (b)If important details are left out, the Business Ad is not a

•Art. 1324. When the offerer has allowed the offeree a certain definite offer but a mere invitation to make an offer.

period to accept, the offer may be withdrawn at any time Advertisement For Bidders
before acceptance by communicating such withdrawal, except •Art. 1326. Advertisements for bidders are simply invitations to
when the option is founded upon a consideration, as something make proposals, and the advertiser is not bound to accept the
paid or promised. highest or lowest bidder, unless the contrary appears.
General Rule On Options: General Rule in Ads for Bidders:
•If the offerer has allowed the offeree a certain period to •The advertiser is not bound to accept the highest or lowest
accept, the offer may be withdrawn at any time before bidder.
acceptance by communicating such withdrawal. Note:
Option Defined •Mere determination of a public official or board to accept the
•An Option is a contract granting a person the privilege to buy proposal of a bidder does not constitute a contract. The
or not to buy certain objects at any time within the agreed decision must be communicated to the bidder.
period at a fixed price. Who Cannot Consent To A Contact
•The Contract of Option is separate and distinct from the •Art. 1327. The following cannot give consent to a contract:
contract which the parties may enter into upon the
•(1) Unemancipated minors;
consummation of the Contract of Option.
•(2) Insane or demented persons, and deaf-mutes who do not
Contract of Option
know how to write.
•The Contract of Option must have its own cause or
Two Classes of Voidable Contracts:
consideration.
(a)Those where one party is incapacitated to give consent.
•Of course, the consideration may be pure liberality.
(b)Those where the consent of one party has been vitiated
Perfection of an Option:
(such as be error, fraud, violence, intimidation, and undue
•Since an option is by itself a contract, it is not perfected unless influence).
there is a meeting of the minds on the option.
Parties Incapacitated to Consent:
•The offer to grant an option, even if founded on a distinct
(a)Unemancipated minors;
cause or consideration, may itself be withdrawn before the
(b)Insane or demented persons (unless they acted during a
acceptance of the offer of an option.
lucid interval), drunks and those hypnotized;
Business Advertisements
(c)Deaf-mutes who do not know how to write (and read).

Unemancipated Minors
•Minors who have not been emancipated by marriage, •There are people who are specially disqualified in certain
attainment of the age of majority, or by parental or judicial things. Here, the transaction is void because the right itself is
authority. restricted.

•In general, contracts which they enter are voidable. When Consent Makes Contract Voidable

Insane or Demented Persons •Art. 1330. A contract where consent is given through mistake,

•Reason: People who contract must know what they are violence, intimidation, undue influence, or fraud is voidable.

entering into. Causes of Vitiated Consent

•Even if a person had been declared insane, this does not (a)Mistake (or Error)
necessarily mean at the time of contracting said person was still (b)Fraud (or Deceit)
insane. (c)Violence
•If the contract was made before declaration of insanity, (d)Intimidation
presumption is that he was sane at the time of contracting.
(e)Undue Influence
Deaf-Mutes
Mistake or Error
•If a deaf-mute does not know how to write but knows how to
•Art. 1331. In order that mistake may invalidate consent, it
read, he should be considered capacitated.
should refer to the substance of the thing which is the object of
Voidable Contracts by Reason of Incapacity the contract, or to those conditions which have principally
•Art. 1328. Contracts entered into during a lucid interval are moved one or both parties to enter into the contract.
valid. Contracts agreed to in a state of drunkenness or during a •Mistake as to the identity or qualifications of one of the
hypnotic spell are voidable. parties will vitiate consent only when such identity or
Lucid Interval qualifications have been the principal cause of the contract.
•Even if a person has already been judicially declared insane, •A simple mistake of account shall give rise to its correction.
and is actually now under guardianship, he may still enter into a Mistake or Error Defined:
valid contract, provided that it can be shown that at the time of
•It is a false belief about something.
contracting, he was in a lucid interval.
Requisites for Mistake to Vitiate Consent:
•Here, he is already presumed insane, and therefore sanity
(a)The error must be substantial regarding:
must be proved.
1)the object or the contract;
Modifications Regarding Capacity
2)the conditions which principally moved or induced one of the
•Art. 1329. The incapacity declared in Article 1327 is subject to
parties;
the modifications determined by law, and is understood to be
3)identity or qualifications, but only if such was the principal
without prejudice to special disqualifications established in the
cause of the contract.
laws.
(b)The error must be excusable (not caused by negligence).
Persons Specially Disqualified
(c)The error must be a mistake of fact and not of law.
•In the case of legal incapacity, the transaction is merely
Substantial Error
voidable because the right itself is not restricted, but its
exercise. It can still be exercised under certain conditions. •The error is substantial if because of it the party gave his
consent. Therefore, if a party would still have entered into the
contract even if he had known of the error, the error is not
substantial.
Excusable Error (c)The real purpose of the parties is frustrated.

•The error does not vitiate consent if the party in error was •Reason: Mistake of law does not generally vitiate consent, but
negligent, or if having had an opportunity to ascertain the truth, when there is a mistake on a doubtful question of law, or on the
he did not do so. construction or application of law, this is analogous to mistake

Error of Fact, Not of Law of fact.

•The error must be one of fact and not of law because Violence and Intimidation

ignorance of the law does not excuse anyone from compliance •Art. 1335. There is violence when in order to wrest consent,
therewith. serious or irresistible force is employed.

Rule in Case of Inability to Read or Understand •There is intimidation when one of the contracting parties is

•Art. 1332. When one of the parties is unable to read, or if the compelled by a reasonable and well-grounded fear of an

contract is in a language not understood by him, and mistake or imminent and grave evil upon his person or property, or upon

fraud is alleged, the person enforcing the contract must show the person or property of his spouse, descendants or

that the terms thereof have been fully explained to the former. ascendants, to give his consent.

Presumption: •To determine the degree of intimidation, the age, sex and

•The natural presumption is that one always acts with due care condition of the person shall be borne in mind.

and signs with full knowledge of all the contents of the •A threat to enforce one's claim through competent authority,

document. if the claim is just or legal, does not vitiate consent.

•The presumption cannot apply when: Violence and Intimidation Defined

(1)one of the parties is unable to read •Violence refers to physical coercion; intimidation refers to

(2)Or if the contract is in a language not understood by one of moral coercion.

the Requisites for Violence to Vitiate Consent:

parties. (a)Employment of serious or irresistible force;

When Presumption Does Not Apply: (b)It must have been the reason why the contract was entered

•In case one of the parties is unable to read or the contract is in into.

a language not understood by one of the parties, the person Requisites for Intimidation to Vitiate Consent:

enforcing the contract must show that the terms thereof have (a)Reasonable and well-grounded fear
been fully explained to the former. (b)Of an imminent and grave peril
Knowledge of Doubt or Risk (c)Upon his person, property, or upon the person or property of
•Art. 1333. There is no mistake if the party alleging it knew the his spouse, descendants, or ascendants
doubt, contingency or risk affecting the object of the contract. (d)It must have been the reason why the contract was entered
Mutual Error into

•Art. 1334. Mutual error as to the legal effect of an agreement (e)The thread must be of an unjust act, an actionable wrong.
when the real purpose of the parties is frustrated, may vitiate Reasonable and Well-Grounded Fear
consent. •Whether the fear is reasonable and well-grounded or not
Requisites for Mutual Error to Vitiate Consent: depends upon many circumstances, including the age,
(a)There must be mutual error; condition, and sex of the person concerned.

(b)The error must refer to the legal effect of the agreement; Imminent and Grave Evil
•This depends on the circumstances, particularly, the age, sex, (b)Mental weakness
or condition of the person threatened. (c)Ignorance
Nature of Threat on Person and Property (d)Financial distress
•It is believed that threat to honor, chastity, and dignity may be Undue Influence by Third Persons
classified under threat to person. •Undue influence exercised by third persons vitiate consent just
Reason for Entering Into Contract like in the case of violence and intimidation.
•If the person concerned would have entered into the contract Fraud
even without the presence of intimidation, it is clear that the •Art. 1338. There is fraud when, through insidious words or
contract should be considered valid, for the consent certainly machinations of one of the contracting parties, the other is
cannot be considered vitiated. induced to enter into a contract which, without them, he would
Threat of Unjust Act or Actionable Wrong not have agreed to.
•Threat to enforce one’s claim through competent authority, if Kinds of Fraud
the claim is just or legal, does not vitiate consent. (a)Fraud in the celebration of the contract
Violence or Intimidation by Third Persons 1)Causal Fraud (Dolo causante) – were it not for the fraud, the
•Art. 1336. Violence or intimidation shall annul the obligation, other party would not have consented.
although it may have been employed by a third person who did
2)Incidental Fraud (Dolo incidente) – even without the fraud,
not take part in the contract.
the parties would have agreed just the same.
Reason:
(b)Fraud in the performance of the obligations stipulated in the
•Even if a third person exercised the violence or intimidation, contract.
the contract may be annulled as the consent is still vitiated.
Requisites of Dolo Causante:
Undue Influence
(a)The fraud must be material and serious, that is, it really
•Art. 1337. There is undue influence when a person takes induced consent.
improper advantage of his power over the will of another,
(b)The fraud must have been employed by only one of the
depriving the latter of a reasonable freedom of choice. The
contracting parties, because if both committed fraud, the
following circumstances shall be considered: the confidential,
contract would remain valid.
family, spiritual and other relations between the parties, or the
(c)There must be a deliberate intent to deceive or induce,
fact that the person alleged to have been unduly influenced
therefore, misrepresentation in good faith is not fraud.
was suffering from mental weakness, or was ignorant or in
(d)The other party must have relied on the untrue statement,
financial distress.
and must himself not be guilty of negligence in ascertaining the
Requisites for Undue Influence to Vitiate Consent:
truth.
(a)Improper advantage
Failure To Disclose Facts
(b)Power over the will of another
•Art. 1339. Failure to disclose facts, when there is a duty to
(c)Deprivation of the latter’s will of a reasonable freedom of
reveal them, as when the parties are bound by confidential
choice. relations, constitutes fraud.
Examples of Circumstances to be Considered: Usual Exaggerations In Trade
(a)Confidential, family, spiritual, and other relations between
the parties
•Art. 1340. The usual exaggerations in trade, when the other •It is the process of intentionally deceiving others by producing
party had an opportunity to know the facts, are not in the appearance of a contract that really does not exist (absolute
themselves fraudulent. simulation) or which is different from the true agreement

Mere Expression Of Opinion (relative simulation).

•Art. 1341. A mere expression of an opinion does not signify Requisites for Simulation:

fraud, unless made by an expert and the other party has relied (a)An outward declaration of will different from the will of the
on the former's special knowledge. parties;

Misrepresentation By Third Person (b)The false appearance must have been intended by mutual

•Art. 1342. Misrepresentation by a third person does not vitiate agreement;

consent, unless such misrepresentation has created substantial (c)The purpose is to deceive third persons.
mistake and the same is mutual. Simulated Contracts
Effect of misrepresentation by third person: •Art. 1346. An absolutely simulated or fictitious contract is void.
•Fraud by third person does not make the contract voidable A relative simulation, when it does not prejudice a third person
unless the representation has created substantial mistake and and is not intended for any purpose contrary to law, morals,
the mistake is mutual. In this case, the contract may be good customs, public order or public policy binds the parties to
annulled, not principally on the ground of fraud, but on the their real agreement.
ground of error or mistake. Kinds of Simulated Contracts:
Misrepresentation In Good Faith (a)Absolutely Simulated Fictitious Contracts – here, the parties
•Art. 1343. Misrepresentation made in good faith is not do not intend to be bound.
fraudulent but may constitute error. EFFECT: The contract is void.
For Fraud To Vitiate Consent (b)Relatively Simulated Disguised Contracts – here, the parties
•Art. 1344. In order that fraud may make a contract voidable, it conceal their true agreement.
should be serious and should not have been employed by both EFFECT: The parties are bound to the real or true agreement
contracting parties. except if the contract should prejudice a third person or if the
•Incidental fraud only obliges the person employing it to pay purpose is contrary to law, morals, good customs, public order,
damages. or public policy.

Requisites for fraud to vitiate consent: SECTION 2. Object of Contracts

(a)The fraud must be serious; Object Of A Contract

(b)The parties must not be in pari delicto (mutual guilt), •Art. 1347. All things which are not outside the commerce of
otherwise, neither party may ask for annulment. men, including future things, may be the object of a contract.

Simulation Of A Contract All rights which are not intransmissible may also be the object

•Art. 1345. Simulation of a contract may be absolute or relative. of contracts.

The former takes place when the parties do not intend to be •No contract may be entered into upon future inheritance

bound at all; the latter, when the parties conceal their true except in cases expressly authorized by law.

agreement. •All services which are not contrary to law, morals, good

Simulation Of A Contract Defined: customs, public order or public policy may likewise be the
object of a contract.
Object of a Contract Defined: or service by the other; in remuneratory ones, the service or

•The object of a contract is a thing or a service. benefit which is remunerated; and in contracts of pure

Requisites: beneficence, the mere liberality of the benefactor.

(a)The thing or service must be within the commerce of man; Cause Defined

(b)Must be transmissible; •It is the essential and impelling reason why a party assumes an
obligation. Strictly speaking, there is no cause of a contract, but
(c)Must not be contrary to law, morals, good customs, public
there is a cause for an obligation.
order, or public policy;
Classification of Contracts as to Cause:
(d)Must not be impossible;
•Onerous – the cause is, for each contracting party, the
(e)Must be determinate as to its kind or determinable without
prestation or promise of a thing or service by the other.
the need of a new contract or agreement.
•Remuneratory – the past service or benefit which by itself is a
Impossible Things Or Services
recoverable debt.
•Art. 1348. Impossible things or services cannot be the object
•Gratuitous – the cause if the mere liability of the benefactor.
of contracts
Motives of the Parties
Impossibility may be:
•Art. 1351. The particular motives of the parties in entering into
(a)Because of the nature of the transaction or because of the
a contract are different from the cause thereof.
law;
Motives vs. Cause
(b)Absolute (objectively impossible);
•The motive of a person may vary although he enters into the
(c)Relative (subjectively impossible).
same kind of contract; the cause is always the same.
•Impossibility should not be confused with Difficulty. A showing
•The motive may be unknown to the other party; the cause is
of mere inconvenience, unexpected impediments, or increased
always known.
expenses is not enough.
•The presence of motive cannot cure the absence of cause.
Object Must Be Determinate
•An illegal cause makes a contract void; an illegal motive does
•Art. 1349. The object of every contract must be determinate
not necessarily render the transaction void.
as to its kind. The fact that the quantity is not determinate shall
not be an obstacle to the existence of the contract, provided it When Cause Is Valid

is possible to determine the same, without the need of a new •Art. 1352. Contracts without cause, or with unlawful cause,

contract between the parties. produce no effect whatever. The cause is unlawful if it is

Effect when Object is not determinate: contrary to law, morals, good customs, public order or public
policy.
•Object must be determinate or determinable without need of
a new contract. Requisites for Cause:

•If the object is not determinate or determinable, the contract (a)It must be present at the time the contract was entered into;

is void for want of an essential requisite: the object of the (b)It must be true;

contract. (c)It must be lawful (not contrary to law, morals, good customs,

SECTION 3. -Cause of Contracts public order, or public policy).

Cause of Contract Effect if Cause is Illegal:

•Art. 1350. In onerous contracts the cause is understood to be, •If one party is innocent he cannot be compelled to perform his

for each contracting party, the prestation or promise of a thing obligation. He may recover what he has already given.
•If both parties are guilty, in general, neither can sue the other, •Art. 1356. Contracts shall be obligatory, in whatever form they
the law leaving them as they are. may have been entered into, provided all the essential

Statement Of False Caus requisites for their validity are present. However, when the law

•Art. 1353. The statement of a false cause in contracts shall requires that a contract be in some form in order that it may be

render them void, if it should not be proved that they were valid or enforceable, or that a contract be proved in a certain

founded upon another cause which is true and lawful. way, that requirement is absolute and indispensable. In such
cases, the rights of the parties stated in the following article
Note:
cannot be exercised.
•The parties are given a chance to show that a cause really
When is Form Required?
exists and that said cause is true and lawful. Thus, under Art.
1353 it would seem that contract with a statement of a false •In general (Consensual Contracts), Form does not matter for

cause is not void, but merely revocable or voidable. the validity of a contract. It is enough that there be Consent,
Subject Matter, and Cause.
Presumption That Cause Exists
•Formal or Solemn Contracts require a certain specified form,
•Art. 1354. Although the cause is not stated in the contract, it is
in addition to Consent, Subject Matter, and Cause.
presumed that it exists and is lawful, unless the debtor proves
the contrary. •Real Contracts require Delivery to be valid as a real contract
even as between the parties, in addition to Consent, Subject
Effect of presumption:
Matter, and Cause.
•It is necessary that the cause must exist, but it is not necessary
When is Form Important?
to state the cause in the contract.
(a)For Validity
•Reason: It is presumed that the cause exists and is lawful,
unless the debtor proves the contrary. (b)For Enforceability

Lesion (c)For Convenience

•Art. 1355. Except in cases specified by law, lesion or Right to Compel Necessary Form

inadequacy of cause shall not invalidate a contract, unless there •Art. 1357. If the law requires a document or other special

has been fraud, mistake or undue influence. form, as in the acts and contracts enumerated in the following

Lesion Defined: article, the contracting parties may compel each other to
observe that form, once the contract has been perfected. This
•It is the inadequacy of cause.
right may be exercised simultaneously with the action upon the
•General Rule: Lesion or inadequacy of price does not
contract.
invalidate a contract.
When one party can compel the other to execute the necessary
•Exceptions:
form?
(a)When together with lesion there has been fraud, mistake, or
•Art. 1357 applies only when Form is needed for Convenience,
undue influence.
not for Validity or Enforceability.
(b)In cases expressly provided by law.
•Before the contracting parties may be compelled to execute
Note:
the needed Form, it is essential that the contract be:
•Lesion may be evidence of the presence of fraud, mistake, or
(a)Perfected (Valid)
undue influence.
(b)Enforceable under Statute of Frauds (Art. 1356)
Form as a Requisite of a Contract
Form of Convenience
•Art. 1358. The following must appear in a public document: parties is thus tempered to forestall the effects of mistake,

(1)Acts and contracts which have for their object the creation, fraud, inequitable conduct or accident.”

transmission, modification or extinguishment of real rights over Reformation of Instrument

immovable property; sales of real property or of an interest •Art. 1359. When, there having been a meeting of the minds of
therein are governed by Articles 1403, No. 2, and 1405; the parties to a contract, their true intention is not expressed in
(2)The cession, repudiation or renunciation of hereditary rights the instrument purporting to embody the agreement, by reason
or of those of the conjugal partnership of gains; of mistake, fraud, inequitable conduct or accident, one of the

(3)The power to administer property, or any other power which parties may ask for the reformation of the instrument to the

has for its object an act appearing or which should appear in a end that such true intention may be expressed.

public document , or should prejudice a third person; •If mistake, fraud, inequitable conduct, or accident has

(4)The cession of actions or rights proceeding from an act prevented a meeting of the minds of the parties, the proper

appearing in a public document. remedy is not a reformation of the instrument but annulment

•All Other contracts where the amount involved exceeds five of the contract.

hundred pesos must appear in writing, even a private one. But Reformation vs. Annulment

sales of goods, chattels or things in action are governed by •Where there has been a meeting of the minds, but there is
Articles 1403, No. 2 and 1405. mistake, fraud, inequitable conduct or accident in the contract

Note: as written, the remedy is Reformation.

•Necessity for the public document in the contracts •When there has been no meeting of the minds, because of

enumerated here is only for convenience, not for validity or vitiated consent, the proper remedy is Annulment.

enforceability. •Reformation does not invalidate a contract; annulment

Chapter 4: Reformation of Instruments invalidates a contract.

Reformation defined: Requisites for Action for Reformation:

•Reformation is that remedy in equity by means of which a (a)There must be a meeting of the minds.

written instrument is made or construed so as to express or (b)The true intention is not expressed in the instrument.
conform to the real intention of the parties when some error or (c)There must be clear and convincing proof thereof.
mistake has been committed. (d)It must be brought within the proper prescriptive period.
•Reason: (e)The document must not refer to a simple unconditional
Reason for Reformation: donation inter vivos, or to wills, or to a contract where the real
•“Equity orders the reformation of an instrument in order that agreement is void.
the true intention of the contracting parties may be expressed. No New Contract in Reformation:
The courts do not attempt to make another contract for the •In reforming instruments, courts do not make another
parties. The rationale of the doctrine is that it would be unjust contract for the parties. They merely inquire into the intention
and unequitable to allow the enforcement of a written of the parties and having found it, reform the written
instrument which does not reflect or disclose the real meeting instrument (not the content), in order that it may express the
of the minds of the parties. The rigor of the legalistic tule that a real intention of the parties.
written instrument should be the final and inflexible criterion
In Case of Conflict
and measure of the rights and obligations of the contracting
•Art. 1360. The principles of the general law on the reformation instrument or of the clerk or typist, the instrument does not
of instruments are hereby adopted insofar as they are not in express the true intention of the parties, the courts may order
conflict with the provisions of this Code. that the instrument be reformed.

Note: •The Court may order the reformation of the instrument if the

•In case of conflict between the Civil Code and the principles of instrument does not convey the true intention of the parties

the general law on reformation, the former prevails. The latter because of the:

will have only suppletory effect. (a)Ignorance

Reformation from Mutual Mistake (b)Lack of Skill

•Art. 1361. When the mutual mistake of the parties causes the (c)Bad Faith of: the drafter of the instrument, or the clerk, or
failure of the instrument to disclose their real agreement, said the typist.
instrument ma be reformed. When the Intent is a Mortgage or Pledge
When it may be made: •Art. 1365. If two parties agree upon the mortgage or pledge of
(a)Under Art. 1361, the mistake must be mutual; real or personal property, but the instrument states that the

(b)The mistake may be unilateral under the conditions set forth property is sold absolutely or with a right of repurchase,

in Art. 1362 and 1363 of the Civil Code; reformation of the instrument is proper.

(c)The mistake must be of fact – Usually. Therefore, generally How Parties’ Intent is judged:

an error of law is not enough. •The intention of the parties can be judged from their

Reformation from Unilateral Mistake contemporaneous and subsequent acts.

•Art. 1362. If one party was mistaken and the other acted When Reformation is Not Allowed

fraudulently or inequitably in such a way that the instrument •Art. 1366. There shall be no reformation in the following
does not show their true intention, the former may ask for the cases:
reformation of the instrument. (1)Simple donations inter vivos wherein no condition is
Note: imposed;

•In Art. 1362, the mistake is Unilateral but the other party (2)Will;
acted Fraudulently or Inequitably. (3)When the real agreement is void.
Reformation from Concealment Reason for 1st Disallowance:
•Art. 1363. When one party was mistaken and the other knew •Donations are essentially acts of pure liberality. However, if
or believed that the instrument did not state their real the donation is conditional, the reformation may be resorted to
agreement, but concealed that fact from the former, the so that the real or true conditions intended by the donor might
instrument may be reformed. be brought out.
Note: •In case the donation is an onerous one, reformation is very
•Here, the mistake is Unilateral but the party is guilty of much in order inasmuch as in this case, said donation would
Concealment. partake very much of the nature of contracts.

•Only the party in good faith can ask for reformation. Reason for 2nd Disallowance:

Failure to Convey True Intent •The making of a will is strictly a personal act which is free.

•Art. 1364. When through the ignorance, lack of skill, Moreover, a will may be revoked at any time

negligence or bad faith on the part of the person drafting the Reason for 3rd Disallowance:
•Reformation is not allowed in case the real agreement is void Procedural Rules
because such a procedure would be useless. Once reformation •Art. 1369. The procedure for the reformation of instruments
is made, the new instrument would be void precisely because shall be governed by the Rules of Court to be promulgated by
the true agreement and intention are void. the Supreme Court.
Effect of Action to Enforce Instruments Chapter 5: Interpretation of Contracts
•Art. 1367. When one of the parties has brought an action to Interpretation of Contracts
enforce the instrument he cannot subsequently ask for its •Art. 1370. If the terms of the contract are clear and leave no
reformation. doubt upon the intention of the contracting parties, the literal
Note: meaning of its stipulation shall control.
•Art. 1367 presents another instance when reformation cannot •If the words appear to be contrary to the evident intention of
prosper. the parties, the latter shall prevail over the former.
•The basis is estoppel, waiver, or ratification. Reason for Interpretation of Contracts:
Plaintiffs in Reformation •While it is true that we must apply the terms of the contract, it
•Art. 1368. Reformation may be ordered at the instance of must only be when they are so clear that there is no doubt
either party or his successors in interest, if the mistake was regarding the intention of the contracting parties. In other
mutual; otherwise, upon petition of the injured party, or his cases, we should apply the rules of interpretation.
heirs and assigns. Rule in Case of Conflict:
Who are the plaintiffs in reformation? •In case of conflict between the words of the contract and the
•If the mistake is mutual, either party or his successors in evident intention of the parties, the intention must prevail.
interest. •“Let us interpret not by the letter that killeth but by the
•In all other cases: spirit that giveth life.”
1)The injured party; Judging the Intent of the Parties
2)His heirs and assigns. •Art. 1371. In order to judge the intention of the contracting
What must be alleged in the complaint? parties, their contemporaneous and subsequent acts shall be

•Before reformation can be granted, the complaint must allege: principally considered.

(a)That the instrument to be reformed does not express the How to Judge Intent of the Parties:

real agreement or intention of the parties. (a)If the parties have themselves placed an interpretation to the

(b)What the real agreement or intention was. terms of their contract, such interpretation must in general be

Note: followed.

1)It is not the function of the remedy of reformation to make a (b)The contract of the parties may result in estoppel.

new agreement, but to establish and perpetuate the true (c)The courts may consider the relations existing between the

existing one. parties and the purpose of the contract, particularly when it

2)Moreover, the courts do not reform instruments merely for was made in good faith between mutual friends.

the sake of reforming them, but only to enable some party to Use of General Terms

assert rights under them as reformed. •Art. 1372. However general the terms of a contract may be,

3)The period of prescription for the reformation of a contract is they shall be understood to comprehend things that are distinct

ten years.
and cases that are different from those upon which the parties Usage of Custom of the Place
intended to agree. •Art. 1376. The usage or custom of the place shall be borne in
Special Intent vs. General Intent mind in the interpretation of the ambiguities of a contract, and

•Just as a special provision controls a general provision, a shall fill the omission of stipulations which are ordinarily

special intent prevails over a general intent. established.

Stipulation Admitting of Several Meanings Pleading and Proof of Customs and Usages:

•Art. 1373. If some stipulation of any contract should admit of •If the customs and usages are general, they need not be

several meanings, it shall be understood as bearing that import pleaded. Even without previously being alleged, they may be

which is most adequate to render it effectual. proved in court.

Effect of Interpretation Upholding the Validity of the Contract: •If the customs and the usages are merely local, then they have

•If one interpretation makes a contract valid and another to be both alleged and proved.

interpretation makes it illegal, the former interpretation must Interpretation of Obscure Words

prevail. •Art. 1377. The interpretation of obscure words or stipulations

Stipulations to be Read Together in a contract shall not favor the party who caused the obscurity.

•Art. 1374. The various stipulations of a contract shall be Reason for Art. 1377:

interpreted together, attributing to the doubtful ones that •The party who drew up the contract with ambiguous terms
sense which may result from all of them taken jointly. should be responsible for the obscurity that arises therefor so

Words to be Understood in Keeping With Nature and Object of the obscurity must be construed against him. The drafter of the

the Contract terms of the contract should, therefore, be careful.

•Art. 1375. Words which may have different significations shall Application to Contracts of Adhesion:

be understood in that which is most keeping with the nature •Art. 1337 applies with even greater force in contracts of
and object of the contract. adhesion where the contract is already prepared by a big

What meaning should be used? concern, and the other party merely adheres to it, like

•If a word is susceptible of two or more meanings, the meaning insurance or transportation contracts, or bills of lading.

that should be used is: Doubts as to Principal Object or Incidental Circumstances

(a)That in keeping with the nature and object of the contract. •Art. 1378. When it is absolutely impossible to settle doubts by

(b)If this cannot be determined, then the “terms of a writing are the rules established in the preceding articles, and the doubts

presumed to have been used in their primary and general refer to incidental circumstances of a gratuitous contract, the

acceptation”. least transmission of rights and interest shall prevail. If the

contract is onerous, the doubt shall be settled in favor of the
Use of other meanings:
greatest reciprocity of interests.
•Despite the fact that the terms are presumed to have been
•If the doubts are cast upon the principal object of the contract
used in their primary and general acceptation, other meanings
in such a way that it cannot be known what may have been the
or significations may be proved.
intention or will of the parties, the contract shall be null and
•Evidence is admissible to show that they have a local,
void.
technical, or otherwise peculiar signification, and were so used
There may be doubts as to:
and understood in the particular instance, in which case the
agreement must be construed accordingly. (a)The principal object
(b)Or the incidental circumstances Interpretation in Favor of Natural Right:

Doubts as to the Principal Object: •“When an instrument is equally susceptible of two

•Here, the contract is void. interpretations, one in favor of a natural right and the other

Doubts as to Incidental Circumstances: against it, the former is to be adopted.”

(a)If gratuitous, apply the rule of “least transmission of rights Usage or Customs:

and interest”. •“An instrument may be construed according to usage, in order

(b)If onerous, apply the rule of “greatest reciprocity of to determine its true character.”

interests”. Chapter 6: Rescissible Contracts

Suppletory Use of the Principles of Interpretation in the Rules of Four kinds of Defective Contracts:

Court (a)Rescissible

•Art. 1379. The principles of interpretation stated in Rule 123 of (b)Voidable

the Rules of Court shall likewise be observed in the construction (c)Unenforceable
of contracts. (d)Void
Note: In general…
•Rule 123 as stated in the article should be construed to refer •Rescissible contract is valid until rescinded; there is a sort of
to Rule 130 of the New Rules on Evidence. extrinsic defect consisting of an economic damage or lesion.
Language in the Place of Execution: •Voidable contracts is valid till annulled. It can be annulled,
•“The language of a writing is to be interpreted according to except if there has been ratification. The defect is more or less
the legal meaning it bears in the place of its execution, unless intrinsic, as in the case of vitiated consent.
the parties intended otherwise.” •Unenforceable contract cannot be sued upon or enforced,
Meaning of Words Used: unless it is ratified. It may be considered a validable transaction,
•“The terms of a writing are presumed to have been used in that is, it has no effect now but it may be effective upon
their primary and general acceptation, but evidence is ratification.
admissible to show that they have a local, technical, or •Void contract is one that has no effect at all; it cannot be
otherwise peculiar signification, and were so used and ratified or validated.
understood in the particular instance, in which case, the Rescission
agreement must be construed accordingly.”
•Art. 1380. Contracts validly agreed upon may be rescinded in
Printed Words vs. Written Words: the cases established by law.
•“When an instrument consists partly in written words and Rescission defined:
partly of a printed form, and the two are inconsistent, the
•Rescission is a remedy granted by law to the contracting
former controls the latter.”
parties both to contracting parties and to third persons in order
Use of Experts and Interpreters: to secure reparation of damages caused them by a contract,
•“When the characters in which an instrument is written are even if the contract be valid, by means of the restoration of
difficult to be deciphered, or the language is not understood by things to their condition prior to the celebration of said
the Court, the evidence of persons skilled in deciphering the contract.
characters, or who understood the language, is admissible to Requisites for Rescission
declare the characters or the meaning of the language.”
(a)There must be at the beginning either a valid or a voidable •Art. 1383. The action for rescission is subsidiary; it cannot be
contract (not a void one); instituted except when the party suffering damage has no other

(b)But there is an economic or financial prejudice to someone legal means to obtain reparation for the same.

(a party or a third person); Rescission is not a Principal Remedy:

(c)Requires mutual restitution. •Rescission is not a principal remedy. It is subsidiary and may

Rescission vs. Mutual Dissent only be availed of by the injured party if it has no other legal

•When the parties to a contract mutually agree to cancel the means of seeking redress or reparation for the damages caused.

contract, strictly speaking it is a “mutual backing out” and not Partial Rescission

the rescission referred to in Art. 1380 of the new Civil Code. •Art. 1384. Rescission shall be only to the extent necessary to

•In mutual withdrawal, it is the will of the parties that cover the damages caused.

constitutes the basis, whereas in rescission, it is that law that Note:

constitutes the basis. •The only purpose of rescission is to repair or cover the
Enumeration of Rescissible Contracts damages caused. Complete rescission will not therefore be

•Art. 1381. The following contracts are rescissible: allowed, if it is not justified by the circumstances of the case.

(1)Those which are entered into by the guardians whenever the Insofar as it is not rescinded, the alienation is valid.

warms whom they represent suffers lesion by more than one- In the case of multiple creditors:

fourth of the value of the things which are the object thereof; •Only the creditor who has asked for rescission, not the other

(2)Those agreed upon in representation of absentee, if the creditors, benefits from the rescission.

latter suffer the lesion stated in the preceding number; Mutual Restitution in Rescission

(3)Those undertaken in fraud of creditors when the latter •Art. 1385. Rescission creates the obligation to return the
cannot in any other manner collect the claims due them; things which were the object of the contract, together with

(4)Those which refer to things under litigation if they have been their fruits, and the price with its interest; consequently, it can

entered into by the defendant without the knowledge and be carried out only when he who demands rescission can return

approval of the litigants or of competent judicial authority; whatever he may be obliged to restore.

(5)All other contracts specially declared by law to be subject to •Neither shall rescission take place when the things which are

rescission. the object of the contract are legally in the possession of third

Premature Payments when Insolvent persons who did not act in bad faith.

•Art. 1382. Payments made in a state of insolvency for •In this case, indemnity for damages may be demanded from

obligations to whose fulfillment the debtor could not be the person causing the loss.

compelled at the time they were effected, are also rescissible. Requisites before Action for Restitution:

Requisites for Art. 1382: (a) Generally, the plaintiff must be able to return what has

1)The debtor-payer must have been insolvent ( the insolvency been received by virtue of the rescissible contract.

need not be a judicially declared one). Exception: Prejudiced Creditors

2)The debt was not yet due and demandable. (b)The thing object of the contract is not in the legal possession

Note: Art. 1382 does not speak of a contract. It refers to a of third persons in good faith.

payment. Hence, it is not included under Art. 1381. (c)There must be no other legal remedy.

Rescission is Subsidiary
(d)The action must be brought within the proper prescriptive (b)Onerous alienations – Presumed fraudulent when made by
period. persons against whom some judgment has been rendered in

Reason for Exception: any instance (thus, even if not yet a final judgment); or against

•The obligation of mutual restitution applies to other cases so whom some writ of attachment has been issued.

that the status quo may be restored. It does not obviously apply Badges of Fraud

to creditors who seek to impugn fraudulent transactions of •Badges of fraud are circumstances indicating that a certain
their debtors. alienation has been made in fraud of creditors. Examples:

Judicially Approved Contracts (1)Evidence of large indebtedness or complete insolvency;

•Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 (2)A transfer made by a debtor after suit has been begun and
shall not take place with respect to contracts approved by the while it is pending against him;
courts. (3)The fact that the transfer is made between father and son.
Shall not take place with respect to contracts approved by the Presumption of Validity
courts: •A gratuitous conveyance or donation validly executed is, on its
(1)Those which are entered into by the guardians whenever the face, presumed valid and good as between the parties. It
warms whom they represent suffers lesion by more than one- cannot be declared fraudulent and, therefore, subject to
fourth of the value of the things which are the object thereof; recission unless it can be shown that at the time of the
(2)Those agreed upon in representation of absentee, if the execution of the conveyance, there was a creditor or creditors
latter suffer the lesion stated in the preceding number; whom said transaction may affect adversely.

Presumption of Fraud Fraud alone is insufficient:

•Art. 1387. All contracts by virtue of which the debtor alienates •Just because a contract is made to defraud creditors does not
property by gratuitous title are presumed to have been entered necessarily mean that it can be rescinded as the transferee may
into in fraud of creditors, when the donor did not reserve have been in good faith and now in legal possession of the
sufficient property to pay all debts contracted before the property. (Art. 1385, par. 2)
donation. When Acquirer is in Bad Faith
•Alienations by onerous title are also presumed fraudulent •Art. 1388. Whoever acquires in bad faith the things alienated
when made by persons against whom some judgment has been in fraud of creditors, shall indemnify the latter for damages
rendered in any instance or some writ of attachment has been suffered by them on account of the alienation, whenever, due
issued. The decision or attachment need not refer to the to any cause, it should be impossible form him to return them.
property alienated, and need not have been obtained by the •If there are two or more alienations, the first acquirer shall be
party seeking the rescission. liable first, and so on successively.
•In addition to these presumptions, the design to defraud Effect of Bad Faith:
creditors may be proved in any other manner recognized by the
(a)The acquirer must return or indemnify.
law of evidence.
(b)“Due to any cause” includes a fortuitous event.
Presumption of Fraud in the case of:
Effect of Subsequent Transfers:
(a)Gratuitous alienations - Presumed fraudulent when the
(a)If the first transferee is in good faith, the good or bad faith of
debtor did not reserve sufficient property to pay all debts
the next transferee is not important.
contracted before the donation.
(b)If the first transferee is in bad faith, the next transferee is •Art. 1391. The action for annulment shall be brought within
liable only if he is also in bad faith. four years.

Prescriptive Period for Rescission •This period shall begin:

•Art. 1389. The action to claim rescission must be commenced •In cases of intimidation, violence or undue influence, from the
within four years. time the defect of the consent ceases.

•For persons under guardianship and for absentees, the period •In case of mistake or fraud, from the time of the discovery of
of four years shall not begin until the termination of the the same.
former’s incapacity, or until the domicile of the latter is known. •And when the action refers to contracts entered into by
General Rule and Exceptions: minors or other incapacitated persons, from the time the

•General rule – four years from the date the contract was guardianship ceases.

entered into. Effect of Prescription:

•Exceptions: •If the action has prescribed, the contract can no longer be set

1)Persons under guardianship – 4 years from termination of aside.

incapacity; Ratification

2)Absentees – 4 years from the time the domicile is known. •Art. 1392. Ratification extinguishes the action to annul a

Who can bring the action? voidable contract.

(a)The injured party (or the defrauded creditor). Requisites of Ratification:

(b)His heir or successor-in-interest. (a)The contract must be a voidable one.

(c)Creditors of (a) and (b) by virtue of Art. 1177 of the Civil Code (b)The person ratifying must know the reason for the contract

(accion subrogatoria). being voidable (that is, the cause must be known).

Chapter 7: Voidable Contracts (c)The cause must not exist or continue to exist anymore at the

Voidable Contracts time of ratification.

•Art. 1390. The following contracts are voidable or annullable, (d)The ratifications must have been made expressly or by an act

even though there may have been on damage to the implying a waiver of the action to annul.

contracting parties: (e)The person ratifying must be the injured party.

(1)Those where one of the parties is incapable of giving consent Effects of Ratification

to a contract; (a)The action to annul is extinguished; thus, the contract

(2)Those where the consent is vitiated by mistake, violence, becomes a completely valid one.

intimidation, undue influence or fraud. (b)The contract is cleansed of its defect from the beginning.

•These contracts are binding, unless they are annulled by a Kinds of Ratification
proper action in court. They are susceptible of ratification. •Art. 1393. Ratification may be effected expressly or tacitly. It is
Grounds for Nullity: understood that there is a tacit ratification if, with knowledge

(a)Incapacity to consent of the reason which renders the contract voidable and such

(b)Vitiated consent reason having ceased, the person who has a right to invoke it
should execute an act which necessarily implies an intention to
Note: It is not the function of the law to protect or relieve a
waive his right.
man from consequences of a bad bargain.
Ratification may be:
Prescriptive Period for Annulment
(a)Express (oral or written); •Art. 1398. An obligation having been annulled, the contracting

(b)Tacit (implied – as from the conduct implying a Waiver). parties shall restore to each other the things which have been

Ratification by Guardian the subject matter of the contract, with their fruits and the
price with its interest, except in cases provided by law.
•Art. 1394. Ratification may be effected by the guardian of the
incapacitated person. •In obligations to render service, the value thereof shall be the
basis for damages.
Ratification by the Injured Party Himself:
Effect of Annulment:
•Ratification can be made by the injured party himself,
provided he is capacitated, or has become capacitated. (a)If the contract has bot yet been complied with, the parties
are excused from their obligations.
Conformity of Guilty Party Not Needed
(b)If the contract has already been performed, there must be
•Art. 1395. Ratification does not require the conformity of the
mutual restitution (in general) of:
contracting party who has no right to bring the action for
annulment. 1)The thing, with fruits;

Retroactive Effect of Ratification 2)The price, with interest.

•Art, 1396. Ratification cleanses the contract from all its defects When the Defect is Incapacity

from the moment it was constituted. •Art. 1399. When the defect of the contract consists in the

Note: incapacity of one of the parties, the incapacitated person is not

obliged to make any restitution except insofar as he has been
•Due to the retroactive effect, once ratification has taken place,
benefited by the thing or price received by him.
annulment based on the original defects cannot prosper.
Applicability of Art. 1399:
•Although there is a retroactive effect, the rights of innocent
third persons must not be prejudiced. •Generally, there can be no restitution by incapacitated party.

Persons Who May Ask for Annulment •Art. 1399 applies only if the defect is incapacity.

•Art. 1397. The action for the annulment of contracts may be •This constitutes an exception to the obligation of mutual

instituted by all who are thereby obliged principally or restitution under Art. 1398.

subsidiarily. However, persons who are capable cannot allege •Here in Art. 1399, restitution is only to the extent of

the incapacity of those with whom they contracted; nor can enrichment (pecuniary or otherwise).

those who exerted intimidation, violence, or undue influence, No Presumption of Enrichment:

or employed fraud, or caused mistake base their action upon •The law does not presume this enrichment or benefit;
these flaws of the contract. therefore, the capacitated person has the burden of showing
Who may ask? such enrichment.

•The victim (principal or subsidiary party) may ask for When the Thing has been Lost
annulment, not the guilty person or his successor. •Art. 1400. Whenever the person obliged by the decree of
•Reason: “He who comes to equity must come with clean annulment to return the thing cannot do so because it has been
hands.” lost through his fault, he shall return the fruits received and the

•Note: The creditors of the victim cannot ask for annulment for value of the thing at the time of the loss, with interest from the

they are not bound by the contract. same date.

Effect of Annulment Value may be substituted for the thing:

•In the duty of mutual restitution, the value of the thing with (2)Those that do not comply with the Statute of Frauds as set
interest substitutes for the thing itself that was lost through the forth in this number. In the following cases an agreement
party’s fault. hereafter made shall be unenforceable by action, unless the

Loss Through Fraud or Fault of Victim same, or some note or memorandum thereof, be in writing, and

•Art. 1401. The action for annulment of contracts shall be subscribed by the party charged or by his agent; evidence,

extinguished when the thing which is the object thereof is lost therefore, of the agreement cannot be received without the

through the fraud or fault of the person who has a right to writing, or a secondary evidence of its contents:

institute the proceedings. (a)An agreement that by its terms is not to be performed within

•If the right of action is based upon the incapacity of any one of a year from the making thereof;

the contracting parties, the loss of the thing shall not be an (b)A special promise to answer for the debt, default, or

obstacle to the success of the action, unless said loss took place miscarriage

through the fraud or fault of the plaintiff. of another;

•Reason: “He who comes to equity must come with clean (c)An agreement made in consideration of marriage, other than
hands.” a mutual promise to marry;

Reciprocal Obligation of Restitution (d)An agreement for the sale of goods, chattels, or things in

•Art. 1402. As long as one of the contracting parties does not action, at a prince not less than five hundred pesos, unless the

restore what in virtue of the decree of annulment he is bound buyer accept and receive a part of such goods and chattels, or

to return, the other cannot be compelled to comply with what the evidences, or some of them, of such things in action, or pay

is incumbent upon him. at the time some part of the purchase money; but when a sale

Reason: is made by auction and entry is made by auctioneer in his sales

book, at the time of the sale, of the amount and kind of
•One party cannot be compelled if the other party does not
property sold, terms of sale, price, names of the purchasers and
restore because a reciprocal obligation of restitution has been
person on whose account the sale is made, it is a sufficient
created.
memorandum;
Chapter 8: Unenforceable Contracts
(e)An agreement for the leasing for a longer period than one
Unenforceable Contracts vs. Voidable Contracts vs. Rescissible
year, or for the sale of real property or of an interest therein;
Contracts
(f)A representation as to the credit of a third person.
•Unenforceable contracts cannot be sued upon or enforced
(3)Those where both parties are incapable of giving consent to
unless ratified. It is as if they have no effect yet.
a contract.
•Voidable and Rescissible Contracts produce legal effects until
Kinds of Unenforceable Contracts:
they are annulled or rescinded.
(a)Unauthorized contracts.
Kinds of Unenforceable Contracts
(b)Those that fail to comply with the Statute of Frauds.
•Art. 1403. The following contracts are enforceable, unless they
are ratified: (c)Those where both parties are incapable of giving consent to a
contract.
(1)Those entered into in the name of another person by one
who has been given no authority or legal representation or who Unauthorized Contracts

has acted beyond his powers; •Art. 1404. Unauthorized contracts are governed by Article
1317 and the principles of agency in Title X of this Book.

Contracts that fail to comply with the Statute of Frauds

•Art. 1405. Contracts infringing the Statute of Frauds, referred Produces effects until annulled. Generally, produces no
to in No. 2 of Article 1403, are ratified by the failure to object to effect.
the presentation of oral evidence to prove the same, or by the Defect is due to incapacity or vitiated consent. The defect
acceptance of benefits under them. here is that ordinarily, public policy is militated against.
Such contracts are ratified by: Valid until annulled. Generally, void from the very
•Failure to object to the presentation of oral evidence to prove beginning
the same, or May be cured by prescription. Cannot be cured by
•Acceptance of benefits under them. prescription.

Enforceable Under Statute of Frauds Defense may be invoked only by the parties (those principally

•Art. 1406. When a contract is enforceable under the Statute of and subsidiarily liable), or their successors in interest and

Frauds, and a public document is necessary for its registration privies. Defense may be availed of by anybody, whether he is a

in the Registry of Dees, the parties may avail themselves of the party to the contract or not, as long as his interest is directly

right under Article 1357. affected.

Note: Referred to as relative or conditional nullity. Referred to as

•Art. 1357 speaks of the Right of One Party to Compel the absolute nullity.

Other to Execute the Necessary Form (when the contract is Enumeration of Void Contracts

both valid and enforceable). •Art. 1409 The following contracts are inexistent and void from

Contract where both parties are incapable of giving consent the beginning:

•Art. 1407. In a contract where both parties are incapable of •(1) Those whose cause, object or purpose is contrary to law,

giving consent, express or implied ratification by the parent, or morals, good customs, public order or public policy;

guardian, as the case may be, of one of the contracting parties •(2) Those which are absolutely simulated or fictitious;
shall give the contract the same effect as if only one of them •(3) Those whose cause or object did not exist at the time of
were incapacitated. the transaction;
•If ratification is made by the parents or guardians, as the case •(4) Those whose object is outside the commerce of men;
may be, of both contracting parties, the contract shall be •(5) Those which contemplate an impossible service;
validated from the inception.
•(6) Those where the intention of the parties relative to the
Third Persons Cannot Assail Unenforceable Contracts principal object of the contract cannot be ascertained;
•Art. 1408. Unenforceable contracts cannot be assailed by third •(7) Those expressly prohibited or declared void by law.
persons.
•These contracts cannot be ratified. Neither can the right to set
Note: up the defense of illegality be waived.
•Just as strangers cannot attack the validity of voidable Some Characteristics of Void Contracts:
contracts, they also cannot attack a contract because of its
(a)The right to set up the defense of illegality cannot be waived.
unenforceability.
(b)The action or defense for their declaration as inexistent does
Chapter 9: Void or Inexistent Contracts
not prescribe.
VOIDABLE VOID
(c)The defense of illegality of contracts is not available to third
May be ratified. Cannot be ratified. persons whose interests are not directly affected.

(d)Cannot give rise to a contract.

(e)Generally, produces no effect. (b)Those where only one is guilty or at fault.

(f)Generally, no action to declare them void is needed, since Criminal Offense, Both Parties Guilty:
they are inexistent from the very beginning. •Since they are in pari delicto, they shall have no action against
(g)They cannot be ratified. each other.

No Prescription of Defense •Both shall be prosecuted.

•Art. 1410. The action or defense for the declaration of the •The effects or the instruments of the crime shall be
inexistence of a contract does not prescribe. confiscated in favor of government.

Pari Delicto in Illegal Void Contracts Criminal Offense, Only One Guilty:

•Art. 1411. When the nullity proceeds from the illegality of the •The guilty party will be prosecuted.
cause or object of the contract, and the act constitutes a •The instrument of the crime will be confiscated.
criminal offense, both parties being in pari delicto, they shall •The innocent party may claim what he has given; or if he has
have no action against each other, and both shall be not yet given anything, he shall not be bound to comply with his
prosecuted. Moreover, the provisions of the Penal Code relative promise.
to the disposal of effects or instruments of a crime shall be
No Criminal Offense, Both Guilty:
applicable to the things or the price of the contract.
•Neither may recover what he has given by virtue of the
•This rule shall be applicable when only one of the parties is
contract or demand the performance of the other’s
guilty; but the innocent one may claim what he has given, and
undertaking.
shall not be bound to comply with his promise.
No Criminal Offense, Only One Guilty:
Illegal Contracts
•The guilty party cannot recover what he has given by reason of
•Art. 1412. If the act in which the unlawful or forbidden cause
the contract, or ask for the fulfillment of what had been
consists does not constitute a criminal offense, the following
promised him.
rules shall be observed:
•The party not at fault may demand the return of what he has
•(1) When the fault is on the part of both contracting parties,
given, without any obligation to comply with his promise.
neither may recover what he has given by virtue of the
Interest in Excess
contract, or demand the performance of the other's
•Art. 1413. Interest paid in excess of the interest allowed by the
undertaking;
usury laws may be recovered by the debtor, with interest
•(2) When only one of the contracting parties is at fault, he
thereon from the date of the payment.
cannot recover what he has given by reason of the contract, or
Repudiation of Illegal Contract
ask for the fulfillment of what has been promised him. The
•Art. 1414. When money is paid or property delivered for an
other, who is not at fault, may demand the return of what he
illegal purpose, the contract may be repudiated by one of the
has given without any obligation to comply his promise.
parties before the purpose has been accomplished, or before
Two Kinds of Illegal Contracts:
any damage has been caused to a third person. In such case,
•Those where there is a criminal offense.
the courts may, if the public interest will thus be subserved,
(a)Those where both parties are guilty.
allow the party repudiating the contract to recover the money
(b)Those where only one party is guilty. or property.
•Those where there is no criminal offense. Recovery even when In Pari Delicto:
(a)Those where both are guilty. •Recovery can be made even if the parties be in pari delicto
provided: which a laborer accepts a lower wage, he shall be entitled to

(a)The purpose has not yet been accomplished; recover the deficiency.

(b)Or if damage has not been caused any third person. Illegal Terms of a Contract

Another Instance of Recovery •Art. 1420. In case of a divisible contract, if the illegal terms can

•Art. 1415. Where one of the parties to an illegal contract is be separated from the legal ones, the latter may be enforced.

incapable of giving consent, the courts may, if the interest of Indivisible vs. Divisible Contract:

justice so demands allow recovery of money or property •If the contract is indivisible, the whole contract is void even if
delivered by the incapacitated person. only some terms are illegal.

Prohibited Contracts •If the contract is divisible, the legal terms may be enforced if

•Art. 1416. When the agreement is not illegal per se but is the same can be separated from the illegal terms.

merely prohibited, and the prohibition by the law is designated Defense of Illegality as to Third Persons
for the protection of the plaintiff, he may, if public policy is •Art. 1421. The defense of illegality of contract is not available
thereby enhanced, recover what he has paid or delivered. to third persons whose interests are not directly affected.
Illegal Contracts vs. Prohibited Contracts: Note:
•Illegal per se contracts are those forbidden because of public •“Art. 1408. Unenforceable contracts cannot be assailed by
policy. third persons.”
•Merely prohibited contracts are those forbidden because of •“Art. 1397. The action for the annulment of contracts may be
private interests. Here, recovery is permitted provided that: instituted by all who are thereby obliged principally or
(a)The contract is not illegal per se; subsidiarily.”

(b)The prohibition is designed for the protection of the plaintiff; Contracts Resulting From Illegal Contract

(c)And public policy would be enhanced by allowing the •Art. 1422. A contract which is the direct result of a previous
recovery. illegal contract, is also void and inexistent.

Payment in Excess of Maximum Price

•Art. 1417. When the price of any article or commodity is

determined by statute, or by authority of law, any person
paying any amount in excess of the maximum price allowed
may recover such excess.

Additional Compensation

•Art. 1418. When the law fixes, or authorizes the fixing of the
maximum number of hours of labor, and a contract is entered
into whereby a laborer undertakes to work longer than the
maximum thus fixed, he may demand additional compensation
for service rendered beyond the time limit.

Minimum Wage

•Art. 1419. When the law sets, or authorizes the setting of a

minimum wage for laborers, and a contract is agreed upon by