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CONTRACTS
Chapter I
GENERAL PROVISIONS

Art. 1305. A contract is a meeting of minds between two persons whereby


one binds himself, with respect to the other, to give something or to
render some service.
CONCEPT
CONVENTION- broad enough to include any kind of agreement which may
create, modify or
extinguish patrimonial and even family
relations; genus
AGREEMENT-is limited exclusively to those agreements which produce
patrimonial obligations;
species
Hence, a contract may be defined as a juridical convention manifested in legal
form, by virtue of which one or more persons bind themselves in favor of another or
others, or reciprocally to the fulfillment of a prestation to give, to do, or not to do.
DISTINGUISHED FROM OTHER TERMS
FROM MARRIAGE, ADOPTION AND SUCCESSION
1. The principal source of the rights and obligations of the parties in contracts is
their agreement, while in the other juridical conventions, it is the law itself.
2. The rights and obligations arising from contracts are concrete, limited and
transitory, while those arising from other juridical conventions are more or
less elastic, absolute and permanent.
ORDINARY CONTRACT v. CONTRACT OF MARRIAGE
1. In an ordinary contract, the PARTIES may be two or more persons of the
same or different sexes, while in a marriage contract, it is necessary that
the parties must be one man and one woman.
2. In the first, the nature, consequences and incidents of the contract are
governed primarily by the agreement of the parties, while in the second,
the nature, consequences and incidents of the marriage are governed by law.
3. In the first, once the contract is EXECUTED, the result is a contract, while
in the second, once the marriage is CELEBRATED, the result is a status.
4. The first can be terminated or dissolved by the mere agreement of the
parties, while the second cannot.
5. In the first, in case of breach, the usual remedy is for the injured party to
institute an action against the other party for damages, while in the
second, in case of breach, the usual remedy is for the injured party to
institute a civil action against the other party for legal separation or
a criminal action for adultery or concubinage.
CONTRACTS v.

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PERFECTED PROMISE-merely tends to insure and pave the way for the
celebration of a future
contract.
IMPERFECT PROMISE- is a mere unaccepted offer. (POLICITACION)
PACT-is an incidental part of a contract which can be separated from the
principal agreement.
STIPULATION-is an essential and dispositive part which cannot be separated
from such principal
agreement.
DUTY OF THE COURTS IN INTERPRETING CONTRACTS
It is not the province of the court to alter a contract by construction or to
make a new contract for the parties. Its duty is confined to the interpretation of
the one which they have made for themselves without regard to its
wisdom or folly as the court cannot supply material stipulations or read
into the contract words which it does not contain.
ELEMENTS OF CONTRACT
1. ESSENTIAL- are those without which there can be no contract.
A. COMMON ELEMENTS
a) Consent of the contracting parties
b) Object certain which is the subject of the contract
c) Cause of the obligation which is established
B. SPECIAL ELEMENTS
Are present only in certain contracts, such as delivery in real
contracts or form in solemn ones.
C. EXTRAORDINARY
a) Natural-are those which are derived from the nature of the
contract and ordinarily accompany the same. They are
presumed by the law, although they can be excluded by the
contracting parties if they so desire.
Thus, warranty against eviction is implied in a
CONTRACT OF SALE, although the contracting parties may
increase, diminish or even suppress it.
b) Accidental-are those which exist only when the parties
expressly provide for them for the purpose of limiting or
modifying the normal effects of the contracts.
Ex. Conditions, terms and modes
PARTIES TO THE CONTRACT
GR: At least two parties for a person cannot enter into a contract with
himself.

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EP: Auto-contract, wherein apparently, there is only one party involved,


but in reality, said
party merely acts in the name and for the
account of two distinct contracting parties.
This may take place
1. When a person, in his capacity as representative of another,
contracts with himself, or
2. When as a representative of two different persons, he brings
about a contract between his principals by contracting with
himself, unless there is a conflict of interests or when the law
expressly prohibits it in specific cases.
CHARACTERISTICS OF CONTRACTS
First, the OBLIGATORY FORCE OR CHARACTER OF CONTRACTS
It refers to the rule so fundamental in all contracts, that once the
contract is perfected, it shall be of obligatory force upon both of the
contracting parties. Consequently, such contracting parties are bound,
not only to the fulfillment of what has been expressly stipulated, but
also to all the consequences thereof.
Second, the AUTONOMY OF CONTRACTS
The contracting parties may establish such agreements as they may
deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
Third, the MUTUALITY OF CONTRACTS

It refers to the position of essential equality that is occupied by both


contracting parties in relation to the contract. The contract must be
binding upon both of the parties. Consequently, its validity or
compliance cannot be left to the will of one of them.
Fourth, the RELATIVITY OF CONTRACTS
Contracts take effect only between the parties, their assigns and
heirs.
GR: They cannot produce any effect upon third persons, in
conformity with the
principle of res inter alios acta
aliis negue nocet prodest.
BREACH OF CONTRACT
The failure, without legal reason, to comply with the terms of the contract.
The failure, without legal excuse, to any perform any promise which forms
the whole or part of the contract.
LIFE OF CONTRACTS

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First stage: GENERATION

Comprehends the preliminary or preparation, conception or


generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties.

Second stage: PERFECTION

Comprehends the perfection or birth of the contract, which is the


moment when the parties come to agree on the terms of the
contract.

Third stage: CONSUMMATION

Comprehends the consummation or death of the contract, which


is the fulfillment or performance of the terms agreed upon in the
contract.

CLASSIFICATION OF CONTRACTS
1. According to their relation to other contracts
a) Preparatory-or those which have for their object the
establishment of a condition in law which is necessary as a
preliminary step towards the celebration of another subsequent
contract.
Ex. Partnership, agency
b) Principal-or those which can subsist independently from other
contracts and whose purpose can be fulfilled by themselves.
Ex. Sale, lease
c) Accessory- or those which can exist only as a consequence of,
or in relation with, another prior contract.
Ex. Pledge, mortgage
2. According to their perfection
a) Consensual-or those which are perfected by the mere
agreement of the parties.
Ex. Sale, lease
b) Real- or those which require not only the consent of the parties
for their perfection, but also the delivery of the object by one
party to the other.
Ex. Commodatum, deposit, pledge
3. According to their form
a) Common or Informal- or those which require no particular
form.
Ex. Loan
b) Special or Formal-or those which require some particular form.
Ex. Donations, chattel mortgage
4. According to their purpose

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a) Transfer or ownership
Ex. Sale
b) Conveyance of use
Ex. Commodatum
c) Rendition of services
Ex. Agency

5. According to their subject matter


a) Things
Ex. Sale, deposit, pledge
b) Services
Ex. Agency, lease of services
6. According to the nature of the vinculum which they produce
a) Unilateral- or those which give rise to an obligation for only one
of the parties.
Ex. Commodatum, gratuitous deposit
b) Bilateral-or those which give rise to reciprocal obligations for
both parties.
Ex. Sale, lease
7. According to their cause
a) Onerous- or those in which each of the parties aspires to
procure for himself a benefit through the giving of an equivalent
or compensation.
Ex. Sale
b) Gratuitous- or those in which one of the parties proposes to
give to the other a benefit without any equivalent or
compensation.
Ex. Commodatum
8. According to the risks involved
a) Commutative- or those where each of the parties acquires an
equivalent of his prestation and such is pecuniarily appreciable
and already determined from the moment of the celebration of
the contract.
Ex. Lease
b) Aleatory- or thise where each of the parties has to his account
the acquisition of an equivalent of hid prestation, but such
equivalent, although pecuniarily appreciable, is not yet
determined at the moment of the celebration of the contract,
since it depends upon the happening of an uncertain event, thus
charging the parties with the risks of loss or gain.
Ex. Insurance
9. According to their names or norms regulating them
a) Nominate- or those which have their own individuality and are
regulated by special provisions of law.
Ex. Sale, lease

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b) Innominate- or those which lack individuality and are not


regulated by special provisions of law.

Art. 1306. The contracting parties may establish such stipulations,


clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public
policy.
RIGHT TO CONTRACT
The freedom to contract is both a constitutional and a statutory right;
therefore, to uphold this right, courts should move with all the necessary
caution and prudence in holding contracts void.
The constitutional prohibition against the impairment of contractual
obligations refers only to legally valid contracts.
It cannot be invokes as against the right of the State to exercise its police
power.
LIMITATIONS
1. LAW
The laws referred to are:
First, those which are mandatory or prohibitive in character;
Second, those which, without being mandatory or prohibitive,
nevertheless, are
expressive of fundamental
principles of justice, and, therefore, cannot
be
overlooked by the contracting parties.
Third, those which impose essential requisites without which the
contract
cannot exist.
Concept of Pactum Commissorium is proscribed by law.
Elements:
1.
There should be a property mortgaged by way of security
for the payment of the principal obligation, and
2.
There should be a stipulation for automatic appropriation
by the creditor of the thing mortgaged in case of nonpayment of the principal obligation within the stipulated
period.
2. MORALS
Morals referred to are those principles which are inconvertible and are
universally admitted which have received social and practical recognition.
3. GOOD CUSTOMS
Consists of habits and practices which through long usage have been
followed and enforced by society or some part of it as binding rules of
conduct.
4. PUBLIC ORDER

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Refers to the safety, as well as to the peace and order, of the country
or of any particular community.

5. PUBLIC POLICY
Principle of law which holds that no person can lawfully do that which
has a tendency to be injurious to the public or against the public good.
** In the absence of express legislation or constitutional prohibition, a
court, in order to declare a contract void as against public policy, must
find that the contract as to the consideration or thing to be done, has a
tendency to injure the public, is against the public good, or contravenes
c=some established interests of society, or is inconsistent with sound
policy and good morals, or tends clearly to undermine the security of
individual rights, whether of personal liability or of private property.
** In stipulations exempting a common carrier from liability, three kinds of
stipulations are ordinarily made in a bill of lading:
1.
One exempting the carrier from any and all liability for
loss or damage occasioned by its own negligence.
Void=contrary to public policy
2.
Providing for an unqualified limitation of such liability to
an agreed valuation. Void=contrary to public policy
CAVEAT: for Nos. 1 & 2. if it can be shown to be
reasonable under the circumstances, and had been fairly and
freely agreed upon, then it is perfectly valid and binding.
3.
Limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher
rate of freight. Perfectly valid and binding
** A contract, however, which restrains a man from entering into a
business or trade
without either a limitation as to time or place is
invalid. The public welfare must always
be considered. Hence, in
addition to the requirement that there must be a limitation as
time
or place, it is also required that the restraint must be reasonably necessary for the
protection of the contracting parties. (CONTRACTS WHICH
RESTRAIN BUSINESS TRADE).
YSMAEL & CO. v. BARETTO
By the weight of modern authority, a carrier cannot limit its liability, for injury
or loss of goods shipped, where such injury or loss was caused by its own
negligence. The rule rests on consideration of public policy, as the contract of the
carrier is to carry and deliver the goods, and a contract that undertakes to relieve
the carrier from any liability for loss or damage accruing or arising from its own
negligence would in legal effect nullify the contract.
DEL CASTILLO v. RICHMOND
A contract in restraint of trade is valid provided there is a limitation upon
either time or place.

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A contract which restrains a man from entering into a business or trade


without either a limitation as to time or place will be held invalid.
COMPROMISE

Is a contract whereby the parties, by making reciprocal concessions, avoid


litigation or put an end to one already commenced.
It is an agreement between two or more persons, who, for preventing or
putting an end to a law suit, adjust their difficulties by mutual consent in the
manner which they agree on, and which everyone of them prefers in the hope
of gaining, balanced by the danger of losing.
EFFECTS
GR: Res judicata, with respect to the matter definitely stated therein,
or which by implication from its terms should be deemed to have been
included therein. This holds true even if the agreement has not been judicially
approved.

COMPROMISE AGREEMENT
Whereby the parties make reciprocal concessions to resolve their differences
to thereby put an end to litigation is binding as a juridical agreement between
them.
EFFECTS
Binding between the parties upon its execution and not upon its court
approval. From the time a compromise is validly entered into, it becomes the
source of the rights and obligations of the parties thereto. The purpose of the
compromise is precisely to replace and terminate controverted claims.
For a compromise agreement to be valid, it must be based on real claims and
actually agreed upon in good faith.
Art. 1307. Innominate contracts shall be regulated by the stipulations of
the parties, by the provisions of Titles I and II of this Book, by the rules
governing the most analogous nominate contracts, and by the customs of
the place.
NOMINATE CONTRACTS
Which has a specific name or designation in law;
Are those which have their own distinctive individuality and are regulated by
special provisions of law.
INNOMINATE CONTRACTS
Are those which lack individuality and are not regulated by special provisions
of law.
Kinds of Innominate contracts

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a)
b)
c)
d)

Do ut des- I give that you give


Do ut facias-I give that you do
Facio ut des-I do that you give
Facio ut facias- I do that you do

Rules governing Innominate contracts


1.
2.
3.
4.

Agreement of the parties


Provisions of the Civil Code on Obligations and Contracts
The rules governing the most analogous contracts
The customs of the place

Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
Art. 1309. The determination of the performance may be left to a third
person, whose decision shall not be binding until it has been made known
to both contracting parties.
Art. 1310. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable under
the circumstances.
MUTUALITY OF CONTRACTS
Essential equality of the contracting parties.
The law expressly or impliedly recognizes the following consequences:
1. The validity or fulfillment of the contract cannot be left to the will of
one of the contracting parties. It must be observed, however, that what
is probihited by the law from being delegated to one of the contracting
parties are:
First, the power to determine whether or not the contract shall
be valid; and
Second, the power to determine whether or not the contract
shall be fulfilled.
2. The validity or fulfillment may be left to the will of a third person.
However, it is an indispensable requisite that the determination made
by the third person should not be evidently inequitable. If it is evidently
inequitable, it shall not have any obligatory effect upon the contracting
parties.
3. The validity or fulfillment can be left to chance.
There are certain agreements which will in effect render the mutuality
of contracts illusory because one of the contracting parties is placed in
a position of superiority with regard to the determination of the validity

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or fulfillment of the contract over that occupied by the other party, but
which do not fall within the purview of the prohibition in Art. 1308.
1. Those agreements where the obligor promises to pay a
certain amount which is not determined, but the contract
itself specifies the manner by which the amount may be
determined, such as by the exercise of the judgment and
discretion of the obligor. Undoubtedly, a promise of this
character creates a legal obligation binding upon the
promisor, although in its actual results it may not
infrequently prove to be illusory.
2. Those agreements where the fulfillment of the contract is
left to the will of one of the contracting parties in the
negative form of rescission. In which case, neither is the
prohibition in the article violated nor is there inequality
between the parties since they remain with the same
faculties with respect to fulfillment.

Art. 1311. Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person.
RELATIVITY OF CONTRACTS
It is the general principle of the civil law that a contract can only bind the
parties who had entered into it or their successors who have assumed their
personality or their juridical position, and that, as a consequence, such contract can
neither favor nor prejudice a third person.
PERSONS BOUND BY CONTRACT
GR:

Contracts can take effect only between the parties, their assigns and

heirs.
EP: A contract may have been executed ostensibly in the name of another
person or entity,
it shall produce effect only insofar as the real
contracting party is concerned, provided
that such fact was known
to the other party.
An assignment or transfer by a contracting party has the effect of
subrogating the
assignee to all the rights and obligations of the
assignor. Same rule is applicable to
transmission of property, rights
and obligations through either testate or intestate
succession.
DOCTRINES: Both judicial and extrajudicial acts, formally accepted by one
who was a lawful
party thereto, are effective as to the heirs

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and successors of such persons, who


third persons for this purpose.

are not to be regarded as

The heirs of a deceased person cannot be held to be third


persons in relation
to any contract touching the real
estate of their decedent which comes into
their hands by
right of inheritance; they take the property subject to all the
obligations resting thereon in the hand of him from whom they derive their
rights.
The heirs cannot be charged directly with the payment of the
monetary obligations that the decedent might have incurred
during his lifetime. Accdg to the Rules of court, such obligations
must be liquidated in the testate or intestate proceeding for the
settlement of the esate of the decedent. It is the estate or the
mass property left by the decedent, instead of the heirs directly,
that becomes vested and charged with his rights and obligations
which survive after his death. For this purpose, it has been held
that, it is the estate, rather than the heir, which must be
considered as the continuation of the decedents personality.
Consequently, the estate, represented by the executor or
administrator, is a juridical person. However, this does not mean
that the heirs can no longer be bound by the contracts entered
into by the decedent during his lifetime. There are other
obligations which are not monetary in character and which will,
therefore, constitute a part of the inheritance. Such obligations
are still chargeable against the heirs, but only to the extent of
the value of the property which they may have received from
the decedent.
EXCEPTIONS
The rule that ab assignee or a heir shall be bound by the terms of a contract
is not absolute.
1. By their nature, as when the special or personal qualification of the obligor
constitutes one of the principal motives for the establishment of the contract;
or
2. By stipulations of the parties, as when the contract expressly provides that
the obligor shall perform an act by himself and not through other; or
3. By provision of law, as in the case of those arising from a contract of
partnership or of agency.
EFFECT OF CONTRACT ON THIRD PERSONS
General Rule
He, who is not a party to a contract, or an assignee thereunder,
has no legal capacity to challenge its validity, hence, even if it is
admitted that a contract is voidable, nevertheless, its voidable
character cannot be asserted by one who is not a party to the
transaction or his representative.

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Exceptions
1. Where the contract contains a stipulation in favor of a third person.
A stipulation in a contract clearly and deliberately
conferring a favor upon a third person who has a right to
demand its fulfillment provided he communicates his
acceptance to the obligor before its revocation.
Kinds
a. Those where the stipulation is intended for the sole benefit of
the third person; ( it confers a GIFT)
b. Those where an obligation is due from the promises to the third
person which the former seeks to discharge by means of such
stipulation. ( The third person is called CREDITOR BENEFICIARY)
Requisites
1. There must be a stipulation in favor of a third person
2. The stipulation must be a part, not the whole of the contract
3. The contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental
benefit or interest
4. The third person must have communicated his acceptance to
the obligor before its revocation
5. Neither of the contracting parties bears the legal representative
or authorization of the third party.
* The acceptance by the third person or beneficiary does not
have to be done in any particular form. It may be done expressly
or impliedly.
TEST OF BENEFICIAL STIPULATION
Whether the interest of a third person in a contract is a
stipulation pour autrui or merely an incidental interest which can be
determined upon the intention of the parties as disclosed by their
contract. If a third person claims an enforceable interest in the
contract, that question must be settled by determining whether the
contracting parties desired to tender him such interest.
Art. 1312. In contracts creating real rights, third person who come into
possession of the object of the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land Registration laws.
REAL RIGHT
Right belonging to a person over a specific thing, without a passive subject
individually determined, against whom such right may be personally
enforced.
Such a right is enforceable against the whole world. Consequently, a third
person who might come into the possession of the object of a contract

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creating a real right will have to be bound by such right, subject to the
provisions of the Mortgage Law and the Land Registration laws.
Art. 1313. Creditors are protected in cases of contracts intended to
defraud them.
CONTRACTS IN FRAUD OF CREDITORS
Although a third person cannot ask for the annulment of a contract,
nevertheless, if he is a creditor of one of the contracting parties, and it can be
established that the contract was entered into with the intention of defrauding him,
he may ask for its rescission.
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.
INTERFERENCE WITH CONTRACTUAL OBLIGATIONS
The right to perform a contract and to reap the profits resulting from such
performance, and also the right to performance by the other party, are property
rights which entitle each party to protection, and to seek compensation by an action
in tort for any interference therewith.
REQUISITES FOR INDUCEMENT
1. The existence of a valid contract;
2. Knowledge on the part of the third person of the existence of the contract;
and
3. Interference by a third person without legal justification or excuse.
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which , according to
their nature, may be in keeping with good faith, usage and law.
Art. 1316. Real contracts, such as deposit, pledge and commodatum, are
not perfected until the delivery of the object of the obligation.
PERFECTION OF CONTRACTS
The perfection of a contract refers to that moment in the life of a contract
when there is finally a concurrence of the wills of the contracting parties with
respect to the object and the cause of the contract.
GR: The perfection of a contract is produced by mere consent.
EP: certain contracts such as deposit, pledge and commodatum, which
cannot be perfected
after the delivery of the object by one contracting
party to the other.
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
a contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers,

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shall be unenforceable, unless it is ratified, expressly or impliedly, by the


person in whose behalf has been executed, before it is revoked by the
other contracting party.
BADILLO v. FERRER
The powers given to her by the laws as the natural guardian covers only
matters of administration and cannot include the power of disposition. She could
have first secured the permission of the court before she alienated that portion of
the property in question belonging to her minor children.

Chapter 2
ESSENTIAL REQUISITES OF CONTRACTS
General Provisions
Art. 1318. There
1.
2.
3.

is no contract unless the following requisites concur:


Consent of the contracting parties
Object certain which is the subject matter of the contract
Cause of the obligation which is established.
Section 1. CONSENT

Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the offer
was made.
CONSENT-concurrence of the wills of the contracting parties with respect to the
object and the cause which shall constitute the contract.
Requisites of Consent
1. The consent must be manifested by the concurrence of the offer
and the acceptance;
2. The contracting parties must possess the necessary legal capacity;
and
3. The consent must be intelligent, free, spontaneous, and real
ACCEPTANCE-is the manifestation by the offeree of his assent to the terms of the
offer.

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** It must be absolute that it must in every respect meet and


correspond with the terms and conditions of the offer, plain and unconditional.
DOCTRINES
Even if the draft renewal contract had not been signed by the lessor, the
parties may be deemed to have agreed to review their lease contract
considering the exchanges of letters between, and the implementing acts of
the parties.
The contract, to be binding from the date of the application, must have been
a completed contract, one that leaves nothing to be done, nothing to be
passed upon, or determined, before it shall take effect. ( De Lim v. Sun Life
Assurance Co.)
CHARACTER OF OFFER AND ACCEPTANCE
OFFER- may be defined as a proposal to make a contract. It must be certain
or definite.
A promise to act or refrain from acting on condition that the terms
thereof are accepted
by the person to whom it is made.
ABS-CBN BROADCASTING CORP. v. CA
Contracts that are consensual in nature are perfected upon mere meeting of
the minds. Once there is concurrence between the offer and the acceptance upon
the subject matter, consideration and terms of payment is produced. The offer must
be certain. To convert the offer into a contract, the acceptance must be absolute
and must not qualify the terms of the offer, it must be plain, unequivocal,
unconditional and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a counter-offer and is
a rejection of the original offer. Consequently, when something is desired which is
not exactly what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the terms of the offer
annuls the offer.
ACCEPTANCE BY LETTER OR TELEGRAM
Four theories to determine the exact moment of perfection:
1. The manifestation theory
The contract is perfected from the moment the acceptance is
declared or made. (followed by the Code of Commerce)
2. The expedition theory
the contract is perfected from the moment the offeree transmits
the notification of acceptance to the offeror, as when the letter
is placed in the mailbox. (followed by the majority of American
Courts)
3. The reception theory
The contract is perfected from the moment that the notification
of acceptance is in the hand of the offeror in such a manner that
he can, under ordinary conditions, procure the knowledge of its

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contents by reason of absence, sickness or some other cause.


(followed by the German Civil Code)
4. The cognition theory
The contract is perfected from the moment the acceptance
comes to the knowledge of the offeror. (followed by the Spanish
Civil Code)

EFFECT OF CONSTRUCTIVE KNOWLEDGE


What is required by law is actual knowledge of the acceptance, that such
offeror must have read the contents of the letter or telegram accepting his offer.
* Mere receipt of the letter or telegram is not sufficient.
** If the offeror refused to open the letter or telegram because for some
reason or other he has already changed his mind or he has already decided to
revoke his offer or proposal. In such a case, it would be unjust to apply the cognition
theory as embodied in the Civil Code literally. The better rule would be to say that
since the offeror has already a constructive knowledge of the contents of the letter
or telegram, it is but logical that he shall be bound by the acceptance made by the
offeree.
WITHDRAWAL OF THE OFFER
The offeror may still withdraw his offer or proposal so long as he still has no
knowledge of the acceptance of the offeree.
WITHDRAWAL OF ACCEPTANCE
It is to be observed that although the offeror is not bound until he learns of the
acceptance, the same thing cannot be said of the offeree who, from the moment
that he accepts, loses the power to retract such acceptance since the
right to withdraw between the time of the acceptance and its
communication is a right which is expressly limited by law to the offeror.
Art. 1320. An acceptance may be express or implied.
PEREZ v. POMAR
Not only is there an express and tacit consent which produces true contracts,
but there is also presumptive consent which is the basis of quasi-contracts, thus
giving rise to multiple juridical relations which result in obligations for the delivery of
a thing or the rendition of a service.
Art. 1321. The person making the offer may fix the time, place and manner
of acceptance, all of which must be complied with.
Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.
Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed.

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CONVEYED-refers to that moment when the offeror has knowledge of the


acceptance by the offeree.
OTHER GROUNDS WHICH RENDER OFFER INEFFECTIVE
1. Failure to comply with the condition of the offer as to the time, place,
and the manner of payment;
2. Expiration of the period fixed in the offer of acceptance;
3. Rejection of the offer;
4. Destruction of the thing due before acceptance.
Art. 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdraw at any time before acceptance by
communicating such withdrawal, except when the option is founded upon
a consideration, as something paid or promised.
OPTION CONTRACT
it is simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price within
a certain time.
Is one giving a person for a consideration a certain period within which to
accept the offer of the offerer.
Art. 1479 par. 2 (Sales)
An accepted unilateral promise to buy or to sell determinate thing for a price
certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price.
Exception: If the option is not supported by a consideration which is distinct
from the purchase price, the offer may still be withdraw even if the offeree
has already accepted it.
OPTION MONEY- is the money paid or promised to be paid in consideration for the
option.
EARNEST MONEY- a partial payment of the purchase price and is considered as
proof of the perfection of the contract.
Art. 1325. Unless it appears otherwise, business advertisements of things
for sale are not definite offers, but mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears.
Art. 1327. The following cannot give consent to a contract:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who do not know
how to write.

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INCAPACITATED PERSONS
1. Unemancipated minors
2. Insane or demented persons
**broad enough to cover all cases where one or both of the contracting
parties are unable to understand the nature and consequences of the
contract at the time of its execution, such as those in a state of
drunkenness or under a hypnotic spell or who are suffering from any
kind of mental incapacity whatsoever.
3. Deaf-mutes who do not know how to write

** Because the law incapacitates them to give their consent to a contract, the
only way by which any one of those enumerated above can enter into a contract is
to act through a parent or guardian. If this requirement is not complied with, the
result is a defective contract. If only one of the contracting parties is incapacitated
to give his consent, the contract is voidable. If both of them are incapacitated to
give their consent, the contract is unenforceable.
UNEMANCIPATED MINORS
A minor emancipated by marriage or by voluntary concession shall have the power
to administer his property, but he cannot borrow money or alienate or encumber his
property without the consent of his father or mother, or guardian.
Five exceptional cases where a contract entered into by an
unemancipated minor may have all the effects of a valid contract:
1. When it is entered into by a minor who misrepresents his age;
2. When it involves the sale and delivery of necessaries to the minor;
3. When it involves a natural obligation and such obligation is fulfilled
voluntarily by the minor, provided that such minor is between 18 and
21 years of age;
4. When it is a marriage settlement or donation propter nuptias, provided
that such minor is between 20 and 21 years of age, if male, or between
18 and 21 years of age, if female;
5. When it is a life, health or accident insurance taken on the life of the
minor, provided that the minor is 18 years old or more and the
beneficiary appointed is the minors estate, or the minors father,
mother, husband, wife, child, brother, or sister.
EFFECT OF MISREPRESENTATION
(based on the principle of estoppel)
MERCADO & MERCADO v. ESPIRITU
Where the minors who entered into the contract have already passed the age
of puberty and adolescence in such a way that they could misrepresent and actually
did misrepresent themselves as having reached the age of majority, they cannot,
upon reaching the age of majority, annul the contract on the ground of minority
inasmuch as they are already in estoppel.

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**be that as it may, it is now well-settled that misrepresentation by unemancipated


minors with regard to their age when entering into a contract shall bind them in the
sense that they are stopped subsequently from impugning the validity of the
contract on the ground of minority. It is, however, necessary that the
misrepresentation must be ACTIVE, not merely constructive.
INSANE OR DEMENTED PERSONS
Include any person, who, at the time of the celebration of the contract,
cannot understand the nature and consequences of the act or transaction by
reason of any cause affecting his intellectual or sensitive faculties, whether
permanent or temporary.
** A contract entered into during a lucid interval is valid.
** According to the Supreme Court, Even in the execution of contracts, in the
absence of a statute to the contrary, the presumption of insanity and mental
capacity in a person under guardianship for mental derangement, is only
prima facie and may be rebutted by evidence. A person under guardianship
for insanity may still enter into a valid contract and even convey property,
provided that it is proven that at the time of entering into said contract, he
was not insane or that his mental defect, if mentally deranged, did not
interfere with or affect his capacity to appreciate the meaning and
significance of the transaction entered into by him. there are many cases of
persons mentally deranged who, although they have been having obsessions
and delusions for many years regarding certain subjects and situations, still
are mentally sound in other respects. There are others who, though insane,
have their lucid intervals when in all respect they are perfectly sane and
mentally sound.
DEAF-MUTES
EFFECT OF A CONTRACT ENTERED INTO BY
Deaf-mute who knows how to write
Perfectly valid
Deaf-mute who does not know how to write
Is either voidable or unenforceable, depending upon whether one or
both of the parties
are incapacitated.
OTHER INCAPACITATED PERSONS
1. Married women of age in cases specified by law
** Married women cannot give their consent to a contract without first
securing their husbands consent, e.g. acquisition by a wife of property by
gratuitous title. The husbands consent is necessary, unless the property
is acquired from her ascendants, descendants, parents-in-law and
relatives within the fourth civil degree.

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2. Persons suffering from civil interdiction


3. Incompetents who are under guardianship
Sec. 2 of Rule 92 of the New Rules of Court, the word incompetent
includes:
1.
2.
3.
4.
5.

Persons suffering from civil interdiction;


Hospitalized lepers;
Prodigals;
Deaf and dumb who are unable to read and write;
Those who are of unsound mind, even though they have lucid
intervals; and
6. Those who by reason of age, weak mind, and other similar
causes, cannot, without aid, take care of themselves and
manage their property becoming thereby an easy prey for deceit
and exploitation.
** But once an incompetent is placed upon guardianship, such
incompetent can enter into a contract through his guardian; otherwise
the contract is voidable.
** A person is not incapacitated to enter into a contract merely
because of advanced years or by reason of physical infirmities, unless
such age and infirmities impair his mental faculties to the extent that
he is unable to properly, intelligently and fairly understand the
provisions of said contract. (Dr. Jose & Aida Yason & Faustino Arciaga,
et. al)
Art. 1328. Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during a hypnotic spell
are voidable.
Art.1329. The incapacity declared in Art. 1327 is subject to the
modification determined by law, and understood to be without prejudice
to special disqualifications established in the laws.
DISQUALIFICATIONS TO CONTRACT
Refers to those who are prohibited from entering into a contract with
certain persons with regard to certain property under certain
circumstances and not to those who are incapacitated to give their consent
to a contract.
Related provisions of the Civil Code
Art. 133. Every donation between the spouses during the marriage
shall be void. This prohibition does not apply when the donation takes effect
after the death of the donor.

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Neither does this prohibition apply to moderate gifts which the spouses
may give each other on the occasion of any family rejoicing.
Art. 1490. The husband and the wife cannot sell property to each
other, except:
1. When a separation of property was agreed upon in the marriage
settlements; or
2. When there has been a judicial separation of property under Art.
191.
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
1. The guardian, the property of the person or persons who may
be under his guardianship;
2. Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal has
been given;
3. Executors and administrators, the property of the estate
under administrations;
4. Public officers and employees, the property of the State or of
any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of which
has been entrusted to them; this provision shall apply to judges
and government experts who, in any manner whatsoever,
take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of justice,
the property and rights in litigation or levied upon on execution
before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the
act of acquiring assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession;
6. Any others specially disqualified by law.
Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership.
Prohibition v. Incapacity to Contract
1. Incapacity restrains the exercise the right to contract, while the prohibition to
contract restrains the very right itself;
In other words, a person who is incapacitated can still enter into a
contract, but he must do so through his parent or guardian, while one who is
prohibited from entering into a particular contract is absolutely disqualified
from entering into that contract.

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2. Incapacity is based upon subjective circumstances of certain persons which


compel the law to suspend for a definite or indefinite period their right to
contract, while prohibition to contract, which has been improperly called
special incapacity by certain authors, is based upon public policy and
morality; and
3. A contract entered into by an incapacitated person is merely voidable in
accordance with Art. 1390 of the Civil Code, while that entered into by one
against whom a prohibition is directed is void in accordance with Arts. 5 and
1409, No. 7, of the Civil Code.
INCAPACITY DECLARED IN ART. 1327 SUBJECT TO MODIFICATIONS
1. When necessaries such as food, are sold and delivered to a minor or
other person without capacity to act, he must pay a reasonable price
therefor.
2. A contract is valid if entered into through guardian or legal
representative.
3. A contract is valid where the minor misrepresented his age and
convincingly led the other party to believe in his legal capacity.
4. A contract is valid where a minor voluntarily pays a sum of money or
deliver a fungible thing in fulfillment of his obligation thereunder and
the oblige has spent or consumed it in good faith.
Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
CHARACTERISTICS OF CONSENT
1. It is intelligent;
Vitiated by mistake or error
2. It is free and voluntary;
Vitiated by violence, intimidation and undue influence
3. It is conscious or spontaneous.
Vitiated by fraud
4. *It must be real.
**in the absence of the first three requisites because consent is given
through either mistake, or violence, or intimidation or undue influence, or
fraud, the contract is voidable.
** In the absence of the fourth requisite because the contract is simulated, it
may be either void ab inito or valid as far as the real agreement is
concerned depending upon whether the simulation is absolute or
relative.
VICES
1.
2.
3.
4.
5.

OF CONSENT
Error or mistake
Violence or force
Intimidation or threat or duress
Undue influence
Fraud or deceit

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MAKE THE CONTRACT VOIDABLE


Causes vitiating consent
Causes of incapacity
-temporary
-more or less permanent
-refers to the contract itself
-refers to the

person entering
into the contract
Art. 1331. In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into
a contract.
Mistake as to the identity or qualifications of one of the parties will
vitiate consent only when such identity or qualifications have been the
principal cause of the contract.
A simple mistake of account shall give rise to its correction.
MISTAKE- may be defined not only as the wrong conception of the thing, but also
the lack of knowledge with respect to the thing.
Two General Kinds of Mistakes
1. Mistake of fact
When one or both of the contracting parties believe that a fact
exists when in reality it does not, or that such fact does not exist
when in reality it does.
2. Mistake of law
When one or both of the contracting parties arrive at an
erroneous conclusion regarding the interpretation of a question
of law or the legal effects of a certain act or transaction.
** It is only a mistake of fact which will vitiate consent thus rendering
the contract voidable; a mistake of law, on the other hand, does not
render the contract voidable because of the well-known principle that
ignorance of law excuses no one from compliance therewith.
CLASSES OF MISTAKE OF FACT
1. Mistake as to object (error in re)
a) Mistake as to the identity of the thing (error in corpore)
As when a thing which constitutes the object of the
contract is confused with another thing;
b) Mistake as to the substance of the thing (error in
substantia)
c) Mistakes as to the conditions of the thing
provided such conditions have principally moved one or
both parties to enter into the contract; and

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d) Mistake as to the quantity of the thing (error in


quantitate)
Provided that the extent or dimension of the thing was
one of the principal reasons of one or both of the contracting
parties for entering into the contract.
** In order that a contract is rendered voidable because of
mistake regarding the quantity of the thing which constitutes
the object thereof, it is necessary that such mistake should
refer not only to the material out of which the thing is made,
but also to the nature which distinguishes it, generically or
specifically, from all others, such as when a person purchases
a thing made of silver believing that it is made of gold.
Consequently, if the mistake refers only to accidental or
secondary qualities (error in qualitate), the contract is not
rendered voidable.
Mistake as to the quantity v. Mistake of account or
calculation
1. In the first, there is a real mistake as to the extent of the
object of the contract; in the second, there is only an
apparent mistake, a mere mistake in mathematical
computation.
2. As a consequence, in the first, the contract is voidable;
in the second, it is not, it can be corrected.

2. Mistake as to person ( error in persona)


May refer either to the name or to the identity or to the qualification of
a person.
BUT, the only mistake with regard to persons which will vitiate consent
are:
a) mistakes with regard to the identity; or
b) mistakes with regard tothe qualifications of one of the
contracting parties
** Thus, mistake with regard to the name of one or both of the
contracting parties will NOT invalidate the contract.
Requisites of Mistake as to Persons to vitiate consent:
1. the mistake must be either with regard to the identity or with
regard to the qualification of one of the contracting parties;
and
2. such identity or qualification must have been the principal
consideration for the celebration of the contract.
This kind of mistake occurs in obligations to do which require special
qualifications of the parties or which are based on confidence.
Ex. Obligations arising from remuneratory contracts,
partnership, agency, deposit, commodatum, and lease of services.

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Art. 1332. When one of the parties is unable to read, or if the contract is in
a language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms tereof have been
fully explained to the former.
RULE WHERE A PARTY IS ILLITERATE
The contract is voidable.
**In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both of the contracting parties to enter into
the contract. Fraud, on the other hand, is present when, through insidious
words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to.
Art. 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
Art. 1334. Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent.
Mistake of Law
Arises from an ignorance of some provision of law, or from erroneous
interpretation of its meaning, or from an erroneous conclusion as to the legal
effect of an agreement, on the part of one of the parties.
Requisites
1. The error must be mutual
2. It must be as to the legal effect of an agreement
3. It must frustrate the real purpose of the parties.
Art. 1335. There is violence when in order to wrest consent, serious or
irresistible force is employed.
There is intimidation, when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and
grave evil upon his person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce ones claim through competent authority, if
the claim is just or legal, does not vitiate consent.
Art. 1336. Violence or intimidation shall annul the obligation, although it
may have been employed by a third person who did not take part in the
contract.
Violence v. Intimidation
1. Violence is external; intimidation is internal

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2. Violence prevents the expression of the will substituting it with material act
dictated by another; intimidation influences the operation of the will,
inhibiting it in such a way that the expression thereof is apparently that of a
person who has freely given his consent.
3. Violence is physical compulsion, while intimidation is moral compulsion.
Requisites of Violence
1. The force employed to wrest consent must be serious or irresistible; and
2. It must be the determining cause for the party upon whom it is employed in
entering into the contract.
Requisites of Intimidation
1. One of the contracting parties is compelled to give his consent by a
reasonable and well-grounded fear of an evil;
2. The evil must be imminent and grave;
3. The evil must be unjust; and
4. The evil must be the determining cause for the party upon whom it is
employed in entering into the contract.
** This presupposes that the threat or intimidation must be actual, serious
and possible of realization, and that the actor can and still will carry out his threat.
** BUT, the mere knowledge of the severe penalties imposed by the Japanese
invaders upon a violation of their proclamations and orders regarding
non0accptance of military notes, which was common and applicable to all, without
any proof of direct acts showing the imminence and gravity of any injury, does not
in itself establish intimidation, since, according to the law, such intimidation exists
only when one of the contracting parties is inspired with a reasonable and wellgrounded fear of suffering an imminent and grave injury to his person or property,
or to the person or property of his spouse, descendants or ascendants.
Reluctant consent v. Against Good sense of judgment
RELUCTANT CONSENT- whereby one acts as voluntarily and independently
in the eyes of the law when he acts reluctantly and with hesitation.
AGAINST GOOD SENSE OF JUDGMENT- when he acts spontaneously and
joyously.
** Legally speaking, he acts voluntarily and freely when he acts wholly
against his better sense of judgment as when he acts in conformity with them.
Between the two acts there is no difference in law.
DETERMINATION OF DEGREE OF INTIMIDATION
1. Age
2. Sex
3. Condition of the person
Meant not only the resolute or weak character of the person
intimidated, but also his other circumstances, such as

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a) his capacity or culture, which permits him to appreciate


whether or not there is an imminent danger
b) his position, by which he can determine whether or not it
gives him a chance to thwart the danger
c) his financial condition, because while a certain amount
may mean nothing to some, to others it may mean
economic ruin.
**As well as the and the conditions of such spouse, descendant or
ascendant because although the evil which threatens may not be
sufficiently grave or serious to bring harm to the contracting party, it
may have a different effect upon a weak woman, an aged father, or a
defenseless child.

EFFECT OF JUST OR LEGAL THREAT


Even if it can be established that the reason or motive of a party in entering
into a contract was the threat of the other to proceed against him through the
courts, the contract would still be perfectly valid and not voidable.
** Such threat is proper within the realm of the law as a means to enforce
collection of the obligation, and therefore, cannot constitute intimidation which
would invalidate any settlement entered into even if the claim proves to be
unfounded so long as the creditor who made the threat believed that it was his right
to do so.
Art. 1337. There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in
financial distress.
UNDUE INFLUENCE
It is the influence which deprives a person of his free agency.
** Even if it can be established that a person entered into a contract through
the importunity or persuasion of another against his better judgment, if the
deprivation of his free agency is not proved, there is no undue influence
which will invalidate the contract.
**According to the SC:
Solicitation, importunity, argument and persuasion are not undue
influence and a contract is not to be set aside merely because one party used
these means to obtain the consent of the other. Influence obtained by
persuasion or argument or by appeals to the affections is not prohibited
either in law or morals and is not obnoxious even in courts of equity. Such
may be termed due influence. The line between due and undue influence
when drawn, must be with full recognition of the liberty due every true owner
to obey the voice of justice, the dictates of friendship, of gratitude and of
benevolence, as well as the claims of kindred, and when not hindered by

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personal incapacity or particular regulations, to dispose of his own property


according to his own free choice.
TEST TO DETERMINE WON THERE IS UNDUE INFLUENCE
The influence exerted has so overpowered or subjugated the mind of a
contracting party as to destroy his free agency, making him express the will
of another rather than his own.
Circumstances to be considered
a) confidential, family, spiritual and other relations between the
parties
b) mental weakness
c) ignorance
d) financial distress of the person alleged to have been unduly
influenced.

Art. 1338. There is fraud when, through insidious words or machinations


of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to.
FRAUD
Refers to those insidious words or machinations employed by one of the
contracting parties in order to induce the other to enter into a contract,
which, without them, he would not have agreed to.
KINDS OF FRAUD
1. Fraud in the perfection of a contract (Art. 1338)
Employed by a party to the contract in securing the consent of the
other party
DOLO CAUSANTE-or causal fraud refers to those deceptions or
misrepresentations of a serious character employed by one party and
without which the other party would not have entered into the
contract.
DOLO INCIDENTE-or incidental fraud refers to those deceptions or
misrepresentations which are not serious in character and without
which the other party would have still entered into the contract.
Dolo causante v. Dolo incidente
1.
The first refers to a fraud wnich serious in character, while
the second is not serious.

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2.
The first is the cause which induces the party upon whom
it is employed in entering into the contract, while the second is
not the cause.
3.
The effect of the first is to render the contract voidable,
while the effect of the second is to render the party who
employed it liable for damages.

2. Fraud in the performance of an obligation (Art.1170)


Employed by the obligor in the performance of a pre-existing obligation
REQUISITES OF FRAUD
1. Fraud or insidious words or machinations must have been employed by one of
the contracting parties;
2. The fraud or insidious words or machinations must have been serious;
3. The fraud or insidious words or machinations must have induced the other
party to enter into the contract; and
4. The fraud should not have been employed by both of the contracting parties
or by third persons.
NATURE OF FRAUD
Lies in the deception or misrepresentation employed by one of the
contracting parties to secure the consent of the other.
insidious words or machinations broad enough to comprehend any
kind of deception, such as false promises, fictitious names, fictitious
qualifications, or fictitious authority. (all the thousand and one forms of
deception which may delude a contracting party to give his consent, without
necessarily constituting estafa or some other offense under our penal laws.
** Before a contract can be invalidated because of fraud, it is, however, essential
that there must be proof of concrete facts constituting the fraud or insidious
words or machinations employed by one of the contracting parties by virtue of
which the other party was induced to enter into the contract, which, without
them, he would not have agreed to. Furthermore, it is also essential that such
insidious words or machinations must be prior to or contemporaneous with
the birth or perfection of the contract.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them,
as when the parties are bound by the confidential relations, constitutes
fraud.
Art. 1340. The usual exaggerations in trade, when the other party had
an opportunity to know the facts, are not in themselves fraudulent.
DOCTRINES
When the purchaser proceeds to make investigations by himself, and the
vendor does nothing to prevent such investigations from being as
complete as the former might wish, the purchaser cannot later allege that
the vendor made false representations to him.

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One who contracts for the purchase of real estate in reliance on the
representations and statements of the vendor as to its character and
value, but after he has visited and examined it for himself, and has had
the means and opportunity of verifying such statements, cannot avoid the
contract on the ground that such statements were false or exaggerated.
Art. 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the formers special
knowledge.
SONGCO v. SELLNER
A man who relies upon such an affirmation made by a person whose interest
might so readily prompt him to exaggerate the value of his property does so at his
peril and must take the consequences of his own imprudence.
Art. 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the
same is mutual.
** The precept would not be applicable if the third person makes the representation
with the complicity or, at least, with the knowledge, but without any objection, of
the contracting party who is favored. Neither is it applicable if the misrepresentation
has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay
damages.
MAGNITUDE OF FRAUD
The serious character of the fraud refers not to its influence, but to its
importance or magnitude. By virtue of this requisite, the annulment of a contract
cannot, therefore, be invoked just because of the presence of minor or common acts
of fraud whose veracity could easily have been investigated; neither can such
annulment be invoked because of the presence of ordinary deviations from the
truth, deviations, which are almost inseparable from ordinary commercial
transactions, particularly those taking place in fairs or markets.
RELATION BETWEEN FRAUD AND CONSENT
The third indispensable requisite in order that the fraud employed by one of
the contracting parties will vitiate consent is that it should have induced the other
party to enter into the contract. Such fraud must be the principal or causal
inducement or consideration for the consent of the party who is deceived in the
sense that he would never have given such consent were it not for the fraud.

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** If fraud is only incidental, the validity of the contract is not affected but the
party who employed such fraud shall be liable for damages.
Art. 1345. Simulation of a contract may be absolute or relative. The former
takes place when the parties do not intend to be bound at all; the latter,
when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended
for any purpose contrary to law, morals, good customs, public order or
public policy binds the parties to their real agreement.
SIMULATION OF CONTRACTS (VICE OF DECLARATION)
ABSOLUTE
when there is colorable contract but it has no substance as the
contracting parties do not intend to be bound by the contract at all.
Ex. As when a debtor simulates the sale of his properties to a
friend in order to prevent their possible attachment by creditors.
Characteristic
The fact that the apparent contract is not really desired or
intended to produce legal effects or in any way alter the juridical
situation of the parties.

RELATIVE
When the contracting parties state a false cause in the contract to
conceal their true agreement.
Ex. When a person conceals a donation by simulating a sale of
the property to the beneficiary for a fictitious consideration.
Determination of the true nature of the contract
The intention of the parties. Such intention is determined from
the expressed terms of their agreement as well as from the
contemporaneous and subsequent acts.
EFFECTS OF SIMULATION OF CONTRACTS
Affects the contract in an entirely different manner.
If simulation is ABSOLUTE, the contract is void.
If simulation is RELATIVE, binds the parties and the parties may recover
from each other what they may have given under the contract.
Thus, a relatively simulated contract is binding and enforceable
between the parties and their successors in interest to their real
agreement, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs,
public order and public policy.

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** The legal presumption is in favor of the validity of contracts. The party who
impugns the validity and regularity of a contract has the burden of proving his
allegation.
CONTRACTS OF ADHESION
DEVT BANK OF THE PHILS. V. PEREZ
CONTRACT OF ADHESION
Its terms are prepared by only one party while the other party
merely affixes his signature signifying his adhesion thereto.
** A contract of adhesion is just as binding as the ordinary contracts.
Exception:
It may be struck down as void when the weaker party is imposed
upon in dealing with the dominant bargaining and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing.
Exception (to the exception above)
Contracts of adhesion are not invalid per se; they are not
entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.
Section 2.-OBJECT OF CONTRACT
OBJECT OF A CONTRACT-may be defined as the thing, right or service which is the
subject matter of the
obligation which is created or
established.
Art. 1347. All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except
authorized by law.
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a contract.
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1349. The object of very contract must be determinate as to its kind.
The fact that the quantity is not determinate shall not be an obstacle to
the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties.
WHAT MAY BE THE OBJECTS OF CONTRACTS
All things or services, provided the following requisites must concur:
1. The object must be within the commerce of men.
It should be susceptible of appropriation and transmissible from
one person to another.

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2. The object should be real or possible.


It should exist at the moment of the celebration of the contract,
or at least it can exist subsequently or in the future.
3. The object should be licit.
It should not be contrary to law, morals, good customs, public
order or public policy.
4. The object should be determinate, or at least possible of
determination, as to its kind.

THE FOLLOWING CANNOT BE THE OBJECT OF CONTRACTS


1.
2.
3.
4.

Things which are outside the commerce of men;


Intransmissible rights
Future inheritance, except in cases authorized by law
Services which are contray to law, morals, good customs, public order or
public policy;
5. Impossible things or services;
6. Objects which are not possible of determination as to its kind.
APPROPRIABILITY AND TRANSMISSIBLITY
In order that a thing, right or service may be the object of a contract, it is
essential that it must be within the commerce of men. Consequently, two
conditions must concur:
1. The thing, right or service should be susceptible of appropriation;
and
2. It should be transmissible from one person to another.
** The thing, right or service which does not possess these conditions are
outside the commerce of men, and, therefore, cannot be the object of
contracts. These include:
1. Those things which are such by their nature, such as common
things like the air or the sea, sacred things, res nullius, and property
belonging to the public domain;
2. Those which are made such by special prohibitions established by
law, such as poisonous substances, drugs, arms, explosives, and
contrabands; and
3. Those rights which are intransmissible because either they are
purely personal in character, such as those arising from the
relationship of husband and wife, like jus consortium, or from the
relationship of paternity and filiation, like patria potestas, or they
are honorary or political in character, such as the right to hold a
public office and the right of suffrage.

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** Communal things, such as public plazas, sidewalks, streets, rivers,


fountains and other things for public use cannot be sold or leased because they are
by their nature outside the commerce of men.
THINGS WHICH HAVE PERISHED
If at the time the contract of sale is perfected, the things which is the object of
the contract has been entirely lost, the contract shall be without any effect.
FUTURE THINGS
It may be interpreted as a conditional contract if its efficacy should depend
upon the future existence of the thing, or as an aleatory contract if one of the
contracting parties should bear the risk that the thing come into existence.
** In case of doubt about the nature of the contract, it must be deemed to be
conditional because of the principle stated in Art. 1378 of the Code that the doubt
shall be resolved in favor of the greatest reciprocity of interests.
RULE WITH RESPECT TO FUTURE INHERITANCE
GR:
No contract may be entered into with respect to future inheritance.
REASONS:
1. There would always be the possibility that one of the contracting
parties may be tempted to instigate the death of the other in order
that the inheritance will become his.
2. There would also be the possibility, and this is more probable, that
fraud and prejudice may be committed or occasioned thereby.
BUT, after the death of the decedent, anyone of the co-heirs may enter into a
contract with respect to the inheritance even before partition has been
effected.
Basis: Art. 777, that the rights to the succession are transmitted at
the moment of the death of the decedent.
EP:
1. Under Art. 130 of the Code, which allows the future spouses to give or
donate to each other in their marriage settlement their future property to
take effect upon the death of the donor and to the extent laid down by the
provisions of the Code relating to testamentary succession; and
2. Under Art. 1080 of the Code, which allows a person to make partition of
his estate by an act inter vivos, provided that the legitime of compulsory
heirs is not prejudiced.
IMPOSSIBLE THINGS OR SERVICES
ABSOLUTE
Arises from the very nature or essence of the act or service itself, renders
the contract void.

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When the impossibility is permanent as in the case of a person who


is unable to perform the service which he has contracted because of total
blindness, the contract is void.

RELATIVE
Arises from the circumstances or qualifications of the obligor rendering him
incapable of executing the act or service, allows the perfection of the
contract, although the fulfillment thereof is hardly probable.
Thus, as a consequence, in a contract of partnership where one of the
partners obligates himself to contribute to the common fund an amount
beyond his means, the contract is not void because the impossibility
may disappear.
DETERMINABILITY OF OBJECT
It simply means that the genus of the object should be expressed although
there might be no determination of the individual species. Consequently, there need
not be any specification of the qualities and circumstances of the thing which
constitutes the object of the contract, since according to Art. 1246 of the Code:
When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation and other
circumstances shall be taken into consideration.
** When the quantity is not specified or stated, it does not affect the existence of
the contract so long as it is possible to determine the quantity of the object without
necessity of any new contract.
AURORA FE CAMACHO v. CA
The failure of the parties to state the exact location in the contract is of no
moment. This is a mere error occasioned by the parties failure to describe with
particularity the subject property, which does not indicate the absence of the
principal object as to render the contract void.
Section 3.-CAUSE OF CONTRACTS
Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit which is remunerated;
and in contracts of pure beneficence, the mere liberality of the benefactor.
Art. 1351. The particular motives of the parties in entering into a contract
are different from the cause thereof.
CONCEPT OF CAUSE
CAUSE

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The why of the contract or the essential reason which moves the contracting
parties to enter into the contract.
It is the immediate, direct or most proximate reason which explains and
justifies the creation of an obligation through the will of the contracting
parties.
In onerous contracts, the cause is understood to be, for each of the
contracting party, the prestation or promise of a thing or service by the
other.
In remuneratory contracts, it is the service or benefit which is
remunerated.
In contracts of pure beneficence, it is the liberality of the benefactor.
CAUSA v. CONSIDERATION
Causa- is merely a civil law term; broader in scope than consideration
Consideration- is the common law term.
** They are used interchangeably.
CAUSA v. OBJECT
** For cause, see concept of cause abovementioned.
Object- is the thing which is given or donated.
The thing or service itself
In contract of sale, the objects of the contract are the thing which is sold (ex.
Land) and the price which is paid (purchase price)
DISTNGUISHED FROM MOTIVES
The motives which impel one to a sale or purchase are not always the
consideration of the contract as the term is understood in law. One may purchase
an article not because it is cheap, for in fact it may be dear, but because he may
have some particular use to which it may be put, because of a particular quality
which the article has, or the relation which it will bear, to other articles with which it
will be associated. These circumstances may constitute the motive which induces
the purchase, but the real consideration of the purchase (as far as the vendor is
concerned) is the money which passed.
CAUSE v. MOTIVES
1. While the cause is the direct or most proximate reason of a contract, the
motives are the indirect or remote reasons;
2. While the cause is the objective or juridical reason of a contract, the
motives are the psychological or purely personal reasons;

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3. While the cause is always the same, the motives differ for each
contracting party; and
4. While the legality or illegality of the cause will affect the existence or
validity of the contract, the legality or illegality of the motives will not
affect the existence of the contract.
** The motive may be regarded as the causa when the contract is conditioned
upon the attainment of the motive of either contracting party. Motive becomes
causa when it predetermines the purpose of the contract.
**INEXISTENT- some of the essential elements are absent.
VOID- some of the essential elements are present but are contrary to law,
morals, good customs, public order or public policy. It may have legal effect, as in
the case of in pari delicto.
ACCESSORY CONTRACTS
The rule is that the cause of the accessory contract is identical with that of
the principal contract.
Thus, it has been held that as a mortgage is an accessory contract, its
cause is the very cause of the principal contract from which it receives its
life, and without which it cannot exist as an independent contract, although
it may secure an obligation incurred by another.
MORAL OBLIGATIONS
May a moral or natural obligation constitute a sufficient cause or consideration
to support an onerous contract?
GR:Where the moral obligation arises wholly from ethical considerations,
unconnected with any civil obligation and, as such, is not demandable in law but
only in conscience, it cannot constitute a sufficient cause or consideration to
support an onerous contract.
EP: where such moral obligation is based upon a previous civil obligation which
has already been barred by the statute of limitations at the time when the contract
is entered into, it constitutes a sufficient cause or consideration to support the said
contract. (PRE-EXISTING OBLIGATION)
CAUSE IN REMUNERATORY CONTRACTS
Service or benefit which is remunerated.
REMUNERATORY CONTRACT
Is one in which one of the contracting parties remunerates or
compensates the service or benefit rendered or given by the other
party, although such service or benefit does not constitute a
demandable debt.
CAUSE IN CONTRACTS OF PURE BENEFICENCE
Mere liberality of the benefactor

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Art. 1352. Contracts without cause, or with unlawful cause, produce no


effect whatsoever. The cause is unlawful when it is contrary to law,
morals, good customs, public order or public policy.
Art. 1353. The statement of a false cause in contracts shall render them
void, if it should not be proved that they were founded upon another
cause which is true and lawful.
Art. 1354. Although the cause is not stated in the contract, it is presumes
that it exists and is lawful, unless the debtor proves the contrary.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause
shall not invalidate a contract, unless there has been fraud, mistake or
undue influence.
Essential requisites of Cause
1. The cause should be in existence at the time of the celebration of the
contract;
2. The cause should be licit or lawful; and
3. The cause should be true.
EFFECT PF LACK OF CAUSE
Art. 1409 of the Code which declares as inexistent those contracts which are
absolutely simulated or fictitious as well as those whose cause did not exist at the
time of the transaction.
Not applicable where the purchaser or vendee failed to fully pay for the
property, even if there is a stipulation in the contract of sale that full payment shall
be made at the time of the celebration of the contract.
** Even where the contract itself expressly states that the consideration for the
sale of a pice of land is only P1.00, it does not follow that the contract of sale is void
for lack of cause or consideration. There is consideration. The contract may be
voidable because of the inadequacy of the cause or consideration, but certainly, it is
not void or inexistent.
EFFECT OF UNLAWFUL CAUSE
** Where the cause or consideration of the sale of a certain property is no other
than the accumulated usurious interests which the vendor-debtor has not yet paid,
the sale is void because of the illegality of the cause or consideration.
** A contract affecting the course of a criminal prosecution is invalid, because such
a contract would be manifestly contrary to public policy and the due administration
of justice. In the words of the SC, in the interest of the public it is of the utmost
importance that criminals should be prosecuted and that all criminal proceedings
should be instituted and maintained in the form and manner prescribed by law. To
permit an offender to escape the penalties prescribed by law by the purchase of
immunity from private individuals would result in a manifest perversion of justice.

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GR: Entering into a contract promising to pay the damages which resulted to the
filing of a criminal case, the contract entered into is void since there was no valid
cause.
EP: where the contract entered into is based on a pre-existing obligation, hence,
the dismissal of the case is not the cause but the pre-existing obligation.
Chapter 3
FORMS OF CONTRACTS
Art. 1356. Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity
are present. However, when the law requires that a contract be in some
form in order that it may be valid or enforceable or that a contract be
proved in a certain way, that requirement is absolute and indispensable.
In such cases, the right of the parties stated in the following articles
cannot be exercised.
FORM OF CONTRACTS
GR: Contracts shall be obligatory provided all the essential requisites for their
validity are present.
EP:
1. When the law requires that the contract must be in a certain form in order
to be valid; and
2. When the law requires that the contract must be in a certain form in order
to be enforceable.
FORMALITIES OF VALIDITY
Contracts for which the law prescribes certain forms for their validity:
1. Those which must appear in writing;
2. Those which must appear in public document; and
3. Those which must be registered.
Contracts which must appear in writing
1. Donations of personal property whose value exceeds P5,000
(Accdg to Art 748 of the Code, the donation and the acceptance shall
be made in writing; otherwise, it shall be void.)
2. Sale of a piece of land or any interest therein through an agent
(accdg to Art. 1874, the authority of the latter shall be in writing;
otherwise, the sale is void.)
3. Agreements regarding of payments of interest in contracts of loan
(accdg to Art. 1956, no interest shall be due unless it has been
expressly stipulated in writing. The validity of the contract of loan,
however, is not affected.)
4. Antichresis

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(accdg to Art. 2134, in contracts of antichresis, the amount of the


principal and of the interest shall be specified in writing; otherwise the
contract shall be woid.

Contracts which must appear in a public document


1. Donations of immovable property. (See Art. 749 of the Civil Code)
2. Partnerships where immovable property or real rights are contributed to
the common fund. (See Arts. 1771 and 1773 of the CC)
Contracts which must be registered
1. Chattel mortgage. (see Art. 2140 of the CC)
2. Sales or transfers of large cattle
(Accdg to Large Cattle Act, no sale or transfer of large cattle shall be
valid unless it is duly registered and a certificate of transfer is secured.)
FORMALITIES OF ENFORCEABILITY
** There are also certain contracts which are unenforceable by action, unless they
are in writing and properly subscribed, or unless they are evidenced by some note
or memorandum, which must also be in writing and properly subscribed. These
contracts are governed by the statute of frauds.
FORM OF CONTRACTS REQUIRED BY LAW
Purpose: Not to validate or to enforce the contract, but to insure its efficacy ( for
the convenience of the contracting parties). Forms required by law for the execution
of certain contracts may be divided into:
1. Those which are necessary for the convenience of the contracting
parties or for the efficacy of the contract;
2. Those which are necessary for the validity of the contract; and
3. Those which are necessary for the enforceability of the contract.
Art. 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the contract has
been perfected. This right may be exercised simulataneously with the
action upon the contract.
Art. 1358. The following must appear in a public document:
1. Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein are governed by Arts. 1403, No.2 and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains;
3. The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
4. The cession of action or rights proceeding from an act appearing
in a public document.

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All other contracts where the amount involved exceeds P500 must
appear in writing, even a private one. Bust sales of goods, chattels
or things in action are governed by Arts. 1403, No.2 and 1405.
PRINCIPLES
1. Arts. 1357 and 1358 do not require the execution of the contract either in
a public or in a private document in order to validate or enforce it but only
to insure its efficacy, so that after its existence has been admitted, the
party bound may be compelled to execute the necessary document.
2. Even where the contract has not been reduced to the required form, it is
still valid and binding as far as the contracting parties are concerned.
Consequently, both articles presuppose the existence of a contract which
is valid and enforceable.
3. From the moment one of the contracting parties invokes the provisions of
Arts. 1357 and 1358 by means of a proper action, the effect is to place the
existence of the contract in issue, which must be resolved by the ordinary
rules of evidence.
4. Art. 1357 does not require that the action to compel the execution of the
necessary document must precede the action upon the contract. As a
matter of fact, both actions may be exercised simultaneously.
5. However, although the provisions of Art.1357, in connection with those of
Art. 1358, do not operate against the validity of the contract nor the
validity of the acts voluntarily performed by the parties for the fulfillment
thereof, from the moment when any of the contracting parties invoke said
provisions, it is evident that under them the execution of the required
document must precede the determination of the other obligations
derived from the contract.
Chapter 4
REFORMATION OF INSTRUMENTS
Art. 1359. When, there having been a meeting of the minds of the parties
to a contract, their true intention is not expressed in the instrument
purporting to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a
meeting of the minds of the parties, the proper remedy is not reformation
of the instrument but annulment of the contract.
DOCTRINE OF REFORMATION OF INSTRUMENTS
When the true intention of the parties to a perfected and valid contract are not
expressed in the instrument purporting to embody their agreement by reason
of mistake, fraud, inequitable conduct or accident, one of the parties may ask
for the reformation of the instrument to the end that such true intention may
be expressed.

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Requisites for reformation of the instrument


1. There must be a meeting of the minds of the contracting parties;
2. Their true intention is not expressed in the instrument; and
3. Such failure to express their true intention is due to mistake, fraud,
inequitable conduct or accident.
**Thus, where the complaint fails to allege that the instrument to be
reformed does not express the real agreement or intention of the
parties, it is clear that no cause of action is stated therein since such
allegation is essential considering the fact that the object of an action for
reformation is to make the instrument conform to the real agreement or
intention of the parties.
RATIONALE: The doctrine of reformation of instruments is based on justice
and equity. According to the Code Commission:
Equity orders the reformation of an instrument in order that the true
intention of the parties may be expressed.
The Courts do not attempt to make another contract for the parties.
The rationale of the doctrine is that it would be unjust and inequitable to
allow the enforcement of a written instrument which does not reflect
or disclose the real meeting of the minds of the parties. The rigor of
the legalistic rule that a written instrument should be the final and
inflexible criterion and measure of the rights and obligations of the
contracting parties is thus tempered, to forestall the effects of
mistake, fraud, inequitable conduct or accident.
REFORMATION v. ANNULMENT OF CONTRACTS
Reformation presupposes a perfectly valid contract in which there has
already been a meeting of the minds of the contracting parties, while the
annulment of contracts is based on a defective contract in which there has
been no meeting of the minds because the consent of one or both of the
contracting parties has been vitiated. Consequently, if mistake, fraud,
inequitable conduct or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of instrument but annulment of
the contract.
Art. 1360. The principles of the general law on the reformation of
instruments are hereby adopted insofar as they are not in conflict with the
provisions of this Code.
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.
MISTAKE AS A GROUND FOR REFORMATION
1. That the mistake should be a fact;

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2. That the mistake should be proved by a clear and convincing evidence;


and
3. That the mistake should be common to both parties to the instrument.

Art. 1362. If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true
intention, the former may ask for the reformation of the instrument.
Art. 1363. When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but concealed that
fact from the former, the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad
faith on the part of the person drafting the instrument or of the clerk or
typist, the instrument does not express the true intention of the parties,
the courts may order that the instrument be reformed.
Art. 1365. If two parties agree upon the mortgage or pledge or real or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the instrument is
proper.
Art. 1366. There shall be no reformation in the following cases:
1. Simple donations inter vivos wherein no condition is imposed;
( Acts of liberality)
2. Wills;
( strictly a personal act; free; may be revoked at will by the testator)
3. When the real agreement is void.
(nothing to reform)
Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation. (UNDER THE
PRINCIPLE OF ESTOPPEL)
Art. 1368. Reformation may be ordered at the instance of either party or
his successors in interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs or assigns.
Art. 1369. The procedure for the reformation of instruments shall be
governed by rules of court to be promulgated by the Supreme Court.
See contracts of adhesion on page 28.
** The stringent treat towards contracts of adhesion which the courts are enjoined
to observe is in piursuance of the madate in Art. 24 of the New Civil Code that in
all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, courts must be vigilant
for his protection.

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CONTRACTS OF CREDIT CARDS


SPOUSES ERMITANO v. CA
This Court will not hesitate to rule out blind adherence to such contracts if they
proved to be too one-sided under the attendant facts and circumstances. Because
of the peculiar nature of contracts of adhesion, the validity thereof must be
determined in the light of the circumstances under which the stipulation is intended
to apply. For the cardholder to be absolved from liability for unauthorized purchases
made through his lost or stolen card, two steps must be followed:
1. The cardholder must give written notice to the credit card company; and
2. The credit card company must notify its member establishments of such
loss or theft, which, naturally, it may only do upon receipt of a notice
from the cardholder.
Both the cardholder and the credit card company, then, have a responsibility to
perform, in order to free the cardholder from any liability arising from the use of a
lost or stolen card.
Chapter 5
INTERPRETATION OF CONTRACTS
Art.1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations
shall control.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
CARDINAL RULE: To the effect that the intention of the contracting parties should
always prevail because their will has the force of law between them.
**In the construction and interpretation of a document, the intention of the parties
must be sought. This is the basic rule in the interpretation of contracts because all
other rules are but ancillary to the ascertainment of the meaning intended by the
parties. And once this intention has been ascertained it becomes an integral part of
the contract as though it had been originally therein in unequivocal terms.
MANILA BANKING CORP. v. TEODORO JR.
The character of the transaction between the parties is to be determined by
their intention, regardless of what language was used or what the form of the
transfer was.
LOPEZ v. CA
If it was intended to secure the payment of money, it must be construed as
pledge. However, even though a transfer, if regarded by itself, appears to have
been absolute, its contemporaneous writing declaring it to have been a deposit of
property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance,

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should be treated as pledge if the debt continues in existence and is not discharge
by the transfer, and that accordingly, the use of the things ordinarily importing
conveyance, of absolute ownership will not be given that effect in such a
transaction if they are also commonly used in pledges and mortgages and therefore
do not unqualifiedly indicate a transfer of absolute ownership, in the absence of
clear and ambiguous language or other circumstances excluding an intent to
pledge.
PHIL. NATL CONSTRUCTION CORP. v. CA
The SC held that the contract between parties is the formal expression of the
parties rights and obligations. It is the best evidence of the intention of the parties.
Thus, when the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.
OLIVARES & ROBLES v. SARMIENTO
The contract is the law between the parties and when the words of the contract
are clear and can easily be understood, there is no room for construction.
HOW TO JUDGE INTENTION
In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
As a general rule, documents are interpreted in the precise terms in which they
are expressed, but the courts, in the exercise of their sound discretion, are called
upon to admit direct and simultaneous circumstantial evidence necessary for the
interpretation with the purpose of making the true intention of the parties prevail.
NIELSEN & CO. v. LEPANTO CONSO. MINIG CO.
One pattern is to ascertain the contemporaneous and subsequent acts
of the contracting parties in relation to the transaction under
consideration. Thus, where there is evidence regarding the intention of the parties
to extend the contract equivalent to the period of suspension caused by the war
and the parties understood the suspension to mean extension, it was held that the
suspension of the agreement of the same for a period equivalent to the suspension.
Art. 1372. However general the terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree.
Art. 1373. If some stipulation of any contract should admit several
meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.
Art. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.

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Art. 1375. Words which may have different significations shall be


understood in that which is most in keeping with the nature and object of
the contract.
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission
of stipulations which are ordinarily established.
Art. 1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.
Art. 1378. When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of rights
and interests shall prevail. If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in
such a way that it cannot be known what may have been the intention or
will of the parties, the contract shall be null and void. (Relate, Art. 1409,
par.6)
Art. 1378. The principles of interpretation stated in Rule 123 of the Rules
of Court shall likewise be observed in the construction of contracts.
*** GR: what is not alleged cannot be proved in court
EP: if it is a local custom, it is necessary to be pleaded and proved.
Chapter 6
RESCISSIBLE CONTRACTS
CLASSES OF DEFECTIVE CONTRACTS
1. Rescissible contracts
2. Voidable contracts
3. Unenforceable contracts
4. Void or inexistent contracts
TWO KINDS OF DEFECTS
1. Intrinsic
Defects in any of the essential elements: COC
2. Extrinsic
Outside of the contract. Ex. Lesion, fraud of creditors,
Form
= extrinsic
Enforceability
(statute of frauds)
Form
Validity

= intrinsic

ESSENTIAL FEATURES

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1. As to defect
a) In rescissible contracts, there is damage or injury either to one of the
contracting parties or to third persons;
b) In voidable contracts, there is vitiation of consent or legal capacity of one
of the contracting parties;
c) In unenforceable contracts, the contract is entered into in excess or
without any authority, or does not comply with the Statute of Frauds, or both
contracting parties are legally incapacitated;
d)In void or inexistent contracts, one or some of the essential requisites of a
valid contract are lacking either in fact or in law.
2. As to effect
a) The first are considered valid and enforceable until they are rescinded by a
competent court;
b) The second are considered valid and enforceable until they are annulled by
a competent court;
c) The third cannot be enforced by a proper action in court;
d) The fourth do not, as a general rule, produce any legal effect.
3. As to prescriptibility of action or defense
a) In the first, the action for rescission may prescribe;
b) In the second, the action for annulment or the defense of annullability may
prescribe;
c) In the third, the corresponding action for recovery, if there was total or partial
performance of the unenforceable contract under Nos. 1 and 2, may
prescribe;
d) In the fourth, the action for declaration of nullity or inexistence or the defense
of nullity or inexistence does not prescribe.
4. As to susceptibility of ratification
a)
b)
c)
d)

The
The
The
The

first are not susceptible of ratification


second are susceptible of ratification
third are susceptible of ratification
fourth are not susceptible of ratification

5. As to who may assail contracts


a) The first may be assailed not only by a contracting party but even by a third
person who is prejudiced or damaged by the contract;
b) The second may be assailed only by the contracting party
c) The third may be assailed only by the contracting party
d) The fourth may be assailed not only by a contracting party but even by a
third person who is directly affected.
6. As to how contracts may be assailed

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a)
b)
c)
d)

The
The
The
The

first may be assailed directly only, and not collaterally;


second may be assailed directly or collaterally
third may be assailed directly or collaterally
fourth may be assailed directly or collaterally

Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law.
RESCISSIBLE CONTRACTS IN GENERAL
All of the essential requisites of a contract exist and the contract is valid, but
by reason or injury to either of the contracting parties or to third persons, such as
creditors, it may be rescinded.
RESCISSIBLE CONTRACT
Is a contract which is valid because it contains all of the essential requisites
prescribed by law, but which is defective because of injury or damage to either
of the contracting parties or to third persons, as a consequence of which it may
be rescinded by means of a proper action for rescission.
The only way it can be attacked is by means of a direct action for rescission
based on any of the causes expressly specified by law; hence, it cannot be
attacked collateraaly.
CHARACTERISTICS
1. Their defect consists in injury or damage either to one of the contracting
parties or to third persons.
2. Before rescission, they are valid and, therefore, legally effective.
3. They can be attacked directly only, not collaterally.
4. They can be attacked only either by a contracting party or by a third person
who is injured or defrauded.
5. They are susceptible of convalidation only by prescription and not by
ratification.
CONCEPT
Rescission is a remedy granted by law to contracting parties, and even to third
persons to secure the reparation of damages caused to them by a contract even if
the same should be valid, by means of the restoration of the things to their
condition prior to the celebration of the contract.
RESCISSION v. RESOLUTION
1. As to party who may institute action
In rescission- the contracting parties or third person
In resolution-only by the party to the contract
2. As to causes
In rescission- there are several causes or grounds such as lesion,
fraud and others
expressly specified by law.

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In resolution-failure of one of the parties to comply with what is


incumbent upon him.
3. As to power of courts
In rescission- there is no power of the courts to grant an extension of
time for
performance of the obligation
so long as there is a ground for rescission
In resolution-the law expressly declares that courts shall a
discretionary power to grant
an extension for
performance provided that there is just cause.
4. As to contracts which may be rescinded or resolved
In rescission-any contract, whether unilateral or reciprocal
In resolution- only reciprocal contracts may be resolved
RESCISSION v. RESCISSION BY MUTUAL CONSENT
Guide to distinguish one from the other
1. With respect to the laws applicable; and
2. With respect to the causes of rescission;
3. With respect to the effects.
AQUINO v. TANEDO
Rescission, in Art. 1385, is a relief which the law grants, on the premise that
the contract is valid, for the protection of one of the contracting parties and third
persons from all injury and damage that the contract may cause, or to protect some
incompatible and preferential right created by the contract. It refers to the contracts
that are rescissible by law in accordance with law in the cases expressly fixed
thereby, but it does not refer to contracts that are rescinded by mutual consent and
for the mutual convenience of the parties. Thus, under the rescission by mutual
consent, its effect, in relation to the contract so dissolved, should be determined by
the agreement made by the parties, or by the application of other legal provisions,
but not Art. 1385.
Requisites for rescission
1. There must be a case especially provided by law;
2. There is no other legal remedy;
3. The party asking for rescission must be able to restore what he may have
received by reason of the contract;
4. The object of the contract must not legally be in the possession of the
third person; otherwise, it cannot be returned when the latter acquired it
in good faith.
Art. 1381. The following contracts are rescissible:
1. Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;

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3. Those undertaken in fraud of creditors, when the latter cannot in


any manner collect the claims due them;
4. Those refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority;
5. All other contracts specially declared by law to be subject to
rescission.
Art. 1382. Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible.
CONTRACTS IN BEHALF OF WARDS
GR: When the wards suffer lesion or damage by more than one-fourth of the
value of the property which are the object of the contract.
EP: Rescission will not take place with respect to contracts approved by the
courts. (Art. 1386)
**Under the Rules of Court, a judicial guardian entering into a contract with
respect to the property of his ward must ordinarily secure the approval of a
competent court.
The same requirement in case of a father or mother considered as a natural
guardian of the property of a child under parental authority where such property is
worth more than two thousand pesos.
GUARDIAN OF A WARD
Where a guardian sells, mortgages or otherwise encumbers real property
belonging to his ward without judicial approval, the contract is unenforceable,
and not rescissible even if the latter suffers lesion or damage of more than onefourth of the value of the property. Judicial approval is indispensable.
GUARDIAN OF A WARD AND/OR HIS PROPERTY
If a guardian enters into a contract falling within the scope of his powers as
guardian of the person and property, or only of the property of his ward, such as
when the contract involves acts of administration, express judicial approval is
not necessary, in which case the contract is rescissible if the latter suffers the
lesion or damage mentioned in No. 1 of Art. 1381.
CONTRACTS IN BEHALF OF ABSENTEES
GR: Contracts entered into in behalf of absentees if the latter suffer lesion of
damage stated in the preceding number, are rescissible.
EP: Such contracts are not rescissible if they have been approved by the
courts.
Requisites for the rescission of contracts in Nos. 1 and 2 of Art. 1381.
1. The contract must have been entered into by a guardian in behalf of
his ward or by a legal representative in behalf of an absentee
2. The ward or absentee must have suffered lesion of more than onefourth of the value of the property which is the object of the contract;

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3. The contract must have been entered into without judicial approval;
4. There must be no other legal means for obtaining reparation for the
lesion;
5. The person bringing the action must be able to return whatever he
may be obliged to restore; and
6. The object of the contract must not be legally in the possession of a
third person who did not act in bad faith.
** If the object of the contract is legally in the possession of a third person who did
not act in bad faith, the remedy available to the person suffering the lesion is
indemnification for damages and not rescission.
CONTRACTS IN FRAUD OF CREDITORS
No. 3 of Art. 1381 complements Art. 1177 of the Code which states that one of
the remedies available to the creditor after he has exhausted all the property in
possession of the debtor is to impugn the acts which the latter may have done to
defraud him.
Requisites
1. There must be a credit prior to the celebration of the contract;
2. There must be a fraud, or at least, the intent to commit fraud to the
prejudice of the creditor seeking the rescission
3. The creditor cannot in any legal manner collect his credit; and
4. The object of the contract must not be legally in the possession of a
third person who did not act in bad faith; otherwise, it cannot be
rescinded and the remedy of the defrauded creditor is to proceed
against the person causing the loss for damages.
ACCION PAULIANA- the action to rescind contracts in fraud of creditors when the
latter cannot in any other manner collect the claims due them.
Requisites
1. The plaintiff asking for rescission has a credit prior to the alienation;
2. The debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
3. The creditor has no other legal remedy to satisfy his claim;
4. The act being impugned is fraudulent;
5. The third person who received the property conveyed, if it is by
onerous title, has been an accomplice in the fraud.
SIGUAN v. LIM
GR: Rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior existing debt, there
can neither be injury nor fraud. While it is not necessary that the credit of the
plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date
of the judgment enforcing it is immaterial. Even if the judgment be subsequent to
the alienation, it is merely declaratory, with retroactive effect to the date when the
credit was created.
CONTRACTS REFERRING TO THINGS UNDER LITIGATION

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Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of competent
judicial authority.
AS DISTINGUISHED FROM IN FRAUD OF CREDITORS
1. The purpose is to secure the possible effectivity of a claim; while in
the preceding number, the purpose is to guarantee an existing credit;
2. No. 4 there is a real right involved; while in No. 3 there is a personal
right, both of which deserve the protection of law.
Similarity: In both cases, the person who can avail of the remedy of
rescission is a stranger to the contract.
CONTRACTS BY INSOLVENT
Requisites
1. That it must have been made in a state of insolvency; and
2. That the obligation must have been one which the debtor could not
be compelled to pay at the time such payment was effected
Basis: fraud as in the case of Nos. 3 and 4
INSOLVENCY
Refers to the financial situation of the debtor by virtue of which it is impossible
for him to fulfill his obligations. A juridical declaration is not necessary.
According to Manresa: the obligations contemplated by this article comprehend
not only those with a term or which are subject to a suspensive condition, but
even void and natural obligations as well as those which are condoned or which
have prescribed.
In suspensive period, where two obligations were created demandable at
different dates, the conflict can easily be resolved by considering the priority of
dates between two debts. If the obligation with a period became due before
the obligation to the creditor seeking the rescission became due then the latter
cannot rescind the payment even if such payment was effected before the
expiration of the period; but if the obligation with a period became due after
the obligation to the creditor seeking the rescission became due, then the
latter may rescind the payment.
OTHER RESCISSIBLE CONTRACTS
1. Art.1098
2. Art. 1189
3. Art.1526
4. Art.1534
5. Art.1539
6. Art. 1542
7. Art. 1556
8. Art.1560
9. Art. 1567
10.Art. 1659

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Art. 1383. The action for rescission is subsidiary; it cannot be instituted


except when the party suffering damage has no other legal means to
obtain reparation for the same.
SUBSIDIARY CHARACTER OF ACTION
Before a party who is prejudiced can avail himself of the remedy, it is essential
that he has exhausted all of the other legal means to obtain reparation.
PARTIES WHO MAY INSTITUTE THE ACTION
1. The person who is prejudiced, such as the party suffering lesion in
rescissory action on the ground of lesion, the creditor who is
defrauded in rescissory actions on the ground of fraud, and other
persons authorized to exercise the same in other rescissory actions;
2. Their representatives
3. Their heirs
4. Their creditors by virtue of the subrogatory action defined in Art.
1177 of the Code.
Reason why a forced heir may institute an action for rescission:
The rights of a forced heir to the legitime are undoubtedly similar to a credit of
a creditor insofar as the right to the legitime may be defeated by fraudulent
contracts, and are superior to the will of those bound to respect them.
Art. 1384. Rescission shall be only to the extent necessary to cover the
damages caused.
Extent of Rescission
The primary purpose of rescission is reparation for the damage or injury which
is suffered either by a party to the contract or by a third person. In order that this
purpose may be realized the rescission does not necessarily have to be total in
character; it may also be partial.
A contract in fraud of creditors may be partially rescinded to an
extent which is sufficient to satisfy the damage caused to the creditor.
(Supreme Tribunal of Spain; Dec. 10, 1904)
Art. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons who
did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
** once a contract is rescinded on the ground of lesion, there arises an obligation on
the part of both contracting parties to return to the other the object of the contract,
including fruits or interests.
Fruits of the thing refer not only to natural, industrial and civil fruits but also to
other accessions obtained by the thing, while interest refers to legal interest. As far

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as the obligation to restore the fruits is concerned, the rules on possession shall be
applied. Consequently, the determination of the good or bad faith of the party
obliged to restore is of transcendental importance in order to assess the fruits or the
value thereof which must be returned as well as the expenses which must be
reimbursed.
EFFECT OF RESCISSION UPON THIRD PERSONS
Two indispensable requisites which must concur in order that the acquisition of
the thing which constitutes the object of the contract by a third person shall defeat
the action for rescission:
1. That the thing must be legally in the possession of the third person; and
2. That such third person must not have acted in bad faith.
** Where the thing which constitutes the object of the contract happens to be
movable property, the concurrence of these requisites offers no difficulty because
of the principle that possession of movable property acquired in good faith
is equivalent to a title.
** Where the thing happens to be immovable property, it is indispensable that
the right of the third person must be registered or recorded in the proper
registry before we can say that the thing is legally in his possession, or
what amounts to the same thing, before he is protected by law.
Art. 1386. Rescission referred to in Nos. 1 & 2 of Art. 1381 shall not take
place with respect to contracts approved by the courts.
Art. 1387. All contracts by virtue of which the debtor alienates the
property by gratuitous title are presumed to have been entered into in
fraud of creditors, when the donor did not reserve sufficient property to
pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when
made by persons against whom some judgment has been rendered in any
instance, or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, need not have been
obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud the
creditors may be proved in any other manner recognized by the law of
evidence.
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of
creditors shall indemnify the latter for damages suffered by them on
account of the alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable
first, and so on successively.
Purchaser in Good Faith- is one who buys property of another without notice that
some other person has a right to, or an interest in, such property and pays a full and
fair price for the same, at the time of such purchase, or before he has notice of the
claim or interest of some other person in the property.

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Good Faith consists in an honest intention to abstain from taking any


unconscientious advantage of another. Good faith is the opposite of fraud and bad
faith and its nonexistence must be established by competent proofs.
BADGES OF FRAUD
In determining whether or not a certain conveyance is fraudulent the question
in every case is whether the conveyance was a bona fide transaction or merely a
trick or contrivance to defeat creditors.
Does it prejudice the rights of creditors?
1. The fact that the cause of the conveyance is inadequate;
2. A transfer made by a debtor after suit has been begun and while it is
pending against him;
3. A sale on credit by an insolvent debtor;
4. Evidence of large indebtedness or complete insolvency;
5. The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially;
6. The fact that the transfer is made between father and son, when there
are present others of the above circumstances; and
7. The failure of the vendee to take exclusive possession of all the property.
** But where the sale is founded on a fictitious cause or consideration it would be
futile for such creditor to invoke its rescission since such action presupposes the
existence of a valid, not inexistent, contract. The remedy of the creditor in such
case would be to ask for a declaration of nullity of the conveyance.
** The relationship of the vendor and the vendee is not in itself a element of fraud
if the sale was made for a valuable consideration and said vendor was not at the
time of conveyance insolvent.
Art. 1389. The action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of
four years shall not begin until the termination of the formers incapacity,
or until the domicile of the latter is known.
Chapter 7
VOIDABLE CONTRACTS
VOIDABLE CONTRACTS
Those in which all of the essential elements for validity are present, although
the element of consent is vitiated either by lack of legal capacity of one of the
contracting parties, or by mistake, violence, intimidation, undue influence or
fraud.
It is binding until annulled by a competent court.
Two possible alternatives left to the party who may invoke its voidable
character:
1. Attack its validity;
2. Convalidate(confirm it either by ratification or by prescription.
CHARACTERISTICS

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1. Their defect consists in the vitiation of consent of one of the contracting


parties.
2. They are binding until they are annulled by a competent court.
3. They are susceptible of convalidation by ratification or by prescription.
4. Their defect or voidable character cannot be invoked by third persons.

VOIDABLE v. RESCISSIBLE
1. In a voidable contract, the defect is intrinsic because it consists of a vice
which vitiates consent, while in a rescissible contract, the defect is
external because it consists of damage or prejudice either to one of the
contracting parties or to third persons.
2. In the former, the contract is voidable even if there is no damage or
prejudice, while in the latter the contract is not rescissible if there is no
damage or prejudice.
3. In the former the annullability of the contract is based on the law, whle in
the latter the rescissibility of the contract is based on equity. Hence, the
annulment is not only a remedy but a sanction, while rescission is a mere
remedy. Public interest, therefore, predominates in the first, while private
interest predominates in the second.
4. The causes for annulment are different from the causes for rescission.
5. The former is susceptible of ratification, while the latter, is not.
6. Annulment may be invoked only by a contracting party, while rescission
may be invoked either by a contracting party or a third person.
Art. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
WHAT CONTRACTS ARE VOIDABLE:
a. THOSE WHERE ONE OF THE PARTIES IS INCAPABLE OF GIVING
CONSENT TO A CONTRACT (legal incapacity)
(1) minors ( below 18 )
(2) insane unless acted in lucid interval
(3) deaf mute who cant read or write
(4) persons specially disqualified: civil interdiction
(5) in state of drunkenness
(6) in state of hypnotic spell
b. THOSE WHERE THE CONSENT IS VITIATED BY MISTAKE, VIOLENCE,
INTIMIDATION, UNDUE INFLUENCE OR FRAUD (vice of consent)
(1)mistake false belief into something
REQUISITES:
1. Refers to the subject of the thing which is the object of the contract
2. Refers to the nature of the contract
3. Refers to the principal conditions in an agreement
4. Error as to person - when it is the principal consideration of the
contract
5. Error as to legal effect - when mistake is mutual and frustrates the real
purpose of parties

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57

(2)violence serious or irresistible force is employed to wrest consent


(3)intimidation one party is compelled by a reasonable & well-grounded
fear of an imminent & grave danger upon person & property of himself,
spouse, ascendants or descendants (moral coercion)
(4)undue influence person takes improper advantage of his power over
will of another depriving latter of reasonable freedom of choice
(5)fraud thru insidious words or machinations of contracting parties, other
is induced to enter into contract w/o w/c he will not enter (dolo causante)
** Where a contract which the law considers as voidable has already been
consummated or is merely executor is immaterial, it can always be annulled by a
proper action in court.
GUIANG v. CA
In the event that one spouse is incapacitated or otherwise unable to participate
in the administration of the conjugal properties, the other spouse may assume sole
powers of administration. These powers do not include the powers of disposition or
encumbrance which must have the authority of the court of the written consent of
the other spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse and the third person, and may
be perfected as a binding contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either or both offerors.
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin: in cases of intimidation, violence or undue
influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the
same.
And when the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship ceases.
PERIOD TO BRING
Intimidation,
violence, undue
influence
Mistake, fraud
Incapacity

ACTION FOR ANNULMENT


4 years from time defect of
consent ceases
4 years from time of
discovery
from time guardianship
ceases

CARANTES v. CA
Registration of a deed operates as constructive notice to the whole world.
** The defense of minority must fail if he has benefited from the transaction.

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57

Art. 1392. Ratification extinguishes the action to annul a voidable


contract.
Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of the
reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an act
which necessarily implies an intention to waive his right.
Art. 1394. Ratification may be effected by the guardian of the
incapacitated person.
Art. 1395. Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment.
Art. 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted.
RATIFICATION/CONFIRMATION-is defined as the act or means by virtue of which
efficacy is given to a contract which suffers from a vice of curable nullity.
Requisites
1. the contract should be tainted with a vice which is susceptible of being
cured.
2. The confirmation should be effected by the person who is entitled to do so
under the law.
3. It should be effected with knowledge of the vice or defect of the contract.
** Confirmation may also be invalidated by mistake, violence,
intimidation, undue influence or fraud. It must be noted that the contract
may be tainted with several vices, such as when it has been executed
through mistake and fraud. In such case, if the person entitled to effect
the confirmation ratifies or confirms the contract with knowledge of the
mistake, but not of the fraud, his right to ask for annulment is not
extinguished thereby since the ratification or confirmation has only purged
the contract of mistake, but not fraud.
4. The cause of the nullity or defect should have already disappeared.
FORMS OF RATIFICATION
1. There is an express confirmation if, with knowledge of the reason which
renders the contract voidable and such reason having ceased, the person
who has a right to invoke it should expressly declare his desire to
convalidate it, or what amounts to the same thing, to renounce his right to
annul the contract.
2. There is tacit confirmation with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily implies an
intention to waive his right.
EFFECTS OF RATIFICATION

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57

1. Ratification extinguishes the action to annul a voidable contract


2. Ratification cleanses the contract from all its defects from the
moment it was constituted.

Art. 1397. The action for the annulment of contracts may be instituted by
all who are thereby obliged principally or subsidiarily. However, persons
who are capable cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon
these flaws of the contract.
Requisites to confer the necessary capacity for the exercise of the action
for annulment
1. The plaintiff must have an interest in the contract;a nd
2. That the victim and not the party responsible for the vice or defect must
be the person who must assert the same. (Based on the principle that
whoever goes to court must do so with clean hands)
GR: A third person who is a stranger to the contract cannot institute an action for
annulment.
EP: A person who is not a party obliged principally or subsidiarily under a contract
if he is prejudiced in his rights with respect to one of the contracting parties, and
can show detriment which would positively result to him from the contract in which
he has no intervention. (Teves V. Peoples Homesite & Housing Corp.)
Art. 1398. An obligation having been annulled, the contracting parties
shall restore to each other the things which have been the subject matter
of the contract, with their fruits, and the price with its interest, except in
cases provided by law.
In obligations to render service, the value thereof shall be the
basis for damages.
Art. 1399. When the defect of the contract consists in the incapacity of
one of the parties, the incapacitated person is not obliged to make
restitution except insofar as he has been benefited by the thing or price
received by him.
**restitution will only come into play if the contract has been already
executed or consummated.
EFFECTS OF ANNULMENT
If the contract has not yet been consummated, the contracting parties shall be
released from the obligations arising therefrom.
OBLIGATION OF MUTUAL RESTITUTION
In obligations to give, the rule enunciated by Art. 1398 shall apply.
In obligations to do or not to do, there will have to be an apportionment of
damages based on the value of such prestation with corresponding interests.

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Source: Jurados Book on ObliCon

57

** in order to determine whether the incapacitated person has benefited by the


thing or price received, it is necessary to know his necessities, his social position as
well as his duties as a consequence thereof to others.
** Where an incapacitated person after attaining capacity, it is established that he
not only failed to ask for the annulment of the contract but he also squandered that
part of the consideration which remained, it is clear that there is already an implied
ratification or confirmation.
Art. 1400. Whenever the person obliged by the decree of annulment to
return the thing cannot do so because it has been lost through his fault,
he shall return the fruits received and the value of the thing at the time of
the loss, with interest from the same date.
Art. 1401. The action for annulment of contracts shall be extinguished
when the thing which is the object thereof is lost through the fraud or
fault of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of
the contracting parties, the loss of the thing shall not be an obstacle to
the success of the action, unless said loss took place through the fraud or
fault of the plaintiff.
Art. 1402. As long as one of the contracting parties does not restore what
in virtue of the decree of annulment he is bound to return, the other
cannot be compelled to comply with what is incumbent upon him.
Three modes whereby an action for annulment may be extinguished:
1. By prescription;
2. By ratification; and
3. The loss of the thing which is the object of the contract through the
fraud or fault of the person who is entitled to institute the action.
EP: if the loss was due to the fraud or fault of the plaintiff during his
incapacity, the loss would not be an obstacle to the success of the
action.
WHERE LOSS IS DUE TO FORTUITOUS EVENT
If the person obliged by the decree of annulment to return the thing cannot do
so because it has been lost through a fortuitous event, the contract can still be
annulled, but the defendant can be held liable only for the value of the thing at the
time of the loss, but without interest thereon. The defendant, and not the plaintiff,
must suffer the loss because he was still the owner of the thing at the time of the
los; he should therefore pay the value of the thing, but not the interest thereon
because the loss was not due to his fault.
If it is the plaintiff who cannot return the thing because it has been lost through
a fortuitous event, the contract can still be annulled, but he must pay to the
defendant the value of the thing at the time of the loss, but without interest
thereon.
According to Dr. Tolentino, if the plaintiff offers to pay the value of the thing at
the time of its loss as a substitute for the thing itself, the annulment of contract
would still be possible, because otherwise, we would arrive at the absurd conclusion

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Source: Jurados Book on ObliCon

57

that an action for annulment would in effect be extinguished by the loss of the thing
through a fortuitous event.
Chapter 8
UNENFORCEABLE CONTRACTS
UNENFORCEABLE CONTRACTS
Those which cannot be enforced by a proper action in court, unless they are
ratified, because either they are entered into without or in excess of
authority or they do not comply with the statute of frauds or both of the
contracting parties do not possess the required legal capacity.
GENERAL CLASSES OF UNENFORCEABLE CONTRACTS
1. Those contracts entered into in the name of another person by one without
any authority or in excess of his authority;
Defect: there is absolutely no consent insofar as the person in whose name
the contract is entered into is concerned.
2. Those which do not comply with the Statute of Frauds; and
Defect: there is no writing, note or memorandum by which the contract may
be proved.
3. Those where both contracting parties are legally incapacitated.
Defect: consent is absolutely vitiated by the legal incapacity of both of the
contracting parties.
CHARACTERISTICS
1. They cannot be enforced by a proper action in court;
2. They are susceptible of ratification;
3. They cannot be assailed by third persons.
UNENFORCEABLE v. RESCIBBLE
1. An unenforceable contract cannot be enforced by a proper action in court,
while a rescissible contract can be enforced unless it is rescinded.
2. The causes for the unenforceable character of the former are different from
the causes for the rescissible character of the latter;
3. The former is susceptible of ratification, while the latter is not;
4. The former cannot be assailed by third persons, while the latter may be
assailed by third persons who are prejudiced.
UNENFORCEABLE v. VOIDABLE
1. An unenforceable contract cannot be enforced by a proper action in court,
while a voidable contract can be enforced unless it is annulled.
2. The causes for the unenforceable character of the former are different from
the causes for the voidable character of the latter.
Art. 1403. The following contracts are unenforceable, unless they are
ratified:

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1. Those entered into in the name of another person by one who


has given no authority or legal representation, or who has acted
beyond his powers;
2. Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter
made shall be unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary of its contents:
a) An agreement that by its terms is not to be performed
within a year from the making thereof;
b) A special promise to answer for the debt, default, or
miscarriage of another;
c) An agreement made in consideration of marriage, other
than the mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in
action, at a price not less than Five Hundred pesos, unless
the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things
in action, or pay at the time some part of the purchase
money, but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of the property sold, terms of
sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest
therein;
f) A representation as to the credit of a third person.

3. Those where both parties are incapable of giving consent to a


contract.

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