OBLIGATIONS AND CONTRACTS

form. Examples donation, chattel, mortgage.

CHAPTER 1: GENERAL PROVISIONS

d.) According to their purpose:

Art. 1305. A contract is a meeting of minds between two 1. Transfer of ownership - Example-sale

persons whereby one binds himself, with respect to the other, 2. Conveyance of use - Example commodatum

to give something or to render some service. (1254a) 3. Rendition of services - Example agency

Contracts e) As to the nature of the obligation

• Contracts is one of the sources of obligations 1. Unilateral - where only one contracting party has an

• On the other hand, obligation is the legal tie or obligation to perform, as in Commodatum or

relation itself that exists after a contract has been gratuitous deposit.

perfected into. 2. Bilateral - Where both parties have their respective

• There can be no contract if there is no obligation reciprocal obligations to perform. Example is a

contract of sale wherein the seller must deliver and

Classifications of Contract the buyer to pay for the object agreed upon.

a) According to their relation to other contracts: f) According to cause:

1. Preparatory - those that have for their object the 1. Onerous - those in which each of the parties aspires

establishment of a condition in law. which is to procure for himself a benefit through the giving of

necessary as a preliminary step towards the an equivalent or compensation. Example - sale

celebration of another subsequent contract. 2. Gratuitous - those in which one of the parties

Examples-partnership, agency proposes to give to the other a benefit without any

2. Principal - those which can subsist independently equivalent or compensation. Example-commodatum

from other contracts and whose purpose can be 3. Remuneratory - or remunerative or one that cause of

fulfilled by themselves. Examples-sale, lease which is the service or benefit which is remunerative,

3. Accessory - those that can exist only as a g) According to risk involved:

consequence of, or in relation with, another prior 1. Commutative- those where each of the parties

contract. Example pledge, mortgage. acquires an equivalent of his prestation and such

b) According to their perfection: equivalent is pecuniary appreciable and already

1. Consensual - those that are perfected by the mere determined from moment of the celebration of the

agreement of the parties, examples- sale, lease contract. Example- lease

2. Real - those which require not only the consent of the 2. Aleatory -those where each of the parties has to

parties for their perfection, but also the delivery of account the acquisition of an equivalent of his

the object by one party to the other. prestation but such equivalent, although pecuniarily

c) According to their form: appreciable is not yet determined, at the moment of

1. Common or informal - those that does not require the celebration of the contract, since it depends upon

some particular form. Examples - loan, lease the happening of un uncertain event, thus charging

2. Special or formal - those that require some particular the parties with the risk of loss or gain. Example-

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 OBLIGATIONS AND CONTRACTS

insurance. to the will of one of them. (Art.1308) Note: The determination

h) According to their designation or names: of performance may be left to a third person whose decision
1. Nominate- those that have their own individuality and shall be binding when communicated to the contracting
are regulated by special provisions of law. Examples-sale parties. (Art. 1309) Such obligation shall not be obligatory if it
and lease is evidently inequitable. In such case the court shall decide
2.Innominate- those which lack individuality and are not what is equitable under the circumstances. (Art. 1310)
regulated by special provision of law
4) Relativity of Contracts - contracts take effect only between
Different Phases or stages in the Lie or Biology of a Contract the parties, their assigns and heirs. (Art.1311)

a) Preparatory or Preliminary - first stage of the contract Notes: To be read together with the principle of
where negotiation transpires transmissibility of rights under Article 1178 which provides
b) Perfection - birth of the contract that subject to the laws, all rights in virtue of an obligation are
c) Consummation - fulfiliment of the purpose for which the transmissible, if there has been no stipulation to the contrary.
contract was constituted.
Art. 1306. The contracting parties may establish such
Four Most Essential characteristics of A Contract stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
1) Obligatory Force or character of contract - the principal that good customs, public order, or public policy. (1255a)
once a contract is perfected, it shall be obligatory upon both of
the contracting parties. (Art. 1159,1315,1356) Meaning of Valid Contracts
Valid Contracts are those that meet all the legal
2) Autonomy of Contracts - principle that the contracting requirements and limitations for the type of agreement
parties are free to enter into a contract and to establish such involved and are therefore, legally bindable and enforceable.
stipulations, clauses, terms and conditions as they may deem
convenient save those that are contrary to law. public policy, Freedom to Contract
morals, good customs and public order. (Art.1306) The right to enter into contract is one of the liberties
guaranteed to the individual by the constitution
Note: Also known as Freedom to Contract or Freedom to Limitations on contractual stipulations
Stipulate. Exercise of police power of the State may limit also a) Law
said right. Said right is a constitutional right as laid down under b) Police Power
Section 10, Article III of the 1987 Philippine Constitution. Law
Defined as rule of conduct, just, obligatory, promulgated, by
3) Mutuality of Contracts - an essential quality of the legitimate authority, and of common observance and benefit.
contacting parties whereby the contract must bind both of
them validity or compliance of the contracts should not be left

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 OBLIGATIONS AND CONTRACTS

Morals Do ut des is, however, no longer an innominate contract. It has

Deals with norms of good of faith evolved in a community. already been given a name of its own, i.e., barter or exchange.
(Art. 1638.)
Customs Art. 1308. The contract must bind both contracting parties; its
Consists of habits and practices which through long usage have validity or compliance cannot be left to the will of one of them.
been followed and enforced by society or some part of it as a (1256a)
binding rule of conduct. A contract is an agreement which gives rise to obligations. It
Public order must bind both parties in order that it can be enforced against
Refers principally to public safety although it has been either. Without this equality between the parties, it cannot be
considered to mean also the public weal said that the contract has the force of law between them. (Art.
. 1159.)
Public Policy It is a fundamental rule that no party can renounce or violate
Is broader than public order, as the former may refer not only the law of the contract without the consent of the other.
to public safety but also to considerations which are moved by Hence, "its validity or compliance cannot be left to the will of
the common good. one of them." (Art. 1308; see Art. 1182.)

Art. 1307. Innominate contracts shall be regulated by the Art. 1309. The determination of the performance may be left to
stipulations of the parties, by the provisions of Titles I and II of a third person, whose decision shall not be binding until it has
this Book, by the rules governing the most analogous nominate been made known to both contracting parties. (n)
contracts, and by the customs of the place. (n)

Difference between Article 1308 and 1309

Nominate contract - or that which has a specific name or Article 1308 and Article 1309 of the Civil Code talk
designation in law (e.g., commodatum, lease, agency, sale, about different rules in making and following contracts. Article
etc.); and 1308 says that a contract must be fair and must bind both
parties equally. One person alone cannot decide whether to
Innominate contract - or that which has no specific name or follow or cancel the contract; it must be agreed on by both
designation in law. sides. This keeps things fair and balanced. On the other hand,
Article 1309 allows both parties in a contract to let a third
Kinds of innominate contract. person (someone who is not part of the contract) decide on
They are: certain details, like how much something should cost or how it
(1) do ut des (I give that you may give); should be done. But that decision only becomes final once both
(2) do ut facias (I give that you may do); parties are told about it. So, while Article 1308 is about making
(3) facto ut des (I do that you may give); sure no one has all the power in a contract, Article 1309 is
(4) facto ut facias (I do that you may do). about letting someone else help decide some parts of the
contract, as long as both parties agree.

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 OBLIGATIONS AND CONTRACTS

Art. 1310. The determination shall not be obligatory if it is

evidently inequitable. In such case, the courts shall decide what Requisites of stipulation pour autrui.
is equitable under the circumstances. (n) They are the following:
(1) The contracting parties by their stipulation must have

Art. 1311. Contracts take effect only between the parties, their clearly and deliberately conferred a favor upon a third person;

assigns and heirs, except in case where the rights and (2) The third person must have communicated his acceptance

obligations arising from the contract are not transmissible by to the obligor before its revocation by the obligee or the

their nature, or by stipulation or by provision of law. The heir is original parties;

not liable beyond the value of the property he received from (3) The stipulation in favor of the third person should be a part,

the decedent. not the whole, of the contract;

(4) The favorable stipulation should not be conditioned or
compensated by any kind of obligation whatever; and
If a contract should contain some stipulation in favor of a third
(5) Neither of the contracting parties bears the legal
person, he may demand its fulfillment provided he
representation or authorization of the third party for otherwise
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
How can you revoke the stipulation in favor of 3rd person?
not sufficient. The contracting parties must have clearly and
The stipulation in favor of a third person can be
deliberately conferred a favor upon a third person. (1257a)
revoked po by mutual consent of the parties, unless the third
person has already accepted or relied on the benefit, in which
General rule: As a general rule, a party's rights and obligations
case the revocation cannot happen without their consent.
derived from a contract are transmissible to the successors.
(see Art. 1178.) Under Article 1311 (par. 1.), contracts take
Art. 1312. In contracts creating real rights, third persons who
effect only between the parties, their assigns (i.e., transferees),
come into possession of the object of the contract are bound
and heirs. This means that only the parties, their assigns and,
thereby, subject to the provisions of the Mortgage Law and the
heirs can have rights and obligations under the contract.
Land Registration Laws. (n)

A third person is one who has not taken part in a contract and
is, therefore, a stranger to the contract. As a general rule, a Art. 1313. Creditors are protected in cases of contracts

third person has no rights and obligations under a contract to intended to defraud them. (n)

which he is a stranger
Cases when strangers or third persons affected by a contract Art. 1314. Any third person who induces another to violate his
1) In contracts containing a stipulation in favor contract shall be liable for damages to the other contracting
of third party party. (n)
2) In contracts creating real rights
3) In contracts entered into to defraud creditors 3 Acts that the creditor can do against the debtor
4) Tort interferences 1) Pursue the property of debtor
5) Accion directa
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 OBLIGATIONS AND CONTRACTS

2) Exercise all rights and bring all the actions stage, the parties have not yet arrived at any definite
against the debtor agreement;
3) Impugn the acts that the debtor may have to (2) Perfection or birth. have come to a definite agreement or
defraud the creditor. meeting of the minds regarding the subject matter and cause
of the contract.
Art. 1315. Contracts are perfected by mere consent, and from (3) Consummation or termination. This is when the parties
that moment the parties are bound not only to the fulfillment have performed their respective obligations and the contract
of what has been expressly stipulated but also to all the may be aid to have been fully accomplished or executed,
consequences which, according to their nature, may be in resulting, in the extinguishment or termination thereof. A
keeping with good faith, usage and law. (1258) contract may also be terminated after its perfection, not by
performance, but by mutual agreement of the parties.

Art. 1316. Real contracts, such as deposit, pledge and

Commodatum, are not perfected until the delivery of the object How contracts are perfected.

of the obligation. (n) (1) Consensual contracts. - As a general rule, contracts are
perfected by mere consent of the parties regarding the subject
matter and the cause of the contract. (Arts. 1315, 1319.) They
are obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are
Classification of contracts according to perfection.
present. (Art. 1356.) Almost all contracts are consensual as to
They are:
its perfection. They come into existence upon their perfection
(1) Consensual contract or that which is perfected by mere
by mutual consent, even if the subject matter or the
consent (e.g., sale, lease, agency) (Art. 1315.); (
consideration has not been delivered. In the absence of
2) Real contract or that which is perfected by the de-livery of
delivery, perfection does not transfer title or create real right,
the thing subject matter of the contract (e.g. depositum,
yet, it gives rise to obligations binding upon both parties. (Arts.
pledge, commodatum) (Art. 1316; see Arts. 1934, 1963, 2093.);
1305, 1308.)
and
Elements:
(3). Solemn contract or that which requires compliance with
3. Consent
certain formalities prescribed by law, such prescribed form
4. Object
being thereby an essential element thereof (e.g., donation of
5. Cause
real property which must be in a public instrument). (see Art.
2) Real contracts. The exceptions are the so-called real
1356.)
contracts which are perfected not merely by consent but by the
delivery, actual or constructive, of the object of the obligation.
Stages in the life of a contract.
(Art. 1316.) These contracts have for their purpose restitution
They are:
because they contemplate the
(1) Preparation or negotiation. This includes all the steps taken
by the parties leading to the perfection of the contract. At this

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 OBLIGATIONS AND CONTRACTS

Elements
CHAPTER 2: ESSENTIAL REQUISITES OF
1) Cause
CONTRACTS
2) Consent
3) Object
4) Delivery of the object Section 1
Consent

Art. 1317. No one may contract in the name of another without

Art. 1318. There is no contract unless the following requisites
being authorized by the latter, or unless he has by law a right
concur:
to represent him.
(1) Consent of the contracting parties;
A contract entered into in the name of another by one who has
(2) Object certain which is the subject matter of the contract;
no authority or legal representation, or who has acted beyond
(3) Cause of the obligation which is established. (1261)
his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has
Classes of elements of a contract.
been executed, before it is revoked by the other contracting
They are:
party. (1259a)
(1) Essential elements or those without which no contract can
validly exist regardless of the intentions of the parties. They are
Unauthorized contracts are unenforceable.
also known as requisites of a contract. They may be subdivided
As a general rule, a person is not bound by the
into:
contract of another of which he has no knowledge or to which
(a) common or those present in all contracts, namely, consent,
he has not given his consent. A contract involves the free will
object, and cause (Art. 1318.); and
of the parties and only he who enters into the contract can be
(b) special or those not common to all contracts or those which
bound thereby.
must be present only in, or peculiar to, certain specified
contracts, and such peculiarity may be
Unauthorized contracts can be cured only by ratification.
1)as regards to form, as for example, public instrument in
The mere lapse of time cannot give efficacy to such a
donation of immovable property (Art. 749.), delivery in real
contract. The defect is such that it cannot be cured except by
contracts (Art. 1316.), registration in real estate mortgage (Art.
the subsequent ratification (Art. 1405.) of the person in whose
2125.), chattel mortgage (Art. 2140.), etc.; or
name the contract was entered into or by his duly authorized a

2) as regards the subject matter, as for example, real property

Ratification of a contract involves its formal confirmation or
in antichresis (Art. 2132.), personal property in pledge (Art.
approval - making it a legally binding agreement. Parties
2094.), etc.; or
involved agree to its terms and conditions - typically through
signing a contract or providing verbal or written authorization.
3) as regards the consideration or cause, as for example, price
Void – totally void from the beginning
in sale (Art. 1458.) and in lease (Arts. 1643, 1644.), liberality in
Voidable – valid until annulled
commodatum (Art. 1935.), etc. A valid contract is one that
manifests all the essential elements of a contract.
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 OBLIGATIONS AND CONTRACTS

contract. It is more than an expression of desire or hope. It is

(2) Natural elements or those that are presumed to exist in really a promise to act or to refrain from acting on condition
certain contracts unless the contrary is expressly stipulated by that the terms thereof are accepted by the person to whom it
the parties, like warranty against eviction (Art. 1548.), or is made.
warranty against hidden defects in sale (Art. 1561.); and Meaning of acceptance.
Acceptance is the manifestation by the offeree of his
(3) Accidental elements or the particular stipulations, clauses, assent to all the terms of the offer. Without acceptance, there
terms, or conditions established by the parties in their contract can be no meeting of the minds between the parties. (Art.
(Art. 1306.), like conditions, period, interest, penalty, etc., and, 1305)
therefore, they exist only when they are expressly provided by Acceptance of offer must be clear and absolute.
the parties Basically, a contract consists of an offer and an
acсерtance of that offer. The acceptance of an offer must not
Art. 1319. Consent is manifested by the meeting of the offer only be clear; it must be absolute, unconditional, or
and the acceptance upon the thing and the cause which are to unqualified, that is, it must be identical in all respects with that
constitute the contract. The offer must be certain and the of the of-fer so as to produce consent or meeting of the minds.
acceptance absolute. A qualified acceptance constitutes a
counter-offer. Art. 1320. An acceptance may be express or implied. (n)
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The Art. 1321. The person making the offer may fix the time, place,
contract, in such a case, is presumed to have been entered into and manner of acceptance, all of which must be complied with.
in the place where the offer was made. (1262a (n)

Meaning of consent
Art. 1322. An offer made through an agent is accepted from the
Consent is the conformity or concurrence of wills
time acceptance is communicated to him. (n)
(offer and acceptance) and with respect to contracts, it is the
agreement of the will of one (1) contracting party with that of
Art. 1323. An offer becomes ineffective upon the death, civil
another or others, upon the object and terms of the contract.
interdiction, insanity, or insolvency of either party before
(4 Sanchez Roman 191; 8 Manresa 648.) It is the meeting of
acceptance is conveyed. (n)
minds or mutual assent between the parties on the subject
matter and the cause which are to constitute the contract (Arts.
1305, 1319.) even if neither has been delivered. Mutual assent Art. 1324. When the offerer has allowed the offeree a certain

or agreement takes place when there is an offer and period to accept, the offer may be withdrawn at any time

acceptance of the offer. before acceptance by communicating such withdrawal, except

Meaning of offer when the option is founded upon a consideration, as something

Offer is a proposal made by one (1) party (offerer) to paid or promised. (n)

another (offeree), indicating a willingness to enter into

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 OBLIGATIONS AND CONTRACTS

Meaning of contract of option; option period; option money. (1) Unemancipated minors;
(1) Option contract is one giving a person for a consideration a (2) Insane or demented persons, and deaf-mutes who do not
certain period within which to accept the offer of the offerer. It know how to write. (1263a)
is separate and distinct from the contract which will be
perfected upon the acceptance of the offer. Option may also Persons who cannot give consent.
refer to the privilege itself given to the offeree to accept an A contract entered into where one of the parties is
offer within a certain period. incapable of giving consent to a contract is voidable. A voidable
contract is valid and binding until it is annulled by a proper
(2) Option period is the period given within which the offeree action in court. It is susceptible of ratification. (Art. 1390.)
must accept the offer. Those who are incapacitated to give consent under Article
1327 are the following:
(3) Option money is the money paid or promised to be paid in (1) Unemancipated minors. They refer to those persons who
consideration for the option. It is not to be confused with have not yet reached the age of majority (18years) and are still
earnest money which is actually a partial payment of the subject to parental authority. A minor can be emancipated by
purchase price and is considered as proof. attainment of the age of majority, by marriage, or by the
concession recorded in the Civil Register, of the father or of the
What is the mailbox rule in law? mother who exercises parental authority (see Art. 254, Family
The Mailbox Rule is a common law term that means Code.);
acceptance becomes effective once the letter is placed in the
mail. Mail is figurative however, in this modern age, as it can be (2) Insane or demented persons. - The insanity must exist at
express courier, mail, facsimile, or email. The Mailbox Rule is the time of contracting. Unless proved otherwise, a person is
the default and any change from this requires a change in the presumed sane; and
contract in explicit writing.
Examples of Cases as Equivalent to not Offer (3) Deaf-mutes - They are persons who are deaf and dumb.
1) Advertisements for things for sale However, if the deaf-mute knows how to write, the contract is
2) Advertisements for bidders valid for then he is capable of giving intelligent consent. A
3) Auction sales person who does not know how to write, does not know how
Art. 1325. Unless it appears otherwise, business to read; and one who knows how to read necessarily knows
advertisements of things for sale are not definite offers, but how to write. A contract entered into by a deaf-mute who
mere invitations to make an offer. (n) knows how to read is, therefore, valid, although he cannot
write because of some physical reasons.
Art. 1326. Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept the Art. 1328. Contracts entered into during a lucid interval are
highest or lowest bidder, unless the contrary appears. (n) valid. Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable. (n)

Art. 1327. The following cannot give consent to a contract:

8
 OBLIGATIONS AND CONTRACTS

Contracts entered into during a lucid interval A simple mistake of account shall give rise to its correction.
Lucid interval is a temporary period of sanity. A (1266a)
contract-entered into by an insane or demented person during
a lucid interval is valid. It must be shown, however, that there Meaning of mistakes or error
is a full return of the mind to sanity as to enable him to Mistake or error is the false notion of a thing or a fact
understand the contract he is entering into. material to the contract .
Effect of mistake of account.
Art. 1329. The incapacity declared in Article 1327 is subject to (1) Where mistake simple. A simple mistake of account or
the modifications determined by law, and is understood to be calculation does not avoid a contract because it does not affect
without prejudice to special disqualifications established in the its essential requisites. The defect is merely in the computation
laws. (1264) of the account or amount which can be corrected.
(2) Where mistake gross. - Where the mistake was so gross that
Art. 1330. A contract where consent is given through mistake, it was clearly apparent to one party and, therefore, would be
violence, intimidation, undue influence, or fraud is voidable. impossible to escape his notice, said party cannot avoid liability
(1265a) on the ground of mistake in computation.
Characteristics of consent.
In order that consent may be valid for purposes of Art. 1332. When one of the parties is unable to read, or if the
contract, it is required, not only that it exists, but that it must contract is in a language not understood by him, and mistake
be given with exact understanding over the thing consented to. or fraud is alleged, the person enforcing the contract must
In other words, the contract must be based on the genuine show that the terms thereof have been fully explained to the
assent of both parties to the contract and the terms thereof. former. (n)
There is no valid consent unless:

Art. 1333. There is no mistake if the party alleging it knew the

(1) It is intelligent. - there is capacity to act (see Arts. 1327- doubt, contingency or risk affecting the object of the contract.
1329.); (n)
(2) It is free and voluntary. there is no vitiation of consent by
reason of violence or intimidation (see Art. 1330.); and
Art. 1334. Mutual error as to the legal effect of an agreement
(3) It is conscious or spontaneous. - there is no vitiation of
when the real purpose of the parties is frustrated, may vitiate
consent by reason of mistake, undue influence, or fraud.
consent. (n)
Art. 1331. In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the object of
Meaning of mistake of law.
the contract, or to those conditions which have principally
Mistake of law is that which arises from an ignorance
moved one or both parties to enter into the contract.
of some provision of law, or from an erroneous interpretation
Mistake as to the identity or qualifications of one of the parties
of its meaning, or from an erroneous conclusion as to the legal
will vitiate consent only when such identity or qualifications
effect of an agreement, on the part of one of the parties.
have been the principal cause of the contract.

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 OBLIGATIONS AND CONTRACTS

Art. 1337. There is undue influence when a person takes

Art. 1335. There is violence when in order to wrest consent, improper advantage of his power over the will of another,
serious or irresistible force is employed. depriving the latter of a reasonable freedom of choice. The
There is intimidation when one of the contracting parties is following circumstances shall be considered: the confidential,
compelled by a reasonable and well-grounded fear of an family, spiritual and other relations between the parties, or the
imminent and grave evil upon his person or property, or upon fact that the person alleged to have been unduly influenced
the person or property of his spouse, descendants or was suffering from mental weakness, or was ignorant or in
ascendants, to give his consent. financial distress. (n)
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind. Meaning of undue influence
A threat to enforce one's claim through competent authority, if Undue influence is influence of a kind that so
the claim is just or legal, does not vitiate consent. (1267a) overpowers the mind of a party as to prevent him from acting
understandingly and voluntarily to do what he would have
Nature of violence or force. done if he had been left to exercise freely his own judgment
Violence requires the employment of physical force and discretion. The influence must be undue or improper (Art.
Under Article 1335, to make consent defective, the force 1337.) to avoid a contract. Mere general or reasonable
employed must be either serious or irresistible In either case, influence is not sufficient. If gained by kindness and affection
consent is not free. (Report of the Code Commission. or argument and persuasion, the influence will not vitiate
Nature of intimidation or threat consent. (Ibid.; Martinez vs. Hongkong and Shanghai Bank, 15
Under the above article, for intimidation to vitiate the Phil. 252.)
consent of a party to a contract, the following requisites must
be present: Art. 1338. There is fraud when, through insidious words or
(1) It must produce a reasonable and well-grounded fear of an machinations of one of the contracting parties, the other is
evil; induced to enter into a contract which, without them, he would
(2) The evil must be imminent and grave; not have agreed to. (1269)
(3) The evil must be upon his person or property, or that of his
spouse, descendants, or ascendants; and
Meaning of causal fraud
(4) It is the reason why he enters into the contract. Intimidation
Causal fraud is the fraud committed by one (1) party
need not resort to physical force. Intimidation is internal while
before or at the time of the celebration of the contract to
violence is external
secure the consent of the other. It is the fraud used by a party
to induce the other to enter into a contract without which the
Art. 1336. Violence or intimidation shall annul the obligation,
latter would not have agreed to. The fraud contemplated in this
although it may have been employed by a third person who did
article is causal fraud and must be distinguished from the fraud
not take part in the contract. (1268)
dealt with in

Requisites of causal fraud

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 OBLIGATIONS AND CONTRACTS

In order that fraud may annul consent, the following requisites if intentional but there is no duty to make the disclosure, the
must be present: parties are bound by their contract.
(1) There must be misrepresentation or concealment of a
material fact with knowledge of its falsity (Arts. 1338, 1339.); Art. 1340. The usual exaggerations in trade, when the other
(2) It must be serious (Art. 1344) party had an opportunity to know the facts, are not in
3) It must have been employed by only one of the contracting themselves fraudulent. (n)
parties. (Ibid.) Fraud committed by a third person does not
vitiate consent unless it was practiced in connivance with, or at Art. 1341. A mere expression of an opinion does not signify
least with the knowledge of, the favored contracting party (see fraud, unless made by an expert and the other party has relied
Art. 1342.); on the former's special knowledge. (n)
(4) It must be made in bad faith or with intent to deceive (see
Art. 1343.) the other contracting party who had no knowledge Art. 1342. Misrepresentation by a third person does not vitiate
of the fraud; consent, unless such misrepresentation has created substantial
(5) It must have induced the consent of the other contracting mistake and the same is mutual. (n)
party (Art. 1338.); and
(6) It must be alleged and proved by clear and convincing
Art. 1343. Misrepresentation made in good faith is not
evidence. The falsity of the representation is ordinarily proved
fraudulent but may constitute error. (n)
from the representation itself and the circumstances under
which it was made.
Art. 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
Art. 1339. Failure to disclose facts, when there is a duty to
contracting parties.
reveal them, as when the parties are bound by confidential
Incidental fraud only obliges the person employing it to pay
relations, constitutes fraud. (n)
damages. (1270)

Fraud by concealment
A neglect or failure to communicate or disclose that Two kinds of fraud in the making of contract
which a party to a contract knows and ought to communicate 1) Causal fraud – which is ground for
constitutes concealment. In this case, concealment is annulment of contract. Although it may give

equivalent to misrepresentation or false representation. The rise to an action for damages

injured party is entitled to rescind or annul the contract 2) Incidental fraud – only renders the party

whether the failure to disclose the material facts is intentional who employs it liable for damages because

or unintentional as long as there is a duty to reveal them and the fraud was not the principal inducement

the party is misled or deceived in entering into the contract. If that led other to give his consent.

the failure is unintentional, the basis of the action for

annulment is not fraud but mistake or error (Art. 1343.); even Art. 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be

11
 OBLIGATIONS AND CONTRACTS

bound at all; the latter, when the parties conceal their true All services which are not contrary to law, morals, good
agreement. (n) customs, public order or public policy may likewise be the object
of a contract. (1271a)

Art. 1346. An absolutely simulated or fictitious contract is void. Art. 1348. Impossible things or services cannot be the object of

A relative simulation, when it does not prejudice a third person contracts. (1272)

and is not intended for any purpose contrary to law, morals, Concept of object of a contract

good customs, public order or public policy binds the parties to The object of a contract is its subject matter. (Art.

their real agreement. (n) 1318)

Meaning of simulation of a contract. In reality, the object of every contract is the obligation

Simulation of a contract is the act of deliberately created. But since a contract cannot exist without an

deceiving others, by feigning or pretending by agreement, the obligation, it may be said that the thing, service, or right which

appearance of a contract which is either non-existent or is the object of the obligation is also the object of the contract.

concealed. (1 Castan 504.) (2 Castan 9.)

Kinds of simulation Requisites of things as object of contract

They are: In order that things may be the object of a contract,

(1) Absolute simulation. - when the contract does not really the following requisites must be present:

exist and the parties do not intend to be bound at all (Art. (1) The thing must be within the commerce of men, that is, it

1345.) Absolutely simulated or fictitious contracts are can legally be the subject of commercial transaction (Art.

inexistent and void. (Arts. 1346, 1409[2]; 1471.) 1347.);

(2) It must not be impossible, legally or physically (Art. 1348.);

2) Relative simulation - when the contract entered into by the (3) It must be in existence or capable of coming into existence

parties is different from their true agreement. (Art. 1345.) The (see Arts. 1461, 1493, 1495.); and

parties are bound by their real agreement provided it does not (4) It must be determinate or determinable without the need

prejudice a third person and is not intended for a purpose of a new contract between the parties. (Arts. 1349. 1460, par.

contrary to law, morals, good customs, public order, or public 2

policy. (Art. 1346.) Requisites of services as object of contract

Section 2 In order that service may be the object of a contract,

Objects Of Contracts the following requisites must concur:
Art. 1347. All things which are not outside the commerce of
(1) The service must be within the commerce of men
men, including future things, may be the object of a contract.
(2) It must not be impossible, physically or legally (Art. 1348.);
All rights which are not intransmissible may also be the object
and
of contracts.
(3) It must be determinate or capable of being made
No contract may be entered into upon future inheritance except
determinate. (Arts. 1318[2], 1349.)
in cases expressly authorized by law.

Rights as object of contract

12
 OBLIGATIONS AND CONTRACTS

As a general rule, all rights may may be the object of a contract. Quantity of object of contract need not be determinate.
The exceptions are when they are intransmissible The object of a contract must be determinate as to its
kind or at least determinable without the necessity of a new or
further agreement between the parties.

Definition of future inheritance

Future inheritance is any property or right, not in
existence or capable of determination at the time of the Section 3
Cause of Contracts
contract, that a person may inherit in the future (Blas vs.
Art. 1350. In onerous contracts the cause is understood to be,
Santos, 1 SCRA 899.), such person having only an expectancy
for each contracting party, the prestation or promise of a thing
of a purely hereditary right... Inheritance ceases to be future
or service by the other; in remuneratory ones, the service or
upon the death of the decedent or deceased.
benefit which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor. (1274)
Kinds of impossibility
(1) Physical. when the thing or service in the very nature of
Meaning of cause
things cannot exist (e.g., a monkey that talks) or be performed.
Cause (causa) is the essential reason or purpose
With particular reference to services (see Arts 1206, 1207.), the
which the contracting parties have in view at the time of
impossibility may be:
entering into the contract. It is something bargained for or
(a) Absolute. when the act cannot be done in any case
given by a party in exchange for a legally enforceable promise
so that nobody can perform it (e.g., to fly like a bird, etc.); or
of another. It is the Civil Code term for consideration in Anglo-
(b) Relative. when it arises from the special
American or common law.
circumstances of the case (e.g., to make payment to a dead
person, to drive a car on a flooded highway, etc. or the special
Cause distinguished from object.
conditions or qualifications of the obligor (to paint a portrait by
In a bilateral or reciprocal contract like purchase and
a blind person, etc.); or
sale, the cause for one is the subject matter or object for the
other, and vice versa. Hence, the distinction is only a matter of
(2) Legal, when the thing or service is contrary to law, morals,
viewpoint.
good customs, public order, or public policy An act is contrary
to law, either because it is forbidden by penal law (e.g., to sell
Classification of contracts according to cause
shabu, etc.) or a rule of law makes it impossible to be done
They are:
Art. 1349. The object of every contract must be determinate as
(1) Onerous or one the cause of which, for each
to its kind. The fact that the quantity is not determinate shall
contracting party is the prestation or
not be an obstacle to the existence of the contract, provided it
promise of a thing or service by the other. In
is possible to determine the same, without the need of a new
other words, in this contract, the parties are
contract between the parties. (1273)
reciprocally obligated to each other.

13
 OBLIGATIONS AND CONTRACTS

(2) Remuneratory or remunerative or one the Requisites of cause

cause of which is the service or benefit which The following are the requisites of cause:
is remunerated. The purpose of the contract (1) It must exist at the time the contract is entered into (Arts.
is to reward the service that had been 1352, 1409[3].);
previously rendered by the party remunerate (2) It must be lawful (Ibid.); and
(3) Gratuitous or one the cause of which is the (3) It must be true or real. (Art. 1353.)
liberality of the benefactor or giver.
Effect of absence of cause
Art. 1351. The particular motives of the parties in entering into Absence or want of cause means that there is a total
a contract are different from the cause thereof. (n) lack of any valid consideration for the contract. Contracts
without cause confer no right and produce no legal effect

Meaning of motive whatever. Thus

Motive is the purely personal or private reason which (1) A contract which is absolutely simulated or; fictitious is

a party has in entering into a contract, It is different from the inexistent and void. (Arts. 1346, 1409[3].)

cause of the contract. (2) Where there is, in fact, no consideration (8.8. price) the
statement of one in the contract (sale) will not

Cause distinguished from motive

The differences are as follows: Effect of falsity of cause.

(1) Cause is the immediate or direct reason, while motive is the By falsity of cause is meant that the contract states a

remote or indirect reason; valid consideration but such statement is not true. A false

(2) Cause is always known to the other contracting party, while cause may be erroneous or simulated. The first always renders

motive may be unknown: a contract void. If the cause is false, the contract is rendered

(3) Cause is an essential element of a contract, while motive is void because the same actually does not exist. (Arts. 1353,

not; and 14.9[3].) The second does not always produce this effect,

(4) The illegality of the cause affects the validity of a contract, because it may happen that the hidden but true cause is

while the illegality of one's motive does not render the contract sufficient to support the contract. If the parties can show that

void. there is another cause and that said cause is true and lawful,

The motive may be regarded as the cause in a contract if it is then the parties shall be bound by their true agreement. (Art.

founded upon a fraudulent purpose to prejudice a third 1346.)

person.
Art. 1353. The statement of a false cause in contracts shall

Art. 1352. Contracts without cause, or with unlawful cause, render them void, if it should not be proved that they were

produce no effect whatever. The cause is unlawful if it is founded upon another cause which is true and lawful. (1276)

contrary to law, morals, good customs, public order or public

policy. (1275a)

14
 OBLIGATIONS AND CONTRACTS

Art. 1354. Although the cause is not stated in the contract, it is According to the form or method used in creating the contract,
presumed that it exists and is lawful, unless the debtor proves they are:
the contrary. (1277) (1) Informal or common or simple contract or that which may
Art. 1355. Except in cases specified by law, lesion or inadequacy be entered into in whatever form provided all the essential
of cause shall not invalidate a contract, unless there has been requisites for their validity are present. (Art. 1356) This refers
fraud, mistake or undue influence. (n) only to consensual contracts (Art. 1356.), such as the contract
Meaning of lesion of sale. An informal contract may be oral or written and, in fact,
Lesion is any damage caused by the fact that the price may even be implied from the conduct of the parties; and
is unjust or inadequate. (8 Manresa 740.). (2) Formal or solemn contract or that which is required by law
General Rule: Lesion or inadequacy of cause does not of itself for its efficacy to be in a certain specified form.
invalidate a contract.
A person who willingly enters into a contract will be Rules regarding form of contracts
held bound by its term though the exchange of benefits may (1) General rule. Contracts are binding and, there-fore,
seem to be inequitable or unfair to him The law assumes that enforceable reciprocally by the contracting parties, whatever
the parties themselves remain the best judges of how much may be the form in which the contract has been entered into,
their bargain is worth provided all the three (3) essential requisites (consent, object,
and cause) for their validity are present. So, a contract may be
CHAPTER 3: FORM OF CONTRACTS
oral or written. A written contract may consist of a letter,

Art. 1356. Contracts shall be obligatory, in whatever form they memorandum, note or other instrument, without following

may have been entered into, provided all the essential any particular form or language, it being sufficient that the

requisites for their validity are present. However, when the law parties clearly express their intentions.

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 2) Exceptions. the following cases: The form, however, is

way, that requirement is absolute and indispensable. In such required in

cases, the right of the parties stated in the following article (a) when the law requires that a contract be in some form to

cannot be exercised. (1278a) be valid;

Meaning of form of contracts (b) when the law requires that a contract be some form to be

The term of a contract refers to the manner in which enforceable or proved in a certain way; or

a contract is executed or manifested (c) when the law requires that a contract be in some form for
the convenience of the parties or for the purpose of affecting

When contract considered in written form third persons. (Art. 1356.)

It is generally recognized that to be a written contract Form For a Validity of Contract

all its terms must be in writing. So, a contract partly in writing

and partly oral is, in legal effect, an oral contract.

Classification of contracts according to form

15
 OBLIGATIONS AND CONTRACTS

If mistake, fraud, inequitable conduct, or accident has

Art. 1357. If the law requires a document or other special form, prevented a meeting of the minds of the parties, the proper
as in the acts and contracts enumerated in the following article, remedy is not reformation of the instrument but annulment of
the contracting parties may compel each other to observe that the contract.
form, once the contract has been perfected. This right may be Reformation is that remedy allowed by law by means
exercised simultaneously with the action upon the contract. of which a written instrument is amended or rectified so as to
(1279a) express or conform to the real agreement or intention of the
parties when by reason of mistake, fraud, inequitable conduct,

Art. 1358. The following must appear in a public document: or accident, the instrument fails to express such agreement or

(1) Acts and contracts which have for their object the creation, intention

transmission, modification or extinguishment of real rights Reformation is thus not available as a remedy where

over immovable property; sales of real property or of an no writing exists, or even where a writing exists, there is no

interest therein a governed by Articles 1403, No. 2, and 1405; showing of any defect of consent therein.

(2) The cession, repudiation or renunciation of hereditary rights

or of those of the conjugal partnership of gains; Reformation distinguished from annulment

(3) The power to administer property, or any other power which In reformation, there has been a meeting of the minds

has for its object an act appearing or which should appear in a of the parties (Art. 1359, par. 1.); hence, a contract exists but

public document, or should prejudice a third person; the written instrument purporting to embody the contract

(4) The cession of actions or rights proceeding from an act does not express the true intention of the parties by reason of

appearing in a public document. mistake, fraud, inequitable conduct, or accident. In annulment,

All other contracts where the amount involved exceeds five there has been no meeting of the minds, the consent of one of

hundred pesos must appear in writing, even a private one. But the parties being vitiated by mistake, etc. (Ibid., par. 2.)

sales of goods, chattels or things in action are governed by Requisites of reformation. In order that reformation may be

Articles, 1403, No. 2 and 1405. (1280a) availed of as a remedy, the following requisites must be present
(1) There is a meeting of the minds of the parties to the
contract:
CHAPTER 4: REFORMATION OF (2) The written instrument does not express the true
CONTRACTS
agreement or intention of the parties
(3) The failure to express the true intention due to mistake
Art. 1359. When, there having been a meeting of the minds of fraud, inequitable conduct. (i.e. any act or omission which is
the parties to a contract, their true intention is not expressed in unjust or unfair or accident (4) The facts upon which relief by
the instrument purporting to embody the agreement, by way of reformation of the instrument is sought are put in issue
reason of mistake, fraud, inequitable conduct or accident, one by the pleadings and
of the parties may ask for the reformation of the instrument to (5) There is clear and convincing evidence (which is more than
the end that such true intention may be expressed. mere preponderance of evidence) of the mistake, fraud,
inequitable conduct, or accident.

16
 OBLIGATIONS AND CONTRACTS

Under Article 1362, the right to ask for reformation is

Art. 1360. The principles of the general law on the reformation granted only to the party who was mistaken in good faith. Here,
of instruments are hereby adopted insofar as they are not in the mistake is not mutual
conflict with the provisions of this Code. Art. 1363. When one party was mistaken and the other knew
or believed that the instrument did not state their real

Principles of the general law on reformation agreement, but concealed that fact from the former, the

In case of conflict between the provisions of the New instrument may be reformed.

Civil Code and the principles of the general law on reformation,

the former prevails. The latter will have only suppletory effect Art. 1364. When through the ignorance, lack of skill, negligence
Art. 1361. When a mutual mistake of the parties causes the or bad faith on the part of the person drafting the instrument
failure of the instrument to disclose their real agreement, said or of the clerk or typist, the instrument does not express the
instrument may be reformed. true intention of the parties, the courts may order that the
instrument be reformed.
Mutual mistake as basis for reformation
Mutual mistake is mistake of fact that is common to Art. 1365. If two parties agree upon the mortgage or pledge of
both parties of the instrument which causes the failure of the real or personal property, but the instrument states that the
instrument to express their true intention. property is sold absolutely or with a right of repurchase,
To justify reformation under this article, the following reformation of the instrument is proper.
requisites must concur:
(1) The mistake must be of fact (see Art. 1331.);
Art. 1366. There shall be no reformation in the following cases:
(2) Such mistake must be proved by clear and convincing
(1) Simple donations inter vivos wherein no condition is
evidence;
imposed;
(3) The mistake must be mutual, that is, common to both
(2) Wills;
parties to the instrument; and
(3) When the real agreement is void.
(4) The mistake must cause the failure of the instrument to
Art. 1367. When one of the parties has brought an action to
express their true intention.
enforce the instrument, he cannot subsequently ask for its
If the mutual mistake is of law, the remedy is annulment.
reformation.
Cases when reformation not allowed
Art. 1362. If one party was mistaken and the other acted
(1) Simple donations inter vivos where no
fraudulently or inequitably in such a way that the instrument
condition is imposed.
does not show their true intention, the former may ask for the
(2) Wills – a will is an act whereby a person is
reformation of the instrument.
permitted with the formalities prescribed by
law to control a certain degree of the
Mistake on one side, fraud, or inequitable conduct on the disposition of his estate to take effect after
other his death.
(3) When the real agreement is void
17
 OBLIGATIONS AND CONTRACTS

(4) When one party has brought an action to written contract. It is the process of ascertaining the Intention
enforce the instrument. of the parties from the written words contained in the contract.

Art. 1368. Reformation may be ordered at the instance of either Art. 1371. In order to judge the intention of the contracting
party or his successors in interest, if the mistake was mutual; parties, their contemporaneous and subsequent acts shall be
otherwise, upon petition of the injured party, or his heirs and principally considered. (1282)
assigns.

Art. 1372. However general the terms of a contract may be,

Party entitled to reformation they shall not be understood to comprehend things that are
The above article enumerates the persons who can bring an distinct and cases that are different from those upon which the
action to reform an instrument: parties intended to agree. (1283)
(1) Either of the parties, if the mistake is mutual under Articles
1361, 1364, and 1365; Art. 1373. If some stipulation of any contract should admit of
(2) In all other cases, the injured party, under Articles 1362, several meanings, it shall be understood as bearing that import
1363, 1364 and 1365; and which is most adequate to render it effectual. (1284)
(3) The heirs or successors in interest, in lieu of the party
entitled. (Art. 1368.)
Art. 1374. The various stipulations of a contract shall be
Art. 1369. The procedure for the reformation of instrument
interpreted together, attributing to the doubtful ones that
shall be governed by rules of court to be promulgated by the
sense which may result from all of them taken jointly. (1285)
Supreme Court.

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. (1286)

CHAPTER 5: INTERPRETTION OF
Interpretation of words with different significations
CONTRACTS
If a word is susceptible of two or more meanings, is to
be understood in that sense which is most in keeping with the
Art. 1370. If the terms of a contract are clear and leave no nature and object of the contract in line with the cardinal rule
doubt upon the intention of the contracting parties, the literal that the intention of the parties must prevail (Art. 1370.)
meaning of its stipulations shall control. Art. 1376. The usage or custom of the place shall be borne in
If the words appear to be contrary to the evident intention of mind in the interpretation of the ambiguities of a contract, and
the parties, the latter shall prevail over the former. (1281) shall fill the omission of stipulations which are ordinarily
Meaning of interpretation of contracts established. (1287).
Interpretation of a contract is the determination of
the meaning of the terms or words used by the parties in their
Resort to usage or custom as aid in interpretation

18
 OBLIGATIONS AND CONTRACTS

The usage or custom of the place where the contract greatest reciprocity of interests. A contract of sale is essentially
was entered into may be received to explain what is doubtful onerous.
or ambiguous in a contract on the theory that the parties
entered into their contract with reference to such usage or (3) Principal object of the contract. If the doubt refers to the
custom. It is, however, necessary to prove the existence of principal object of the contract and such doubt can’t. The
usage or custom, the burden of proof being upon the party resolved thereby leaving the intention of the parties unknown,
alleging it. But usage or custom is not admissible to supersede the contract shall be null and void
or vary the plain terms of a contract.
Art. 1379. The principles of interpretation stated in Rule 123 of
Art. 1377. The interpretation of obscure words or stipulations the Rules of Court shall likewise be observed in the construction
in a contract shall not favor the party who caused the obscurity. of contracts. (n)
(1288) Interpretation of Contracts Principle
1) Contract Proferentem

Art. 1378. When it is absolutely impossible to settle doubts by 2) Principle of Effectiveness

the rules established in the preceding articles, and the doubts 3) Complementary contracts construed

refer to incidental circumstances of a gratuitous contract, the together with the principal contract

least transmission of rights and interests shall prevail. If the 4) Ejeusben generis – general provision vs

contract is onerous, the doubt shall be settled in favor of the generic provision

greatest reciprocity of interests. Kinds of defective contracts

There are four (4) kinds of defective contracts. They are, in the
order of their defectiveness:
If the doubts are cast upon the principal object of the contract
(1) Rescissible contracts (Chap. 6.);
in such a way that it cannot be known what may have been the
(2) Voidable contracts (Chap. 7.);
intention or will of the parties, the contract shall be null and
(3) Unenforceable contracts (Chap. 8.); and
void. (1289)
(4) Void or inexistent contracts. (Chap. 9.)
Rules in case doubts impossible to settle
The first class, rescissible contracts, are valid because
When, despite the application of the preceding rules (Arts.
all the essential requisites of a contract exist but by reason of
1370-1377.), certain doubts still exist, such doubts shall be
economic injury or damage to one of the parties or to third
resolved in accordance with the supplementary rules stated in
persons, such as creditors, the contract may be rescinded.
the present article.
The second class, voidable contracts, are also valid
(1) Gratuitous contract. If the doubts refer to incidental
until annulled unless there has been a ratification. In a voidable
circumstances of a gratuitous contract (see Art. 1350.), such
contract, the defect is caused by vice of consent.
interpretation should be made which would result in the least
The third class, unenforceable contracts, cannot be
transmission of rights and interests
sued upon or enforced unless they are ratified. As regards the
degree of defectiveness, voidable contracts are farther away
(2) Onerous contract. If the contract in question is onerous (see
from absolute nullity than unenforceable contracts. In other
Art. 1350.), the doubts should be settled in favor of the
19
 OBLIGATIONS AND CONTRACTS

words, an unenforceable contract occupies an intermediate (3) The rescission must be based upon a Ge especially provided
ground between a voidable and a void contract. by law (Arts. 1380, 1381, 1382.);
Lastly, there are the void or inexistent contracts. They (4) There must be no other legal remedy to obtain reparation
are absolutely null and void. Void contracts have no effect at all for the damage (Art. 1383.);
and cannot be ratified. (see Report of the Code Commission, (5) The party asking for rescission must be able to return what
pp. 138-140. he is obliged to restore by reason of the contract (Art. 1385,
par. 1.);
CHAPTER 6: RESCISSIBLE CONTRACTS
(6) The object of the contract must not legally be in the

Art. 1380. Contracts validly agreed upon may be rescinded in possession of third persons who did not act in bad faith (Ibid.,

the cases established by law. (1290) par. 2.); and

(7) The period for filing the action for rescission must not have
prescribed. (Art. 1389.)
Meaning of rescissible contracts
Rescissible contracts are those validly agreed upon
Art. 1381. The following contracts are rescissible:
because all the essential elements exist and, therefore, legally
(1) Those which are entered into by guardians whenever the
effective, but in the cases established by law, the remedy of
wards whom they represent suffer lesion by more than one-
rescission is granted in the interest of equity. Binding force of
fourth of the value of the things which are the object thereof;
rescissible contracts. They are valid and enforceable although
(2) Those agreed upon in representation of absentees, if the
subject to rescission by the court when there is economic
latter suffer the lesion stated in the preceding number;
damage or prejudice to one of the parties or to a third person.
(3) Those undertaken in fraud of creditors when the latter
In a rescissible contract, there is no defect at all but by reason
cannot in any other manner collect the claims due them;
of some external facts, its enforcement would cause injustice.
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge and
Meaning of rescission.
approval of the litigants or of competent judicial authority;
Rescission is a remedy granted by law to the
(5) All other contracts specially declared by law to be subject to
contracting parties and sometimes even to third persons in
rescission. (1291a)
order to secure reparation of damages caused them by a valid
contract, by means of the restoration of things to their
condition in which they were prior to the celebration of said
contract. (see 8 Manresa 748-749.) Cases of rescissible contracts
(1) Contracts entered into in behalf of wards. A ward is a person

Requisites of rescission under guardianship by reason of some incapacity.

The following are the requisites before the remedy of 2) Contracts agreed upon in representation of absentees.

rescission may be availed of: • An absentee is a person who disappears from his

(1) The contract must be validly agreed upon (Art 1380); domicile his whereabouts being unknown, and

(2) There must be lesion or pecuniary prejudice to one of the without leaving an agent to administer his property.

parties or to a third person (Art. 1381.); (Art. 381.) Likewise, the absentee must suffer lesion

20
 OBLIGATIONS AND CONTRACTS

by more than one-fourth of the value of the property In this case, indemnity for damages may be demanded from
object of the contract to entitle him to the remedy of the person causing the loss. (1295)
rescission.
(3) Contracts undertaken in fraud of creditors- In order that Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381
fraud of creditors may be a valid ground for rescission. shall not take place with respect to contracts approved by the
4) Contracts which refer to things under litigation. courts. (1296a)
5) Other instances
Art. 1387. All contracts by virtue of which the debtor alienates
Art. 1382. Payments made in a state of insolvency for property by gratuitous title are presumed to have been entered
obligations to whose fulfillment the debtor could not be into in fraud of creditors, when the donor did not reserve
compelled at the time they were effected, are also rescissible. sufficient property to pay all debts contracted before the
(1292) donation.
Art. 1383. The action for rescission is subsidiary; it cannot be Alienations by onerous title are also presumed fraudulent when
instituted except when the party suffering damage has no other made by persons against whom some judgment has been
legal means to obtain reparation for the same. (1294) issued. The decision or attachment need not refer to the
property alienated, and need not have been obtained by the

Nature of action for rescission party seeking the rescission.

Rescission is not a principal remedy. It is only In addition to these presumptions, the design to defraud

subsidiary, meaning that it can be availed of only if the injured creditors may be proved in any other manner recognized by the

party proves that he has no other legal means aside from law of evidence. (1297a)

rescinding the contract to obtain redress for the damage

caused (see Art. 1177.) even if the contract is covered by Article Art. 1388. Whoever acquires in bad faith the things alienated

1381. If the damage is repaired, as in the case of lesion in fraud of creditors, shall indemnify the latter for damages

suffered by the ward or absentee, rescission cannot take place suffered by them on account of the alienation, whenever, due

(see Arts. 1355, 1381.) to any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be

Art. 1384. Rescission shall be only to the extent necessary to liable first, and so on successively. (1298a)

cover the damages caused. (n)

Art. 1385. Rescission creates the obligation to return the things Art. 1389. The action to claim rescission must be commenced

which were the object of the contract, together with their within four years.

fruits, and the price with its interest; consequently, it can be For persons under guardianship and for absentees, the period

carried out only when he who demands rescission can return of four years shall not begin until the termination of the

whatever he may be obliged to restore. former's incapacity, or until the domicile of the latter is known.

Neither shall rescission take place when the things which are (1299)

the object of the contract are legally in the possession of third Persons entitled to bring action

persons who did not act in bad faith. 1) The injured party or the defrauded creditor

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 OBLIGATIONS AND CONTRACTS

2) His heirs, assigns, or successors in interest; or Meaning of Annulment

3) The creditors of the above entitled to Annulment is a remedy provided by law, for reason of
subrogation public interest, for the declaration of the inefficacy of a
contract based on a defect or vice in the consent of one of the
contracting parties in order to restore them to their original
CHAPTER 7: VOIDABLE CONTRACTS
position in which they were before the contract was executed.

Art. 1390. The following contracts are voidable or annullable, Art. 1391. The action for annulment shall be brought within

even though there may have been no damage to the four years.

contracting parties: This period shall begin:

(1) Those where one of the parties is incapable of giving In cases of intimidation, violence or undue influence, from the

consent to a contract; time the defect of the consent ceases.

(2) Those where the consent is vitiated by mistake, violence, In case of mistake or fraud, from the time of the discovery of

intimidation, undue influence or fraud. the same.

These contracts are binding, unless they are annulled by a And when the action refers to contracts entered into by minors

proper action in court. They are susceptible of ratification. (n) or other incapacitated persons, from the time the guardianship
ceases. (1301a)

Meaning of voidable contracts

Voidable or annullable contracts are those which Art. 1392. Ratification extinguishes the action to annul a

possess all the essential requisites of a valid contract but one voidable contract. (1309a)

of the parties is incapable of giving consent, or consent is

vitiated by mistake, violence, intimidation, undue influence, or Meaning and effect of ratification

fraud. (1) Ratification means that one voluntarily adopts or approves

some defective or unauthorized act or contract which, without

Kinds of voidable contracts. his subsequent approval or consent, would not be binding on

A contract otherwise legal in object and operation voidable him. It indicates an intention on the part of the ratifier to be

because of a defect caused by either: bound to the provisions of the contract.

(1) Legal incapacity to give consent, where one of the parties is (2) Ratification cleanses the contract from all its defects from

incapable of giving consent to the contract; or (2) Violation of the moment it was constituted. (Art. 1396.) The contract thus

consent, where the vitiation is done by mistake, violence, becomes valid. (Art. 1390.) Hence, the action to annul is

intimidation, undue influence, or fraud. extinguished. (Art. 1392.)

Binding force of voidable contracts Art. 1393. Ratification may be effected expressly or tacitly. It is

They are valid and binding between the parties unless understood that there is a tacit ratification if, with knowledge

annulled by a proper action in court by the injured party of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it

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 OBLIGATIONS AND CONTRACTS

should execute an act which necessarily implies an intention to or employed fraud, or caused mistake base their action upon
waive his right. (1311a) these flaws of the contract. (1302a)
Art. 1398. An obligation having been annulled, the contracting

Kinds of ratification parties shall restore to each other the things which have been

They are: the subject matter of the contract, with their fruits, and the

(1) Express. when the ratification is manifested in words or in price with its interest, except in cases provided by law.

writing; or In obligations to render service, the value thereof shall be the

(2) Implied or tacit it may take diverse forms, such as by silence basis for damages. (1303a)

or acquiescence; by acts showing adoption or approval of the

contract; or by acceptance and retention of benefits flowing Art. 1399. When the defect of the contract consists in the
therefrom. (see Cadano vs. Cadano, 49 SCRA 33.) incapacity of one of the parties, the incapacitated person is not
obliged to make any restitution except insofar as he has been
Art. 1394. Ratification may be effected by the guardian of the benefited by the thing or price received by him. (1304)
incapacitated person. (n)

Art. 1400. Whenever the person obliged by the decree of

Art. 1395. Ratification does not require the conformity of the annulment to return the thing can not do so because it has been
contracting party who has no right to bring the action for lost through his fault, he shall return the fruits received and the
annulment. (1312) value of the thing at the time of the loss, with interest from the
same date. (1307a)

Art. 1396. Ratification cleanses the contract from all its defects
from the moment it was constituted. (1313) Art. 1401. The action for annulment of contracts shall be
extinguished when the thing which is the object thereof is lost

Effect of ratification retroactive through the fraud or fault of the person who has a right to

Ratification cleanses the contract of all its defects (Art. institute the proceedings.

1390.) from the moment it was executed. It extinguishes the If the right of action is based upon the incapacity of any one of

right of action to annul. (Art. 1392.) In other words, the effect the contracting parties, the loss of the thing shall not be an

of ratification is to make the contract valid from its inception obstacle to the success of the action, unless said loss took place

subject to the prior rights of third persons. through the fraud or fault of the plaintiff. (1314a)
Art. 1402. As long as one of the contracting parties does not

Art. 1397. The action for the annulment of contracts may be restore what in virtue of the decree of annulment he is bound

instituted by all who are thereby obliged principally or to return, the other cannot be compelled to comply with what

subsidiarily. However, persons who are capable cannot allege is incumbent upon him. (1308)

the incapacity of those with whom they contracted; nor can

those who exerted intimidation, violence, or undue influence, Effect where a party cannot restore what he is bound to
return.

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 OBLIGATIONS AND CONTRACTS

When a contract is annulled, a reciprocal obligation of sales book, at the time of the sale, of the amount and kind of
restitution is created. The return by one party of what he is property sold, terms of sale, price, names of the purchasers and
obliged to restore by the decree of annulment may be regarded person on whose account the sale is made, it is a sufficient
as a condition to the fulfillment by the other of what is memorandum;
incumbent upon him. (see Art. 1191.) In effect, there will be no (e) An agreement of the leasing for a longer period than one
annulment if the party cannot restore what he is bound to year, or for the sale of real property or of an interest therein;
return. This is true even if the loss is due to a fortuitous event. (f) A representation as to the credit of a third person.
(see comments under Art. 1400.) (3) Those where both parties are incapable of giving consent to
a contract.
CHAPTER 8: UNENFORCEABLE
CONTRACTS
Meaning of unenforceable contracts
Unenforceable contracts are those that cannot be enforced or
Art. 1403. The following contracts are unenforceable, unless given effect in a court of law or sued upon by reason of certain
they are ratified: defects provided by law until and unless they are ratified
(1) Those entered into in the name of another person by one according to law.
who has been given no authority or legal representation, or
who has acted beyond his powers; Kinds of unenforceable contracts
(2) Those that do not comply with the Statute of Frauds as set Under Article 1403, the following contracts are men forceable,
forth in this number. In the following cases an agreement unless they are ratified:
hereafter made shall be unenforceable by action, unless the (1) those entered into in the name of another by one without,
same, or some note or memorandum, thereof, be in writing, or acting in excess of, authority.
and subscribed by the party charged, or by his agent; evidence, (2) those that do not comply with the Statute of Frauds; and
therefore, of the agreement cannot be received without the (3) those where both parties are incapable of giving
writing, or a secondary evidence of its contents: The above contracts indicate the three (3) types of defects that
(a) An agreement that by its terms is not to be performed within render them unenforceable. Meaning of unauthorized
a year from the making thereof; contracts.
(b) A special promise to answer for the debt, default, or
miscarriage of another; Unauthorized contracts are those entered into in the name of
(c) An agreement made in consideration of marriage, other another person by one who has been given no authority or
than a mutual promise to marry; legal representation or who has acted beyond his powers. They
(d) An agreement for the sale of goods, chattels or things in are governed by Article 1317 and the principles of agency.
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the Binding force of unenforceable contracts
evidences, or some of them, of such things in action or pay at While rescissible and voidable contracts are valid and
the time some part of the purchase money; but when a sale is enforceable unless they are rescinded or annulled,
made by auction and entry is made by the auctioneer in his unenforceable contracts, although valid, are unenforceable in

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 OBLIGATIONS AND CONTRACTS

court unless they are cured or ratified. Once ratified, these

contracts may then be enforceable. When unenforceable contract becomes a valid contract.
If the ratification is made by the parents or guardians,
Statute of Frauds as the case may be, of both contracting parties, or by both
A legal principle that says certain types of contracts contracting parties after attaining or regaining capacity, the
must be inn writing and designed to be enforceable in court. contract is validated and its validity retroacts to the time it was
entered into.
Art. 1404. Unauthorized contracts are governed by Article 1317 Art. 1408. Unenforceable contracts cannot be assailed by third
and the principles of agency in Title X of this Book. persons.

Art. 1405. Contracts infringing the Statute of Frauds, referred Rights of third persons to assail an unenforceable
to in No. 2 of Article 1403, are ratified by the failure to object Strangers to a voidable contract cannot bring an
to the presentation of oral evidence to prove the same, or by action to annul the same (see Art. 1397.); neither can they
the acceptance of benefit under them. assail a contract because of its unenforceability. The benefit of
the Statute can only be claimed

Art. 1406. When a contract is enforceable under the Statute of

CHAPTER 9: VOID OR INEXISTENT
Frauds, and a public document is necessary for its registration
CONTRACTS
in the Registry of Deeds, the parties may avail themselves of
the right under Article 1357. Art. 1409. The following contracts are inexistent and void from
the beginning:
(1) Those whose cause, object or purpose is contrary to law,
Art. 1407. In a contract where both parties are incapable of
morals, good customs, public order or public policy;
giving consent, express or implied ratification by the parent, or
(2) Those which are absolutely simulated or fictitious;
guardian, as the case may be, of one of the contracting parties
(3) Those whose cause or object did not exist at the time of the
shall give the contract the same effect as if only one of them
transaction;
were incapacitated.
(4) Those whose object is outside the commerce of men;
If ratification is made by the parents or guardians, as the case
(5) Those which contemplate an impossible service;
may be, of both contracting parties, the contract shall be
(6) Those where the intention of the parties relative to the
validated from the inception.
principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
Where unenforceable contract becomes a voidable contract
These contracts cannot be ratified. Neither can the right to set
Where both parties to a contract are incapable of
up the defense of illegality be waived.
giving consent, the contract is unenforceable. (Art. 1403[3].)
However, if the parent or guardian, as the case may be, of
Meaning of void contracts
either party, or if one of the parties after attaining or regaining
Void contracts are those which, because of certain
capacity, ratifies the contract, it becomes voidable.
defects, generally produce no effect at all.

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 OBLIGATIONS AND CONTRACTS

They are considered as inexistent from its inception or (2) Contracts which are absolutely simulated or fictitious. See
from the very beginning. The expression "void contract" is, comments and examples under Articles 1345 and 1346. A
therefore, a contradiction in terms. However, the expression is contract of sale is void where the price, which appears thereon
often loosely used to refer to an agreement tainted with as paid, has, in fact never been paid. (Catindig vs. Heirs of
illegality. Catalina Roque, 74. SCRA 83.)
(3) Contracts without cause or object. The phrase "did not exist
at the time of the transaction" does not apply to a future thing
which may legally be the object of a contract. See comments
Meaning of inexistent contracts and examples under Articles 1347, 1352, and 1353.
On the other hand, inexistent contracts, refer to (4) Contracts whose object is outside the commerce of men.
agreements which lack one or some or all of the elements (i.e., See comments and examples under Articles 1347 and 1348.
consent, object, and cause) or do not comply with formalities (5) Contracts which contemplate an impossible service. - See
which are essential for the existence of a contract. comments and examples under Articles 1347 and 1348.
(6) Contracts where the intention of the parties relative to the
An illegal contract may produce effects under certain object cannot be ascertained. examples under Article 1378,
circumstances where the parties are not of equal guilt. (see par. 2. See comments and
Arts. 1411-1412.) (7) Contracts expressly prohibited or declared void by law.
Below are examples of contracts which are prohibited or
Characteristics of a void or inexistent contract declared void by law
They are as follows:
(1) Generally, it produces no force and effect whatso-ever; Art. 1410. The action or defense for the declaration of the
(2) It cannot be ratified (Art. 1409, par. 2.); inexistence of a contract does not prescribe.
(3) The right to set up the defense of illegality cannot be waived Action or defense is imprescriptible
(Ibid.); If a contract is void, a party thereto can always bring a
(4) The action or defense for the declaration of its inexistence court action to declare it void or inexistent; and a party against
does not prescribe (Art. 1410.); whom a void contract is sought to be enforced, can always raise
(5) The defense of illegality is not available to third persons the defense of nullity, despite the passage of time.
whose interests are not directly affected (Art. 1421.); and
Art. 1411. When the nullity proceeds from the illegality of the
(6) It cannot give rise to a valid contract. (Art. 1422.) cause or object of the contract, and the act constitutes a
criminal offense, both parties being in pari delicto, they shall
have no action against each other, and both shall be
Instances of void or inexistent contracts.
prosecuted. Moreover, the provisions of the Penal Code relative
Void and inexistent contracts are not enforceable from the very to the disposal of effects or instruments of a crime shall be
beginning, regardless of the intentions of the parties. applicable to the things or the price of the contract .

(1) Contracts whose cause, object or purpose is contrary to law, This rule shall be applicable when only one of the parties is
etc. and 1416. See comments and examples under Articles guilty; but the innocent one may claim what he has given, and
1306 shall not be bound to comply with his promise. (1305)

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 OBLIGATIONS AND CONTRACTS

Art. 1412. If the act in which the unlawful or forbidden cause Art. 1417. When the price of any article or commodity is
consists does not constitute a criminal offense, the following determined by statute, or by authority of law, any person
rules shall be observed: paying any amount in excess of the maximum price allowed
(1) When the fault is on the part of both contracting parties, may recover such excess.
neither may recover what he has given by virtue of the
contract, or demand the performance of the other's Recovery of amount paid in excess of ceiling price.
undertaking; A statute fixing the maximum price of any article or commodity
(2) When only one of the contracting parties is at fault, he is usually known as the ceiling low It can also be determined by
cannot recover what he has given by reason of the contract, or authority of law, as by Executive Order of the President. Its
ask for the fulfillment of what has been promised him. The purpose is to curb the evils of profiteering or black marketing
other, who is not at fault, may demand the return of what he
has given without any obligation to comply his promise. (1306) Art. 1418. When the law fixes, or authorizes the fixing of the
maximum number of hours of labor, and a contract is entered
Art. 1413. Interest paid in excess of the interest allowed by the into whereby a laborer undertakes to work longer than the
usury laws may be recovered by the debtor, with interest maximum thus fixed, he may demand additional compensation
thereon from the date of the payment. for service rendered beyond the time limit.

Art. 1414. When money is paid or property delivered for an Art. 1419. When the law sets, or authorizes the setting of a
illegal purpose, the contract may be repudiated by one of the minimum wage for laborers, and a contract is agreed upon by
parties before the purpose has been accomplished, or before which a laborer accepts a lower wage, he shall be entitled to
any damage has been caused to a third person. In such case, recover the deficiency.
the courts may, if the public interest will thus be subserved,
allow the party repudiating the contract to recover the money Art. 1420. In case of a divisible contract, if the illegal terms can
or property. be separated from the legal ones, the latter may be enforced.

Art. 1415. Where one of the parties to an illegal contract is Art. 1421. The defense of illegality of contract is not available
incapable of giving consent, the courts may, if the interest of to third persons whose interests are not directly affected.
justice so demands allow recovery of money or property
delivered by the incapacitated person.
Art. 1422. A contract which is the direct result of a previous
illegal contract, is also void and inexistent.
Art. 1416. When the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is designated
for the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or delivered.

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