II.

CONTRACTS
Contracts- Meeting of the minds between two persons whereby one binds himself, with respect to the other to give
something or to render some service.(Art. 1305, NCC)
Meeting of the Minds
 Speaks of intent of the parties in entering into the contract respecting the subject matter and consideration thereof;
 As a rule, a contract is perfected by mere consent. It does not require any special form;
 Thus, meeting of the minds gives rise to a binding contract although parties have not affixed their signatures.
CLASSIFICATION OF CONTRACTS
A. According to degree of dependence:
1. Principal – Can exist independently of other contracts. (Ex. Contract of Loan)
2. Accessory – Cannot exist without a valid principal contract; exist merely to secure the fulfillment of a principal
obligation. (Ex. Mortgage)
3. Preparatory – Only a means for the execution of another contract. (Ex. Contract of Agency – purpose of agency
is to enter into other contract, like a sale)
B. According to Manner of Perfection:
1. Consensual – Perfected by mere consent. (Ex. Sale of Goods)
2. Real - Perfected not by mere consent, but by delivery of the object of the contract. (Ex. Commodatum)
Commodatum - Commodatum refers to a gratuitous loan of a movable property which is to be returned undamaged
to the lender. (Ex. A borrowed the car of his friend, B. Hence, A has to return B’s car as is, without damage)
C. According to Nature of Obligation Produced:
1. Bilateral – Creates obligations on both sides or both parties. (Ex. Sale – Deliver & Pay)
2. Unilateral - Creates obligations only on one side or only one of the contracting parties. (Ex. Commodatum –
gratuitous)
D. According to Cause (Reason for action / doing):
1. Onerous – Cause is the prestation or promise of a thing or service by the other; imposing an obligation. (Ex.
Sale)
2. Remuneratory – Cause is the service or benefit for which the remuneration is given. (Ex. A took case of B when
the latter was sick, later on, B donated a parcel of land to A – not a demandable debt, but a remuneratory donation)
3. Gratuitous – Cause is mere liberality (kabutihang loob) of the benefactor (Ex. Commodatum)
E. According to Form or Solemnity
1. Common – Does not require any form, provided all essential requisites for validity are present. (Ex. Sale of food)
2. Special or Solemn – Requires certain formalities for validity or enforceability. (Ex. Donation of real property must
be in a public instrument)
F. According to Purpose:
1. To transfer ownership – Sale
2. To convey the use – Commodatum
3. To give security – Mortgage
4. To render some service – Agency
G. According to Subject Matter
1. Things – Sale / Mortgage
2. Services – Agency
3. Rights – Not personal or intransmissible .
 ESSENTIAL REQUISITES OF CONTRACTS
I. 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 a
counter-offerAcceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge.
The contract, in such a case, is presumed to have been entered in the place where the offer was made.
Meaning of consent
 Consent is the conformity or concurrence of wills (Offer and Acceptance) and with respect to contracts, it is the
agreement of the will of one contracting party with that of another or objects and terms of the contracts.
 It is the meeting of minds or mutual assent between the parties on the subject matter and cause which are to
constitute the contract even if neither has been delivered. Mutual assent or arrangement takes place when there is
an offer and acceptance of the offer.
Elements or Characteristics of Consent
In order that consent may be valid for purposes of contract, it is required, not only by exists, but that it must be
given with exact understanding over the thing consented to. In other words, the contract must be based on the genuine
assent of both parties to the contract and the terms thereof. There is no valid consent unless:
1. It is intelligent – there is capacity to act
2. It is free and voluntary- there is no vitiation of consent by reason of violence or intimidation.
3. It is conscious or spontaneous- there is no vitiation of consent by reason of mistake, undue influence, or fraud.
Concept of offer
Offer is a proposal made by one party to another, indicating a willingness to enter into a contract. It is really a
promise to act or to refrain from acting on condition that the terms thereof are accepted by the person to whom it is made.
Offer must be certain or definite so that the liability or the rights of the parties may be exactly fixed because it is necessary
that the acceptance be identical with the offer to create a contracts without any further act on the part of the offeror.
Concept of Acceptance/ Acceptance of offer
Acceptance is the manifestation by the offeree of his assent to all the terms of the offer. Without acceptance there
can be no meeting of the minds between the parties.
 Acceptance of offer must be clear and absolute
The acceptance of an offer must not only be clear, it must be absolute, unconditional, or unqualified, it must
be identical in all respects with that of the offer so as to produced consent or meeting of minds
ART. [Link] acceptance may be express or implied
Form of acceptance of offer
- An express acceptance in the form of a promise to pay a certain amount or to do something, may be oral or written.
An implied Acceptance is one that is inferred from act or conduct.
ART. 1321. The person making the offer may fix the time, place and the manner of acceptance, all of which must be
complies with.
Effects of Contracts Entered By incapacitated Persons.
The contracts entered into by the incapacitated persons enumerated in the law are not void. They are only voidable if only
one party cannot give his consent. But if both parties are incapacitated to give consent, the resulting contract is
unenforceable (Art. 1407).
Persons incapable of giving consent
A contract entered into where one of the parties is incapable of giving consent to a contract is voidable. A voidable contract
is valid and binding until it is annulled by a proper action in court. It is susceptible of ratification.
1. Unemancipated minor- They refer to those persons who have not yet reached the age of majority and are still subject to
parental authority. A minor can be emancipated by attainment of the age of majority, marriage or by concession recorded in
the civil register, of the father or of the mother who exercises parental authority.
2. Insane or demented persons- the insanity must exist at the time of contracting. Unless proved otherwise, a person is
presumed sane.
3. Deaf-Mutes- They are person who are deaf and dumb. However, if the deaf-mute knows how to write, the contract is valid
for then he is capable of giving intelligent consent. A person who does not know how to read, does not know how to write;
and one who knows how to read necessarily knows how to write. A contract entered into by a deaf-mute who knows how to
read is, therefore, valid, although he cannot write because of some physical reasons.
Reason for disqualification
The reason behind art 1327 is that those person s mentioned can easily be the victims of fraud as they are not
capable of understanding or knowing the nature or import of their actions. They can enter into a contract only through a
parent or guardian.
ART 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during
spell are voidable.
Lucid interval- temporary period of sanity
II. OBJECT
Object of Contracts
 All things which are not outside the commerce of men, including future things, maybe the object of a contract. All
rights which are not intrasmissible may also be the object of contracts. (Article 1347)
 No contract may be entered into upon future inheritance except in cases expressly 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.
The Object of the Contract is its subject matter and it can be a;
 The Things
 The Right
 The Service
Which arising from the contract. These are the exceptions to the rule that future inheritance cannot be the subject of a
contract: In case of marriage settlements, future inheritance may be the object of donation.
In case of partition of property intervolves made by the deceased himself as long as no legitime is impaired.
Requisites of things as object of contract:
1. The thing must be within the commerce of men.
 An object is within the commerce of men if it is capable of being owned or appropriated.
 Which means that it is legal and its ownership is transferable .
2. It must be possible, legally or physically
 Everything is deemed possible except that which is impossible in the nature.
 Should not be contrary to law, morals, good custom, public order or public policy;
3. It must be in existence or capable of coming into existence;
 It should exist at the moment of celebration of the contract, or at least, it can exist subsequently or in the future;
4. It must be determinate or determinable without the need of a new contract between the parties.
 The object should be determinate, or at least, possible of determination, 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 (Article 1349).
IMPOSSIBILITY
A legal excuse or defense to an action for the breach of contract; less frequently, a defense to a criminal charge of an
attempted crime, such as attempted robbery or murder.
ARTICLE 1348- Impossible things or services cannot be the object of contracts. (1272)
Kinds of Impossibility
1. Physical - When the thing or service in the very nature of things cannot exist or be performed.
2. Legal - When the thing or service is contrary to law, morals, good customs, public order, or public policy.
ABSOLUTE IMPOSSIBILITY
When the act cannot be done in any case so that nobody can perform it.
RELATIVE IMPOSSIBLITY
When it arises from the special circumstances of the case or the special conditions or qualifications of the obligor.
ARTICLE 1349
The object of every contract must be determinate as to its kind.
III. CAUSE OR CONSIDERATION
Causa is used in Civil Law Consideration is used in Common Law
Cause of the contract (Article 1350) (Will be based on the type of contract) the reason why a party entered into a contract.
* - Is the benefit that each party receives, or expects to receive, when entering into a contract.
* - Is often monetary, but it can be a promise to perform a specific act, or a promise to refrain from doing something. 
* -Must be both legally sufficient and bargained for by the receiving party.
* -Is simply something of value exchanged between the parties to a contract.
Consideration 
* Is a central concept in the common law of contracts. Under classical contract theory, consideration is required for a
contract to be enforceable.
* Modern contract theory has also permitted remedies on alternate theories such as (promissory estoppel).
CONCEPT
The idea of consideration is vital to contract law because, in order for a contract to be enforceable, there must be
“mutuality of obligation.”
Benefit detriment theory - Either or theory in which, for there to be consideration, a contract must be either to the benefit of
the promissory or to the detriment of the promisee.
The bargain theory (also known as mutuality or reliance theory) Is based on more mutuality and looks at the exchange that
takes place between the parties.
3 forms of consideration
Executory Consideration – Where there is an exchange of promises in the future
Executed Consideration – Arises in unilateral contract where the act of acceptance is also the consideration.
Past Consideration – That comes before the promise.
Lack of Consideration- Contract may be deemed invalid by a court if it lacks recognizable consideration.

Kinds of contracts as to cause: According to Cause (Reason for action / doing):

Onerous- Cause is the prestation or promise of a thing or service by the other; imposing an obligation.
Remuneratory - Cause is the service or benefit for which the remuneration is given.
Gratuitous - Cause is mere liberality (kabutihang loob) of the benefactor.
Requisites of cause:
1. It must e exist at the time the contract is entered.
2. It must be lawful
3. It must be true or real
Lesion in contracts ( In the civil law this term is )
 Used to signify the injury suffered
 In consequence of inequality of situation
 By one who does not receive a full equivalent for what he gives in a commutative contract.
Lesion- Injury or loss
Effects of lesion or inadequacy of cause:
* The effect of lesion or inadequacy of cause when it resulted from fraud, mistake or undue influence is that the lesion
became a good ground for rescission of the contract.
Distinguish cause from motive:
Motive
 An incentive to act in a particular way.
 A reason or emotion that makes one to do something.
 Anything that prompts a choice of action .
Cause
 Is the source or reason for an event or action that which produces or effects a result;
 To set off an event or action.
 INTERPRETATION OF CONTRACTS
Cardinal rule in the interpretation of contracts
 The cardinal rule in the interpretation of contracts is embodied in Article 1370 of the Civil Code: “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.“
 This provision is akin to the "PLAIN MEANING RULE" which assumes that the intent of the parties to an instrument
is "embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only
from the express language of the agreement."
 Evident intention of parties prevails over terms of the contract.
 Art. 1371, NCC: In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered. 
Complementary-contracts-construed-together doctrine
 An accessory contract must be read in its entirety and together with the principal agreement.
 Ex. A Promissory Note and Deed of Chattel Mortgage must be construed together. The surety contract (mortgage)
is merely an accessory contract and must be interpreted with its principal contract (loan agreement ).
OTHER RULES IN INTERPRETATION OF CONTRACTS
1. CONTRACT OF ADHESION
 One of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the
latter cannot modify.
 One party prepares the stipulation in the contract, while the other party merely affixes his signature or his
"adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal
footing.
 Contracts of adhesion are not invalid per se and 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.
 Only a contract of adhesion in which one of the parties is shown to be the weaker as to have been imposed upon
may be invalidated and set aside. (i.e. cannot read, low educational attainment, sick)

2. USAGE OR CUSTOM
 Art. 1376, NCC: 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. 
 Usage or custom of the place where the contract was entered into may explain what is doubtful in a contract on the
theory that the parties entered into their contract with reference to such usage or custom.
3. OBSCURITY
 Ambiguity; Uncertainty; Difficult to understand.
 Art. 1377, NCC: The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.
 Art. 1378, NCC: 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.

DEFECTIVE CONTRACTS
I. RESCISSIBLE CONTRACTS
CONCEPT/ NATURE OF RESCISSION
Rescissible contracts
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)
Note: In general the rescissible contract is valid until rescinded; there is a sort of extrinsic defect consisting of an economic
damage or lesion.
Meaning of rescissible contracts
-Are those validly agreed upon because all the essential elements exist and, therefore, legally effective, but in the
case established by law, the remedy of rescission is granted in the interest of equity.
Meaning of rescission
-is a remedy granted by law to the contracting parties and sometimes even to third persons in 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.
- it is a relief to protect one of the parties or a third person from all injury and damages which the contract may
cause, to protect some preferential right.
Two kinds of rescission
1. Rescission in general (ART. 1380)
 Is based on lesion of fraud upon creditors
 Here, the action is instituted by either of the contracting parties or by third parties
 The courts cannot grant a period or term within which to comply
 Non-performance by the other party is immaterial

2. Rescission under ART. 1191 (Resolution)

 Based on non-performance or non-fulfillment of the obligations
 The action may be instituted only by the injured party to the contract
 In some cases, the courts may grant a term
 Nonperformance by the other party is important.

CHARACTERISTICS OF RESCISSIBLE CONTRACTS UNDER ART. 1381, NCC:

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;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
SPECIFIC CONTRACTS WHICH ARE RESCISSIBLE UNDER ART. 1381 & 1382, NCC:
 Contracts by guardian in behalf of ward
-A ward is a person under guardianship by reason of some incapacity.
 Contracts by representative in behalf of absentee
-An absentee is a person who disappears from his domicile his whereabouts being unknown, and without
leaving an agent to administer to his property.
 Contracts in fraud of creditors

-In order that fraud of creditor may be valid ground for rescission, the following requisites must be presented:
a) There must be an existing credit prior to the contract to be rescinded, although it is not yet due
or demandable.
b) There must be fraud on the part of the debtor which maybe presumed or proved.
c) The creditor cannot recover his credit in any other matter, its not being required that the debtor
be insolvent.
 Contracts relating to things under litigation
- Anything in litigation if it was entered into by the defendant without the knowledge or approval of the
litigants themselves or a competent judicial authority.
 Payments made in state of insolvency
-Art. 1382. Payments 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. (1292)
-A debtor is insolvent if he does not have sufficient properties to meet his obligations. It is not necessary
that the debtor’s insolvency be judicially declared.
 Contracts specially declared by law to be subject to rescission
1. Rescission of the contract of partition on the ground of lesion.
2. Rescission in case of one of the obligors in a reciprocal obligations should not comply with what is
incumbent upon him.
 3. Rescission of contract with damages if through the creditor’s acts, the debtor cannot make a choice in an
alternative obligation.
4. Right to rescind he sale by the unpaid seller of goods.
5. rescission by vendee when inferior value of the real estate sold exceed one-tenth of the price agreed
upon, or when the lack in area be not less than one-tenth of that sated, or when vendee would not have
bought had he known of its smaller area or inferior quality.
6. Rescission of contracts of sale of immovable for a single price if vendee does not accede to the failure to
deliver what has been stipulated.
7. Rescission on account of eviction of a substantial portion of the property sold, or loss of one of the things
sold jointly for lump sum.
8. Rescission of contract of sale of an immovable if encumbered with non-apparent burden or servitude.
9. Rescission of the contract of lease if the either the lessor or the lessee should not comply with their
respective obligations.
10. Rescission of adoption by the adopted on any of the grounds provided in section 19 of R.A. Act. No.
8552, otherwise known as the domestic adoption act.
11. If, in an obligation to give subject to a suspensive condition, the thing deteriorates through the fault of
the obligor.

Effect of rescission
The effect of rescinding a contract is to extinguish it and to restore (as far as possible) the parties to the positions they were
in before contracting.
A contract that can be rescinded is voidable, not void. In other words, subject to the right to rescind being exercised, the
contract remains enforceable. By contrast, an apparent contract that is void never has any validity or effect.
Rescission under Art. 1191, NCC
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

II. VOIDABLE CONTRACTS

A voidable contract is a formal agreement between two parties that may be rendered unenforceable for a number of legal
reasons.
Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the
contracting parties:
(1) Those where one of parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
There contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n)
Concept of Voidable Contracts
Voidable Contracts include failure by one or both parties to disclose a material fact; a mistake, misrepresentation or fraud;
undue influence or duress; one party’s legal incapacity to enter a contract; one or more terms that are unconscionable; or a
breach of contract.
Voidable contracts are binding unless annulled by a proper action in court.
Kinds of voidable contracts
(1) Legal incapacity to give consent, where one of the parties is incapable of giving consent to the contract; or
(2) Violation of consent, where the vitiation is done by mistake, violence, intimidation, undue influence, or fraud.
Annulment is a remedy provided by law, for reason of 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 position in
which they were before the contract was executed.
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. (1301a)
Persons entitled to file an action to annul
a) the plaintiff must have an interest in the contract;
b) the victim and not the party responsible for the defect is the person who must assert the same.
Grounds for annulment
WANT OF CAPACITY / INCAPABLE OF GIVING CONSENT: If one of the parties has no capacity to give consent. Either
mental deficiency of underage.
VITIATION OF CONSENT: An action for annulment of contract is one filed where consent is vitiated by lack of legal
capacity of one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud. By its very nature,
annulment contemplates a contract which is voidable, that is, valid until annulled.
MISTAKE OR ERROR: In contract law, a mistake is an erroneous belief, at contracting, that certain facts are true. It can be
argued as a defense, and if raised successfully can lead to the agreement in question being found void ab initio or voidable.
FRAUD: A person commits contract fraud when they make a knowingly false statement that serves to trick or deceive
another person into signing a contract. A person also commits contract fraud when, through misrepresentation, they trick an
individual who does not believe they are entering into a contract, into signing one. 

INTIMIDATION AND VIOLENCE: 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.
Effect of annulment of a voidable contract
a) if the contract is executory, the parties are not bound to comply with their prestation.
b) if the contract is already executed, the parties shall restore to each other the object of the contract, that is, the money
plus interest, the property together with its fruits. However, if the ground for annulment is incapacity of the other party, the
party incapacitated is bound to return to the extent he was benefited.
Ratification is when one voluntarily adopts some defective or unauthorized act or contract which, without his
subsequent approval or consent, would not be binding on him.
Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
Requisites of Ratification
a) the contracts must be a voidable one.
b) the person ratifying must know the reason for the contract being voidable (i.e., the cause must be known)
c) the cause must not exist or continue to exist anymore at the time of ratification.
d) the ratification must have been made expressly or by an act implying a waiver of the action to annul.
e) the person ratifying must be the injured party

Kinds of Ratification
a) Express (oral or written)
b) Tacit (implied – as from conduct implying a waiver)
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
- The guardian may act in behalf of the incapacitated person entitled to ratify the contract. Ratification can be made by the
injured party himself, provided he is capacitated, or has become capacitated. This article does not refer to rescissible
contract entered into by the guardian in behalf of his ward.
Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313)
Effect of Ratification Retroactive
- Ratification cleanses the contract of all its defects from the moment it was executed. It extinguishes the right of action to
annul. In other words, the effect of ratification is to make the contract valid from its inception subject to the prior rights of
third person.
III. UNENFORCEABLE
Concept / nature of unenforceable contracts (Contract that cannot be enforce)
 An unenforceable contract is a valid contract that cannot be fully enforced due to some technical defect.
 A written or oral agreement that will not be enforced by courts.
 A contract or transaction that is valid but which the court will not enforce or sued upon, unless it is first ratified.
 Unenforceable is usually used in contradiction to void ( or void ab initio ) and voidable. If the parties perform, it will
be valid, but the court will not compel them if they do not.
3 Kinds of Unenforceable Contracts
Under Article 1403, the following contracts are unenforceable , unless they are ratified.
1. Contracts made without or in excess of authority;
Unauthorized Contracts
• Unauthorized contracts are those entered into in the name of another person by one who has been given no
authority or legal representation or who has acted beyond his powers.
2. Contracts that do not comply with the Statute of Frauds; and
 An agreement that by its terms is not be performed within a year from the making thereof;
 A special promise to answer for the debt, default, or miscarriage of another.
 An agreement made in consideration of marriage, other than a mutual promise to marry.
 A representation as to the credit of a third person.
3. Contracts where both parties are incapacitated / incapable of giving consent.
 Minors and people with impaired mental capacity /(s).
 If people under legal disability attempt to make a contract can be declared ineffective.
Characteristics of unenforceable contracts
 They CANNOT be ENFORCED by PROPER ACTION in COURT.
 The one who is entitled to question the enforceability of the contract may waive his right to question whether by
omission or comission. COMISSION is when he EXPRESSLY RATIFIES the CONTRACT. OMISSION is by
FAILURE to ACT.
Example of omission
 When an action is filed against the defendant, then in the answer he prepared, he did not raise as a defense that
the contract is unenforceable
 Cannot be assailed by 3rd persons.
Effect of ratification
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.
IV. Void and Inexistent Contracts
Art. 1409. The Following contracts are inexistent and void from the beginning:
 Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
 Those which are absolutely simulated or fictitious;
 Those whose cause or object did not exist at the time of the transaction;
 Those whose cause or object is outside the commerce of men;
 Those which contemplate an impossible service;
 Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
 Those expressly prohibited or declared void by law.

Void contracts
 Are those which, because of certain defects, generally produce no effect at all.
 They are considered as inexistent from its inception or from the very beginning. The expression “void contract” is,
therefore, a contradiction in terms. However, the expression is often loosely used to refer to an agreement tainted
with illegality
Inexistent contracts
 Refer to agreements which lack one or some or all of the elements or do not comply with formalities which are
essential for the existence of a contract
 An illegal contract may produce effects under certain circumstances where the parties are not of equal guilt.
Characteristics of a void or inexistent contract
They are as follows:
3. Generally, it produces no force and effect whatsoever;
4. It cannot be ratified (Art. 1409, par. 2);
5. The right to set up the defense of illegality cannot be waived;
6. The action or defense for the declaration of its inexistence does not prescribe (art. 1410); and
7. It cannot give rise to a void contract (Art. 1422)
Contracts Declared Inexistent
1. Contracts whose cause, object or purpose is contrary to law
2. Contracts which are absolutely simulated or fictitious
3. Contracts without cause or object
4. Contracts whose object is outside the impossible service
5. Contracts which contemplate an impossible service
6. Contracts where the intention of the parties relative to the object cannot be ascertained

Contracts Declared Void

A void contract cannot be enforced by law. Void contracts are different from voidable contracts, which are contracts
that may be nullified. However, when a contract is being written and signed, there is no automatic mechanism available in
every situation that can be utilized to detect the validity or enforceability of that contract. Practically, a contract can be
declared to be void by a court of law.
Act does not constitutes a criminal offense
RULES WHERE CONTRACT IS ILLEGAL BUT THE ACT DOES NOT CONSTITUTE A CRIMINAL OFFENSE
1. Where both parties are in pari delicto- If the cause of the contract is unlawful or forbidden but there is no criminal offense
a) Neither party may recover what he has given by virtue of the contract; and
b) Neither party may demand the performance of the other’s undertaking
2. Where only one party is guilty- If only party is guilty or both parties are not equally guilty, the following are the rules:
a) The guilt party loses what he has given by reason of the contract;
b) The guilt party cannot ask for the fulfillment of the other’s undertaking;
c) The innocent party may demand return of what he has given; and
d) The innocent party cannot be compelled to comply with his promise

Act constitutes a criminal offense

RULES WHERE CONTRACT IS ILLEGAL AND THE ACT CONSTITUTES A CRIMINAL OFFENSE
1. Where both parties are in pari delicto- The following are the effects of a contract whose cause or object constitutes a
criminal offense and both parties are in pari delicto, that is, equally guilty:
a) The parties shall have no action against each other;
b) Both shall be prosecuted; and
c) The things or the price of the contract, as the effects or instruments of the crime, shall be confiscated in favor of the
government
2. Where only party is guilty- If one party is guilty or both parties are not equally guilty (in delicto, but not in pari delicto)
In Pari Delicto Rule
 “In equal fault," which means that two (or more) people are all at fault or are all guilty of a crime.
 In contract law, if the fault is more or less equal then neither party can claim breach of the contract by the other; in
an accident, neither can collect damages, unless the fault is more on one than the other under the rule of
"comparative negligence";
 In defense of a criminal charge, one defendant will have a difficult time blaming the other for inducing him or her
into the criminal acts if the proof is that both were involved.