REVIEWER FOR CONTRACTS

ART 1305
Contracts is the meeting of the minds between two or more persons or parties.
CONTRACTS OBLIGATIONS
Contracts is one of the sources of the sources of Obligations is a legal tie or relation itself that exist after
obligations a contract has been entered into

CONTRACTS AGREEMENT
- Contracts are binding agreements enforceable - An agreement is broader than a contract
through legal proceedings in case the other because the former may not have all the
party does not comply with his obligations elements of a contract that create legally
enforceable obligations
- There are agreements that cannot be enforced
by actions of court of justice, these are merely
moral or social agreements.

CLASSIFICATIONS OF CONTRACTS
1. According to name or designation; 7. According to risk
- Nominate - Commutative (when the undertaking of one
- Innominate party is considered the equivalent of that of the
2. According to perfection other)
- Consensual - Aleatory (e.g. insurance, sale of hope) – when it
- Real depends upon an uncertain event or
3. According to cause contingency both as to benefit or loss
- Onerous 8. According to liability
- Remuneratory or remunerative - Unilateral (commodatum, gratuitous deposit)
- Gratuitous - Bilateral (sale, lease)
4. According to form 9. According to status
- Informal, common or simple - Executory
- Formal or solemn - Executed
5. According to obligatory force 10. According to dependence to another contract
- Valid - Preparatory
- Rescissible - Accessory
- Voidable - Principal
- Unenforceable 11. According to dependence
- Void or inexistent - Indivisible (sale of a dining room and 8 matching
6. According to person obliged chairs)
- Unilateral - Divisible (sale of rocking chair and a pair of
- Bilateral shoes)

CHARACTERISTICS OF CONTRACTS
1. FREEDOM OR AUTONOMY OF CONTRACTS — The parties may establish such stipulations, clauses, terms, and
conditions as they may deem convenient, provided, they are not contrary to law, morals, good customs, public
order, and public policy
2. OBLIGATORINESS OF CONTRACTS — Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith
3. MUTUALITY OF CONTRACTS — Contracts must bind both and not one of the contracting parties; their validity or
compliance cannot be left to the will of one of them
4. CONSENSUALITY OF CONTRACTS — Contracts are perfected, as a general rule, by mere consent,4 and from that
moment the parties are bound not only by the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith, usage and law
5. RELATIVITY OF CONTRACTS — Contracts take effect only between the parties, their assigns and heirs, except in
cases where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation, or by provision of law

VALID CONTRACTS are those that have met all the legal requisites for the type of agreement involved and the limitations
on contractual stipulation and are therefore legally binding and enforceable.

ART 1306
FREEDOM TO ENTER CONTRACTS - The right to enter into contracts is one of the liberties guaranteed to the individual by
the Constitution. It also signifies or implies the right to choose with whom one desires to contract.
LIMITATIONS ON CONTRACTUAL STIPULATIONS – freedom to contracts should not be against the law, morals, good
customs, public order, public policy.
ART 1307
NOMINATE CONTRACTS – has a specific name or designation in law.
INNOMINATE CONTRACTS - has no specific name or designation in law.

KINDS OF INNOMINATE CONTRACTS

- Do ut des – I give that you may give
- Do ut facias – I give that you may do
- Facto ut des – I do what you may give
- Facto ut facias – I do what you may do

RULES GOVERNING INNOMINATE CONTRACTS.

Innominate contracts shall be governed by:
(1) the agreement of the parties;
(2) the provisions of the Civil Code on obligations and contracts;
(3) the rules governing the most analogous contracts; and
(4) the customs of the place.

CONTRACT BINDS BOTH CONTRACTING PARTIES.

(1) Principle of mutuality of contract. — Article 1308 expresses this principle. The ultimate purpose of the principle
is to nullify a contract containing a condition which makes its fulfillment or pre-termination dependent
exclusively upon the uncontrolled will of one of the contracting parties.
(2) Fulfillment or extinguishment of contract. — A contract containing a condition which makes its fulfillment or
extinguishment dependent exclusively upon the uncontrolled will of one of the contracting parties is void.
(3) Renunciation or violation of contract. — It is an elementary rule that no party can renounce or violate the law of
the contract unilaterally or without the consent of the other.
(4) Proof of alleged defect in contract. — If after a perfect and binding contract has been executed between the
parties it occurs to one of them to allege defect as a reason for annulling it, the alleged defect must be
conclusively proved since the validity and fulfillment of contracts cannot be left to the will of one of the
contracting parties.
(5) Release of obligor from compliance. — The mere fact that a party to a contract has made a bad bargain, may
not be a ground for setting aside the agreement.

ART 1309
DETERMINATION OF PERFORMANCE BY A THIRD PERSON.
Under the preceding article, compliance with a contract cannot be left to the will of one of the contracting parties.
However, under the above provision, the determination of its performance may be left to a third person. In such case,
the obligation does not depend upon a potestative condition. The decision, however, of the third person shall bind the
parties only after it has been made known to both of them.

ART1310
EFFECT WERE DETERMINATION INEQUITABLE
A contracting party is not bound by the determination if it is evidently inequitable or unjust as when the third person
acted in bad faith or by mistake. In such case, the courts shall decide what is equitable under the circumstances.

ART 1311
PERSONS AFFECTED BY A CONTRACT.
(1) GENERAL RULE. — Contracts take effect only between the parties, their assigns and heirs. This means that only
the parties, their assigns and heirs can have rights and obligations under a contract.
(2) REAL PARTIES IN INTEREST. — Since a contract may be violated only by the parties thereto as against each other,
in an action upon the contract, the real parties in interest, either as plaintiff or as defendant, must be parties to
said contract.
(3) Exceptions. — The cases when a contract is effective only between the parties are when the rights and
obligations arising from the contract are not transmissible: (a) by their nature (like a contract requiring or
involving personal qualifications, as painting, singing, etc.); or (b) by stipulation (in accordance with the principle
of freedom to contract); or (c) by provision of law (as in agency, partnership, and commodatum, when death
extinguishes the legal relationships).

THERE ARE CASES, HOWEVER, WHEN THIRD PERSONS MAY BE AFFECTED BY A CONTRACT
They are the following:
(1) In contracts containing a stipulation in favor of a third person (stipulation pour autrui)
(2) In contracts creating real rights
(3) In contracts entered into to defraud creditors
(4) In contracts which have been violated at the inducement of the third person
(5) In contracts creating “status” (e.g., the resulting status of marriage must be respected, even by strangers, while the
contract is in force);
(6) In the quasi-contract of negotiorum gestio, the owner is bound in a proper case, by contracts entered into by the
“gestor’’ (unauthorized manager)
(7) In “collective contracts” where the majority rules over the minority (e.g., collective bargaining contracts which affect
even nonunion members; “suspension of payments” and “compositions” under the Insolvency Law, where creditors are
bound by the contracts of the majority); and
(8) Where the situation contemplated in Article 172918 obtains. The intention of this article is to protect the laborers
and the materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between
owners and contractors.

STIPULATION POUR AUTRUI is a stipulation in a contract clearly and deliberately conferring a favor upon a third person
who has a right to demand its fulfillment, provided, he communicates his acceptance to the obligor before its revocation
by the obligee or the original parties.

CLASSES OF STIPULATIONS POUR AUTRUI

Stipulations in favor of a third person may be divided into two classes, namely:
(1) Those where the stipulation is intended for the sole benefit of such person.
(2) Those where an obligation is due from the promisee to the third person which the former seeks to discharge by
means of such stipulation, as, for instance, where a transfer of property is coupled with the purchaser’s promise to pay a
debt owing from the seller to a third person.

REQUISITES OF STIPULATION POUR AUTRUI

They are the following:
(1) The contracting parties by their stipulation must have clearly and deliberately conferred a favor upon a third person;
(2) The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the
original parties;
(3) The stipulation in favor of the third person should be a part and not the whole of the contract or the contract itself;
(4) The favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and
(5) Neither of the contracting parties bears the legal representation or authorization of the third party for otherwise the
rules on agency will apply

NATURE AND FORM OF ACCEPTANCE OF STIPULATION

(1) The acceptance must be unconditional
(2) The “acceptance does not have to be in any particular form, even when the stipulation is for the third person an
act of liberality or generosity on the part of the promissor or promisee.”

ART 1312
THIRD PERSONS BOUND BY CONTRACTS CREATING REAL RIGHTS
Third persons who come into possession of the object of a contract over which there is a real right, such as a real estate
mortgage, are bound thereby even if they were not parties to the contract.

ART 1313
RIGHT OF CREDITOR TO IMPUGN CONTRACTS INTENDED TO DEFRAUD THEM
The creditor, although he is not a party to the contract, is given the right to impugn the contracts of his debtor intended
to defraud him, such as contracts undertaken by a debtor in fraud of his creditor without the knowledge of the latter. He
can sue to rescind the contract to prevent fraud upon him.

RIGHT OF CREDITOR TO ENFORCE CONTRACTS OF DEBTOR WITH A THIRD PERSON

1. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an
action against the owner up to the amount owing from the latter to the contractor at the time the claim is made.
2. The lessor may recover rent due from a sublessee since the sublessee is subsidiarily liable to the lessor for any
rent due from the lessee.
ART 1314
LIABILITY OF THIRD PERSON RESPONSIBLE FOR BREACH OF CONTRACT
Article 1314 recognizes an instance when a stranger to a contract can be sued for damages for his unwarranted
interference with the contract. The tort or wrongful conduct is known as “interference with contractual relations.’’

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law.
ART. 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of
the obligation.
CLASSIFICATIONS OF CONTRACTS
(1) CONSENSUAL CONTRACT or that which is perfected by mere consent (e.g., sale, lease, agency)
(2) REAL CONTRACT or that which is perfected, in addition to the above, by the delivery of the thing subject matter of
the contract (e.g., depositum, pledge, commodatum) and
(3) SOLEMN CONTRACT or that which requires compliance with certain formalities prescribed by law such prescribed
form being thereby an essential element thereof (e.g., donation of real property)
STAGES OF CONTRACTS
1. PREPARATION OR NEGOTIATION – in this part, parties have not yet arrived at any agreement
2. PERFECTION OR BIRTH – this is where the parties have a definite agreement or meeting of the minds regarding
the subject matter of the contract
3. CONSUMMATION OR TERMINATION – this is when the parties have performed their respective obligations to the
contract
HOW CONTRACTS ARE PERFECTED
1. CONSENSUAL CONTRACTS – as a general rule, CONTRACTS ARE PERFECTED BY MERE CONSENT of the parties
regarding the subject matter and cause of the contract.
2. REAL CONTRACTS – it is perfected not by merely consent but by the deliver, actual or constructive, of the object
of the obligation
3. SOLEMN CONTRACTS – when the law requires that a contract must be in some form to be valid, this special form
is necessary for the perfection
ESSENTIAL REQUISITES OF CONTRACTS
1. CONSENT – conformity or concurrence of wills and with respect to contracts
- OFFER is the proposal made by one party to another, indicating willingness to enter in to contract
- ACCEPTANCE is the manifestation by the offeree of his assent to all the terms of the offer
2. OBJECT – it is a subject matter of the contract
3. CAUSE – essential reason or purpose which the contracting parties have in view at the time of entering into the
contract
CLASSES OF ELEMENTS
Essential elements
- Common
- Special
Natural element
- Warranty against eviction
- Warranty against hidden defects of sale
Accidental element
- Conditions
- Period
- Interest
- Penalty
 REVIEWER FOR ARTICLES 1380-1422
VOIDABLE CONTRACTS
RESCISSIBLE CONTRACTS — They are the least infirm or defective. They are valid because all the essential requisites of a
contract exist but by reason of injury or damage to one of the parties or to third persons, such as creditors, the contract
may be rescinded. Thus, the defect is external. Until such contracts are rescinded in an appropriate proceeding, they
remain valid and binding upon the parties thereto

BINDING FORCE OF RESCISSIBLE CONTRACTS. They are valid and enforceable although subject to rescission by the court
when there is damage or prejudice to one of the parties or to a third person.

REQUISITES OF RESCISSION
The following are the requisites in order that the remedy of rescission under this Chapter may be availed of:
(1) The contract must be validly agreed upon
(2) There must be lesion or pecuniary prejudice or damage to one of the parties or to a third person
(3) The rescission must be based upon a case especially provided by law
(4) There must be no other legal remedy to obtain reparation for the damage
(5) The party asking for rescission must be able to return what he is obliged to restore by reason of the contract
(6) The object of the contract must not legally be in the possession of third persons who did not act in bad faith and
(7) The period for fi ling the action for rescission must not have prescribed.

ARTICLE 1390
VOIDABLE OR ANNULLABLE CONTRACTS
- Are those which possesses all the essential requisites of a valid contract but one of the parties is incapable of
giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.
BINDING FORCE OF VOIDABLE CONTRACTS
- They are valid and binding between the parties unless annulled by a proper action in court by the injured party.
Once the contract has been ratified, they become absolutely valid and can no longer be annulled.
KINDS OF VOIDABLE CONTRACTS
- Legal capacity to give consent, where one of the parties is incapable of giving consent to the contract;
- Violation of consent, where the vitiation is done by mistake, violence, intimidation, undue influence, or fraud.
MEANING OF ANNULMENT
- It is a remedy provided by law, for reason of public interest, for 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.
DIFFERENCES BETWEEN ACTION FOR ANNULMENT AND ACTION FOR RESCISSION.
They are the following:

ACTION FOR ANNULMENT ACTION FOR RECISSION

Based on vitiation of consent Based on lesion or to a third party
May be brought only by a party to the contract May also brought by the third party who suffered
damaged by reason of the contract.
Principal action Merely subsidiary
Presupposes that the contract is legally defective The contract was validly entered into
Seeks the imposition of sanction by law on the guilty Is a remedy allowed by law on ground of equity
party for reason of public interest.
Allowed even if the plaintiff has been indemnified Barred by such indemnification

ARTICLE 1391
THE PERIOD FOR FILING ACTION FOR ANNULMENT
- 4 YEARS
WHEN WILL 4 YEARS OF FILING STARTS?
- In the cases of intimidation, violence, or undue influence, the filing starts when this cases ceases. Before that
time, the consent is still being vitiated and, therefore, the victim cannot be expected to bring in court.
- In the cases of mistakes or fraud, the start of 4-year filing action for annulment is when mistake or fraud has
been discovered.
- In the case of contracts entered into by minors or incapacitated persons, from the time the guardianship ceases.
An incapacitated person has no capacity to sue.
ARTICLE 1392
MEANING AND EFFECT OF RATIFICATION
- Ratification means that one voluntarily adopts or approves some defective or unauthorized act or contract
which, without his subsequent approval or consent, would not be binding on him. It indicates an intention on
the part of the ratifier to be bound to be provisions of the contract.
- Ratification cleanses the contract from all its defects from the moment it was constituted. The contract thus
becomes valid. Hence, the action to annul is extinguished.
ARTICLE 1393
KINDS OF RATIFICATION
- EXPRESS
When the ratification is manifested in words or in writing.
- IMPLIED OR TACIT
It may take diverse forms, as by silence or acquiescence; by acts showing adoption or approval of the contracts; or by
acceptance and retention of benefits flowing therefrom.

REQUISITES OF RATIFICATION
1. FOR IMPLIED RATIFICATION
- There must be knowledge of the reason which renders the contract voidable;
- Such reason must have ceased; and
- The injured party must have executed an act which necessarily implies an intention to waive his right.
2. FOR EXPRESS RATIFICATION – are the same as the implied ratification EXCEPT TO THE FORMER IS AFFECTED
EXPRESSLY.

ARTICLE 1394
WHO MAY RATIFY?
1. A contract entered into by incapacitated person may be ratified by:
a. The guardian; or
b. The injured party himself provided he is already capacitated.
2. In case the contract is voidable on the ground of mistake, etc., ratification can be made by the party whose
consent is vitiated.
ARTICLE 1395
CONFORMITY OF GUILTY PARTY TO RATIFICATION NOT REQUIRED
- Ratification is UNILATERAL ACT by which a party waives the defect in his consent. The consent of the guilty party
is not required; otherwise, he can conveniently disregard his contract by the simple expedient of refusing to
give his conformity.
ARTICLE 1396 - RATIFICATION cleanses the contract from all its defects from the moment it was constituted.
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 persons.
ARTICILE 1397
PARTLY ENTITLED TO BRING AN ACTION TO ANNUL
REQUISITES TO CONFER NECESSARY CAPACITY TO BRING AN ACTION FOR ANNULMENT OF A CONTRACT
- The plaintiff must have an interest in the contract
- The victim and not the party responsible for the defect is the person who must assert the same.
RIGHT OF STRANGERS TO BRING ACTION
- Those who are not a party to the contract or an assignee, or does not represent those who took part therein,
under article 1397, has no legal capacity to challenge the validity of the contract.
- Strangers therefore, are WITHOUT right of personality to bring action for they are not obliged by the contract,
principally or subsidiarily, UNLESS they can show detriment which would positively result to them from the
contract in which they had no intervention or participation.
GUILTY PARTY WITHOUT RIGHT TO BRING ACTION
- The guilty party, including the successor in interest, cannot ask for annulment. This rule is sustained by the
principle that he who comes to court must come with clean hands.
ARTICLE 1398
DUTY OF MUTUAL RESTITUTION UPON ANNULMENT
1. If the contract is annulled, as a general rule, the parties, must restore to each other
a. The subject matter of the contract with its fruits
b. The price thereof with legal interest.
2. In personal obligations where the service had already been rendered, the value thereof with the corresponding
interest, is the basis for damages recoverable from the party benefited by the service.
ARTICLE 1399
RESTITUTION BY AN INCAPACITATED PERSON
- This provision is an exception to the general rule of mutual restitution under the preceding article. The
incapacitated person is obliged to make restitution only to the extent that he will benefit by the thing or by the
price received by him.
ARTICLE 1400
EFFECT OF LOSS OF THING TO BE RETURNED
 1. Id without the fault of the obliged person, there is no obligation to return such things. But in such case, the other
cannot be compelled to restore in virtue of the decree of annulment he is bound to return.
2. If lost through his fault, his obligation is obviously not extinguished but is converted into an indemnity for
damages consisting of the value from the same date and the fruits received from the time the thing was given to
him to the time of its loss.
ARTICLE 1401
EXTINGUISMENT OF ACTION FOR ANNULMENT
1. If the person, who has a right to institute an action for annulment (Art. 1397.), will not be able to restore the
thing which he may be obliged to return in case the contract is annulled because such thing is lost through his
fraud or fault, his right to have the contract annulled is extinguished. If the loss is not due to his fault or fraud,
Article 1402 applies.
2. Whether the right of action is based upon incapacity or not, the rule is the same. It is no longer necessary that
the fraud or fault on the part of the plaintiff (the incapacitated person) resulting in the loss must have occurred
“after having acquired capacity” as under the old Code. This qualification has been deleted in the present article.
The deletion has made the second paragraph redundant.

ARTICLE 1402
EFFECT WHERE A PARTY CANNOT RESTORE WHAT HE IS BOUND TO RETURN
- When a contract is annulled, reciprocal obligation is created. The return by one party of what he is obliged to
restore by the decree of annulment may be regarded as a condition to the fulfillment by the other of what is
incumbent upon him.
- In effect, there will be no annulment If the party cannot restore what he is bound to return.
UNENFORCEABLE CONTRACTS
ARTICLE 1403
UNENFORCEABLE CONTRACTS
- Are those that cannot be enforced by the court of law or sued upon by reason of certain defects provided by law
until and unless they are ratified according to law.
BINDING FORCE OF UNENFORCEABLE CONTRACTS
- While the rescissible and voidable contracts are valid and enforceable unless they are rescinded or annulled,
unenforceable contracts, although valid, are unenforceable in court unless they are cured or ratified.
KINDS OF UNENFORCEABLE CONTRACTS
THESE ARE THE CONTRACTS THAT INDICATE THREE (3) TYPES OF DEFECTS THAT RENDER THEM UNENFORCEABLE
1. Those entered into the name of another by one without, or acting in excess of, authority;
2. Those that do not comply with the statute of frauds;
3. Those where both parties are incapable of giving.
UNAUTHORIZED CONTRACTS
- Are those entered into the name of another person by one who has been given authority or legal representation
or who has acted beyond his power.
STATUTE OF FRAUD
1. HISTORY – By a written memorandum signed by the party against whom liability under the contract was sought
to be enforced.
2. PURPOSE – the purpose of statute of fraud is to avoid fraud and to guard against the mistakes of honest men by
requiring that certain agreements specified that are susceptible to fraud must be in writing; otherwise, they are
unenforceable by the court.
3. WRITING UNDER THE STATUTE – the writing may be embodied in a slip of paper, a letter, a note or a
memorandum by means of a pen, a pencil, or any mechanical device as long as it is intelligible and records the
intent of the parties.
4. APPLICATION – some fundamental principles relative to the statute of frauds are given hereunder.
a. The statutes of frauds are not applicable in actions which are neither for damages because of violation of a
contract nor for the specific performance thereof.
b. It is applicable only to completely executory contracts and not to contracts which are totally executed or partly
executory. The reason is that partial performance like the writing, furnishes reliable evidence of the intention of
the parties or the existence of the contract.
- A CONTRARY RULE would result in injustice or unfairness to the party who has performed his obligation for it
would enable the other to keep the benefits already derived by him from the transaction, and at the same time
evade the obligations are assumed or contracted by him thereby.
c. It is not applicable when the contract is admitted expressly, or impliedly by the failure to deny specifically its
existence, no further evidence thereof being required in such case.
d. It is applicable only to the agreements enumerated therein.
e. It is not applicable where a writing does not express the true agreement of the parties.
f. It does not declare that contracts infringing is are void but merely unenforceable.
g. The defense of the statute of frauds may be waived.
h. The defense of the statute of frauds is personal to the parties and cannot be interposed by stranger to the
contract.
AGREEMENT WITHIN THE SCOPE OF THE STATUTE OF FRAUDS
- To be enforceable, a contract does not have to be in writing. In fact, most of the contracts made orally are legally
enforceable. However, there are agreements which fall within the scope of the statute of frauds enumerated
below, which are not legally enforceable in court although valid, unless the SAME BE IN WRITING.
1. AGREEMENT NOT TO BE PERFORMED WITHIN ONE YEAR FROM THE MAKING THEREOF
2. PROMISE TO ANSWER FOR THE DEBT, DEFAULT, OR MISCARRIAGEOF ANOTHER
- In guaranty, the promise is merely subsidiary or collateral to the promise of another.
3. AGREEMENT IN CONSIDERATION OF MARRIAGE OTHER THAN MUTUAL PROMISE TO MARRY
4. AGREEMENT FOR SALE OF GOODS, ETC. AT PRICE NOT LESS THAN P500.00
5. AGREEMENT FOR LEASING FOR A LONGR PERIOD THAN ONE (1) YEAR
6. AGREEMENT FOR THE SALE OF REAL PROPERTY OR OF AN INTEREST THEREIN
7. REPRESENTATION AS TO THE CREDIT OF A THIRD PERSON

ARTICLE 1404 – Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this book.

ARTICLE 1405
MODES OF RATIFICATION UNDER THE STATUTES
1. by failure to object to the presentation of oral evidence to prove the contract. The failure to so object amounts
to a waiver and makes the contract as binding as if it had been reduced to writing.
2. by acceptance of benefits under the contract. In this case, the contract is no longer executory and, therefore, the
Statute does not apply.
ARTICLE 1406
RIGHT OF A PARTY WHERE CONTRACT ENFORCEABLE
1. Accordingly, a party to an oral sale of real property cannot compel the other to put the contract in a public
document for purposes of registration because it is unenforceable (Art. 1403[2, e].) unless, of course, it has been
ratified. (Art. 1405.)
2. Similarly, the right of one party to have the other execute a public document is not available in a donation of
realty when it is in a private instrument because the donation is void. (Art. 1356.)
ARTICLE1407
WHEN IS CONTRACTS BECOMES VOIDABLE?
- When unenforceable contract becomes a voidable contract. Where both parties to a contract are incapable of
giving consent, the contract is unenforceable. (Art. 1403[3].) However, if the parent or guardian, as the case may
be, of either party, or if one of the parties after attaining or regaining capacity, ratifies the contract, it becomes
voidable.
WHEN UNENFORCEABLE CONTRACT BECOMES A VALID CONTRACT
- If the ratification is made by the parents or guardians, as the case may be, of both contracting parties, or by both
contracting parties after attaining or regaining capacity, the contract is validated and its validity retroacts to the
time it was entered into.
ARTICLE 1408
RIGHT OF THIRD PERSONS TO ASSAIL AN UNENFORCEABLE CONTRACT
- Strangers to a voidable contract cannot bring an action to annul the same (Art. 1397.); neither can they assail a
contract because of its unenforceability. The benefit of the Statute can only be claimed or waived by one who is
a party or privy to the oral contract, not by a stranger. An action for rescission may be brought by a third person.
VOID OR INEXISTENT CONTRACTS
ARTICLE 1409
VOID CONTRACTS
- Are those which, because of certain defects, generally produce no effect at all.
INEXISTENT CONTRACTS
- Refer to an agreement which lack one or some or all the elements or do not comply with formalities which are
essential for the existence of a contract.
CHARACTERISTICS OF VOID OR INEXISTENT CONTRACTS
1. It produces no force and effect or whatsoever
2. It cannot be ratified
3. The right to set up the defense of illegality cannot be waived
4. The action or defense for the declaration of its inexistence does not prescribe
5. The defense of illegality is not available to third persons whose interests are not directly affected
6. It cannot give rise to a valid contract
INSTANCE OF VOID OR INEXISTENT CONTRACTS
- Void of inexistent contracts are not enforceable from the very beginning, regardless of the intention of the
parties.
a. Contracts whose cause, object or purpose is contrary to the law
b. Contracts which are absolutely simulated or fictitious
c. Contracts without cause or object
d. Contracts whose object is outside the commerce of men
 e. Contracts which contemplate an impossible service
f. Contracts where the intention of the parties relative to the object cannot be ascertained
g. Contracts expressly prohibited or declared void by law
o Contracts upon future inheritance except in cases expressly authorized by law
o Sale of property between husband and wife except when there is separation of property
o Purchase of property by persons who are specially disqualified by law because of their position or
relation with the person or property under their care
o Every donation between spouses during the marriage should be void except moderate gifts which the
spouses may give each other on the occasion of any family rejoicing
o A testamentary provision in favor of a disqualified person, even though made under the guise of an
onerous contract, or made through an intermediary, shall be void.
o Any stipulation that household service is without compensation shall be void.
o Under the Constitution (Sec. 14, Art. VI.), members of Congress are prohibited from being financially
interested, directly or indirectly, in any contract with the government or any subdivision or
instrumentality thereof.
ARTICLE 1410
ACTION OR DEFENSE IS IMPRESCRIPTIBLE
- If a contract is void, a party thereto can always bring a court action to declare it void or inexistent; and a party
against whom a void contract is sought to be enforced, can always raise the defense of nullity, despite the
passage of time.
- Since a void contract has no effect at all, it is, therefore, unnecessary to bring an action to declare it void. It is
well within the right of a party to unilaterally cancel and treat as avoided a void contract.
- Voidable contracts can only be annulled by a proper action in court. (Art. 1390, last par.) within four (4) years
from the time the cause of action accrues. (Art. 1391.) In an action to enforce a voidable contract, the
defendant cannot attack its validity by way of defense and then ask for its annulment. But he can do so in a
counterclaim because it is in the nature of a complaint.
ARICLE 1411
RULE ON PARI DELICTO
- Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as they are,
because they are deemed in pari delicto, or “in equal fault.’’ In pari delicto is “a universal doctrine which holds
that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or money agreed to be paid, or
damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be
given to one against the other.’’ Indeed, one who seeks equity and justice must come to court with clear
hands.
RULES WHERE CONTRACT 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 equally guilty in pari delicto:
 The parties shall have no action against each other, or as stated in the legal maxim: In pari delicto melior
est conditio defendentis;
 Both shall be prosecuted; and
 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 ONE PARTY IS GUILTY - If only one party is guilty or both parties are not equally guilty (in delicto,
but not in pari delicto), the rule in paragraph 1 applies only to the guilty party or the more guilty party. The
innocent one or the less guilty may claim what he has given and shall not be bound to comply with his promise.
ARTICLE 1412