TITLE II

Contracts

(Articles 1305-1422, Civil Code.)

Chapter 1

GENERAL PROVISIONS

Article 1305

 Meaning of contract
A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to
render some service.
 Contract and Obligation distinguished
Contract is one of the sources of obligations. Obligation is the
legal tie itself that exists after a contract has been entered into. There
can be no contract if there is no obligation accepted in return for some
benefit to be enjoyed. An obligation can exist even without a contract.
 Contract and agreement distinguished
Contracts are binding agreements enforceable through legal
proceedings in case of breach. To be valid and enforceable, a contract
must be lawful and all the requisites for validity must be present.
Agreements that cannot be enforced in courts of justice are not
contracts but merely moral or social agreements. An agreement is
broader than contracts because the former may not have all the
elements of a contract that create legally enforceable obligations.

All contracts are agreements but not all agreements are

contracts.

 Classifications of contracts
1. According to name or designation:
a) Nominate
b) Innominate
2. According to perfection:
a) Consensual
b) Real
3. According to cause:
a) Onerous
b) Remuneratory or remunerative
c) Gratuitous
4. According to Form:
a) Informal, common or simple
b) Formal or solemn
5. According to obligatory force:
a) Valid
b) Rescissible
c) Voidable
d) Unenforceable
e) Void/inexistent
6. According to person obliged:
 a) Unilateral
b) Bilateral
7. According to risks:
a) Commutative- when the undertaking of one party is considered
the equivalent of that of the other
b) Aleatory- when it depends upon an uncertain event or
contingency both as to benefit or loss
8. According to liability:
a) Unilateral- when it creates an obligation on the part of only one
of the parties
b) Bilateral- when it gives rise to reciprocal obligations for both
parties
9. According to status:
a) Executory- when it has not yet been completely performed by
both parties
b) Executed- when it has been fully and satisfactorily carried out by
both parties
10. According to dependence to another contract:
a) Preparatory- when it is entered into as means to an end
b) Accessory- when it is dependent upon another contract it secures
or guarantees for its existence and validity
c) Principal- when it does not depend for its existence and validity
upon another contract but is an indispensable condition for the
existence of an accessory contract
11. According to dependence of part of contract to other parts:
a) Indivisible (entire)- when each part of the contract is dependent
upon the other parts for satisfactory performance
b) Divisible- when one part of the contract may be satisfactorily
performed independently of the other parts.

The significant thing to be determined is not the name or title of the

contract but its nature or character as determined by principles of law,
principally the intention of the contracting parties.

Article 1306

 Meaning of valid contracts

Valid contracts are those that meet all legal requirements and
limitations for the type of agreement involved and are therefore legally
binding and enforceable. It is possible to have an agreement that
meets all legal requirements but is unenforceable in court of law due to
its failure to comply with the Statutes of Frauds.
 Freedom to contract guaranteed
Every individual is granted the right (constitutional and
statutory) and liberty to enter into a contract by the Constitution.
However, this right is not absolute since everyone is only allowed to
enter legally valid contracts and prohibited to enter illegal ones.
 Limitations on contractual stipulations
1) Law- It is fundamental requirement that a contract must be in
accordance with, and not repugnant to, an applicable statute.
The law sets limits.
 2) Police power- If law is silent, will of parties prevails unless it
contravenes the limitation of morals, good customs, public order
or public policy. Contractual obligations are subject to the
possible exercise of police power of the state.
 Contracts must not be contrary to law
Law is a rule of conduct, just, obligatory, promulgated by
legitimate authority and is of common observance and benefit.
Law is superior to the contract. Acts against the provisions of
prohibitory or mandatory laws are void except when the law authorizes
it to be valid.
 Contracts must not be contrary to morals
Morals are norms of good and right conduct evolved in a
community. These norms may differ at different times and places and
with each group of people.
 Contract must not be contrary to good customs
Customs consists of habits and practices which through long
usage have been followed and enforced by society or some part of it as
binding rules of conduct.

 Contract must not be contrary to public order

Public order refers principally to public safety although it has
been considered to mean also the public weal.
 Contracts must not be contrary to public policy
Public policy is broader than public order. It refers not only to
public safety but also the considerations which are moved by the
common good.

Article 1307

 Classification of contracts According to name or designation

1) Nominate- contract which has a specific name or designation
in law
2) Innominate- contract which has no specific name or
designation in law
 Kinds of Innominate contract
1) Do ut des or I give that you may give (Already Nominate:
Barter/Exchange)
2) Do ut facias or I give that you may do
3) Facto ut des or I do that you may give
4) Facto ut facias I do that you may do
 Reasons for Innominate contracts
1) Impossibility of anticipating all forms of agreement
2) Progress of man’s sociological and economic relationships
A contract does not have to conform to all standards in the
Civil Code, it is sufficient that it has all the legal requirements to
be valid.
 Rules governing innominate contracts
1) Agreement of parties
2) Provisions of the Civil Code on obligations and contracts
3) Rules governing the most analogous contracts
4) Customs of the place

Article 1308

 Contract binds both contracting parties.

 It must bind both parties so that it may be enforced against
either. Without this equality, it can’t be said that it has the force of law
between them. No party can renounce or violate the law of the
contract without the consent of the other.

Article 1309

 Determination of performance by a third person

The obligation may not depend upon a potestative condition. The
determination of its performance may be left to a third person. The
decision shall bind the parties only after it has been made known to
both of them.

Article 1310

 Effect where determination inequitable

A determination by third person who acted in bad faith or by
mistake will not bind the contracting parties. In this case, the courts
shall decide what is equitable under the circumstances.

Article 1311

 Persons affected by a contract

1) General Rule- Party’s rights and obligations derived from a contract
are transmissible to the successors. Only the parties, their assigns
and heirs can have rights and obligations under the contract.
2) Exceptions- Cases when rights and obligations in a contract are not
transmissible:
a) By their nature
b) By stipulation
c) By provision of law
 Cases when strangers or third persons affected by a contract
A third person is someone who has no rights or obligations under
a contract, He is a stranger to the contract. There are cases when he
would be affected by the contract:
a) In contracts containing a stipulation in favor of a third person
(stipulation pour autrui)
b) In contracts creating real rights
c) In contracts entered into to defraud creditors
d) In contracts which have been violated at the inducement of a
third person
 Meaning of stipulation pour autrui
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.
 Cases of stipulations pour autrui
a) Those where the stipulation is intended for the sole benefit of
such person. It confers a gift.
b) Those where an obligation is due from the promise to the third
person which the former seeks to discharge by means of such
stipulation.
 Requisites of stipulation pour autrui
a) The contracting parties by their stipulation must have clearly and
deliberately conferred a favor upon a third person
 b) The third person must have communicated his acceptance to the
obligor before its revocation by the oblige or the original parties
c) The stipulation in favor of the third person should only be a part,
not the whole, of the contract
d) The favourable stipulation should not be conditioned or
compensated by any kind of obligation whatever
e) Neither of the contracting parties bears the legal representation
or authorization of the third party for otherwise, the rules on
agency will apply

Article 1312

 Third persons are bound by contracts; creating real rights

This is an exception to “only parties are bound by a contract”. Third

parties who come into possession of the object of the contract over which
there is real right are bound since a real right is binding against the whole
world and attaches to the property, wherever it goes. However, the property
should be registered under the Property Registration Decree.

Article 1313

 Creditor has/is given the right to impugn contracts intended to

defraud him.

Article 1314

 Third person who induces another to violate his contract shall

be liable to the other contracting party.

The third person shall be sued for his unwarranted interference. The
following are the presuppositions of this article:

1) Contract interfered is valid.

2) Third person has knowledge of contract’s existence.

Article 1315 & 1316

 Classification of Contracts according to Perfection

1) Consensual Contracts- perfected by mere consent
2) Real Contracts- perfected by delivery of the thing subject matter
of the contract
3) Solemn Contracts- perfected by compliance with certain
formalities prescribed by law
 Stages in the life of a contract
1) Preparation/Negotiation- includes all the steps taken by the
parties leading to the perfection of the contract. The parties have
not yet arrived at any definite agreement
2) Perfection/Birth- the parties have come up to a definite
agreement or the meeting of the minds regarding the subject
matter and cause of the contract
3) Consummation/Termination- the parties have performed their
respective obligations and the contract have been fully
accomplished or executed resulting in the extinguishment or
termination thereof
 How contracts are perfected
 1) Consensual contracts are perfected by mere consent of the
parties. (General Rule)
2) Real Contracts are perfected by actual or constructive delivery of
the object of the obligation (Exception)
3) Solemn Contracts are perfected by compliance with certain
formalities required by law.
 Effect of perfection
Once parties come to an agreement, they are bound not only:
1) to the fulfilment of what has been expressly stipulated but also;
2) to all consequences which according to their nature may be in
keeping with good faith, usage and law.

Article 1317

 Unauthorized contracts are unenforceable

As a general rule, a person is not bound by the contract of
another of which he has no knowledge or to which he has not given his
consent. Thus, a contract entered into in the name of another by one
who has no authority is unenforceable against the former unless it is
ratified by him before it is revoked by the other contracting party.
 Unauthorized contracts can be cured only by ratification
It must be done by the person in whose name the contract was
entered into or by his duly authorized agent and not by any other
person not so empowered.
The ratification must be clear and express so as not to admit of
any doubt or vagueness.
 When a person is bound by the contract of another
Requisites for a person to be bound by the contract of another:
1. The person entering into the contract must be duly
authorized, expressly or impliedly, by the person in whose
name he contracts or he must have, by law, a right to
represent him.
2. He must act within his power.

A contract entered into by an agent in excess of his authority is

unenforceable against the principal, but the agent is personally liable
to the party with whom he contracted.

CHAPTER 2

ESSENTIAL REQUISITES OF CONTRACTS

Article 1318

 Classes of elements of a contract

1. Essential Elements (Requisites of a Contract) – those without
which, no contract can validly exist regardless of the
intentions of the parties.
a. Common – those present in all contracts, namely,
consent, object, and cause
 b. Special – those not common to all contracts. Those
which must be present only in certain specified
contracts, and such peculiarity may be:
i. to form (e.g. public instrument, donation of
immovable property, etc.)
ii. to subject matter (e.g. real property in antichresis,
property in pledge, etc.)
iii. to consideration or cause (e.g. price in sale and
lease, etc.)

*A valid contract contains all the essential elements.

2. Natural Elements – those that are presumed to exist in certain

contracts unless the contrary is expressly stipulated by the
parties
3. Accidental Elements – particular stipulations, clauses, terms,
or conditions established by the parties in their contract

SECTION 1. – CONSENT

Article 1319

 Meaning of consent
It 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 others, upon the object and
terms of the contract
It is the meeting of minds or mutual assent between the parties
on the subject matter and the cause which are to constitute the
contract even if neither has been delivered.
 Meaning of offer
It is a proposal made by one party (offerer) to another (offeree),
indicating a willingness to enter into a contract. It is more than an
expression of desire or hope.
 Offer must be certain and seriously intended
1. The offer must be certain or definite so that the liability (or
the right) or the parties may be exactly fixed because it is
necessary that the acceptance be identical with the offer to
create a contract without any further act on the part of the
offeror.
2. An offer made in jest or anger, or while emotionally upset or
in another ways indicating that the same was not seriously
intended is not a valid offer. BUT lack of serious intent by the
offerer wherein it is not apparent to the offeree is valid.
 Meaning of acceptance
 It is the manifestation by the offeree of his assent to all the
terms of the offer. Without it, there can be no meeting of the minds
between the parties.
 Acceptance of offer must be clear and absolute
A contract consists of an offer and acceptance of that offer. The
acceptance must not only be clear; it must be absolute, unconditional
or unqualified, that is, identical in all respects with that of the offer so
as to produce consent or meeting of the minds.
A qualified acceptance must be accepted absolutely in order that
there will be a contract.

Article 1320

 Form of acceptance of offer

An express acceptance may be oral or writing. An implied
acceptance is inferred from act or conduct.

Article 1321

 Matters that may be fixed by the offerer

The offerer has the right to prescribe the time, the place, and the
manner of acceptance, all of which must be complied with. An
acceptance departing from the terms of the offer is a counter-offer.
A counter-offer extinguishes the offer. It, in effect, constitutes a
new offer which the original offerer may accept or reject.
 Communication of the offer
The offer must be communicated and received by the offeree. It
may be by letter, telephone, e-mail, or the like. It may be express or
implied.

Article 1322

 Communication of acceptance
1. To offerer – the acceptance must be absolute and
communicated to the offerer. It can be either express or
implied subject to the terms of the offer
2. To agent- legally, an agent is considered an extension of the
personality of his principal. If duly authorized, the act of agent
is the act of the principal.

Article 1323

 When offer becomes ineffective

An offer may be revoked or withdrawn at any time before it is
accepted merely by communicating such intentions to the other party.
After acceptance, the contract is already perfected.

An offer becomes ineffective because of the death, civil

interdiction, insanity, or insolvency of either party before the
conveyance of acceptance of the offer.

 Other grounds which render offer ineffective

Failure to comply with the condition of the offer as to the time,
place, and the manner of payment, the expiration of the period fixed in
the offer for acceptance, the destruction of the thing due before
acceptance, rejection of the offer, etc. will also render the offer
ineffective and prevent the creation of a contract.
Article 1324

 Meaning of contract option, option period, option money

1. Option contract – giving a person for a consideration a certain
period within which to accept the offer of the offerer.
Option – the privilege itself given to the offeree to accept an
offer
2. Option period – the period given within which the offeree must
accept the offer.
3. Option money – the money paid or promised to be paid in
consideration for the option.
Earnest money – partial payment of the purchase price and is
considered as proof of the perfection of the contract
 Withdrawal of offer where period stipulated for acceptance
The GENERAL RULE is that the offer may be withdrawn as matter
of right at any time before acceptance except when the option is
founded upon consideration, as something paid or promised.
 Article 1324 and 1479 compared

Article 1324 Article 1479

Lays down the general rule Applies specifically to “a

regarding offer and promise to buy or sell”
acceptance.
Interpreted as modified by
Article 1479

Article 1325

 Business advertisements generally not definite offers

Business advertisements are merely invitations to the reader to

make an offer. However, if the advertisement is complete in all the
particulars necessary in a contract, it may amount to a definite offer
which, if accepted, will produce a perfected contract.

Article 1326

 Advertisements for bidders generally not definite offers

In reality, the bidder is the one making the offer which the
advertiser is free to accept or reject.
As a GENERAL RULE, the advertiser is not bound to accept the
highest bidder (as when the offer is to buy) or the lowest bidder (as
when the offer is to construct a building) unless the contrary appears.

Article 1327

 Capacity to give consent presumed

The Civil Code does not define who have capacity or legal ability
to give consent to a contract. It defines on the contrary who have no
capacity, by which it can be inferred that capacity is the general rule,
which exists in those, of whom the law has not denied it.
 Persons who cannot give consent
1. Unemancipated minors – persons who have not reached the
age of maturity (18 years) and are still subject to 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 – persons who are deaf and dumb. However, if
the deaf-mutes knows how to write, the contract is valid for
then he is capable of giving intelligent consent,
 Reasons for disqualification
The reason is the persons mentioned can be easily be the victims
of fraud as they are not capable of understanding or knowing the
nature or import of their actions.

Article 1328

 Contracts entered into during a lucid interval

Lucid interval – temporary period of sanity.
A contract entered into by an insane or demented person during
a lucid interval is valid. It must be shown that there is a full return of
the mind to sanity as to enable him to understand the contract he is
entering into.
 Effect of drunkenness and hypnotic spell
Drunkenness and hypnotic spell impair the capacity of a person
to give intelligent consent. These conditions are equivalent to
temporary insanity. Hence, the law considers a contract into by those
people voidable and it is not required that such state was procured by
the circumvention of the other party.

Article 1329

 Incapacity declared in Article 1327 subject to modifications

Persons mentioned in Article 1327 can give valid consent when:

1. Necessaries such as food, are sold and delivered to a minor or

other person without capacity to act, he must pay a reasonable
price thereof.
2. A minor 28 years old or above may contract for life, health and
accident insurance, provided the insurance is taken on his life
and the beneficiary appointed is the minor’s estate, father,
mother, husband, wife, child, brother, or sister.
3. A contract is valid if entered into through a guardian or legal
representative.
4. A contract is valid where the minor misrepresented his age and
convincingly led the other party to believe in his legal capacity
5. A contract is valid where a minor between 18 and 21 years of
age voluntarily pays a sum of money or delivers a fungible thing
in fulfilment of his obligation thereunder and the obligee has
spent or consumed it in good faith.
 Other special disqualifications may be provided by law
1. Incompetents
a. Persons suffering the accessory penalty civil interdiction
b. Hospitalized lepers
c. Prodigals (spendthrifts)
d. Deaf and dumb who are unable to read and write
e. Those who are of unsound mind even though they have
lucid intervals
 f. Those who, by reason of age, disease, weak mind and
other similar causes, cannot take care of themselves and
manage their property, becoming thereby an easy prey for
deceit and exploitation

Article 1330

 Characteristics of consent
1. It is intelligent – there is capacity to act
2. It is free and voluntary – no vitiation of consent because of
violence or intimidation
3. It is conscious or spontaneous – no vitiation of consent by
reason of mistake, undue influence, or fraud.
 Vices of consent
1. Error or mistake
2. Violence or force
3. Intimidation or threat or duress
4. Undue influence
5. Fraud or deceit
 Causes vitiating consent and causes of incapacity
distinguished

Causes vitiating consent Causes of incapacity

Temporary More or less permanent
Refers to the contract itself Refers to the person entering
into the contract
Both make a contract “voidable” only, not void

Article 1331

 Meaning of mistake or error

It is the false notion of a thing or a fact material to the contract
 Nature of mistake
1. Mistake may be of fact or of law. In general, the mistake to
which Article 1331 refers is mistake of fact. It may arise from
ignorance or lack of knowledge.
2. The mistake contemplated by law is substantial mistake of
fact, that is, the party would not have given his consent had
he known of the mistake. Hence, not every mistake will vitiate
consent and make a contract voidable.
3. The mistake may be unilateral, when only one party is
mistaken about a material fact, or bilateral when both parties
are in error.
 Mistake of fact to which law refers
1. The substance of the thing which is the object of the contract
2. Those conditions which have principally moved one or both
parties to enter into the contract
3. The identity or qualifications of one of the parties provided the
same was the principal cause of the contract
 Mistake of fact which does not vitiate contract
1. Error as regard the incidents of a thing or accidental qualities
not taken as the principal considerations of the contract does
not vitiate consent unless the error is caused by fraud of the
other party.
 2. Mistake as to quantity or amount does not also vitiate consent
but only gives rise to its correction unless it goes to the
essence of the contract.
3. Error as regards the motives of the contract does not also
vitiate consent unless it constitutes a condition or cause of
the contract
4. Mistake as regards the identity or qualifications of a party
5. Error which could have been avoided by the party alleging it
 Effect of mistake of account
1. Mistake simple – it does not affect the validity of the contract
because it does not affect the essential requisites of a
contract.
2. Mistake gross – the party mistaken cannot avoid liability on
the ground of mistake in the computation.

Article 1332

 Burden of proof in case of mistake or fraud

Presumption when a person signs a document: He is doing so
with full knowledge and understanding of the contents. He is,
therefore, bound by it. If he alleges fraud or mistake, it is incumbent
upon him to prove his allegation.
A presumption is a fact accepted as true unless proved
otherwise.
BUT when one of the parties is unable to read or cannot
understand the language of the contract, it is incumbent upon the one
enforcing the contract to prove that the terms have been explained to
the former.

Article 1333

 Effect of knowledge of risk

If a party knew beforehand the doubt, contingency or risk
affecting the object of the contract, it is assumed that he is willing to
take chances and cannot, therefore claim mistake. (Aleatory contracts)

Article 1334

 Meaning of mistake of law

Mistake of Law is that which arises from:
 Ignorance of some provision of law
 Erroneous interpretation of its meaning
 Erroneous conclusion as to legal effect of an agreement
On the part of one of the parties

 Effect of mistake of law

As a rule, mistake of law does not invalidate consent because
“Ignorance of the law excuses no one from the compliance therewith.”
This doctrine is based on public policy, dictated by expediency and
necessity.

 When mistake of law vitiates consent

When there is a mistake on a doubtful question of law, or on the
construction or application of law, this is analogous to a mistake of
 fact, and the maxim of ignorantia legis neminem excusat (ignorance of
the law excuses no one) should have no proper application.
½ of all lawyers in all controversies on a legal question are
wrong, why should a layman be held accountable for his honest
mistake on a doubtful legal issue?

 Requisites for the application of Article 1334

1. The error must be mutual
2. It must be as to the legal effect of an agreement
3. It must frustrate the real purpose of the parties.

Article 1335

 Nature of Violence or Force

Violence requires employment of physical force. To make
consent defective, force employed must be serious or irresistible.
Consent is not free.
 Nature of Intimidation or threat
For Intimidation to vitiate consent:
1. It must produce a reasonable and well-grounded fear of an
evil.
2. The evil must be eminent and grave.
3. The evil must be upon his person or property or that of his
spouse, descendants or ascendants.
4. It is the reason why he enters the contract.

Intimidation may not resort to physical force. Intimidation is

internal. Violence is external.

 Factors to determine degree of intimidation

Whether or not fear is reasonable or well-grounded or the evil
eminent and grave depends on circumstances including AGE, SEX and
CONDITION OF THE PERSON.
If contract is signed out of reverential fear (fear of displeasing a
person to whom respect and obedience is due), contract is valid
because reverential fear cannot annul consent unless fear deprives
one of reasonable inference that undue influence has been exercised.
 Threat to enforce just or legal claim
It is legal and does not vitiate consent. It is a practice followed by
creditors to demand payment with the threat that upon failure, an
action would be filed in court. It is proper in law as a means to enforce
collection. It cannot constitute duress since creditor has the right to do
so.

Article 1336

 Violence or intimidation by a third person

Violence or intimidation may be employed by a third person who
did not take part in the contract BUT for it to be voidable or annullable,
it is necessary that the violence or intimidation must be of the
character required in Article 1335.

Article 1337

 Meaning of undue influence

 It overpowers the mind of a party as to prevent him from acting
understandingly and voluntarily to do what he would have done if he
had been left to exercise freely his own judgment and discretion.
To avoid contract, influence must be undue or improper. Mere
general or reasonable influence is not sufficient. If gained by kindness
and affection or argument and persuasion, it will not vitiate consent.
 Circumstances to be considered:
1. Confidential, family, spiritual and other relations between parties
2. Mental weakness
3. Ignorance
4. Financial distress of the person alleged to have been unduly
influenced

Article 1338

 Meaning of Causal Fraud

It is the fraud committed by one party before or at the time of
celebration of the contract to secure consent of the other. It is the
fraud used by a party to induce the other to enter into a contract
without which the latter would not have agreed to.
The fraud contemplated in this article is causal fraud and must
be distinguished from the fault dealt with in Article 1170.
 How causal fraud committed
1. Insidious words or machinations- misrepresentation in
words or actions with fraudulent purpose.
2. Concealment

If fraud did not have the effect of causal fraud then it did not by
itself cause the other party to give his consent, it gives rise to an
action for damages.

 Requisites of causal fraud:

1. There must be misrepresentation/concealment of a material fact
with knowledge of its falsity.
2. It must be serious.
3. It must have been employed by only one of the contracting
parties.
4. It must be made in bad faith or with intent to deceive the other
contracting party who had no knowledge of the fraud.
5. It must have induced the consent of the other party.
6. It must be alleged and proved by clear and convincing evidence.

Article 1339

 Fraud by concealment
Concealment is the failure to communicate or disclose that which
a party to a contract knows and ought to communicate. It is equivalent
to misrepresentation or false representation.
Injured party is entitled to rescind the contract regardless if the
concealment is intentional or unintentional as long as there is duty to
reveal them and the party is misled into entering the contract. If the
failure is unintentional, it is not fraud but a mistake or error. If
intentional but there is no duty to make the disclosure, the parties are
bound by their contract.

Article 1340
  Usual exaggeration in trade
The law allows considerable latitude to seller’s statements or
dealer’s talk and experience teaches that it is exceedingly risky to
accept to its face value. Any person who relies on said exaggerations
does so at his own peril.
The law does not consider such exaggerations, even if known as
false by the party making them, as amounting to fraud that will affect
the validity of the contract.

Dealer’s talk or trader’s talk – representations which do not appear on

the face of the contract and these do not bind either party.

Article 1341

 Expression of opinion
Fraud refers to misrepresentation of facts, not opinions. A mere
expression of an opinion does not signify fraud. In order that it may
amount to fraud, the following requisites must be present:
1. It must be made by an expert
2. The other contracting party has relied on the expert’s opinion
3. The opinion turned out to be false or erroneous.

Article 1342

 Fraud by a third person

A third person has no connection to a contract. Therefore, a
misrepresentation by him does not vitiate consent. However, if
misrepresentation has created substantial mistake and the same is
mutual, that is, it affects both parties, the contract may be annulled
but principally on the ground of mistake.
If the misrepresentation has been employed by a third person in
connivance with, or at least with knowledge of, the party benefited by
the fraud, it is deemed to have been exercised by such party upon the
other contracting party.

Article 1343

 Effect of misrepresentation made in good faith

It will be considered as a mere mistake or error.

Article 1344

 Two kinds of fraud in the making of a contract

1. Causal fraud – a ground for annulment, although it may also
give rise to action for damages.
2. Incidental fraud – only renders the party who employs it liable
for damages because the fraud was not the principal
inducement that led the other to give his consent.
 Requisites of causal fraud
1. It should be serious
This excludes slight and usual deviations from the truth
2. It should not have been employed by both contracting parties
(pari delicto)
3. It should not have been known by the other contracting party

Article 1345-1346
  Meaning of simulation of a contract
It is the act of deliberately deceiving others, by feigning or
pretending by agreement, the appearance of a contract which is either
non-existent or concealed.

 Kinds of simulation
1. Absolute simulation – when the contract does not really exist
and the parties do not intend to be bound at all
2. Relative simulation – when the contract entered into by the
parties is different from their true agreement.

SECTION 2. – OBJECT OF CONTRACTS

Article 1347-1348

 Concept of object of a contract

The object of a contract is its subject matter. The thing, service, or

right which is the object of the obligation is also the object of the contract.

 Kinds of object of a contract

i. Things
ii. Rights
iii. Services
 Requisites of things as object of contract
1. Thing must be in the commerce of men
2. It must not be impossible, legally or physically.
3. It must be in existence or capable of coming into existence.
4. It must be determinate or determinable without the need of a new
contract between the parties.
 Requisites of service as object of contract
1. The service must be within the commerce of men
2. It must not be impossible, physically or legally
3. It must be determinate or capable of being made determinate
 Rights as object of contract
As a general rule, all rights may the object of a contract unless
when they are intransmissible by their nature, or by stipulation, or by
provision of law.
 Definition of future inheritance
Future Inheritance is any property or right, not in existence or
capable of determination at the time of the contract, that a person
may inherit in the future.
Inheritance ceases to be future upon the death of the decedent
or deceased.
 Validity of contract upon future inheritance
The law permits contracts on future inheritance –
1) In the case of donations by reason of marriage
between future spouses with respect to their
future property to take effect
2) In the case of partition of property by act inter
vivos by a person to take effect upon his death
 Kinds of impossibility
1. Physical- the thing or service in the very nature of things cannot exist.
 a. Absolute- cannot be done in any case so that nobody can
perform
b. Relative- arises from the special circumstances or the special
conditions of the obligor.
2. Legal- when it is contrary to law, morals, good customs, public order,
or public policy.

Article 1349

 Quantity of object of contract need not be determinate

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. Quantity of object of a contract need not be determinate.

SECTION 3. – CAUSE OF CONTRACTS

Article 1350

 Meaning of cause
Cause (causa) is the essential reason or purpose why the
contracting parties entered into the contract.
 Cause distinguished from object
The distinction is only a matter of viewpoint
 Classification of contracts according to cause
1. Onerous - the cause is the prestation or promise of a thing or service
by the other. The parties are reciprocally obligated to each other.
2. Remuneratory or remunerative– the cause is the service or benefit
which is remunerated. The purpose of the contact is to reward the
service that has been previously rendered by the party remunerated.
3. Gratuitous- the cause is the liberation of the benefactor or giver.

Article 1351

 Meaning of motive
Motive is the purely personal or private reason for entering into a
contract. It is different from the cause of the contract.
 Cause distinguished from motive

CAUSE MOTIVE
Immediate or direct Remote or indirect
reason reason
Always known to the May be unknown to the
other contracting party other party
Essential element of a Not an essential
contract element
Illegality of cause Does not affect the
affects the validity of validity of the contract
contract

Article 1352- 1353

 Requisites of cause
1. It must exist at the time the contract is entered into.
2. It must be lawful.
 3. It must be true or real.
 Effects of absence of cause
Absence or want of cause means that there is a total lack of any
valid consideration for the contract.
Contracts without cause confer no right and produce to legal
effect. Thus,
1. A contract which is absolutely stimulated is inexistent and
void.
2. Where there is no consideration the statement of one in the
contract will not suffice to bring it under the rule of Article
1353 as starting a false consideration.
3. Promises to make a gift, or to render some gratuitous service
in the future are not enforceable contracts because they
contain no consideration.
4. Promises made in gratitude for good deeds of others cannot
be enforced for they constitute only moral, not legal,
consideration.
 Effects of failure of cause:

Failure of cause does not render the contract void.

 Effects of illegality of cause:

Contracts with unlawful cause are null and void.

 Effects of falsity of cause:

The contract states a valid consideration but such consideration is not

true.

A false cause may be:

1. Erroneous- renders the contract void

2. Simulated- does not always render the contract void because the
hidden but true cause is sufficient to support the contract.

Article 1354

 Cause is presumed in existence and lawful, unless the debtor

proves the contrary.

Article 1355

 Meaning of lesion
Lesion is any damage caused by the fact that the price is unjust
or inadequate.
 Effects of lesion of cause
1. General rule- Lesion or inadequacy does not invalidate the contract
2. Except, when:
a. When there is fraud, mistake, or undue influence
b. In cases specified by law.

CHAPTER 3

FORM OF CONTRACTS
Article 1356
  Meaning of form of contracts
The form of a contract refers to the manner in which a contract is
executed or manifested.
 When contract considered in written form
A written contract is a contract where all its terms are in writing.
A partly written and partly oral is, in legal effect, considered an oral
contract.
 Classification of contracts according to form:
1. Informal or common or simple contract – that which may be entered
into in whatever form provided all the essential requisites are present.
2. Formal or solemn contract- that which is required by law for its efficacy
to be in a certain specified form.
 Rules regarding form of contracts
1. General rule- A contract may be oral or written. A written contract
may consist of a letter, memo, note or other instruments.
2. Exceptions;
i. when the law requires that a contract be in some form
to be valid;
ii. when the law requires that a contract be in some form
to be enforceable or proved in a certain way
iii. when the law requires that a contract be in some form
for the convenience of the parties or for the purpose of
affecting third persons.

Article 1357

 Form for the convenience of the parties

In certain cases, a certain form is required for the convenience of
the parties in order that the contract may be registered in the proper
registry to make effective, as against third persons, the rights acquired
under such contracts.
It is essential before a party may be compelled to execute the
required form, that the contract be both valid and enforceable.

Article 1358

The following must appear in a public document:

1. Acts and contracts which have for their objects are governed by art.
1403 and 1405.
2. The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains.
3. The power to administer property
4. The cession of actions or rights proceeding from an act appearing in
public documents.
The public document is required only for the convenience and
greater protection of the parties

CHAPTER 4
REFORMATION OF INSTRUMENTS

Article 1359

 Meaning of reformation
 Reformation is the remedy allowed by law by means of which a
written instrument is amended or rectified so as to the express or
conform to the real agreement or intention of the parties when by
reason of mistake, fraud, inequitable conduct, or accident, the
instrument fails to express such intention.
 Reason for reformation
“Equity orders the reformation of an instrument in order that the
intention of the contracting parties may be expressed”
 Requisites of reformation:
1. There is a meeting of the minds of the parties to the contract.
2. The written instrument does not express the true intention of the
contracting parties.
3. The failure is caused by mistake, fraud, inequitable conduct, or
accident.
4. The facts upon which relief by way of reformation of the instrument is
sought are put in issue by the pleadings.
5. There is clear and convincing evidence of the mistake, fraud,
inequitable conduct, or accident.
 Reformation distinguished from annulment
In reformation, there has been a meeting of minds of the parties.
Hence, a contract exists but the written instrument does not express
the true intention of the parties by reason of mistake, fraud,
inequitable conduct, or accident.
In annulment, there is no meeting of the minds, the consent of
one of the parties vitiated by mistake, etc.

Article 1360

 Principles of the general law on reformation

In case of conflict between the provisions of the New Civil Code
and the principles of the general law on reformation, the former
prevails. The latter will have inly suppletory effect.

Article 1361

 Mutual mistake as basis for reformation

Mutual mistake is a mistake made by both parties of the
instrument which causes the failure of the instrument to express their
true intention.
 Requisites of mistake:
1. The mistake must be of fact.
2. Mistake is proved by clear and convincing evidence.
3. Mistake is mutual.
4. Mistake must cause the failure of the instrument to express their true
intention.
Remedy of mutual mistake is ANNULMENT.

Article 1362

 Mistake on one side, fraud or inequitable conduct on the other

The right to ask for reformation is granted only to the party who
was mistaken in good faith. Only one party has committed mistake.

Article 1363

 Concealment of mistake by the other party

 The remedy of reformation may be availed by the party who
acted in good faith. The concealment mistake by the other party
constitutes fraud.

Article 1364

 Ignorance, etc. on the part of the third person

When through the ignorance, lack of skill, negligence or bad faith
on the part of the person drafting the instrument, the instrument does
not express the true intention of the parties; the court may order that
the instrument be reformed.
When both parties has not committed mistake, either party may
ask for reformation.

Article 1365

 If two parties agree upon the mortgage or pledge of real or personal

property, but the instrument states that the property is sold absolutely
or with a right of repurchase, reformation of the instrument is proper.
 Mortgage or pledge stated as a sale
The reformation of the instrument is proper; otherwise the true
intention of the parties would be frustrated. Such true intention
must prevail for the contract must be complied with in good
faith.

Article 1366- 1367

 Cases when reformation is not allowed:

1. Simple donation inter vivos wherein no condition is imposed.
2. Wills
3. Real agreement is void.
4. When one party has brought an action to enforce the instrument.

Article 1368

 Party entitled to reformation:

1. Either of the parties, if the mistake is mutual under art.1361, 1364,
and 1365.
2. The injured party.
3. The heirs or successors in interest, in lieu of the party entitled.

The burden of proof is upon the party who insists that the contract
should be reformed because of its failure to express the true intention of
the parties.

Article 1369

 The procedure for the reformation of the instrument shall be governed

by rules of court to be promulgated by the Supreme Court.

CHAPTER 5

INTERPRETATION OF CONTRACTS
Article 1370

 Meaning of interpretation of contracts

 Interpretation of a contract is the determination of the meaning
of the terms or words used by the parties in their written contract.

 Literal meaning controls when language clear

Contract should be fulfilled according to the literal sense of their
stipulations, if the terms of a contract are clear and unequivocal.
 Evident intention of parties prevails over terms of contract
Evident intention of parties prevails over terms of contract
because their will has the force of law between them.

Article 1371

 In order to judge the intention of contracting parties, their

contemporaneous and subsequent acts shall be principally
considered.
The contemporaneous and subsequent acts of the parties are
relevant in the determination of intention.

Article 1372

 Special intent prevails over a general intent.

As a rule, where in a contract there are general and special
provisions covering the same subject matter, the latter control over
the former when two cannot stand together.

Article 1373

 Interpretation of stipulation with several meanings

When an agreement is susceptible of several meanings, one of
which would render it effectual, it should be given that interpretation.
One interpretation makes a valid and the other makes it illegal, the
former interpretation is one which is warranted by the rule stated by
this Article.

Article 1374

 Interpretation of various stipulations of a contract

A contract must be interpreted as a whole and the intention of
the parties is to be gathered the entire instrument and not from
particular words, phrases, or clauses.

Article 1375

 Interpretation of words with different significations

If a word is susceptible of two or more meanings, it is to be
understood in that sense which is most in keeping with the nature and
object of the contract in line with the cardinal rule that the intention of
the parties must prevail.

Article 1376

 Resort to usage or custom as aid in interpretation

The usage or custom of the place where the contract was
entered into may be received to explain what is doubtful or ambiguous
in a contract on the theory that the parties entered into their contract
with reference to such usage or custom. It is necessary to prove the
 existence of usage or custom by the party alleging it. But usage of the
custom is not admissible to supersede or vary the plain terms of
contract.

Article 1377

 Interpretation of obscure words

A written agreement should be interpreted against the party who
has drawn it or which will be favorable to the other who has incurred
and obligation.
Contracts of adhesion- contracts most of the terms of which do
not result from mutual negotiation between the parties as they are
usually prescribed in printed forms prepared by one party to which the
other may “adhere” if he chooses but which he cannot change.

Article 1378

 Rules in case there are doubts that are impossible to settle.

Gratuitous contract - if the doubts refer to incidental
circumstances of a gratuitous contract, such interpretation should be
made which would result in the least transmission of rights and
interest

Onerous contract - if the contract in question is onerous, the

doubts should be settled in favor of the greatest reciprocity of
interests.

Principal objects of the contract – if the doubt refers to the

principal object of the contract and such doubt cannot be resolved
thereby leaving the intention of the parties unknown, the contract shall
be null and void.

Article 1379

 The rules in the Rules of Court on the interpretation of

documents are now contained in Rule 130, Sections 8 to 17
thereof.

INTRODUCTION to Chapters 6, 7, 8, and 9

 Kinds of defective contracts
1. Rescissible contracts are valid because all the essential
requisites of a contract exist but by reason of economic injury or
damage to one of the parties or to third persons, such as creditors,
the contract may be rescinded.
2. Voidable contracts are also valid until annulled unless there has
been ratification. The defect is caused by vice of consent.
3. Unenforceable contracts are contract that cannot be sued upon
or enforced unless they are ratified. It occupies an intermediate
ground between a voidable and a void contract.
4. Void or inexistent contracts are absolutely null and void. Void
contracts have no effect at all and cannot be ratified

CHAPTER 6
 RESCISSIBLE CONTRACTS
Article 1380

 Meaning of rescissible contracts

Rescissible contracts are those validly agreed upon because all
the essential elements exist, but in the cases established by law, the
remedy of rescission is granted in the interest of equity.
 Meaning of Rescission
Rescission is a remedy granted by law to the contracting parties
and sometimes even to third persons in order to secure reparation of
damages causes 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.
 Requisites of rescission
1. The contract must be validly agreed upon.
2. There must be lesion or pecuniary prejudice 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 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.
7. The period for filing the action for rescission must not have
prescribed.

Article 1381

 Cases of rescissible contracts

1. Contracts entered into in behalf of wards. - A ward is a
person under guardianship by reason of some incapacity.
2. Contracts agreed upon in representation of absentees- An
absentee is a person who disappears from his domicile his
whereabouts being unknown, and without leaving an agent
to administer his property
3. Contracts undertaken in fraud of creditors
Requisites in order that fraud of creditors may be a valid
ground for rescission:
i. There must be an existing credit prior to the contract
to be rescinded, although it is not due or
demandable
ii. There must be fraud on the part of the debtor which
may be presumed or proved
iii. The creditor cannot recover his credit in any other
manner, it not being required that the debtor be
insolvent
4. Contracts which refer to things under litigation.
5. Other instances

Article 1382

 Payments made in a state of insolvency

 Payments must have been made “for obligations to whose
fulfilment the debtor could not be compelled at the time they were
effected”.

Article 1383

 Nature of action for rescission

Rescission is not a principal remedy. It is only subsidiary,
meaning it can be availed of only if the injured party proves that he
has no other legal means aside from rescinding the contract to obtain
redress for the damage caused.

Article 1384

 Extent of rescission
The rescission shall only be to the extent of the creditor’s
unsatisfied credit. The policy of the law is to preserve or respect the
contract not to extinguish it.

Article 1385

 Rescission creates obligation of mutual restitution

The parties must return to each other (1) the object of the
contract with its fruits and (2) the price thereof with legal interest. The
purpose of rescission is to restore the parties to their original situation.
 When rescission not allowed:
1. If the party who demands rescission cannot return what he
is obliged to restore under the contract.
2. If the property is legally in the possession of a third person
who acted in good faith.

Article 1386

 Contracts approved by courts

If the contract entered into in behalf of a ward or absentee has
been approved by the court, rescission cannot take place because it is
valid whether there is lesion or not.
The law presumes that the court is acting in the interests of the
ward or absentee when it approves the contract in spite of the lesion.

Article 1387

 When alienation presumed in fraud of creditors:

1. Alienation by gratuitous title
2. Alienation by onerous title
 Circumstances denominated as badges of fraud
1. The fact that the consideration of the conveyance or
fictitious or inadequate.
2. A transfer made by a debtor after suit has been begun and
while it is spending against him.
3. A sale upon credit by an insolvent debtor.
4. The transfer of all of his property by a debtor especially
when he is insolvent or greatly embarrassed financially.
5. The fact that the transfer is made between father and son,
when there are present some or any of the above
circumstances.
 6. Failure of the vendee to take exclusive possession of all
the property.
7. It was known to the vendee that the vendor had no
properties other than that sold to him.

Article 1388

 Liability of purchaser of bad faith

The purchaser in bad faith, who acquired the object of the
contract alienated in fraud of creditors, must return the same if the
sale is rescinded and should it be impossible for him to return it, due to
any cause, he must indemnify the former.

If there are two or more alienations, the first acquirer shall be

liable first, and so on successively.

Article 1389

 Period for filing action for rescission

As a general rule, the action to claim rescission must be
commenced within four years from the date the contract was
entered into. The exceptions are:
1. For persons under guardianship, the period shall begin from the
termination of incapacity.
2. For absentees, from the time the domicile is known.
 Persons entitled to bring action
1. The injured party or the defrauded creditor.
2. The heirs, assigns, or successors in interest of the injured party
3. The creditors of the above entitle to subrogation.

CHAPTER 7
VOIDABLE CONTRACTS
Article 1390
 Meaning of voidable contracts
Voidable or annullable contracts are those which possess all the
essential requisites of 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 unless annulled by court. If ratified
they become absolutely valid and can no longer be annulled.
Economic damage is not essential for annulment.
 Kinds of voidable contracts
Defect caused by either:
1. Legal incapacity to give consent
2. Violation of consent
 Annulment
Annulment is a remedy provided by law for reason of public
interest, for the declaration of inefficacy of a contract based on a
defect or vice in the consent of one of the contracting parties in order
to restore position prior to execution of contract.

Article 1391
 Period for filing action for annulment
Brought within 4 years
1. Intimidation, violence, or undue influence – from time
these cease
 2. Mistake or fraud – when it is discovered
3. Contracts entered into by minors or incapacitated
persons – from time guardianship ceases

Article 1392
 Meaning and effect of ratification
Ratification means that one voluntarily adopts some defective or
unauthorized act or contract.
Ratification cleanses the contract from all its defects from the
moment it’s constituted. The contract thus becomes valid. Hence, the
action to annul is extinguished.

Article 1393
 Kinds of ratification
1. Express – in words/writing
2. Implied or tacit – silence or acquiescence; acts showing
adoption or approval; acceptance and retention of
benefits
 Requisites of ratification
1. Knowledge of the reason which renders the contract
voidable
2. Reason must have ceased
3. Act of injured party implying an intention to waive his
right

Article 1394
 Who may ratify?
- A contract entered by incapacitated person may be ratified
by:
a. Guardian
b. Injured party himself provided he is already capacitated
- Contract is voidable on 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 guilty party is not required; otherwise he
can conveniently disregard his contract by the simple expedient of
refusing to give his conformity.

Article 1396
 Effect of ratification retroactive
- Cleanses the contract of all its defects from time of its execution.
- Extinguishes right of action to annul.
- Make the contract valid from its inception subject to the prior rights of
third persons

Article 1397
 Party entitled to bring an action to annul
Requisites:
1. The plaintiff must have an interest in the contract;
2. The victim and not the party responsible for the defect is the
person who must assert the same.
 Right of strangers to bring action
One who is not a party to the contract has no legal capacity to
challenge the validity of the contract.
Strangers are, therefore, without right or personality to bring the
action for they are not obliged by the contract, principally or
subsidiarily.
 Guilty party without right to bring action
 Guilty party (including his successors in interest): CANNOT ASK
FOR ANNULMENT.
Rule: One who comes to court comes with clean hands.

Article 1398
 Duty of mutual restitution upon annulment
If the contract is annulled, the parties as a general rule must restore
to each other
i. Subject matter of contract with its fruits.
ii. Price with legal interest.
In personal obligations where service already rendered, the value
with corresponding interest is the basis for damages recoverable
from party benefited.

Article 1399
 Restitution by an incapacitated person
This provision is an exception to the general rule of mutual
restitution. The incapacitated person is obliged to make restitution only
to the extent that he was benefited or price received by him.

Article 1400
 Effect of loss of thing to be returned.
1. If lost without fault of person obliged to make restitution (defendant),
there is no more obligation to return.
2. If lost through his fault, obligation not extinguished but is converted
into an indemnity for damages consisting of the value of the thing at
the time of loss with interest from the same date and fruits received
from time the thing was given to him to time of loss.

Article 1401
 Extinguishment of action for annulment.
- Action for annulment of contracts shall be extinguished when things
(object) is lost through fraud or fault of injured party.
- Right of action based upon incapacity of any one of the contracting
parties, loss of thing shall not be an obstacle to the succession of the
action. (Unless loss took place through the fraud or fault of the
plaintiff.)

Article 1402
 Effect where a party cannot restore what he is bound to
restore.
Annulment of contract creates restitution. In effect, there will be
no annulment if the party cannot restore what he is bound to return.
(Even if loss is due to a fortuitous event)

CHAPTER 8
UNENFORCEABLE CONTRACTS

Article 1403
 Meaning of unenforceable contracts
Unenforceable contracts are those that cannot be enforced in a
court of law or cannot be sued upon by reason of certain defects
provided by law until and unless ratified.
 Binding force of unenforceable contracts
Unenforceable contracts: although valid, are unenforceable in
court until and unless they are cured/ratified. Once ratified, these
contracts may then be enforceable.
 Kinds of unenforceable contracts.
1. Unauthorized contracts: Those entered into in the name of another by
one without, or acting in excess of, authority.
2. Those which do not comply with the Statute of Frauds.
 3. Those where both parties are incapable of giving.
 Statute of Frauds
1. History: Enacted by English Parliament in 1677, to counter evil practice
of giving false testimony in actions founded on certain kinds of
contracts.
2. Purpose: Guard against honest mistakes of men by requiring that
certain agreements specified that are susceptible to fraud must be in
writing
OTHERWISE: unenforceable by action in court.
3. “Writing” under the Statute: Does not require be formal written
document. As long as it is intelligible and records the intent of the
parties.
4. Application:
a. Not applicable to inactions which are neither for damages because
of violation of a contract nor for the specific performance.
b. Only applicable to completely executor contracts and not to
contracts which are totally executed or partly executor.
c. Not applicable to where the contract is admitted expressly or
implied failure to deny its existence.
d. Applicable only to agreements enumerated.
e. Not applicable where a writing does not express true agreement of
parties.
f. Only declares that contracts infringing it are unenforceable.
g. Defense of the Statute of Frauds may be waived.
h. Defense of Statute of Frauds is personal to the parties and cannot
be interposed by strangers to the contract.
 Agreements within the scope of the Statute of Frauds
1. Agreement not to be perform within one year from the making
2. Promises to answer the debt, default, or miscarriage of another.
3. Agreement in consideration of marriage other than mutual promise
to marry.
4. Agreement for sale of good at a price not less than P500
5. Agreement for leasing for a longer period than one year.
6. Agreement for sale of real property or of an interest.
7. Representation as to the credit of a third person.

Article 1404-1405
 Modes of ratification under the Statute.
1. By failure to object to the presentation of oral evidence to prove
contract.
2. By acceptance of the benefits under the contract.

Article 1406
 Right of a party where contract enforceable
1. A party to an oral sale of real property cannot be compel the other to
put the contract in a public document for purpose of registration
because it is unenforceable, unless ratified.
2. Right of one party to have the other execute a public document is not
available in donation of real property when it is in private document.

Article 1407
 When enforceable contract becomes a voidable contract
Where both parties to a contract are incapable of giving consent
the contract is unenforceable.
If parent of either party or if one of the parties regains capacity
ratifies contract, it becomes voidable.

 When unenforceable contract becomes a valid contract

If parents of BOTH PARTIES or BOTH PARTIES regain capacity:
Validates the contract to the time of its celebration.
Article 1408
Strangers to a voidable contract cannot bring an action to annul the
same.
REASON: IT IS A PERSONAL DEFENSE.

CHAPTER 9
VOID OR INEXISTENT CONTRACTS

Article 1409
 Meaning of void contracts
Void contracts are those which generally produce no effect at all.
They are considered inexistent from its inception.
 Meaning of inexistent contracts
Inexistent contracts are agreements which lack one or some or
all of the elements which are essential for the existence of a contract.
 Characteristics of a void contract or inexistent contract:
1. Generally, produce no effect at all.
2. Cannot be ratified
3. The right to set up the defense of illegality cannot be waived.
4. 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.
 Instances of void or inexistent contracts.
1. Contracts whose cause, object or purpose is contrary to law, etc.
2. Contracts which are absolutely simulated
3. Contracts without cause or object
4. Contracts whose object is outside the commerce of men.
5. Contracts which contemplate an impossible service.
6. Contracts where the intention of the parties relative to the object
cannot be ascertained.
7. Contracts expressly prohibited or declared void by law.

Article 1410
 Acton 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.

Article 1411
 Rules where contract is illegal and the act constitutes a
criminal offense.
1. Where both parties are in pari delicto, equally guilty:
Effects:
i. Parties shall have no action against each other;
ii. Both shall be prosecuted; and
iii. The things/price of the contract, as the effects or instruments of the
crime, shall be confiscated in favour of the government.
2. Where only one party is guilty
Guilty party: effects of pari delicto applies only to him.
Innocent party: may claim what he has given and shall not be
bound to comply with his promise.

Article 1412
 Rules where contract is illegal but the act does not constitute a
criminal offense.
1. Where both parties are in pari delicto:
 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:
a. Guilty party: loses what he has given by reason of the contract;
Cannot ask for the fulfilment of the other’s
undertaking;
b. Innocent party: may demand the return of what he has given;
Cannot be compelled to comply with his promise.

Article 1413
 Recovery of usurious interest.
- May be recovered together with interest thereon from the date of
payment in a proper action for the same.
- Stipulation for the payment of usurious interest is void.

Article 1414
 Recovery where contract entered into for illegal purpose.
Requisites for application of article:
1. The contract is for an illegal purpose;
2. Contract is repudiated before the purpose has been accomplished or
before any damage has been caused to a third person;
3. Court considers that public interest will be surveyed by allowing
recovery.

Article 1415

 Recovery by an incapacitated person

- An exception in pari delicto
- Recovery can be allowed if one of the parties is incapacitated and the
interest of justice so demand

Article 1416

 Recovery where contract not illegal per se

Recovery is permitted provided:
a. The agreement is not illegal per se but is merely prohibited
b. The prohibition is designed for the protection of the plaintiff
c. Public policy would be enhanced by allowing the plaintiff to recover
what he has paid or delivered
 Prohibited Sale of Land
1. A land sold in violation of the constitutional prohibition against
the transfer of lands to aliens may be recovered.
2. The principle of in pari delicto is not applicable to a homestead
which has been illegally sold within the prohibited period of 5 years in
violation of the homestead law

Article 1417

 Recovery of amount paid in the excess of ceiling price

A statute fixing the maximum price of any article or commodity
is usually known as the ceiling law.

Article 1418

 Recovery of additional compensation for service rendered

beyond time limit
P.D. No. 442, otherwise known as the labor code, sets forth that
the normal hours of work of any employee shall not exceed eight hours
a day.
 The law applies to employees in all establishments and
undertakings, whether for profit or not, but not to:

1. Government Employees
2. Managerial Employees
3. Field Personnel
4. Members of the Family of the Employers who are Dependent
upon Him for Support
5. Domestic Helpers
6. Persons in the Personal Service of Another
7. Workers who are paid by Results

Article 1419
 Recovery of Amount of Wage Less Than Minimum Fixed
If an employee receives less than the minimum wage rate, he
can still recover the deficiency with legal interest, and the employer
shall be criminally liable.

Article 1420

 Effect of Illegality where Contract Indivisible/Divisible

1. When the consideration is entire and single, the
contract is indivisible so that if part of such
consideration is illegal, the whole contract is void and
unenforceable.
2. Where the contract is divisible or severable, that is,
the consideration is made up of several parts, and
the illegal ones can be separated from the legal
portions, the latter may be enforced. This rule,
however, is subject to the contrary intention of the
parties.
 Divisible Contract Distinguished from Divisible Obligation
The test of the former is divisibility of its cause while the latter,
its susceptibility of partial fulfilment.

Article 1421

 Persons Entitled to Raise Defense of Illegality or Nullity

In voidable and unenforceable contracts, third persons are not
allowed to bring an action to annul or to assail, as the case may be. If
the contract is illegal or void, however, even a third person may avail
of the defense of illegality or set up its nullity as long as his interest is
directly affected by the contract.

Article 1422

 Void Contract Cannot be Novated

An illegal contract is void and inexistent and cannot, therefore,
give rise to valid contract.

TITLE III
NATURAL OBLIGATIONS
(Articles 1423-1430, Civil Code.)
Article 1423

 Concept of natural obligations

There were two kinds of obligations: the civil and the natural.
The latter could not be enforced by a civil action but it had certain
juridical consequences. In the old Spanish law, there were many
instances of natural obligations, among them being the cases of
incapacity of one of the contracting parties, and where a contract could
not be sued upon because it was not in the form required by law.
 Civil obligations and Natural Obligation distinguished

Civil Obligations:

1. Arise from law, contracts, quasi-contracts, delicts, and quasi-delicts

2. Give a right of action to compel their performance

Natural Obligations

1. Based not on positive law but on equity and natural law

2. Do not grant such right of action to enforce their performance
 Enumeration not exclusive
If the borrower pays interest agreed upon orally, the provisions
on natural obligations apply.
Under the law, “no interest shall be due unless it has been
expressly stipulated in writing

Article 1424

 Performance after civil obligation has prescribed

By prescription (acquisitive), one acquires ownership and other
real rights through the lapse of time in the manner and under the
conditions lay down by law. In the same way, rights and actions are
lost by prescription (extinctive).

Article 1425

 Reimbursement of third person for debt that has prescribed

If a third person pays the prescribed debt of the debtor without
his knowledge or against his will, the latter is not legally bound to pay
him. But the debtor cannot recover what he has paid in case he
voluntarily reimburses the third person.

Article 1426
 Restitution by minor after annulment of contract
When a contract is annulled, a minor is not obliged to make any
restitution except insofar as he has been benefited by the thing or
price received by him. However, should he voluntarily return the thing
or price received although he has not been benefited thereby, he
cannot recover what he has returned.
This article applies only is the minor who has entered into a
contract without the consent of his parent or guardian is between 18
and 21 years of age.

Article 1427

 Delivery by minor of money or fungible thing in fulfilment of

obligation
By the decree of annulment, the parties, as a general rule, are
obliged to make mutual restitution. However, the obligee who has
spent or consumed in good faith the money or consumable thing
voluntarily paid or delivered by the minor, is not bound to make
restitution
This article may also apply to things that are non-consumable
when they have been lost without the fault of the obligee or in case of
 alienation by him to a third person who did not act in good faith. The
obligee shall be liable for damages if he is guilty of fault or bad faith at
the time of spending or consumption.

Article 1428

 Performance after action to enforce civil obligation has failed

This article contemplates a situation where a debtor, who has
failed to pay his obligation, is sued by the creditor and instead of losing
the case, he has won it.
If notwithstanding this fact, the debtor voluntarily performs his
obligation, he cannot demand the return of what he has delivered or
the payment of the value of the service he has rendered. He must be
deemed to have considered it his moral duty to fulfil his obligation.

Article 1429

 Payment by heir of debt exceeding value of property inherited

The heir is not personally liable beyond the value of the property
he received from the decedent. But if he voluntarily pays the
difference, the payment is valid and cannot be rescinded by him.
An heir has a moral duty to perform or pay obligation legally
contracted by his dead relatives.

Article 1430

 Legacy
Legacy is the act of disposition by the testator in separating from
the inheritance for definite purposes, things, rights or a definite
portion, or those things or special rights, which the testator separates
from his inheritance for a definite purpose.
The purpose of the legacy is to reward friends, servants and
others for services they have rendered, to give alms, etc.
 Payment of Legacy after will has been declared void
If a will is disallowed for non-compliance with the formalities
prescribed by law, the legacy made in the will would also be void. The
effect is the same as if the deceased had died without a will, and
therefore, the intestate heir is not legally required to pay the legacy.
However, he still pays the legacy, the payment is effective and
irrevocable, subject to the rights of the creditors of the deceased.
Since, it was the intention of the testator to give the legacy; it is the
moral duty of the heir to carry it out.
In partial fulfilment of the requirements in LAW1 ACB

“Obligations & Contracts”

Submitted by:
Vonn Jovan V. Lim
(Article 1305-1330)
Anissa Marie L. Plaga
(Article 1331-1356)
Mylu Abigail S. Roble
(Article 1357-1382)
Cerille Jenne S. Moran
(Article 1383-1408)
Denise Loraine B. Garife
(Article 1409-1430)

Submitted to:
Atty. Rosalie Grace M. Escobia, CPA

Date Submitted
October 2016