Title II.

- CONTRACTS

2.

CHAPTER 1 CONTRACTS, GENERAL PROVISIONS

Article 1305
A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render
some service.
-

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
It is a juridical convention manifested in legal form, by virtue of
which, one or more persons (or parties) bind themselves in favor
of another or others, or reciprocally, to the fulfillment of a
prestation to give , to do or not to do
It is the agreement of two or more persons for the purpose of
creating, modifying or extinguishing a juridical relation between
them

Elements of a Contract
GR: written instrument is NOT necessary
a.
Essential Elements
Consent
Subject matter or Object
Cause or Consideration

g.

According to the time of performance of fulfillment:

1.
Executed one completed at the time the contract is
entered into
2.
Executory one where the prestations are to be
complied with at some future time

h.

According to Subject matter

1.
Involving Things
2.
Involving rights or credits (should be transmissible)
3.
Involving services

i.

According to Form
1.
Common
2.
Special

j.

According to Purpose:
1.
Transfer of ownership
2.
Conveyance of Use
3.
Rendition of Services

k.

According to Vinculum (nature) which they produce

1.
Unilateral
2.
Bilateral
3.
Onerous exchange of value
4.
Gratuitous donation

l.

According to the nature of the contract:

1.
Personal
2.
Impersonal

Note: in some contracts form is also essential; still in others, delivery is

likewise essential
b.

Natural Elements
Those found in certain contracts, and presumed to
exist, unless the contrary has been stipulated

c.

Accidental Elements
Stipulations that may be agreed upon by the
contracting parties in a contract. They may be present
or absent, depending upon whether or not the parties
have agreed upon them

Classifications of Contracts
a.
According to perfection or formation:
1.
Consensual perfected by mere consent
2.
Real requires the 3 essential requisites plus delivery
3.
Formal or solemn those where special formalities are
essential before the contract may be perfected (ex.
Donation inter vivos requires for its validity a public
instrument)
b.

According to cause or equivalence of the value of prestations:

1.
Onerous there is an interchange of equivalence
valuable consideration
2.
Gratuitous or lucrative this is FREE, thus one party
receives no equivalent prestation except a feeling that
one has been generous or liberal
3.
Remunerative one prestation is given for a benefit or
service that had been rendered PREVIOUSLY

c.

According to importance or dependence of one upon another

(according to their relation to other contracts)
1.
Principal contract may stand alone by itself, without
the need of other contracts
2.
Accessory This depends for its existence upon
another contract
3.
Preparatory the parties do not consider the contract
as an end by itself, but as a means thru which future
transaction or contracts may be made; lead to the
execution of other contracts
According to the parties obliged
1.
Unilateral only one of the parties has an obligation
2.
Bilateral both parties are required to render
reciprocal

d.

e.

f.

According to their name or designation

1.
Nominate given a particular or special name
2.
Innominate contraltos innominados; not given any
special name
According to the risk of fulfillment
1.
Commutative parties contemplate a real fulfillment;
therefore, equivalent values are given

Aleatory the fulfillment is dependent upon chance,

thus the values vary because of the risk of chance (ex.
Insurance)

Stages of a Contract
a.
Preparation or Conception or Negotiation or Generacion
Parties are progressing with their negotiations; have not yet
arrived at any definite agreement
b.
Perfection or Birth
The Parties have at long last came to a definite agreement
Elements of definite subject matter and valid cause have
been accepted by mutual consent
There is meeting of the minds; may now demand fulfillment
c.
Consummation or Death or Termination
The terms of the contract are performed
Note: Two persons refer to two parties. While a promissory note is unilateral,
still such a contract includes two parties (debtor and creditor)
Basic Principles or Characteristics of a Contract
for a contract to be binding, it must conform to this 5 general
principles
1.
Freedom (or liberality) to Stipulate provided not contrary to law,
morals, good customs, public order or public policy (Art. 1306)
2.
Obligatory Force and Compliance in Good Faith (art. 1159, 1315)
contract is the law between parties and must be complied with in good
faith.
3.
Perfection by mere Consent (Consensuality) as a rule (Art. 1315) GR:
contracts are perfected by mere consent (binding)
4.
Both Parties are Mutually Bond (Art. 1308)
5.
Relativity (Art. 1311) Generally, it is binding only between the parties,
their assigns, and heirs)s
Article 1306
The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
-

As a general rule, whatever the parties agree upon will be binding

Principle of Freedom/Autonomy/Freedom/Liberty of Contracts

It is the free entrance into contracts generally without restraints is
one of the liberties guaranteed to the people
This refers only to contract which are LEGAL, not void or
inexistent ones
Limitations of the Nature of Stipulations
1.
Law
2.
Morals
3.
Good Customs
4.
Public Order
5.
Public Policy
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

Law

Those which are mandatory or prohibitive in character

Those which, without being mandatory or prohibitive,
nevertheless, are expressive of fundamental principles of justice,
and therefore, cannot be overlooked by the contracting parties
Those which impose essential requisites without which the
contract cannot exist
Note: Directory and Suppletory laws need not to be complied
with, since these are either discretionary or merely supply the
omissions of the parties

Contemplates on the Mutuality of contracts both parties are

bound
Terms and conditions in a contract should be agreed upon by both
parties.
The principle is based on the essential equality of the parties
Consequences of Mutuality
o
A party cannot revoke or renounce a contract without
the consent of the other, nor can it have it set aside on
the ground that he had made a bad bargain

Note: the free exercise of religious beliefs is superior to contractual rights.

Pactum Commissiourim a clause providing that the mortgagee will
automatically own the property mortgaged if the debt is not paid at
maturity is NULL and VOID
Morals
-

Referred to are those principles which are incontrovertible and

are universally admitted and which have received social and
practical recognition
There are some instances that the law does not prohibit but it is
prohibited by laws
It deals with right and wrong and with human conscience

Good Customs
Those that have received for a period of time practical and social
confirmation
If a moral precept or custom is not recognized universally, but is
sanctioned by practice of a certain community, then it shall be
included within the scope or sphere of good customs
Public Order
Can only refer to the safety, as well as to the peace and order, of
the country or a particular community
Usually overlaps with public policy
Note: every contract affecting public interest suffers a congenital
infirmity in that it contains an implied reservation of the police
power
Public Policy
A principle of law which holds that no person can lawfully do that
which has a tendency to be injurious to the public or against the
public good
This varies according to the culture of a particular country; it is the
public, social and legal interest in private law
It is the manifest will of a State
Note: With respect to contracts which tend to restrain business trade,
contract in restraint of trade is valid provided that there is a limitation upon
either a time or place.
A stipulation of Perpetual Restriction with regards to ownership is prohibited
by law.
Note Further: The name that the party gives to the contract should not be
controlling, for a contract is what the parties intended it to be, not what they
call it. A contract must be judged by its character, its nature and its legal
qualifications.
Article 1307
Innominate contracts shall be regulated by the stipulations of
the parties, by the provisions of Titles I and II of this Book, by the rules
governing the most analogous nominate contracts, and by the customs of
the place.
-

Contemplates on innominate contracts

Regulated by the cardinal principle of autonomy: stipulation of
the parties (what they have agreed upon)
Kinds:
o
Do ut des I give that you give
o
Do ut facias I give that you do
o
Facio ut des I do that you give
o
Facio ut facias I do that you do
Regulated by
o
Stipulations of the parties
o
By the general principles of obligations and contracts
o
By the rules governing the most analogous nominate
contracts
o
By the customs of the place

Article 1308
The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
2

Article 1309
The determination of the performance may be left to a third
person, whose decision shall not be binding until it has been made known
to both contracting parties.
-

Contemplates on the determination by a third person

In a contract of sale for example, one of the important stipulation
is the price which should be agreed upon by both parties.
However, the determination of the price may be delegated to a
third party. However, for such decision to be binding, it should
first be made known to both parties. Thus, the final say is still
somehow in the hands of the 2 contracting parties.

Article 1310
The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable under the
circumstances.
-

The court can always come incase there is an agreement which is

unfair or inequitable
Even if such has been agreed upon by both parties, there can still
be a possibility that it cannot be granted.
The court will determine what is reasonable for what is equitable
is a question of fact, to be ascertained form the attendant
circumstances

Article 1311
Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person.
-

Contemplates on the principle of Relativity

Contract also binds the assigns and heirs
GR: contracts take effect only between the parties, their assigns
and heirs and therefore generally, its terms cannot determine the
rights of third persons. Strangers, therefore, cannot generally
demand the enforcement of a contract nor can they demand its
annulment
A buyer should respect the existing lease of a certain property
When he is aware that there is an existing lease or when the
contract of lease is registered

Note: as heirs, there is no legal obligation for you to pay a debt when you did
not receive any inheritance from the principal
Note Further: in order that an heir can question the validity of contracts
entered into by his predecessor, he must be a compulsory or forced heir.

Your liability as an heir is only up to the extent of the value of the

property you received from the decedent
When a person dies, for the purpose of estate taxation, his NET
ESTATE should be transmitted by the heirs to the creditors. What
will be left to the heirs therefore is the gross value of properties
minus the obligations.

Exceptions to the Principle of Relativity

1.
Where the obligations arising from the contract are not
transmissible by their NATURE, by STIPUTLATION, or by
PROVISION OF LAW
2.
Where there is a STIPULATION POUR AUTRUI (a stipulation in
favor of a third party, thus heirs and assigns cannot obtain that
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

3.
4.
5.

which was contemplated in the contract) the contracting parties

must have CLEARLY and DELIBERATELY conferred a FAVOR upon a
third person and the stipulation must be PART of the contract.
(ex. Credit card between bank and business establishment, the
credit card holder is the one who benefits)
Where a third person induces another to violate his contract
such third person is made liable as well for the damages caused
Where, in some cases, third persons may be adversely affected by
a contract where they did not participate
Where the law authorizes the creditor to sue on a contract
entered into by his debtor (Accion Directa)

Article 1312
In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land Registration Laws.
-

This article constitutes one of the exceptions to the general rule

that a contract binds only the parties
A real right binds the property over which It is exercised
Ex. A buyer should respect the existing lease of a certain property
When he is aware that there is an existing lease or when the
contract of lease is registered
Note: registration is a notice to the whole world thus makes a
third person bound to respect previous mortgage or lease

Article 1313
Creditors are protected in cases of contracts intended to defraud
them.
-

Creditors are protected in cases of contracts intended to defraud

them
th
5 exception to the principle of relativity
A creditor can ask for the rescission of a contract entered into by
his debtor with a third party which would defraud him
Note: in a case of donation, you can only ask for the rescission of
a donation if the donor has no other property to pay you

Article 1314
Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.
-

3rd exception to the principle of relativity

Contemplates on an instance when a stranger to a contract can be
sued in view of his unwarranted interference. Whoever is injured
may properly sue for damages
Note: inducement presupposes bad faith! Thus misrepresentation
and good faith is a valid defense

Article 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.
-

Contemplates on the Consensuality of Contracts or perfection by

mere consent

Q: How are contracts perfected?

A:
a.
Consensual contracts mere consent
b. Real contracts perfected by delivery
c.
Formal or solemn contracts special form is required

Note: A contract to make a deposit, to make a pledge, or to make a

commodatum is a CONSENSUAL contract. After delivery, the contract
becomes a REAL contract.
The Contract of Carriage
Contract to Carry (at some future time) is CONSENSUAL and is perfected by
mere consent
Contract of Carriage is a REAL contract, fro not until the carrier is actually
used can we consider the contract perfected
Note: The real contract of carriage is perfected even if the passenger has not
yet paid, in fact, even if he has no money for his fair. Further, the
all-important fact is that he has, with the express or implied
consent of the carrier, placed a part of his body, or a portion of
the goods on any part of the vehicle, such as the stepping
platform or the running board.
Article 1317
No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has
no authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the
other contracting party.
-

Effects of Ratification
Cleanses the contract from all its defects from the moment the
contract was entered into. (retroactive effect)
Note: there can be no more ratification if the contract has
previously been REVOKED by the other contracting party
CHAPTER 2 ESSENTIAL REQUISITES OF CONTRACTS, GENERAL PROVISION
Article 1318
There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
-

Q: What are the Consequences of Perfection?

A:
1.
The parties are bound to the fulfillment of what has been
EXPRESSLY STIPULATED compliance must be in GOOD FAITH

2.

The parties are ALSO bound to all the CONSEQUENCES which,

according to their nature, may be in keeping with GOOD FAIT,
USAGE, and LAW

Article 1316
Real contracts, such as deposit, pledge and Commodatum, are
not perfected until the delivery of the object of the obligation.
3

GR: No one may contract in the name of another

This article contemplates on the exception and its requisites

Requisites for a Person to Contract in the Name of Another

1.
He must be duly authorized (expressly or impliedly)
2.
He must have by law a right to represent him (ex. Guardian or
administrator)
3.
The contract must be SUBSEQUENTLY RATIFIED (expressly or
impliedly, by word or by deed

Note: Consensual contracts are perfected form the moment there is

agreement (consent) on the subject matter, and the cause and consideration.

Note: if the true intention is not expressed in a written agreement, in case

one has been made, the proper remedy is REFORMATION

Contemplates on Real contracts

Requirements: consent, subject matter, cause or consideration
and DELIVERY
Real Contracts referred to:
o
Deposit
o
Pledge accessory contract to a contract of loan;
delivers a personal property as a security to a loan and
is personally delivered to the creditor (collateral)
o
Commodatum a loan where the identical object must
be returned (between lender and borrower)

Contemplates on how consent is manifested

Essential requisites: consent, object or subject matter, cause or
consideration
th
Real Contracts: 4 requisite delivery
Solemn or Formal Contracts: 4tr requisite compliance with the
formalities required by law

Note: consent presupposes LEGAL CAPACITY and the fulfillment of

conditions, should any be attached
Effects of Non-consent:
1.
Ex. Joke, absolutely simulated contract no contract; agreement
may be considered inexistent or VOID
2.
If there is vitiated consent the contract is NOT VOID; it is merely
VOIDABLE
Transportation Ticket as a Contract

angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

A transportation ticket is a complete written contract between

the shipper and the passenger since it has all the elements of a complete
contract:
a.
Consent : passenger boards the ship and shipper
accepts him
b. Cause or consideration: fare paid
c.
Object: transportation of the passenger

when there is SILECE (place the silent person in

estoppels)
Article 1321
The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with.

Note: An agreement on the price but a disagreement on the manner of its

payment will not result in consent, thus, preventing the existence of a valid
contract for lack of consent. This lack of consent is separate and distinct from
lack of consideration where the contract states that the price has been paid
when in fact, it has never been paid.

Things that may be fixed by the Offerer:

o
Time
o
Place
o
Manner of acceptance
Note: any act contrary to the prescribed terms really constitutes a counter
offer or counter-proposal.

Section 1 CONSENT

This article also applies to an auction sale, whether private or public

Article 1319
Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.

Note: A contract to purchase which does not give specific description of the
objects to be purchased nor the price nor the rate of exchange to be used is a
mere PRELIMINARY AGREEMENT.

Acceptance made by letter or telegram does not bind the offerer

except from the time it came to his knowledge. The contract, in such a case,
is presumed to have been entered into in the place where the offer was
made.
-

Consent is the meeting of the minds between the parties on the

subject matter and the cause of the contract, even if neither one
has been delivered
Requisites of Consent:
o
Concurrence of offer and acceptance
o
Consent must be intelligent, free, spontaneous and
real
o
There must be 2 or more parties
o
The parties must be capable or capacitated
o
There must be no vitiation of consent
o
There must be no conflict between what was expressly
declared and what was really intended
o
The intent must be declared properly, that is, whatever
legal formalities are required must be complied with
Requisites for the meeting of the minds:
o
Offer must be CERTAIN
o
And an acceptance that must be UNQUALIFIED and
ABSOLUTE
Note: if the acceptance is qualified, let us say by a condition,
this merely constitutes a COUNTER-OFFER (no meeting of
the minds until both parties consent)

Certain Offer it must not be vague, misleading, or made as a joke.

Note: if the offer is withdrawn before it is accepted, there is no
meeting of the minds.
If an offerer offers several distinct and separate items, and
the offeree accepts one of them, the contract is perfected as to the item
accepted
Acceptance Thru Correspondence
Rule: acceptance made by letter or telegram does not bind the offerer except
form the time it came to his knowledge. The contract is such a case is
presumed to have
The knowledge may be actual or constructive (as when the
letter of acceptance has been received in the house of the offerer by a
person possessed of reasonable discernment.
NOTE: what is important is when the telegram of approval was received by
the offerer and he had gained knowledge about such acceptancecommunication. The offeror can still withdraw his offer at anytime before he
receives the letter of acceptance from C. Offeree can also withdraw his
acceptance as long as the withdrawal is received first by B before the
acceptance letter.
rd

Q: Can a buyer be compelled to accept a 3 offer?

A: NO. an offer not accepted absolutely is immediately extinguished
Article 1320
An acceptance may be express or implied.
Forms of Acceptance:
o
Express
o
Implied from conduct, or acceptance of unsolicited
services
o
Presumed by law as when there is failure to repudiate
hereditary rights within the period fixed by law; or
4

Article 1322
An offer made through an agent is accepted from the time
acceptance is communicated to him.
-

Contemplates on an offer made through an agent

If you have constituted X as an agent to sell your car, what has
been agreed upon by X and party is binding to X and the real
owner of the property
Article applies only when BOTH the offer and acceptance are
made thru an AGENT

Article 1323
An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is
conveyed.
-

Gives 4 circumstances when the offer becomes ineffective:

o
Offer becomes ineffective upon the DEATH,
o
CIVIL INTERDICTION,
o
INSANITY,
o
or INSOLVENCY OF EITHER PARTY before acceptance is
conveyed
If the acceptance did reach the creditor before he died, the heirs
will be bound to the contract
Conveyed refers to that moment when the offeror has
knowledge of the acceptance by the offeree. Hence, the article
merely means that an offer becomes ineffective upon the death ,
etc. of either party before the offeror has knowledge of the
acceptance by the offeree
General Effect of this article: no meeting of the minds

Other Instances when the offer becomes ineffective:

1.
Offeree expressly or impliedly rejects the offer
2.
When offer is accepted with a qualification or condition (counteroffer)
3.
When before acceptance is communicated, the subject matter has
become illegal or impossible
4.
When the period of time given to the offeree within which he
must signify his acceptance has already lapsed
5.
When the offer is revoked in due tim
CONTRACT OF ADHESION
Terms are prepared by one party while the other party merely
affixes his signature signifying his adhesion thereto. Such
contracts are not void in themselves. They are binding as ordinary
contracts.
In cases there are ambiguous terms, it shall be interpreted against
the person who made it
Note as well that if the terms of the contracts are also clearly
iniquitous, the court can come into the picture
Article 1324
When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
-

Contemplates on a situation when the offeror gives the offeree a

certain period of time to decide.
Before the lapse of the said period, the offeror can withdraw the
offer by communicating such.

angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

In order to bind the offeror not to withdraw, you as the offeree

shall pay an OPTION MONEY/CONTRACT (this is binding because it
has its own consideration; not deductable to the original price)

If the option is without a consideration the offeror may withdraw his offer
by communicating such withdrawal to the offeree at anytime
before acceptance (even before expiration of the period)
If the option is with a consideration the offeror cannot withdraw his offer
within the period he has given.
Option contract granting a person the privilege to buy or not o buy certain
objects at any time within the agreed period at a fixed price. The
option must have its own cause or consideration

that such minor is between 18 and 21 years of age, if

female (Art. 1425-27, CC) [NOT APPLICABLE]
o
Upon reaching the age of majority, they ratify the
same
o
Contract entered into thru a guardian, and the court
approved the same
o
Contracts of life insurance in favor of their parents,
spouse, children, bro, sisters (minor should be 18 years
and above)
o
Form of savings account (minor at least 7 years old)
Note: The mere silence when making a contract as to his age does not
constitute a fraud which can be made the basis of an action for deceit. There
should be an active (actual not constructive) misrepresentation.

OPTION MONEY vs. EARNEST MONEY

PERSONS SPECIALLY DISQUALIFIED

Here the transaction is VOID
1.
Husband and Wife cannot SELL to each nor can they DONATE to
each other (only those prejudiced can assail the validity of the
transaction
2.
Insolvents
3.
Persons disqualified because of FIDUCIARY RELATIONSHIPS (ex.
Guardian cannot purchase the property of ward; judge cannot
purchase property under litigation)

OPTION MONEY
Not part of the purchase
price

EARNEST MONEY
It is part of the purchase price (sort of a
down payment)

Article 1328
Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.

Proof of the perfection of the

option contract
Would be buyer is not
required to buy

Proof of the perfection of the contract

(parties are already bound)
Buyer is bound to pay the balance

REQUISITES BEFORE OFFER CAN BE WITHDRAW

1.
There is yet no acceptance by the offeree
2.
The offeror must communicate to the offeree the decision to
withdraw the offer
3.
The option must not be founded on a consideration

Article 1325
Unless it appears otherwise, business advertisements of things
for sale are not definite offers, but mere invitations to make an offer.
-

Advertisements are not definite offers rather are MERE

INVIATIONS TO MAKE AN OFFER
However, if advertisement is very specific with regards to the
terms and conditions, it is considered as a definite offer.

Article 1326
Advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest bidder,
unless the contrary appears.
-

Talks about the persons who DO NOT HAVE THE CAPACITY to give
consent
o
Unemancipated minors (now called minors)
o
Insane or demented person,
o
and deaf-mutes who do not know how to write (note:
if they know how to read, but do not know how to
write, it is submitted that the contract is valid, for they
are capable of understanding, and therefore
capacitated to give consent)
The capacity of contracting parties is an indispensable requisite
for consent
If any of the contracting parties is incapacitated, the contract is
VOIDABLE (valid until annulled and can be subject to ratification)
If both parties are incapacitated, then the contract is
UNENFORCEABLE

EXCEPTIONS
where a contract entered into by an UNEMANCIPATED MINOR
may have all the effects of a valid contract:
o
When it is entered into by a minor who misrepresents
his age (Mercado vs. Espiritu, 37 Phil. 215)
o
When it involves the sale and delivery of necessaries to
the minor (Art. 1489, CC)
o
When it involves a natural obligation and such
obligation is fulfilled voluntarily by the minor, provided
5

Contemplates on lucid interval: valid

Drunk and under hypnosis: voidable
GR: a person is sane
However if you can prove the insanity, the only way to validate
the contract, is to stress that during the construction of the
contract, the person is sane

Article 1329
The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be without prejudice
to special disqualifications established in the laws.
-

Advertisements for bidders are simply invitations to make

proposals, and the advertiser is NOT BOUND to accept the highest
or lowest bidder, unless the contrary appears

Article 1327
The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not
know how to write.
-

Contemplates on modifications with regards to people who are

incompetent to enter into contracts such making the contract
void
The following are considered INCOMPETENTS under the Rules of
Court:
o
Those under CIVIL INTERDICTION
o
Hospitalized LEPERS
o
PRODIGALS
o
DEAF and DUMB who are unable to read and write
o
Those of UNSOUND MIND even though they have lucid
intervals
o
Those who cannot with outside aid, take care of
themselves and manage their property

Article 1330
A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
-

Enumerates the vices of consent (VITIATED CONSENT):

o
Mistake (error)
o
Fraud
o
Violence
o
Intimidation
o
Undue influence
Makes the contract VOIDABLE however there must be clear and
convincing evidence of the presence of vitiated consent

Article 1331
In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into
the contract.
Mistake as to the identity or qualifications of one of the parties
will vitiate consent only when such identity or qualifications have been the
principal cause of the contract.
A simple mistake of account shall give rise to its correction.
-

Defines when MISTAKE can affect the consent

It should refer to the substance of the thing which is the object of
the contract or conditions which have principally moved one or
both parties to enter into the contract
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

Ex. If a person who has a hobby of horse raising enters into a

contract with a seller of horses for the purposes of racing,
however the contract entered into is a horse which can barely
run, and the contract has already been executed; can the buyer
file for an action for annulment? Yes, there was a mistake of the
very object of the contract.
-

Other aspect of mistake: identity or qualification of one of the

parties (if such identity is the principal cause of the contract)
As a GR: it is only a mistake of fact which will vitiate consent thus
rendering the contract voidable; a mistake of law does not render
the contract voidable because ignorance of the law does not
excuse anyone from compliance therewith.

REQUISITES
1.
Error must be substantial regarding:
a.
The object of the contract
b.
Conditions which principally moved or induced one of
the parties
c.
Identity or qualification but only is such was the
principal cause of the contract
2.
Error must be Excusable (not caused by negligence)
3.
Error must be a MISTAKE of FACT, and not of LAW
Article 1332
When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have been
fully explained to the former.
-

Contemplates on the Duty of the courts to be vigilant to protect

persons who are considered as an underdog
Presumption: one always acts with due care and signs with full
knowledge of all the contents of a document
This article gives an exemption to the presumption:
o
When one of the parties is unable to read (including
blind person)
o
If the contract is in a language not understood by one
of the parties
Defense of the other part: prove that the terms thereof have been
fully explained to the former

Article 1333
There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
-

There is NO MISTAKE if the party alleging it KNEW THE DOUBT,

CONTINGENCY or RISK affecting the object of the contract
This article assumes that the party was WILLING to take the risk
(ALEATORY IN NATURE)
Ex. If the property you bought has a pending case, whatever is the
decision of the court, you are bound to such decision
It is your responsibility to check the status of the property

Note: if mistake is caused by inexcusable negligence, the contract cannot be

annulled.
Article 1334
Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent
Nature of the contract of mortgage over a real property:
Real property is still in the possession of the debtor
As far as the fruits is concerned, debtor is still the owner
Creditor does not have any rights of the fruits of the property, it is
the debtors responsibility to pay the creditor
However, if the lawyer drafts a contract of ANTICHRESIS (this involves a real
property. The nature of the contract is the property which was given as a
collateral, the fruits over that property will now be paid to the creditor and
to be applied first on the interest and the excess will be paid to the principal),
and the parties thought that the contract is a mortgage this situation is a
mutual error. In which case, the consent is vitiated by mistake.
Requisite:
1.
Must be with respect to the legal effect of an agreement
2.
Mistake must be mutual
3.
Real purpose of the parties must have been frustrated
Article 1335
There is violence when in order to wrest consent, serious or
irresistible force is employed.
6

There is intimidation when one of the contracting parties is

compelled by a reasonable and well-grounded fear of an imminent and
grave evil upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is
just or legal, does not vitiate consent.
-

VIOLENCE: Present when in order to wrest consent, serious or

irresistible force is employed
o
The manifestation of violence is physical
INTIMIDATION: one of the parties is compelled by a reasonable
and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent
o
MORAL PRESSURE is exerted (person may not be
touched at all by the other party)
o
To determine the degree: take into account age, sex
and condition of the person
Last paragraph: intimidation thru legal concerns does not vitiate
consent (ex. Payment of phone bills)

REQUISITE FOR VIOLENCE TO VITIATE CONSENT:

1.
Employment of SERIOUS or IRRESISTIBLE force
2.
It must have been the reason why the contract was entered into
REQUISITE FOR INTIMIDATION TO VITIATE CONSENT:
1.
Reasonable and well-grounded fear
2.
Of an IMMINENT and GRAVE evil
3.
Upon his person, property or upon the person or property of his
spouse, descendants or ascendants
4.
It must have been the reason why the contract was entered into
5.
Threat must be of an UNJUST ACT, and ACTIONALBE WORNG
(Thus, a threat to prosecute is not considered as intimidation; if
claim is just or legal, it does not vitiate consent)
Note: The right to enforce ones claim thru competent authority must not by
itself constitute an unlawful act. Thus, blackmailing is considered as a vitiated
consent.
Reverential Fear - Fear of displeasing persons to whom obedience and
respect are due, the contract is still VALID, for by itself reverential fear is NOT
WRONG
Article 1336
Violence or intimidation shall annul the obligation, although it may
have been employed by a third person who did not take part in the
contract.
-

VIOLENCE or INTIMIDATION shall annul the obligation, although it

may have been employed by a third person who did not take part
in the contract
It is not necessary that the other party is the one who employs
violence or intimidation.

VIOLENCE vs. INTIMIDATION

VIOLENCE
External
Physical compulsion

INTIMIDATION
Internal
Moral compulsion

REQUISITES OF VIOLENCE
1.
Force employed should be serious or irresistible
2.
It must be the determining cause for the party upon whom it is
employed in entering the contract. Where it not for the violence
you would have not entered into the contract
REQUISITES OF INTIMIDATION
1.
One of the contracting parties is compelled to give his consent by
reasonable and well-grounded fear of an evil
2.
Evil must be unjust
3.
Evil must be imminent and grave
4.
It must be the determining cause for th te party upon whom it is
employed in entering the contract. Where it not for the violence
you would have not entered into the contract
Article 1337
There is undue influence when a person takes improper advantage of
his power over the will of another, depriving the latter of a reasonable
freedom of choice. The following circumstances shall be considered: the
confidential, family, spiritual and other relations between the parties, or

angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

the fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial distress.
-

Contemplates on UNDUE INFLUENCE

It is when a person takes improper advantage of his power over
the will of another, depriving the latter of a reasonable freedom
of choice

Note: fraud is a bit difficult to prove because it is a state of mind. You prove it
according to the state of every case.

Q: What are the circumstances to be considered?

A: Confidential, Family, Spiritual and other relations between the parties; or
person alleged to have been unduly influenced was suffering from MENTAL
WEAKNESS, or was IGNORANT or in FINANCIAL DISTRESS

Article 1342
Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is
mutual.

REQUISEITES FOR UNDUE INFLUENCE TO VITIATE CONSENT:

1.
Improper Advantage
2.
Power over the will of Another
3.
Deprivation of the latters will of a reasonable freedom of choice

Mere expression of an opinion does not signify fraud, unless made

by an expert and the other party has relied on the formers special
knowledge
Ex. Buying diamond ring in a jewel store

Note: Undue influence exercised by a third party VITIATES consent, just like
in the case of violence and intimidation
Article 1338
There is fraud when, through insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.
-

Contemplates on FRAUD (deceit)

Through insidious words or machinations
Fraud was the reason why you entered into a contract (dolo
causante)

Kinds of Frauds:
1.
Fraud in the CELEBRATION of the contract
2.
Fraud in the PERFORMANCE of the obligations stipulated in the
contract

Misrepresentation will only be considered fraud if it has created

substantial mistake and the same is mutual
Misrepresentation Done by the third person does not constitute
fraud
Ex. Broker who asks for a greater amount than what was really
stipulated. You cannot annul the contract except if such
representation is a substantial mistake and the same is mutual
Ex of mutual mistake: lot which is believed to be residential when
it fact it is really commercial.

Article 1343
Misrepresentation made in good faith is not fraudulent but may
constitute error.
-

Misrepresentation made in good faith is not fraudulent but may

constitute ERROR
This may be a ground for annulment but is due to ERROR

Article 1344
In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.

DOLO CAUSANTE vs. DOLO INCIDENTE

DOLO CAUSANTE
Effect Is to render the contract
voidable
Serious in character
Cause which induces the party to
enter in to the contract

DOLI INCIDNTE
Effect is to render or ask for
damages
Not serious
Not the cause

Requisites of fraud:
1.
Insidious words or machinations must have been employed by
one of the contracting parties (if both committed fraud, the
contract would remain valid
2.
Must be material and serious
3.
Must have induced the other party to enter into the contract
rd
4.
Should not have been employed by both of the parties or 3
person
5.
There must be a deliberate intent to deceive or to induce
therefore, misrepresentation in GOOOD FAITH is not fraud

Requisite for Fraud to Vitiate Consent (for annulment)

1.
Fraud must be serious
2.
Parties must not be in PARI DELICTO or else the contract therefore
is considered VALID
Article 1345
Simulation of a contract may be absolute or relative. The former takes
place when the parties do not intend to be bound at all; the latter, when
the parties conceal their true agreement.
-

Article 1339
Failure to disclose facts, when there is a duty to reveal them, as when
the parties are bound by confidential relations, constitutes fraud.
-

Failure to disclose facts (concealment) when there is a duty to

reveal them, as when the parties are bound by confidential
relations, constitutes FRAUD
Applicable if parties are bound by confidential relations as in the
case of partners

Article 1340
The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
-

Usual exaggeration in trade, are not in themselves fraudulent

This is what is done in commercial (ex. Beauty products)
This article stresses the rule of CAVEAL EMPTOR
Note: ordinarily what does not appear on the face of the written
contract should be regarded as TRADERS TALK OR DEALERS
TALK

Article 1341
A mere expression of an opinion does not signify fraud, unless made
by an expert and the other party has relied on the former's special
knowledge.

To be voidable it must be SERIOUS and SHOULD NOT HAVE BEEN

EMPLOYED BY BOTH CONTRACTING PARTIES
Incidental fraud will only result to damages

Simulation is the process of INTENTIONALLY DECEIVING others by

producing the or appearing of a contract
2 types of simulation:
o
ABSOLUTE there was really no intention thus the
contract is void (circumstances will show however that
the contract was absolutely simulated; ex: son buys
the property when he has no means to pay it or when
the property still remains to the seller and still posses
all rights of the buyer)
o
RELATIVE parties conceal their true agreement; you
are bound to the real or true agreement except:
Prejudice a third person
If the purpose is contrary to law, morals,
good customs, public policy, public order

Article 1346
An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
-

Effects of simulation
If absolute: void
If relative: binds the party to the real agreement (take note of
exceptions)
Sale with a right to repurchase: you are the owner of the property
and you sell it. But within a period of time you are going to buy it
back.
Sometimes creditor will allow a debtor to sign a document with
sale with a right to repurchase. (this is really different from that of
a mortgage) in this case, you can ask for a reformation of the
document
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

Note: In simulation, the contract is not really desired to produce an illegal

effect or in any way alter the juridical situation of the parties; whereas an
illegal contract is intended to be real and effective, and entered in such form
as to circumvent a prohibited act

OBJECTS OF CONTRACTS
It may be defined as the thing, right or service which is the subject
matter of the obligation which is created or established
Article 1347
All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are not
intransmissible may also be the object of contracts.

Object of every contract must be determinate as to its kind or is

determinable without the need of a new contract between parties
Ex. Harvest (thoug you dont know the quantity yet, it is still valid
because it is determinable without the need of a new contract)
Ex. Parcel of land with no description (if the seller owns 2 parcel
of land and it could not be ascertained which one is the object of
the contract, then this case does not satisfy the requirement that
the object must be determinate or determinable of its kind; you
need to enter into another contract which gives all the details)

SUMMARY OF OBJECT OT BE VALID

1.
Should be within the commerce of man
2.
Should be real or possible
3.
The object should be determinate, or at least, possible of
determination as to its kind
4.
The object should be licit or legal

No contract may be entered into upon future inheritance except

in cases expressly authorized by law.
CAUSE OF CONTRACTS
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a contract.
-

Contemplates on what can be considered as an object of a

contract:
o
Should be within the commerce of man
o
Should be transmissible (ex. Right as a creditor can be
assigned to someone else)
o
Must not be contrary to law, morals, good customs,
public order, or public policy
o
Must not be impossible
o
Must be determinate as to its kind or determinable
without the need of a new contract or agreement
If the object is outside the commerce of man, the contract is void
Further, any part of your body is not a contract of sale, rather it is
a donation
Future things may be an object of a contract (ex. Next harvest of
your palay)

Article 1350
In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit which is remunerated;
and in contracts of pure beneficence, the mere liberality of the benefactor.
-

Note: you cannot sell your right to vote or your right in the public office
-

Future inheritance is allowed if it is authorized by law. Note that

as far as the right to succession, it is an inchoate right
(expectancy). However for a contract to be valid, the object must
be existing at the time the contract is entered into. Your right to
your inheritance can only be transmitted to you upon the death of
the real owner.
Right to the property becomes vested upon the time of death. It is
not necessary that it has been distributed. What is important as
well is the expectancy. Upon the death, the heirs can now sell the
shares but subject to the estate tax (what the heir can transmit to
buyer is what she can receive in the inheritance despite the fact
that the obligation have not yet been settled and estate tax has
not been paid yet)

Note: what is transferred upon death is the PROPERTY, RIGHTS and

OBLIGATION
Except if authorized by law: the predecessor (owner of property)
would already during his lifetime would partition the property to
his heirs (in this situation, you can now sell despite the fact that
he is not yet dead)
Services can also be the subject of a contract subject to the
limitation (LMPpPoGc)
Article 1348
Impossible things or services cannot be the object of contracts.
-

Impossible things or services cannot be the object of contracts

Impossibility may be
o
Because of the nature of the transaction
o
Because of the law
o
Absolute (NO ONE can do it)
o
Relative (particular debtor cannot comply)

Note: Generally, the impossibility referred to by the law is absolute

impossibility. Further, a showing of mere inconvenience, unexpected
impediments, or increased expenses is not enough.
Article 1349
The object of every contract must be determinate as to its kind. The
fact that the quantity is not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to determine the same,
without the need of a new contract between the parties.
8

Cause is the essential and impelling reason why a party assumes

an obligation
Classification of contracts as to its cause:
o
ONEROUS cause is understood to be the prestation of
promise of a thing or service by the other
2 schools of thoughts:
Manresa subject matter for one is the cause for the
other
For both seller and buyer, there is just one object but
different cause
o
REMUNERATORY ones the service or benefit which is
renumerated; past service or benefit which by itself is a
recoverable debt
o
GRATUITOUS mere liberality of the beneficiaries

Note: What may be the subject matter for one party will be the cause or
consideration for the other party.
The contract of guaranty is gratuitous, unless there is stipulation to the
contrary
Shocking cause or consideration (to the conscience) is void.
Article 1351
The particular motives of the parties in entering into a contract are
different from the cause thereof.
-

Motive is different from cause

Motives do not enter at all in the validity or invalidity of cause or
consideration
Look at example of book (gun example)

MOTIVE VS. CAUSE

MOTIVE
Indirect
or
remote
reason
(ex.purpose in buying)
Psychological or purely personal
reason
Different from each contracting
party
Illegality of the motive will not affect
the existence of the contract
May be unknown to the other

CAUSE
Direct of most proximate reason of a
contract (ex. To get the gun)
Objective or juridical reason of a
contract
Always the same
Illegality will affect the validity of the
contract
Always known

Note: the presence of motive cannot cure the absence of cause

Article 1352
Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good
customs, public order or public policy.
-

Contracts without cause or with unlawful cause, produce no

effect whatever
If for example, in a fictitious sale, there is no consideration thus it
is considered void
Requisites for Cause:
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

1.
2.
3.

It must be present at the time the contract was entered into

It must be true (note: if the contract is false, the contract is not
valid unless some other cause which is lawful really exists)
It must be lawful (note: a contract with an illegal cause may
produce effects under certain circumstances where the parties
are not of equal guilt

certain way, that requirement is absolute and indispensable. In such cases,

the right of the parties stated in the following article cannot be exercised.
-

Effects if the Cause is Illegal:

1.
If one party is innocent he cannot be compelled to perform his
obligation, and he may recover what he has already given
2.
If both parties are guilty, in general , neither can sue the other
Article 1353
The statement of a false cause in contracts shall render them void, if it
should not be proved that they were founded upon another cause which is
true and lawful.
-

Statement of a false cause in contracts shall render them void

Except: if it can be proved that they were founded upon another
cause which is true and lawful
If there was no consideration at all or that the creditor did not
receive any payment at all, it renders the contract void
For as long as there is a real consideration which is lawful and
true, then the contract will remain valid (False cause: merely
revocable or voidable)

Q: what are the instances where form is required? (EXCEPTIONS)

A:
1.
Validity formal or solemn contracts; form is essential for validity
(ex. donation of real property must be in a public instrument;
donation of a personal property where the amount is more than
5,000; any stipulation with respect to interest like in the contract
of loan must be in writing, otherwise it is not valid)
2.

Article 1354
Although the cause is not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the contrary.
-

in a contract there is a presumption that there is cause and such is

lawful
It is not necessary to STATE the cause in the contract
Ex. Promissory note:for value received, I promise to pay x or
bearer the sum of 10,000 pesos. In this case, it is founded on a
consideration of the amount for which he issues a promissory
note. In case the statement says I promise to pay X 10,000 on
Nov. 2010. This statement does not make any statement on what
the consideration of issuing such promissory note. The law
presumes that it is founded in a considerations

Article 1355
Except in cases specified by law, lesion or inadequacy of cause shall
not invalidate a contract, unless there has been fraud, mistake or undue
influence.
-

Lesion: inadequacy of cause

The mere inadequacy in consideration does not affect the validity
of a contract, EXCEPT:
o
There has been FRAUD
o
MISTAKE
o
UNDUE INFLUENCE
The person is expected to take care of his concerns, thus if one
makes a bad bargain, it should not affect the validity of contract
for as long as he freely gives his consent to the contract or that his
consent has not been vitiated
Except in cases specified by law (inadequacy in consideration can
affect the validity of a contract):
o
Rescissible Contracts (defective contracts)
Entered into by guardian involving the
property of a ward and the contract has
resulted to an inadequacy in consideration
of more than of the value of the things
which are the objects thereof
Contract entered into a representation of
an absentee. If the absentee suffers lesion
of more than of the value of the property
Partition among co-heirs, when anyone of
them received things with a value less by at
least than the share to which he is
entitled

It is total absence of cause or consideration that renders a contract

absolutely void and inexistent Carantes vs. CA (76 scra 514)
FORMS OF CONTRACTS
Article 1356
Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are
present. However, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract be proved in a
9

GR: Contracts shall be obligatory in whatever form they may have

been entered into, provided all the essential requisites for their
validity are present
Exception : however when law requires a certain form, such
exceptions are indispensible and the absence of it makes the
contract is void

Enforceability (discuss during the defective and unenforceable

contracts); there are specific contracts which says that contracts
must be in writing to be enforceable; for purposes of enforcing
the contract by court action, you must be able to present at least
a written contract (ex. Sale of a real property is a consensual
contract which is perfected by mere consent; upon consent the
contract is perfected however it is not yet consummated due to
the absence of delivery; Note however that in the statute of
frauds, there is the need to put the sale of real property in
writing; thus if an oral agreement of sale is made you cannot
compel the person to put it in a written document because it is
unenforceable. The defense of unenforceability can be raised if
the contract is EXECUTORY (no performance yet on either side)
when neither of the parties have performed their share in the
contract) [look at page 681 for further explanation: note partial
payment is considered payment wherein you can no longer have
the defense of unenforceability)

Note: for sale of real property, it should be in a written document even if

private, to be enforceable
3.

Convenience (for the purpose of registration where form is

rd
required by law; and for binding 3 persons) sale of a real
property must be in a public document is not a requirement for
validity and enforceability rather is only a requirement for
convenience; this is for the full protection of your interest; to be
protected, you should register your property in a public
instrument; your remedy is you go to court if you are not given or
the other party does not execute the public instrument (demand
for the execution of the public document for as long as you have
complied with the requirements for validity and enforceability)

Q: A deed of donation of real property is signed by the donor in a private

document. Donee accepted such a donation in the same private document.
In this situation, can the donee compel the donor to execute the registration
of the property in a public document?
A: No, because in this situation, the contract is not valid because with regards
to a deed of donation it should be in a public document. Thus, the contract is
not valid neither is it enforceable.

DONATION OF A PERSONAL PROPERTY

A private document is valid for a donation of personal property if the amount
is more than P5, 000.
GR: whatever may be the form in which a contract may have been entered
into, the general rule is that it shall be obligatory, provided all of the essential
requisites for its validity are present.
CONTRACTS WHICH MUST APPEAR IN WRITING
1.
Donations of personal property whose value exceeds 5k
2.
Sale of a piece of land or any interest therein through an agent
(authority must be in writing)
3.
Agreements regarding payment of interest in contracts of loan
4.
Antichresis involves contract of loan, fruits of property will be
applied as payment of interest then after will be applied on
principal. (creditor is entitled to the fruits of the property which is
made as a collateral to the payment of loan)
CONTRACTS WHICH MUST APPEAR IN A PUBLIC DOCUMENT
1.
Donations of immovable property
2.
Partnerships where immovable property or real rights are
contributed to the common fund
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

CONTRACTS WHICH MUST BE REGISTERED

1.
Chattel mortgages
2.
Sale or transfer of large cattle
Article 1357
If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting parties
may compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon
the contract.
-

It is not for validity or enforceability, rather for convenience alone

Contemplates on contracts enumerated in the next article
Contemplates on the right of one party to compel the other to
execute the necessary form for convenience once they have
complied with the validity and enforceability of said contract

Article 1358
The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights
or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which
has for its object an act appearing or which should appear in a
public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by Articles, 1403, No. 2 and 1405.
-

Contracts which are to appear in a public document (for

convenience only)
o
Acts and contracts which have for their object the
creation, transmission, modification or extinguishment
of a real rights over immovable property (ex. Real
estate mortgage for purposes of convenience must be
in a public document; this is an accessory contract to a
principal contract of a loan) if made in a private
document, it is valid for the law does not require a
specific form of validity since it is a consensual contract
In the event that the owner mortgagor sells
the property to another, the buyer of the
property will be bound by the mortgage
because the annotation of the real estate
mortgage (or it is registered) is considered
as a notice to the whole world.
Because placing a contract in a public
document is expensive, what the creditor
usually ask is that the mortgagor is to
deliver to the mortgagee the owners
duplicate property (title of the possession
owner or transfer certificate title)
o
The cession, repudation or renunciation of hereditary
rights or those of the conjugal partnership of gains
o
The power to administer property, or any other power
which has for its object an act appearing or which
should appear in a public document, or should
prejudice a third person issue a special power of
attorney
o
The cession of actions or rights proceeding from an act
appearing in a public document. if you assign your
right as a mortgagee to another, such assignment
should be placed in a public document (real estate
mortgage)
o
All other contracts where the amount involved exceeds
five thousand pesos must appear in writing, even a
private one (just for convenience). But sales of goods,
chattels or things in action are governed by articles
1403, No. 2, and 1405

REFORMATION OF INSTRUMENTS
Article 1359
When, there having been a meeting of the minds of the parties
to a contract, their true intention is not expressed in the instrument
purporting to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the
10

reformation of the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a
meeting of the minds of the parties, the proper remedy is not reformation
of the instrument but annulment of the contract.
-

Gives the concept of reformation

In reformation, there should first be the meeting of the minds. It
is the written contract which is different from what the party has
primarily agreed upon
Reason: in order that the TRUE INTENTION of the contracting
parties may be expressed

REQUISITES IN ORER THAT THERE CAN BE REFORMATION

1.
There must be a meeting of the minds of the contracting parties
2.
Their true intention is not expressed in the instrument
3.
Failure to express their true intention is due to mistake, fraud,
inequitable conduct or accident
4.
There must be clear and convincing proof thereof
5.
It must be brought within the proper prescriptive period
6.
Document must not refer to a simple unconditional donation inter
vivos, or to will, or to a contract where the real agreement is void
REFORMATION vs. ANNULMENT
REFORMATION
Presupposes a perfectly valid
contract in which there has already
been a meeting of the minds of the
contracting parties
Does not invalidate a contract

ANNULMENT
Based on a defective contract in
which there has been no meeting of
the minds because consent has been
vitiated
Invalidates a contract

Note: Courts do not make another contract for the parties. They merely
inquire into the intention of the parties and having found it, reform the
written instrument, not the content.
Article 1360
The principles of the general law on the reformation of instruments
are hereby adopted insofar as they are not in conflict with the provisions of
this Code. The principles of the general law on the reformation of
instruments are hereby adopted insofar as they are not in conflict with the
provisions of this Code.
-

What should govern in case of conflict is the civil code. Principles

of the general law on reformation only have suppletory effect.

Article 1361 1364: instances when there can be reformation

Article 1361
When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be
reformed.
Q: what could be the reason why the instrument does not reflect the true
agreement?
A: This article contemplates on the reason of MUTUAL MISTAKE of the
parties
REQUIREMENT FOR REFORMATION OF A WRITTEN INSTRUMENT TO
PROSPER UPON THE GROUND OF MISTAKE (mutual):
1.
Mistake should be of a FACT
2.
Mistake should be proved by clear and convincing evidence
3.
Mistake should be common to both parties to the instrument
Article 1362
If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true
intention, the former may ask for the reformation of the instrument.
Q: what could be the reason why the instrument does not reflect the true
agreement?
A: This article contemplates on the reason that there is MISTAKE on one
party and the other acted FRUADULENTLY. In this case, the PERSON WHO
ACTED BY MISTAKE is the proper party to raise the issue of reformation
Article 1363
When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but concealed that
fact from the former, the instrument may be reformed.
Q: what could be the reason why the instrument does not reflect the true
agreement?
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

A: This article contemplates on the reason that one of the parties

CONCEALED the defects of the written instrument. Only the party in good
faith can ask for reformation.

The procedure for the reformation of instrument shall be governed by

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

Article 1364
When through the ignorance, lack of skill, negligence or bad
faith on the part of the person drafting the instrument or of the clerk or
typist, the instrument does not express the true intention of the parties, the
courts may order that the instrument be reformed.
Q: what could be the reason why the instrument does not reflect the true
agreement?
A: This article contemplates on the reason that there is IGNORANCE, LACK OF
SKILL, NEGLIGENCE OR BAD FAITH on the part of the person drafting the
instrument (drafter of the instrument; clerk; typist)

INTERPRATION OF CONTRACTS
Article 1370
If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations
shall control.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.
-

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.
-

When you talk about a mortgage or a pledge, these are accessory

contract. If the real agreement was such but what was executed is
a deed of absolute sale, the instrument can be reformed

Q: How do you judge the Parties Intent?

A: It can be judged from their CONTEMPORANEOUS and SUBSEQUENT acts
Article 1366
There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
-

Where reformation is not allowed

1.
Donation taking effect in the lifetime of the donor
o
If there is a mistake in the document here, since it is
gratuitous, the donee has no right to ask the donor to
reform the instrument (you cannot demand but the
donor has the option to reform it or not)
2.
Will (last will and testament)
o
This is because making of a will is strictly a personal act
which is free. A will may also be revoked at any time
3.
When the real agreement is void
o
This is because the new instrument would be void as
well because the true agreement and intention are
void

Procedure for reformation shall be governed by Rules of Court

some of the principles in statutory construction is similar to that

in interpretation of contracts
General Rule in contracts: the literal wordings of the contract shall
control
It is only when there is doubt and ambiguity that you result to
interpretation of contracts
Intention vs. wordings = intention will prevail

Note: if no beneficiary is named for the retirement benefits of a government

employee, it is understood that the benefits will accrue to his estate
Article 1371
In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Q: how do you determine the intention of the parties when they enter into a
contract?
A: Take into consideration the CONTEMPORANEOUS and SUBSEQUENT acts
of the parties.
Thus, the real nature of a contract may be determined form the express
terms of the agreement, as well as form the contemporaneous and
subsequent acts of the parties thereto
Article 1372
However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree.
-

Article 1367
When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.

However general the terms of a contract may be, they shall be

understood to comprehend things that are distinct and cases that
are different from those upon which the parties intended to agree
On its face it could possible that there is nothing wrong with the
contract, but at the time of implementation, here comes the
confusion due to ambiguity

Note: Special intent prevails over a general intent

-

When one of the parties has brought an action to enforce the

instrument he cannot subsequently ask for its reformation
Ex. If the person has already filed an action for the foreclosure of
mortgage, you can no longer say that it should be reformed to be
a sale with right to repurchase
This article contemplates on estoppel

Article 1373
If some stipulation of any contract should admit of several meanings,
it shall be understood as bearing that import which is most adequate to
render it effectual.
-

Article 1368
Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon petition
of the injured party, or his heirs and assigns.
-

who can ask for reformation:

o
If mistake is mutual: either party or his successors in
interest
o
Other cases: the injured party and/or his heirs and
assigns (not the person who committed the fraud)

Contracts of adhesion the only participation of the other party is adhere.

Take it or leave it contract
Note: you will have to go to court if the other party is not willing to have the
instrument reformed. In court you have to prove the real agreement of the
parties through oral evidence. Burden of prove is on your side to show that
the instrument does not reflect the true agreement or intent of the parties.
Prescriptive Period for Reformation of a Contract
10 years

If one interpretation makes a contract valid and illegal, the former

interpretation must prevail

Article 1374
The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of
them taken jointly.
-

Stipulations must be read together

In case of two or more stipulations, the proper thing to do is to
first reconcile the different stipulations

Article 1375
Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract.
-

Words in the contract should be interpreted in keeping with the

nature and object of the contract

Q: if a word is susceptible of two or more meanings, what meaning should be

used?
A:
1.
That in keeping with the nature and object of the contract

Article 1369
11

angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

2.

If this cannot be determined, then the terms of a writing are

presumed to have been used in their primary and general
acceptation

Article 1376
The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
-

The usage or custom of the place shall be borne in the mind in the
interpretation of the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily established

Ex. Unauthorized contracts; with out complying to the

requirements of statute of frauds; contract where both
contracting parties are incapacitated to enter into such

Void contracts
If an essential requisite is absent, the contract is void
This cannot be ratified or validated
Article 1380
Contracts validly agreed upon may be rescinded in the cases
established by law.
-

Article 1377
The interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity.
-

The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity
Reason: Such party should be responsible for his acts. The drafter
of the terms of the contract should, therefore, be careful

Article 1378
When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of rights and
interests shall prevail. If the contract is onerous, the doubt shall be settled
in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such
a way that it cannot be known what may have been the intention or will of
the parties, the contract shall be null and void.
-

Contemplates on ambiguity of terms in gratuitous contract

o
Rule to apply: the interpretation which result to the
least transmission of rights and interest shall prevail
In onerous contract
o
The doubt shall be settled in favor of the greatest
reciprocity of interest
If the principal object or the intention of the parties cannot be
determined, the contract shall be null and void

Article 1379
The principles of interpretation stated in Rule 123 of the Rules of Court
shall likewise be observed in the construction of contracts.
-

Contracts validly agreed upon may be rescinded in the cases

established by law
Process designated to render inefficacious a contract validly
entered into and normally binding, by reason of EXTERNAL
CONDITIONS, causing an economic prejudice to a party or to his
creditors
Requisites for Rescission:
o
A valid or voidable contract at the beginning
o
There is an economic or financial prejudice to someone
o
Requires mutual restitution
Two kinds of Rescission:
Rescission in general (article 1380):
o
Is based on LESION or FRAUD upon creditors
o
The action is instituted by either of the contracting
parties or by third persons
o
The courts cannot grant a period or term within which
to comply
o
Non-performance by the other party is immaterial
Rescission under Article 1191 (resolution)
o
Based on non-performance or non-fulfillment of the
obligation
o
Action may be instituted only by the injured party to
the contract
o
In some cases, court may grant a term
o
Non-performance by other party is important
Note: Mutual Backing Out is different from rescission. In this case, it is the
will of the parties that constitutes the basis, whereas in rescission, it is the
law that constitutes the basis
Rescissible contract is not void; it is valid until rescinded. It cannot be
attacked collaterally (incidentally) upon the grounds for rescission in the
course of another case. A direct action is required.

The principles of interpretation stated in Rule 123 of the Rules of

Court shall likewise be observed in the construction of contracts

Fictitious contracts cannot be rescinded for they are null and void. Rescission
presupposes a valid contract

Notes: When an instrument consists partly of written words and partly of a

printed form, and the two are inconsistent, the former controls the latter.

Right of First Refusal

Means identity of terms and conditions to be offered to the lessee
and all other prospective buyers.
A contract of sale entered into in violation of a right of first refusal
of another person, while valid, is rescissible

RESCISSIBLE CONTRACTS
Four kinds of Defective Contracts:
1.
Rescissible there is a sort of extrinsic defect consisting of an
economic damage or lesion
2.
Voidable valid until annulled but is subject to ratification
3.
Unenforceable contract cannot be sued upon or enforced,
unless it is ratified; it has no effect now, but it may be effective
upon ratification
4.
Void (inexistent or illegal) no effect at all; it cannot be ratified or
validated
Rescission is applicable when
Contract is valid on its face but what makes it defective is by
reason of damage or injury to any of the party or prejudice a third
person
Three kinds:
1.
Guardian lesion
2.
Representation of an absentee, suffers inadequacy
3.
Contracts entered into to defraud the creditors
Voidable contracts
Affects the consent
Takes into account the capacity of the contracting parties:
o
When cosent is vitiated
o
When consent is entered into by a person who is
incapacitated
Unenforciable
Valid but cannot be enforced through court action
12

Article 1381
The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than onefourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot
in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission.
1.

2.
3.

Rescissible Contracts:
Entered into by GUARDIAN: ward represented suffer lesion by
more than of the value of the things which are object thereof
o
Contracts which is an act of ownership: court approval
is required otherwise it is unenforceable
o
If merely an act of administration: with court approval
is valid regardless of lesion; without court approval is
rescissible is lesion is more than
Those agreed upon in representation of ABSENTEE: latter suffer
lesion as stated in number 1.
Those undertaken in fraud of creditors
o
Accion pauliana
angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

4.

5.

Those which refer to things under litigation (entered into by the

defendant without the knowledge and approval of the litigants or
of competent judicial authority
Other contracts specially declared by law to be subject to
rescission

Lesion disparity between the price and value

Article 1382
Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible.
-

Payments made in a state of insolvency for obligations to whose

fulfillment the debtor could not be compelled at the time they
were effected, are also rescissible
Ex. A is the debtor of B and C. As debt to C matured before that
of B however A, before becoming insolvent paid B instead. In this
case, C may ask for the rescission of the contract between A and
B.

Article 1387
All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay all
debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when
made by persons against whom some judgment has been issued. The
decision or attachment need not refer to the property alienated, and need
not have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud
creditors may be proved in any other manner recognized by the law of
evidence.
-

Two requisites:
1.
Debtor-payer must have been insolvent
2.
Debt was not yet due and demandable
Article 1383
The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain
reparation for the same. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.
-

The action for rescission is SUBSIDIARY, thus it cannot be

instituted unless other legal means to obtain reparation for the
same has been made

Article 1384
Rescission shall be only to the extent necessary to cover the damages
caused.
-

Rescission shall be only to the extent necessary to cover the

damages caused
PARTIAL RESCISSION is possible because the purpose of such is to
repair or cover the damage caused

Note: only the creditor who has asked for rescission, not the other creditors,
benefits from the rescission.
Article 1385
Rescission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.

If the sale entered into by a guardian or representative of

absentee is APPROVED by court, such cannot be rescinded despite
the fact that there was LESION

Contemplates on the PRESUMPTION OF FRAUD in the cases of

o
Gratuitous Alienations
Presumed fraudulent when the debtor did
not reserve sufficient property to pay all
debts contracted BEFORE the donation
o
Onerous Alienations
Presumed fraudulent when made by
persons (1) against whom some judgment
has been rendered in any instances (even if
not yet a final judgment); (2) against whom
some writ of attachment has been issued

Thus, if the case is STILL PENDING, as long as there is no attachment issued,

the sale is not presumed fraudulent.
Note: The decision or attachment need NOT refer to the property alienated,
and need not have been obtained by the party seeking the rescission. Thus,
even if it was not you who won the judgment but you are also a creditor, you
can still ask for rescission.
Badges of Fraud alienation has been made in fraud of creditors; indicators
that there is fraud:
1.
Consideration of the conveyance is fictitious or inadequate
2.
A transfer made by the debtor after suit has been begun and
while it is pending against him
3.
A sale upon credit by an insolvent debtor
4.
Transfer of all or nearly all his property by a debtor when he is
insolvent or greatly embarrassed financially
5.
Evidence of large indebtedness or complete insolvency
6.
Transfer is made between father and son
7.
Failure of the vendee to take exclusive possession of all the
property

Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons who did
not act in bad faith.

Article 1388
Whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them on
account of the alienation, whenever, due to any cause, it should be
impossible for him to return them.

In this case, indemnity for damages may be demanded from the

person causing the loss.

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

liable first, and so on successively.

Effect of Rescission: MUTUAL RESTITUTION (return the object of

the contract + fruits + price with its interest)
However, restitution could not take effect if the object of the
contract is legally in the possession of third person who did NOT
ACT IN BAD FAITH. Thus what you can do is demand for damages
from the person causing the loss

Requisites before Action for Rescission Can be Brought:

1.
Plaintiff must be able to RETURN what has been received
2.
The thing object of the contract is NOT IN THE LEGAL POSSESSION
(ex. Registration in the registry of property) of third persons in
GOOD FAITH
3.
There must be NO OTHER legal remedy
4.
The action must be brought WITHIN the proper PRESCRIPTIVE
PERIOD
Article 1386
Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take
place with respect to contracts approved by the courts.

13

Contemplates on the effects of Bad Faith in purchasing something

to defraud creditors:
o
The acquirer must return or indemnify but only if the
primary person who evaded creditors cannot pay
(reason: rescission is merely a secondary remedy)
o
Due to any cause includes a fortuitous event
Rules in Subsequent transfer:
o
If the first transferee is in GOOD FAITH, the good or
bad faith of the next transferee is NOT important
o
If The first transferee is in BAD FAITH, the next
transferee is liable only if he is also in bad faith

Bad Faith state of mind affirmatively operating with furtive design or with
some motive or self-interest or ill-will or for an ulterior purpose, and implies
a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity
Article 1389
The action to claim rescission must be commenced within four
years.

angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

For persons under guardianship and for absentees, the period of four
years shall not begin until the termination of the former's incapacity, or
until the domicile of the latter is known.
-

GR: The action to claim rescission must be commenced within

FOUR YEARS (4yrs)
For guardianship and absentee: 4 years shall not begin until the
termination of the formers incapacity, or until the domicile of the
latter is known

This period shall begin:

In cases of intimidation, violence or undue influence, from the
time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the
same.
And when the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship ceases.
-

Q: Who can bring the action?

A:
1.
The injured party (or defrauded person)
2.
His heir or successor in interest
3.
Creditors of 1 and 2 (accion subrogatoria)
VOIDABLE CONTRACTS
-

Covers two situation:

o
Incapacity to contract
o
Vitiated consent
All other essential elements are present except that of consent
Until it is annulled by the court, the contract remains valid and
binding
2 alternatives in event that there is a voidable contract:
o
You attack its validity by filing an action in court
o
Convalidate it either by ratification or prescription

Characteristics of voidable contracts

1.
Their defect consists in the vitiation consent of one of the
contracting parties
2.
They are biding until annulled
3.
They are susceptible of convalidation by ratification or by
prescription
4.
Their defect or voidable character cannot be invoked by third
persons
In rescissible, there is no ratification but there can be convalidation. In this
situation, a third party can raise the rescission of a contract
VOIDABLE vs. RESCISSIBLE
VOIDABLE
Defect is intrinsic
Damage is not necessary; voidable
even without damage or prejudice
(basis is vitiated consent)
Action is Principal
Annulablility of contract is based on
law
Public interest predominates

Susceptible of ratification
Invoked only by a contracting party

A defect is presupposed

RESCISSIBLE
Defect is external
Rescissible only if theres damage or
prejudice (basis is lesion)
Action is Subsidiary
Is based on equity
Private interest predominates
more concerned on the damage
suffered by the contracting party
Not susceptible of ratification
May be invoked either by a
rd
contracting party or by a 3 person
who is prejudiced
Compatible with the perfect validity
of the contract

Article 1390
The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent
to a contract;
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification.
-

Enumerates voidable contracts

o
One of the parties is incapable of giving consent
(minor, insane, deaf mute who does not know how to
write; NOTE: presumption is that a person is sane) (if
both are incapable, the contract is UNENFORCIABLE)
o
CONSENT IS VITIATED BY MISTAKE, VIOLENCE, ETC.
If consent is absolutely lacking or simulated, the contract is
INEXISTENET, NOT VOIDABLE!

Article 1391
The action for annulment shall be brought within four years.
14

Contemplates on prescriptive period: Within FOUR YEARS

o
In cases of intimidation, violence or undue influence,
form the time the defect of the consent ceases
o
In case of mistake or fraud, from the time of the
discovery of the same
o
And when the action refers to contracts entered into
by minors or incapacitated person, form the time the
guardianship ceases (until age 22)
If the action has prescribed, the contract can no longer be set
aside

Note: Registration of the deeds with the Register of Deeds as

registration is CONSTRUCTIVE NOTICE to the WORLD
Article 1392
Ratification extinguishes the action to annul a voidable contract.
-

Ratification extinguishes the action to annul a voidable contract

CONFIRMATION to cure a defect in a voidable contract

RATIFICATION to cure the defect of lack of authority in an authorized
contract
ACKNOWLEDGMENT to remedy a deficiency of proof
Effects of Ratification:
1.
Action to annul is extinguished (contract becomes a completely
valid one)
2.
The contract is cleansed of its defect from the beginning
Requisites of Ratification:
1.
Contract must be a voidable one
2.
The person ratifying must know the reason for the contract being
voidable (cause is known)
3.
The cause must not exist or continue to exist anymore at the time
of ratification
4.
Ratification is made expressly or impliedly by a waiver of the
action to annul
5.
The person ratifying must be the injured party
Article 1393
Ratification may be effected expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge of the reason which renders
the contract voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily implies an
intention to waive his right.
-

How ratification is made:

o
Expressly - ex. executes a document ratifying a sale
contracted while he is still a minor (oral or writte)
o
Tacitly it is understood that there is a tacit
ratification if, with the knowledge of the reason which
renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should
execute an act which necessarily implies an intention
to waive his right (ex. Continuous demand of the
balance of installment payment is an implied
ratification of the sale which he transacted when he
was still aminor)

Article 1394
Ratification may be effected by the guardian of the incapacitated
person.
When one of the parties is incapacitated to give consent and is
under guardianship, it is the guardian who is authorized under the
law to ratify in behalf of the incapacitated person
Note: Ratification can be made by the injured party himself, provided he is
capacitated or he has become incapacitated
Article 1395
Ratification does not require the conformity of the contracting party
who has no right to bring the action for annulment.

angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion

Ratification does not require the conformity of the contracting

party who has no right to bring the action for annulment
Guilty party cannot raise for annulment

success of the action, unless said loss took place through the fraud or fault
of the plaintiff.
-

Article 1396
Ratification cleanses the contract from all its defects from the moment
it was constituted.
-

Retroactive effect of ratification of a contract

Ratification cleanses the contract from all its defects form the
moment it was constituted
Note: even if there is a retroactive effect, the rights of innocent third persons
must not be prejudeced

Article 1402
As long as one of the contracting parties does not restore what in
virtue of the decree of annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him.
-

REQUISITES OF RATIFICATION
1.
The contract should be tainted with a vice which is susceptible of
being cured
2.
The confirmation should be effected by the person who is entitled
to do so under the law
3.
It should be effected with knowledge the vice or defect of the
contract
4.
The cause of the nullity and defect should have already
disappeared

if lost through the fraud or fault of the person who has the right
to instituted proceeding: youre right to file the action is
EXTINGUISHED (contemplates on the principle of equity)
you should be ready to return

if one does not restore, the other party cannot be compelled to

do so as well (reciprocal obligation of restitution has been
created)

Article 1397
The action for the annulment of contracts may be instituted by
all who are thereby obliged principally or subsidiarily. However, persons
who are capable cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon
these flaws of the contract.
Q: who can file an action for annulment?
A: Innocent Party, whether principal or subsidiary of the contract. Only the
incapacitated party can file for annulment. If vitiated, only the innocent party
aswell can file
REQUISITES TO INSITUTUE ACTION FOR ANNULMENT
1.
Plaintiff must have interest in the contract (principal or
subsidiary)
2.
The victim and not the party responsible for the vice or defect
must be the person who must assert the same
Article 1398
An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of the
contract, with their fruits, and the price with its interest, except in cases
provided by law.
In obligations to render service, the value thereof shall be the
basis for damages.
-

Effect once the contract is annulled: MUTUAL RESTITUTION

Note: the creditor s of the victim cannot ask for annulment for
they are not bougt by contractS

Article 1399
When the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution
except insofar as he has been benefited by the thing or price received by
him.
-

If other party is incapacitated: incapacitated person in not obliged

to make any restitution except insofar as he has been benefited
by the thing he got

Article 1400
Whenever the person obliged by the decree of annulment to return
the thing can not do so because it has been lost through his fault, he shall
return the fruits received and the value of the thing at the time of the loss,
with interest from the same date.
-

if mutual restitution cannot be done due to the persons fault, he

shall return the FRUITS received and the value of the thing at the
time of the loss, with interest from the same date

Article 1401
The action for annulment of contracts shall be extinguished
when the thing which is the object thereof is lost through the fraud or fault
of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of
the contracting parties, the loss of the thing shall not be an obstacle to the
15

angels notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencias Class Discussion