CONTRACTS
Unilateral – only one is obligated
Art. 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. (to give, to do, or not to
do)
Elements:
1. Essential elements C-onsent S-ubject matter (Object)
and C-ause or consideration
a. Form and Delivery may also be essential in
some contracts
2. Natural elements – presumed to exist
a. Warranty of eviction and against hidden
defects in the contract of sale
i. A bought a laptop from B. Even
without stipulation that if the laptop
is defective B assumes liability. A is
protected with the presumption that
it is free from any defects.
ii. A bought land from B. there is a
presumption that B has the capacity
to transfer the ownership of the land
and A is protected from third
persons’ claim and eviction from
such land.
3. Accidental elements – agreed upon by the parties.
STIPULATED.
a. To pay credit, interest, to pay in a particular
place etc.
b. NOTE: agreement of parties would always
PREVAIL as long as it is not contrary to law,
morals… etc Art. 1306
Classification of Contracts
1. According to perfection of formation
a. Consensual – consent (sale)
b. Real – delivery (pledge, commodatum)
c. Formal or solemn – special formalities
(donation inter vivos of real property – must
be in public instrument)
2. According to Cause or Equivalence of the value of
prestations
a. Onerous – equivalent valuable consideration
(may kapalit, sale)
b. Gratuitous or lucrative – a feeling that one has
been generous or liberal (libre, donation)
c. Remunerative – given for a benefit or service
that had been rendered PREVIOUSLY (utang
na loob, chos! Haha)
3. According to importance or dependence of one upon
another
a. Principal – can stand alone by itself (sale,
lease)
b. Accessory – dependent upon another contract
(mortgage will not exist without a prior loan)
c. Preparatory – as a means to a future
transaction and not as an end to itself.
i. Agency – you enter into an agency
contract to have someone represent
you in your transactions
ii. Partnership – you enter into a
partnership for profit or gain from
operations
4. According to the parties obligated
a.
(commodatum) BUT the giving of consent is
mutual or bilateral
b. Bilateral – synalagmatic, both are required
reciprocally (sale)
5. According to their name or designation
a. Nominate – has particular name (sale,
deposit)
b. Innominate – not given a special name
i. Do ut des – I give that you may give
(now BARTER)
ii. Do ut facias – I give that you may do
iii. Facio ut des – I do that you may give
iv. Facio ut facias – I do that you may do
6. According to the risk of fulfillment
a. Commutative – real fulfillment, equivalent
values are given
b. Aleatory – fulfillment is dependent upon
chance, values vary because of risk or chance
(insurance contract)
7. According to the time of performance of fulfillment
a. Executed – obligations are complied with at
this time
b. Executory – prestations are to be complied
with at some future time.
i. Sale perfected but has not yet been
delivered and price not yet been
given
ii. Sale to be performed 1 year from
now (Statute of Fraud)
8. According to subject matter
a. Things (sale)
b. Rights or credits (provided these are
transmissible: usufruct, assignment of credit)
c. Services (agency, contract of carriage /
common carriage)
9. According to obligations imposed and regarded by law
a. Ordinary – sale
b. Institutional – marriage
10. According to evidence required for its proof
a. Oral or parol
b. Written proof (Statute of Frauds: note or
memorandum)
11. According to number of persons actually and
physically entering into the contracts
a. Ordinary – two persons are represented by
different parties
b. AUTO CONTRACTS – one person represents
two opposite parties, BUT in DIFFERENT
CAPACITIES
i. An agent representing his principal
sells a specific car to himself, as
buyer
12. According to the number of persons who participated
in the drafting of the contract
a. Ordinary
b. Contract of adhesion – one prepared the
contract (insurance) if the buyer or offeree
refuses and adds or change parts of the
contract (counter offer), they enter into a new
contract
13. According to the nature of the contract
a. Personal (insurance)
b. Impersonal
 i. Note: the person itself is necessary
for the contract, not transmissible
STAGES OF A CONTRACT
1. Preparation (Conception or Generacion) – they have
not yet arrived to any definite agreement (offers,
bargaining)
2. Perfection (or birth) – came to a definite agreement
(COC are present)
3. Consummation (death or termination) – fully
performed or executed
BASIC PRINCIPLES OR CHARACTERSITICS OF A CONTRACT
1. Freedom (or liberty) 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 (Arts.
1159 and 1315)
3. Perfection by Mere Consent (Consensuality)
4. Mutually Bound (both parties)
5. Relativity (generally, binding only between the parties,
their assigns, and heirs) Art. 1311
LIMITATIONS ON THE NATURE OF THE STIPULATIONS (on
FREEDOM)
1. Law – sale/donation between husband and wife; labor
contracts as per overtime pay; mortgage where
mortgagee will automatically own the property if
unpaid at maturity; deprivation of jurisdiction
2. Morals – debtor agreed to work as a servant for her
credit WITHOUT PAY; reimbursement of scholarship
given in case of transfer; payment of P5 for each day of
delay after maturity; promise of marriage based on
carnal consideration; excessive or unreasonable
attorney’s fees even if stipulated; separated couple
waives their right to prosecute each other for future
acts of infidelity
3. Good Customs –varies according to the culture;
contrary to public policy if it “has a tendency to injure
the public”. E.g. denying access to courts; encourage
fraud; exempting a carrier from liability for gross
negligence; warrants of attorney to confess judgement;
undue or unreasonable restraint of trade; surrendering
the right to vote for a consideration
INNOMINATE CONTRACTS
Governing rules for innominate contracts
1. Stipulations
2. Obligations and contracts
3. Rules on the most ANALOGOUS nominate contracts
4. Customs of the place
NOTE: the name given to the contract by the parties should not
be controlling. A contract is what the parties INTENDED it to be,
not what they call it. Substance over form.
MUTUALITY OF CONTRACTS
1. A party cannot revoke or renounce a contract without
the consent of the other
2. Both parties are bound – based on the essential
equality of the parties
-Sale where a third person fixes the price and the delivery of the
object, decision will be binding only after the price is made
known to both parties.
-BUT if there is evident inequitable determination, it is not
binding. Such price shall be ascertained by the court.
RELATIVITY OF CONTRACTS
1. General Rule: Effective only between the parties, their
assigns, and their heirs.
2. Exceptions:
a. Not transmissible by nature, by stipulation or
by law
i. Partnership – death of a partner
ends the partnership. Not
substituted by the heirs as
partnership are personal contracts
ii. Agency – same as above
b. Stipulation pour autrui (in favor of a third
party)
i. Codal provision. Art. 1311 par 2
ii. Requisites:
1. Stipulation in favor of a 3rd person
2. Clearly and deliberately conferred a
favor upon a third person
3. Not a mere incidental benefit or
interest (examine the intention of
the parties as disclosed by their
contract)
4. Stipulation must be part of the
contract
5. Third person communicated his
acceptance before revocation by the
original parties (may be in form of a
demand)
6. No relation of agency between
either of the parties and the third
person
c. Third person induces another to violate his
contract (Art. 1314, Civil Code)
d. Where a third person may be adversely
affected where they did not participate
(quasi-contracts: negotiorum gestio, creation
of a status: marriage, real right – registration
of sale of real properties creates right of the
owner AGAINST third persons
e. Accion directa – law authorizes the creditor to
sue on a contract entered into by his debtor
3. Reason for the law: RES INTER ALIOS ACTA ALIIS NEQUE
NOCET PRODEST
The act, declaration, or omission of another,
cannot affect another, except as otherwise provided by
law or agreement.
CONSENSUALITY OF CONTRACTS
- Perfection by mere consent
- From the moment there is agreement (consent) on the
subject matter, and the cause or consideration.
Consequences of Perfection
1. Bound to what is expressly stipulated and
compliance thereof in good faith
a. Reformation – if intention is not
expressed
 2. Bound to all consequences which, according to
their nature, may be in keeping with good faith,
usage and law.
Real contracts – not perfected by mere consent
1. Requisites – Consent, subject matter, cause or
consideration, and DELIVERY
2. Examples: Deposit, Pledge, Commodatum (Loan of a
car)
3. “to make” a deposit, “to make” a pledge or “to make” a
commodatum is a consensual contract
Requisite for a person to contract in the name of another (in re:
Unenforceable contracts)
1. Must be duly authorized (express or implied)
2. By law a right to represent him (guardian or
administrator)
3. Subsequently ratified (express, implied, by word or by
deed)
a. Implied – president of a company entered in
an ultra vires contract. BOD collected the
profits and assumed the losses incurred in the
contract.
b. Effect – cleanses the contracts from all its
defects from the beginning (retroactive)
c. Revocation removes the option of ratification
ESSENTIAL ELEMENTS OF A CONTRACT
1. CONSENT –presupposes legal capacity
- meeting of the minds between the parties
- meeting the offer and the acceptance
Effect of Non-consent
a. Absolutely no consent – no contract, non-
existent, void (a joke is not an implied consent
= no consent)
b. Vitiated consent – error, fraud, undue
influence, mistake = voidable
Requisites of Consent
1. Two or more parties (one person may represent two or
more unless contradictory or prejudicial)
2. Capable or capacitated (if one is incapacitated =
voidable; if both = unenforceable)
3. No vitiation of consent (otherwise, voidable)
4. No conflict between what was expressly declared and
what was really intended (otherwise, reformation; if
absolutely simulated or fictitious = void)
5. Intent must be declared properly (as to formalities that
needs to be complied with)
Requisites for the Meeting of the Minds
a. An offer that must be CERTAIN
b. Acceptance that must be UNQUALIFIED and ABSOLUTE
(otherwise, counter-offer (different contract))
i. Acceptance will be binding only upon knowledge of the
offerer (may be actual or constructive)
1. Application: On January 1, Sandy (Philippines) made an
offer of sale of cake to Hazel who is in America. January
12, Hazel accepted the offer and mailed a letter to
Sandy stating her intentions. January 15, Hazel changed
her mind and sent another letter rejecting Sandy’s
offer. Was there meeting of the minds?
i. Yes, if Sandy received the acceptance letter first.
b. No, if Sandy received the rejection letter first.
c. If both arrived at the same time, whichever intention
came to Sandy’s knowledge. (bottomline: whichever
came to the offerer’s knowledge)
i. Note: place where offer is made is presumed to have
been the place the contract is entered into.
(Philippines)
ii. Forms of Aceptance
1. Express
2. Implied – conduct, acceptance of unslocited services
3. Presumed by law – failure to repudiate hereditary
rights within the period fixed by law or Silence
(estoppel)
Offerer may fix:
1. The time
2. The place
3. The manner of acceptance
Acceptance of an Offer Made Through an Agent
1. Agent – an extension of the personality of the principal.
a. On Jan. 1 Vin authorized Kenneth to sell his
laptop. Kenneth then went to Anne and made
an offer to sell the laptop. On January 2, Anne
accepted the offer and communicated it to
Kenneth. Kenneth then went to Vin on Jan. 5
and gave the payment. When did the
acceptance become binding?
i. Ans. January 2. As an agent of Vin,
Kenneth acted within his capacity to
make an offer and accept the same.
It is as if Vin accepted the offer of
Anne.
b. Same facts, but Kenneth is merely a
messenger without a special power of
attorney from Vin.
i. Ans. January 5, acceptance was only
made known then.
c. On Jan. 1 Vin authorized Kenneth to sell his
laptop. Kenneth then went to Anne and made
an offer to sell the laptop, and right then and
there, Anne accepted the offer. On Jan. 2, Vin
went to see Klarisse for their date, Vin offered
to give his laptop and Klarisse accepted the
same. Kenneth then went to Vin on Jan. 5,
gave the payment and demanded that Anne
should be the rightful owner of the laptop. Is
Kenneth correct? (sometimes, hahahahaha)
i. Ans. Yes. Kenneth as agent acted
within his authority. There was a
valid sale. (assuming that possession
hasn’t been transferred to anyone. If
possession is already with Klarisse,
she will be the rightful owner pero
ibang topic na yun)
Offer becomes ineffective (Art. 1323)
1. Upon death,
2. Civil interdiction,
3. Insanity,
4. Insolvency of either party before acceptance is
conveyed.
Other instances:
1. Rejected (express or implied)
2. Accepted with qualification or condition (counter-offer)
3. Subject matter has become illegal or impossible
4. Period of time given by the offerer has already lapsed
5. Offer is revoked in due time (before learning of the
acceptance of the offeree)
Application:
On Jan. 1 Unde Cided made an offer to Opti On to sell
his car. Opti asked Unde to give him 1 week to decide. On Jan. 5
Unde told Opti that he no longer wants to sell the car for
sentimental reasons. Was there a valid revocation?
1. Yes. No acceptance yet was communicated by Opti
Same facts with modifications: On Jan. 4 Opti left a note on
Unde’s door accepting the offer. The note was lost without
Unde having the chance to read it. Jan. 5 Unde revoked his
offer. Was there a valid revocation?
1. Yes. Unde did not learn of Opti’s acceptance.
On Jan. 1 Unde Cided made an offer to Opti On to sell his
car. Opti asked Unde to give him 1 week to decide and gave
100,000 in consideration for the option. On Jan. 5 Unde told Opti
that he no longer wants to sell the car of sentimental reasons.
Was there a valid revocation?
1. No. the option or the 1 week from when Opti is to
decide is founded upon a consideration, a contract
separate and distinct from the contract of sale of the
car.
a. Option – it is a contract granting a person the
privilege to buy or not to buy a certain object
at any time within the agreed period at a fixed
price.
Business advertisements of things for sale:
1. Definite offer – if it appears to be a definite offer
wherein it contains all specific particulars needed in a
contract
2. Mere invitation to make an offer – if important details
are left out
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 appear (Art. 1326)
Persons incapacitated to Consent
1. Unemancipated minors
a. Not emancipated by marriage, attainment of
the age of majority, or by parental or judicial
authority
b. In general, contracts entered into by them are
voidable unless:
i. At the age of majority, they ratify the
same
ii. Entered into through a guardian or
with court approval
iii. Contract of life insurance in favor of
their family
iv. In the form of a savings account
v. Contracts for necessities: food
vi. If minor misrepresented his age and
the other party was misled, the
minor is in estoppel
c. If both parties are minor = unenforceable
2. Insane or demented persons (unless they acted during
lucid interval), drunks and those hypnotized
Declaration of insanity by the court is not
required as long as it is substantially shown
If with declaration with by the court that a
person is insane, this does not mean that he is
incapacitated in all contracts entered into by
him. He may be in the state of a lucid interval.
3. deaf-mutes who do not know how to write (and read)
a. Note: valid if they are capable of
understanding
4. Persons Specially Disqualified
a. Between husband and wife
b. Insolvents
c. Because of fiduciary relationships (guardian –
who is not allowed to purchase the property
of his ward, judges – with reference to
properties under litigation)
5. Incompetents Under the Rules of Court
a. Those under civil interdiction
b. Hospitalized lepers
c. Prodigals
d. Deaf and dumb who are unable to read and
write
e. Unsound mind even though they have lucid
intervals
f. Reason of age, disease, weak mind, and other
similar causes
CAUSES OF VITIATED CONSENT (vices of consent)
1. Mistake (or error) –affects the intellect (the faculty in
the mind of man to discern the truth, thus affects
cognition)
2. Fraud – affects the intellect
3. Violence – affects the will (to discern which is good,
thus affects volition)
4. Intimidation - will
5. Undue influence - will
MISTAKE – false belief about something
1. Must be substantial – object, principal conditions such
as error in quality or in quantity, and mistake in identity
or qualifications (only if such was the principal cause of
the contract)
2. Must be excusable – not caused by negligence
3. Must be mistake of fact and not of law (Ignorance of
the law is not an excuse)
Presumption: a person who enters a contract acts in due care
and signs with full knowledge of all the documents.
When does the presumption not applicable:
1. One of the parties are unable to read (including blind
persons)
2. Contract is in a language not understood by one of the
parties
NOTE: Knowledge of Doubt or Risk does not vitiate consent –
they are willing to take the risk, contracts aleatory in nature.
Mutual Error to Vitiate Consent
Requisites:
1. There must be mutual error
2. The error must refer to the LEGAL EFFECT
3. The real purpose is FRUSTRATED
There was meeting of minds but does not show the real
intention = reformation
Both agreed on a sale, but both thought that it has the same
effect as a mortgage, no meeting of minds = annulment
VIOLENCE – physical coercion; external
Requisites:
1. Employment of serious or irresistible force
 2. The reason why the contract was entered into
INTIMIDATION – moral coercion; internal
Requisites:
1. Reasonable and well-grounded fear
a. Depends on the circumstance
b. Not well grounded if threat is to initiate
expropriation proceedings
2. Imminent and grave evil
a. Depends upon circumstance: sex, age,
condition
3. Upon his person, property, or upon the person or
property of his spouse, descendants, or ascendants
a. Threat to person includes: threat to honor,
chastity, and dignity
b. Fiancé – the provision should be given a
liberal interpretation
4. Must have been the reason why the contract has been
entered into
a. If the person concerned would have entered
into the contract even without the
intimidation, consent is valid.
5. Threat must be unjust act, an actionable wrong
a. Threat to prosecute is not intimidation
b. The right to enforce one’s claim through
competent authority must not by itself
constitute an unlawful act.
Note: even if caused by third person, the contract may be
annulled. Consent is still vitiated.
UNDUE INFLUENCE –destroys reasonable freedom of choice
Requisites:
1. Improper advantage
2. Power over the will of another
3. Deprivation of the latter’s will of a reasonable freedom
of choice
(must be the kind that overpowers the mind as to destroy
the party’s free agency)
Examples of Circumstances:
1. Confidential, family, spiritual, and other relations
between the parties
2. Mental weakness
3. Ignorance
4. Financial distress
Note: even if caused by third person, the contract may be
annulled. Consent is still vitiated.
FRAUD – 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.
Requisites:
1. Fraud must be material and serious, that is, it really
induced the consent.
2. Must have been employed by only one of the
contracting parties. If both = valid contract
3. Deliberate intent to deceive or to induce;
misrepresentation in good faith is not fraud
4. Other party must have relied on the untrue statement,
and must himself not be guilty of negligence in
ascertaining the truth.
a. Dolo causante (causal fraud) –voidable
b. Dolo incidente (incidental fraud) – valid
Entrance into a Ridiculous Contract – Suppose a man enters into
a ridiculous contract because of a wrong judgement although he
is well in possession of his mental faculties, will the court grant
relief by annulling the contract?
Ans.: No, it is the man’s own fault. All men are presumed to be
sane and normal.
 Failure to disclose facts (Concealment) constitutes FRAUD,
when there is a DUTY to reveal them.
 Usual exaggerations in trade, when the other party had
opportunity to know the facts, are not in themselves
fraudulent.
o “caveat emptor” – let the buyer beware
o Usual exaggerations (dealer’s talk) – tolerated fraud,
what does not appear on the face of the written
contract
 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
 Misrepresentation made by a third person does not vitiate
consent, unless such misrepresentation has created
substantial mistake and the same is mutual.
o If so, it would be voidable. Contract may be
annulled, on the ground of error or mistake.
 Misrepresentation made in good faith is not fraudulent but
may constitute error.
Requisites of Fraud to vitiate Consent
1. Fraud must be serious
a. Incidental Fraud does not vitiate consent
which does not cause for annulment
2. Parties must not be in pari delicto (mutual guilt),
otherwise neither party may ask for annulment. Valid
contract.
Simulation of a Contract – process of intentionally deceiving
others by producing the appearance of a contract that really
does not exist (absolute simulation) or which is different from
the true agreement (relative simulation)
Requisites:
1. Outward declaration of will different from the will of
the parties
2. False appearance must have been intended by mutual
agreement
3. Purpose is to deceive third persons
Kinds of Simulated Contracts
1. Absolutely simulated
a. The parties do not intend to be bound
b. Void
2. Relatively simulated (disimulados) disguised contracts
a. Parties conceal their true agreement
b. Parties are bound to the real or true
agreement except –
i. Contract should prejudice 3rd person
ii. If contrary to LMGPP
Absolutely simulated is different from illegal contract
OBJECT – a thing or service
Requisites:
1. Within commerce of man
2. Transmissible
3. Must not be contrary to LMGPP
4. Must not be impossible
5. Determinate or determinable without the need of a
new contract or agreement
WITHIN THE COMMERCE OF MAN
Examples of those outside the commerce of man:
 1. Sidewalks
2. Bridges
3. Taxes
TRANSMISSIBLE
Intransmissible:
1. Political rights (right to vote)
2. Strictly personal rights (parental authority)
NOT CONTRARY TO LMGPP
1. Future things may be object of a contract
a. Express provision of law states that future
property may not be donated
2. Future inheritance (source is still alive) cannot be the
subject of a contract except:
a. Marriage settlements
b. Partitions of property inter vivos by the
deceased
3. Human blood, like other parts of the body cannot be
considered as object of a contract
IMPOSSIBILTY
1. Because of the nature of transaction or by law
2. Absolute (objectively impossible, no one can)
3. Relative (subjectively)
 NOTE: must not be confused with DIFFICULTY
DETERMINATE OR DETERMINABLE
-without the need of a new contract or agreement
-contract is VOID for lack of an essential requisite –object
CAUSE OF CONTRACTS
-essential and impelling reason why a party assumes an
obligation
Requisites:
1. It must be present (at the time the contract was
entered into)
2. It must be true
3. It must be lawful (not contrary to LMGPP)
Classification of Contracts as to Cause:
1. Onerous – the cause is the prestation or promise of a
thing or service by the other
2. Remuneratory – the past service or benefit which by
itself is recoverable debt
3. Gratuitous – pure beneficence – cause is the mere
liability of the benefactor
 Cause in Accessory Contracts
Mortgage and Pledge – cause is the contract of loan
 Cause in Accessory Contracts of Personal Guaranty
(Guaranty and Suretyship)
Cause is pure liberality
 Moral Obligation may be a valid Cause of a Civil Obligation
 Shocking cause or consideration – void ab initio
Motive is different from Cause
Motive – may vary from person to person who enters the same
contract; may be unknown to the other; illegal motive does not
render the Contract void
Cause – is always the same in contracts alike; always known;
illegal cause renders a contract void
Note: the presence of motive cannot cure the absence of cause
 LESION – inadequacy of cause, like an insufficient price for a
thing sold
1. Gen. rule: does not invalidate a contract
2. Exceptions: when, together with lesion, there has been:
a. Fraud
b. Mistake
c. Or undue influence
3. Lesion may be EVIDENCE of the presence of fraud,
mistake, or undue influence
FORM OF CONTRACTS
Form may be important:
1. For VALIDITY (formal or solemn contracts)
2. For ENFORCEABILITY (Statute of Frauds)
3. For CONVENIENCE (contracts enumerated in Art. 1385)
Formal Contracts:
1. Donation of real property – public instrument
2. Donation of personal property – written document or
contract if it exceeds P500
3. Stipulation to pay interest on loans – stipulation must
be in writing
4. Transfer of large cattle – transfer of the certificate of
registration
5. Sale of land through an agent – authority must be in
writing
6. Antichresis – principal loan and interest, if any, must be
in writing
One party has the RIGHT to COMPEL the other to execute the
necessary form when:
1. Perfected (valid)
2. Enforceable under the Statute of Frauds
>needed only for convenience and not for validity or
enforceability
REFORMATION OF INSTRUMENTS
Reformation – remedy in equity by means of which a written
instrument is made or construed so as to express or conform to
the real intention of the parties when some error or mistake is
committed
Remedy: Reformation vs. Annulment
R: there is meeting of minds but there is mistake, fraud,
inequitable conduct or accident in the contracts as written
A: no meeting of the minds, because of vitiated consent
R: does not invalidate a contract
A: invalidates a contract
Requisites for the Action of Reformation
1. There must be meeting of the minds
2. The true intention is not expressed
3. There must be clear and convincing proof
4. Brought within the proper prescriptive period
5. Document must not refer to simple unconditional
donation inter vivos, or to a contract where the real
agreement is void
When Reformation may be asked:
1. Mutual mistake
2. Unilateral – Art. 1362 – mistake is unilateral but the
other party acted fraudulently or inequitably
Art. 1363 – unilateral mistake but the other party is
guilty of concealment; only the party in good faith can
ask for reformation
3. Mistake must be of fact – generally, an error of law is
not enough
4. Does not convey the true intent because of:
a. Ignorance
b. Lack of skill
 c. Bad faith of
i. The drafter of the instrument
ii. Or the clerk
iii. Or the typist
5. True intent is frustrated
a. How to judge the parties’ intent
i. Contemporaneous and subsequent
acts
When Reformation is Not Allowed:
1. Simple Donation – pure liberality
2. Wills – strictly personal act which is free
3. Void Agreements – such procedure would be useless
4. When one of the parties has brought an action to
enforce the instrument he cannot subsequently ask for
its reformation (by law)
a. Basis is estoppel, waiver or ratification
Who may ask for Reformation
1. If mistake is mutual, either party or his successors in
interest
2. Other cases:
a. Injured party
b. His heirs and assigns
INTERPRETATION OF CONTRACTS
Art. 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.
How to judge the parties’ intent
1. Contemporaneous and subsequent acts
2. If the parties themselves placed an interpretation to
the terms of their contract, such interpretation must be
in general be followed
3. The contract of the parties may result in estoppel
4. Court may consider the relationship of the parties
Note: Special Intent prevails over General Intent
 If stipulation admits several meanings – one which is most
adequate to render it effectual
 One interpretation makes it valid, the other illegal – the
former interpretation must prevail
 Various stipulations shall be interpreted together, jointly
 Understood in that which is most in keeping with the nature
of the object of the contract
 Consider the usage and custom of the place
 Interpretation of obscure words shall not favor the party
who caused the obscurity
FOUR KINDS OF DEFECTIVE CONTRACTS
1. Rescissible
2. Voidable
3. Unenforceable
4. Void
RESCISSIBLE CONTRACTS – 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 his creditors
Requisites:
1. There must be at the beginning either a valid or a
voidable contract
2. There is an economic or financial prejudice to someone
3. Requires mutual restitution
Two Kinds:
1. Art. 1380 (as now being discussed)
a. Based on lesion
b. Action by parties or third persons
c. Court cannot grant a period or term
d. Non-performance of the party is immaterial
2. Art. 1191. “resolution”
a. Based on non-performance or non-fulfillment
b. Instated only by the injured party
c. In some cases, courts may grant a term
d. Non-performance is important
 Rescissible contract is not void. It is valid until
rescinded.
 Fictitious contracts cannot be rescinded
 Effect: abrogates the contract from inception and
restores the parties to their original position as if no
contract has been made
Contracts that are rescissble:
As enumerated
1. In behalf or Wards
a. Lesion (damage or injury of more than ¼)
 If act of ownership: court approval is required,
otherwise it would be unenforceable
 If act of administration: with court approval, valid
regardless of lesion; without court approval,
rescissible if lesion of more than ¼
2. In representation of absentees
a. Same as in the first case
3. Undertaken in Fraud of Creditors, when the Latter
Cannot in any Other Means Collect Claims due to them
Requisites:
a. There must be a creditor who became such
prior to the contract sought to be rescinded
b. Alienation made subsequent to such credit
c. Alienating must be in BAD FAITH (knew that
damage would be caused to creditors)
d. There must be no other remedy for the
prejudiced creditor – inability to collect claims
due them (rescission is merely subsidiary
remedy)
4. Things in Litigation
a. Notice of Lis Pendens – purpose is to give
notice to the whole world
5. Other instances – partition, result of deterioration,
right given to unpaid seller, sale of real estate
As per different article
6. Premature payments made in a state of Insolovency
Requisites:
a. The debtor-payer must have been insolvent
(need not be judicially declared)
b. Debt was not yet due AND demandable
 Rescission is subsidiary, only when there are no other legal
means to obtain reparation
 Only to the extent necessary to cover the damages caused
Necessity of Mutual Restitution – to restore status quo
Requisites:
1. Plaintiff must be able to return what has been received
(exception: prejudiced creditors)
a. Object with fruits,
b. Price with interest
 2. The object is not in the legal possession of third
persons in good faith (e.g. registration in the Registry of
Property)
3. Subsidiary – there must be no other legal remedy
4. Action must be brought within the proper prescriptive
period
PRESUMPTION OF FRAUD
1. Gratuitous Alienations – presumed fraudulent when
the debtor did not reserve sufficient property to pay all
debts contracted BEFORE the donation
Ex. Mapag Bigay (with assets worth 1M and liabilities
worth 600T) donated his property to Abu Sado worth
500T. Is the donation presumed fraudulent?
Ans.: Yes. Mapag did not reserve enough property to
pay his debts (presumption may be rebutted)
Same facts but property donated was only 200T
Ans.: No. Mapag still has enough property to cover his
debts.
2. Onerous Alienation – presumed fraudulent when made
by persons
a. Against whom some judgement has been
rendered in any instance (even if not yet final
judgement)
b. Against whom some writ of attachment has
been issued
Ex. Mau Tak was ordered by court to transfer the
ownership of his car to Mas Werte. After leaving the
courtroom, he saw Wama Lay and offered his car for
100T. Wama agreed and paid Mau and drove his new
car home. Was there presumption of fraud?
Ans.: Yes.
Same facts but the case is still pending and without
attachment issued on the car.
Ans.: None. Sale was made before the judgement.
Presumption of fraud cannot apply.
 Fraud alone is not sufficient for Rescission
Transferee may have been in good faith and is now in legal
possession of the property.
Ex. In the case of Mau Tak, Mas Werte and Wama Lay:
Mau Tak was indeed defrauding Mas Werte. Wama Lay was
a buyer in good faith and took possession of the car. Can
rescission be made? No.
EFFECT OF BAD FAITH
Bad Faith – state of mind affirmatively operating with furtive
design or with some motive or self-interest or ill-will or an ulterior
purpose, and implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity
1. Acquirer must return or indemnify
2. Due to any cause (includes fortuitous events)
Subsequent Transfers:
1. If transferee is in good faith, the good or bad faith of
the next transferee is not important
2. If the first is in bad faith, the next transferee is liable
only if he is also in bad faith
One, in fraud of creditors, sold his house to Two, who is in bad
faith. Two then sold the house to Three who is also in bad faith.
The contract is rescinded but the house is destroyed. Who is
liable first? Two is liable
One, in fraud of creditors, sold his house to Two, who is in bad
faith. Two then sold the house to Three who is also in good faith.
The contract is rescinded but the house is destroyed. Who is
liable first? Two is liable. If he cannot pay, Three cannot be
compelled to pay since he is in good faith. If Three was also in
bad faith, he may be compelled to pay if Two cannot.
 Prescriptive Period for Rescission
Gen. rule: four years from the date the contract was entered into
Exceptions: persons under guardianship – 4 yrs from termination
of incapacity
Absentees – 4 yrs from the time the domicile is known
 Direct Action is necessary for rescission – cannot be
attacked collaterally
 Who can bring action? – injured party, heir or successor-in-
interest, creditors
VOIDABLE CONTRACTS
-valid till annulled. It cannot be annulled, however, if there has
been a ratification. The defect is more or less intrinsic, as in the
case of vitiated consent.
-voidable are not void ab initio and it is binding upon the parties
Grounds for Annulment (Declaration of Nullity)
1. Incapacity to consent
2. Vitiated consent
*Repentance is not a ground for annulment
Prescriptive period:
1. 4 years in case of defect of the consent ceases
(intimidation, violence or undue influence)
2. 4 years from the discovery of – mistake or fraud
3. 4 years from the time the guardianship ceases (minors
or incapacitated persons)
*if the action is prescribes, the contract can no longer be set
aside.
To CURE the defect:
1. Confirmation – to cure the defect in a voidable contract
2. Ratification – to cure the defect of lack of authority in
an authorized contract (entered into by another)
3. Acknowledgement – to remedy a deficiency of proof.
*in the New Civil Code, these are all termed as RATIFICATION
Effect of Ratification:
1. Action to annul is extinguished
2. Contract is cleansed of its defect from the beginning
(retroactive)
Requisites:
1. The contract is voidable
2. The person ratifying must know the reason the cause of
it being voidable
3. The cause must not exist or continue to exist anymore
4. Made expressly or by an act implying (tacit) a waiver to
annul
5. Must be the injured party (may also be the guardian, if
injured party is incapacitated)
 Consent of the guilty party is NOT needed.
 Although there is retroactive effect, the rights of the
innocent third person must not be prejudiced
 Who may ask for annulment? The victim
 Creditors of the victim cannot ask for annulment
 If a minor misrepresents his age and the other party is
misled by the age, may the minor later on sue for
annulment? SC: NO. because he is in estoppel
ANNULMENT
Effect: (restoration)
1. If not complied with, excused from obligations
2. If already performed, MUTUAL RESTITUTION of
a. The thing, with fruits
b. The price, with interest

 No restitution by INCAPACITATED persons: only to the
extent of enrichment (food, clothes etc.) Enrichment is not
presumed by the law (e.g. insane squandered the money
away. This is not enrichment, being insane.)
UENFORCEABLE CONTRACTS
-cannot be sued upon or enforced unless ratified; thus, it has as
if they have no effect yet. But they may be ratified; thus, they
can have the effect of a valid contract. They may be called
validable.
These are nearer absolute nullity than voidable and
rescissble.
KINDS OF UNENFORCEABLE CONTRACTS
1. Unauthorized contracts
2. Those that fail to comply with the Statute of Frauds
3. Those were both parties are incapable of giving consent
UNAUTHORIZED CONTRACTS
-those entered into in the name of another person by who has
been given no authority or legal representation, or who acted
beyond his powers.
STATUTE OF FRAUDS
-purpose is to prevent fraud, and not to encourage the same.
Thus, certain agreements are required to be in writing
(memorandum or note) so that they may be enforced.
-As oral agreements are based on memory that is often
unreliable, these may sometimes result in injustice
GENERAL RULE OF APPLICATION OF SOF
1. Applies only to executory contracts and not partially or
completely executed
2. It cannot apply if the action is neither for damages nor
for specific performance
3. Statute of Fraud is exclusive (enumerated)
4. The defense of the SOF may be waived
5. SOF is a personal defense (cannot be assailed by third
persons)
6. Contracts infringing SOF is not void
7. Statute of Fraud is a rule of Exlusion
8. SOF does not determine the credibility or weight of
evidence. It merely concerns itself with the
admissibility thereof
9. SOF does not apply if it is claimed that the contract
does not express the true agreement of the parties.
FIRST PRINCIPLE – EXECUTORY CONTRACTS
A guardian sold the land of his ward worth 1M for only 700T
without court approval. The guardian prepared the Deed of Sale
and the buyer made sure she has the money. The buyer, still in
Canada, will arrive the next day and will meet with the guardian.
Kenneth says that it is rescissible since the ward suffered lesion
of more than ¼ . Is he correct?
Ans.: NO. Unless it states that partial or complete performance
was made by either parties, it remains unenforceable sine “no
lesion, prejudice, or damage” has yet incurred by the ward. The
sale has not yet complied with the SOF and still executory thus,
unenforceable.
ENUMERATION:
1. An agreement that by its terms is not to be performed
within a year from the making thereof.
a. A told B that he would sell his puppet worth
P200 pesos after his son (newborn) reach the
age of 3. On the 3rd birthday of A’s son, he was
confronted by B who demanded the puppet.
Is the agreement enforceable in under SOF?
ANS.: No, it should have been made in writing.
2. A special promise to answer for the debt, default, or
miscarriage of another.
A special promise refers to a subsidiary or collateral
promise to pay, like a contract of guaranty.
a. A was having his house repaired by B, who
needed certain materials. So A told the
storeowner (of materials), “Give B the
materials. I shall be responsible. I shall stand
good.” This was orally made. Is this a special
promise? Is this oral agreement enforceable?
This is not a special promise. This is not a guaranty.
Only A obligated himself. This is enforceable even if
orally made.
3. An agreement made in consideration of marriage other
than a mutual promise to marry.
a. Marriage settlements
b. Donations propter nuptias
A and B promised to marry each other. The promise
need not be in writing unless the marriage be deferred
till after the lapse of one year from the agreement. For
breach of a mutual promise to marry, the groom may
sue the bride for actual damages and oral evidence of
such mutual promise is admissible (Family Code)
4. An agreement for the sale of goods, chattels, or things
in action, at a price not less than five hundred pesos
unless…”
a. Things in action = intangible ( credit )
b. The law says SALE, not other contracts
c. If price is exactly P500, the contract must be
in writing to be enforceable
Rules in auction sale:
a. When a sale is made by auction, and the entry
is made by the auctioneer in his sales book at
the time of the sale of:
-the amount and kind of property
-the terms of the sale
-the price
-the names of the purchasers and persons on
whose account the sale is made-the entry is
considered a SUFFICIENT memorandum (even
if the same is not signed by the party sought
to be charged)
5. An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an
interest therein.
a. lease of real property for more than one year
(note of personal property) – if exactly one
year, the contract may be oral
b. sale of real property (regardless of price) –
“Interest”- in real property may include
easement or usufruct
6. A representations as to the credit of a third person
-this should not be confused with guaranty.
-Here, no promise to answer for another’s debt is
made; there is merely an assurance that somebody has
a certain amount of credit, made with the intention of
enabling the person in whose favor it is made to obtain
credit by virtue of such assurance or representation.
 A was borrowing money from B, and gave C as his reference.
When C was asked regarding A’s credit: “you can safely lend
 money to A because A is the owner of a parcel of land and I
have the title deeds in my possession. This was made orally.
 The representation is not enforceable against C because it is
not in writing.
 An attorney for the defendant should file a motion to
dismiss, plead the SOF as an affirmative defense and make
timely objection in the course of the trial.
 Sufficient Memorandum – complies with all statutory
requirements of the statute as to contents and signature.
 RULE ON AUTHORITY OF THE AGENT TO SELL LAND OR ANY
INTEREST THEREIN – authority must be in writing (GPA or
SPA) otherwise, the sale shall be VOID.
BOTH PARTIES ARE INCAPACITATED TO GIVE CONSENT
-2 unemancipated minors without consent of parents
A and B, both 15 yrs old, entered into a contract. It is
unenforceable. If the parent of A ratifies, it becomes voidable. If
both the parents of A and B ratifies, it becomes valid from the
beginning.
Unauthorized contracts, unless ratified, has no effect
Ratification of Contracts Infringing the SOF
1. Failure to object to the presentation of oral evidence
(deemed as waiver)
2. Acceptance of benefit under them(no longer executory)
Unenforceability cannot be assailed by strangers.
VOID OR INEXISTENT CONTRACTS
Two kinds of void contracts:
1. INEXISTENT ONES – like those where essential formalities
are not complied with; ex.: a donation of land in a private
instrument; this produces no effect whatsoever
a. Those which are absolutely simulated or fictitious;
i. Valid contracts: sale of future or after acquired
property)
ii. Absolutely simulated – void; relatively simulated –
generally binding
b. Those whose cause or object did not exist at the time of
the transaction
2. ILLEGAL / ILLICIT ONES – like donation with an immoral
condition like illicit sexual intercourse (produces an effect,
he who gave donation cannot get back what he has given)
a. Those whose cause, object, or purpose is contrary to
LMGPP;
b. Those whose object is outside the commerce of men;
c. Those which contemplate an impossible service;
d. Those where the intention of the parties relative to the
principle object of the contract cannot be ascertained;
e. Those expressly prohibited or declared void by law
i. Donation of husband and wife during marriage
ii. Art. 1490 – sale between husband and wife
iii. Art. 1491- guardian, judge etc.
iv. Art. 1689 – Household Compensation
v. Art. 1782 – Universal partnership
vi. Art. 1799 – stipulation as to the share of liab
vii. Art. 2035 – no compromise of civil status
viii. Art. 2088 – pactum commissorium
ix. Art. 2130 – owner of the property mortgaged is
prohibited from selling it.
NOTE: these contracts cannot be ratified. Neither can the right to
set up the defense of illegality be waived.
 The action or defense for the declaration of the inexistence
of a contract does not prescribe.
PARI DELICTO Rule – refuses legal remedy to either party to an
Illegal Agreement and Leaves them where they were
Reason: Ours are courts of both the law and equity-they compel
a. The doctrine applies even to the spouse of one of them,
who although not a signatory to the contract, has
sufficiently manifested by affirmative acts her
unequivocal concurrence to the contract in
controversy. (especially if spouse is benefited)
b. The doctrine does not apply to fictitious or absolutely
simulated contracts, since these are inexistent; not to a
contract where one party, a minor, is much less guilty
than another, who is of age; nor to a case where the
government is involved for the government is not
estopped by the neglect of its officers; nor finally to a
contract of sale
c. Does not apply where a superior public policy
intervenes.
d. Does not apply in case of void contracts which are
simulated to circumvent a law.
Two Kinds of ILLEGAL contracts:
1. There is a criminal offense
e. Both parties are guilty (in pari delicto)
-no action against each other
-both shall be prosecuted
-effects or the instruments of the crime (things or
price of the contract) shall be confiscated in favor
of the government
f. Only one is guilty and the other is innocent
-even if both are guilty but are not equally guilty,
not in pari delicto
-the guilty party will be prosecuted
-the instrument of the crime will be prosecuted
-the innocent one may claim what he has given; or
if he has not yet given anything, he shall not be
bound to comply with his promise
2. There is no criminal offense – unlawful or forbidden
BUT where NO criminal offense
a. Those were both are guilty
-neither may recover what he has given
b. Those were only one is guilty or at fault
-or where one party is less guilty than the other,
hence they are not in pari delicto
-guilty party cannot recover what he has given or
ask for the fulfillment of what had been promised
-the party NOT at fault may demand the return of
what he has given, without any obligation to
comply with his promise
BETTING not equal to GAMBLING
Gambling on the results of a game of chance is prohibited
Betting (which concerns itself with games of skill, like chess) is
ordinarily allowed.
RECOVERY even if IN PARI DELICTO
a. Purpose has not yet been accomplished
b. Or if the damage has not been caused to any third
person
Art. 1416 distinguishes illegal per se and prohibition.
 Illegal per se – those forbidden because of public
interest
  Prohibited contracts – forbidden because of private
interest. Recovery is permitted provided that:
a. Contract is not illegal per se
b. The prohibition is designed for the protection of
the plaintiff
c. And public policy would be enhanced by allowing
the recovery
PAYMENT IN EXCESS OF MAXIMUM PRICE
-may recover such excess; to curb the evils of profiteering
MAXIMUM NUMBER OF HOURS OF LABOR
-may demand additional compensation for services rendered
beyond the time limit
MINIMUM WAGE
-entitled to recover the deficiency
ILLEGAL TERMS OF CONTRACTS
1. Divisible – only the legal terms shall be enforced
2. Indivisible – whole contract is void, even if only some
are illegal
DEFENSE OF ILLEGALITY – not available to 3rd persons not directly
affected
A contract which is a direct result of a previous illegal contract, is
also void and inexistent.
NATURAL OBLIGATIONS
-based on moral duty and not legal duty
-allowed by law to encourage persons to fulfill their obligations
Voluntary Fulfillment – the debtor complied with the same even
if he knew that he could not have been legally forced to do so.
UNDUE PAYMENT not equal to NATURAL OBLIGATION
If I pay a debt that has prescribed –
a. Not knowing it has prescribed, I can recover on the
ground of UNDUE PAYMENT
b. Knowing it has prescribed, I cannot recover for this is a
case of a NATURAL OBLIGATION
Examples of Natural Obligations:
1. Obligation to pay interest for use of money, even if not
agreed upon in writing
2. Duty to support natural or spurious children (even if
not recognized)
3. Giving of material and financial assistance to children
upon their marriage
Extinctive Prescription – by virtue of this, a right or property has
been lost.
Application of Art. 1424
A’s debt to C has been extinguished by prescription. A knowing
the prescription, voluntarily paid the prescribed debt. A cannot
now recover what he has paid C.
Payment by a third person of an obligation already PRESCRIBED:
1. With knowledge and consent of the debtor – civil
obligation of the debtor to pay 3rd person arises
2. Without knowledge or against the will of the debtor –
debtor is not bound to reimburse the 3rd person
- BUT if debtor pays the third person, he cannot
recover what he has paid on the ground of
prescription.
MINOR without the CONSENT of the parents
When such contract is annulled:
1. Minor may not be compelled to return what has been
received by him (unless benefited)
2. IF MINOR VOLUNTARILY RETURNS the object, whether
or not he was benefited, he cannot later on recover the
object
Ex.: A, a minor, borrowed 100T from B without the consent of A’s
parents. After learning what A has done, his parents (as
guardians) filed a motion to annul such contract of loan and such
was granted by the court. B cannot recover the 100T unless
there is showing that A benefited from the money. If A, after a
few days, voluntarily gave the money to B, A cannot (nor his
parents) recover the 100T.
WINNER IN AN ACTION TO ENFORCE A CIVIL OBLIGATION
If a defendant who won the case (for him to not pay the
complainant) voluntarily pays the complainant, he can no longer
recover such payment.
HEIR PAYS DEBT OF DECEDENT BEYOND THE VALUE OF THE
ESTATE RECEIVED
A received from his father assets worth 10M and liabilities worth
15M. A is only expected to pay the debt/liabilities worth 10M
since it is only to the extent of the estate/assets received. If A
pays the whole 15M, he cannot recover such payment.
PAYMENT OF LEGACIES DESPITE THE FACT THAT WILL IS VOID
A is the administrator of his father’s estate. If his father left a will
but such is void, A may or may not perform the provisions in the
said void will. If A gave B’s share in accordance to the void will,
he cannot recover from B what has already been given.
ESTOPPEL
-bars a party from denying or alleging a certain fact owing to that
party’s previous conduct
-the principles of estoppel are only suppletory (supplying a
deficiency)
Kinds of estoppel
1. Estoppel IN PAIS (equitable estoppel):
a. By conduct or acceptance of benefits – but if
conduct because of ignorance or mistake, it does
not result to estoppel
b. By representation or concealment
c. By silence – there should be a duty or obligation to
speak, otherwise it wouldn’t result to estoppel
d. By omission – mere promise or to omit at some
future time does not necessarily result in estoppel.
Promise must have been relied upon, and
prejudice would result unless estoppel is applied
e. By laches (unreasonable delay in suing) – bars an
action to CREATE a vested right (executory
interest) but does not bar an action to protect a
vested right (executed interest)
2. Estoppel BY DEED (technical estoppel)-there must be a
written instrument
- It is a bar which precludes a party to a deed and his
privies any right or title in derogation of the deed, or
from denying the truth of any material fact asserted in
it.
 Sale or Alienation by Non-Owner and later on acquires title
thereto, the non-owner (now owner) is estopped from
 depriving the buyer such ownership. Title passes by
operation of law.
 Sale or Alienation in Representation of Another
A, in representation of B, sells to C a car. A cannot state that
the sale is invalid since A was really the owner and not B. A
is estopped from claiming his own title.

 Estoppel on the part of a lessee or a bailee

A leased the apartment of B. C now claims that he is the
rightful owner of the apartment and not B. A, in order to
avoid payment, claims that B is not the real owner. A is
estopped from claiming such since A contracted a lease
agreement with B.

 Estoppel Concerning Immovable Property

A owns a parcel of land which B is interested in buying. A
and B are mortal enemies. In order to sell the land without B
knowing, C, with A’s consent, misrepresented himself as the
owner of the said land and sold the same to B. A is estopped
from demanding payment from B although he is the real
owner of the sold land.

 Allowing Someone to Assume Apparent Ownership of the

Personal Property.
A owns a necklace. B, A’s sister, assumes apparent
ownership of the necklace and without the consent of A
sold it to C. B gave the payment to A. A is now estopped
from claiming there was no valid sale since B is not the real
owner. A received the benefit of the sale.

 Persons bound by Estoppel are the parties or their

successors-in-interest