Obligations and Contracts Reviewer

lOMoARcPSD|40691668
Obligations and Contracts Reviewer
Law On Obli, Cont & Bas Labor Laws (Adamson University)
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lOMoARcPSD|40691668
CONTRACTS Accidental Elements – various  Accessory – depends upon the other parts for
particular stipulations that may be another contract it satisfactory performance.
Art. 1305 A contract is a meeting
agreed upon by the parties. May secures  Divisible – one part is
of mind between two persons
be present or absent.  Preparatory – entered performed independently
whereby one binds himself, with
into as a means to an end. than that of the other.
respect to the other, to give CLASSIFICATIONS
something or to render some According to parties: According to obligatory force:
According to name/designation:
service.
 Unilateral – only one  Valid
 Nominate – specific name
Contract – agreement of 2 or party has an obligation  Rescissible
 Innominate – not given
more persons for the purpose of  Bilateral – reciprocal  Voidable
any special name
creating, modifying, or obligations  Unenforceable
extinguishing a juridical relation According to perfection:  Void or inexistent
between them. Enforceable According to risk of fulfillment:
through legal proceedings in case  Consensual – perfected According to subject matter:
 Commutative –
other party does not comply. by mere consent
undertaking of one party  Involving things
 Real – perfected by
NOTE: CONTRACTS CONSTITUTE is equivalent to that of the  Involving rights or credits
delivery
THE LAW BETWEEN THE PARTIES. other. (equal sa isa’t isa)  Involving services
 Formal or solemn –
 Aleatory – depends upon
NOTE: all contracts are certain formalities are STAGES OF CONTRACT:
uncertain event or
agreements but not all required for the
chance. 1. Preparation (conception)
agreements are contracts. perfection
According to the time of 2. Perfection (or birth)
NOTE: a contract necessarily gives According to Cause/Equivalence: 3. Consummation
fulfillment:
rise to an obligation but an  Onerous - reciprocal
 Executed – when it has BASIC PRINCIPLES OR
obligation does not always need
 Gratuitous – free (only CHARACTERISTICS OF A
to have a contract. been fully & satisfactorily
one) CONTRACT:
carried out by both
ESSENTIAL ELEMENTS OF  Remunerative – one party
parties. A) Freedom to stipulate
CONTACTS: receives a prestation for a
 Executory – when it has B) Obligatory force and
service rendered
 Consent (of all parties) not yet been completely compliance in good faith
previously.
 Object (subject matter) performed by both C) Perfection by mere consent
 Cause or Consideration According to importance: parties. D) Both parties are mutually
bound
Natural Elements – found in  Principal – does not According to dependence:
E) Relatively (binding only
certain contracts, presumed to depend for its existence &
 Indivisible – each part of between the parties, their
exist. validity upon another
the contract is dependent assigns, and heirs.
contract

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PRINCIPLE OF FREEDOM whereby Y would not prosecute X MUTUALITY OF CONTRACTS PRINCIPLE OF RELATIVITY
in consideration of P50,000.
Art. 1306 The contracting parties Art. 1308 The contract must bind Art. 1311 Contracts take effect
may establish such stipulations, INNOMINATE CONTRACTS both contracting parties; its only between the parties, their
clauses, terms and conditions as validity or compliance cannot be assigns and heirs, except in case
Art. 1307 Innominate contracts
they may deem convenient, left to the will of one of them. where the rights and obligations
shall be regulated by the
provided they are not contrary to arising from the contract are not
stipulations of the parties, by the Note: no party can renounce or
law, morals, good customs, public transmissible by their nature, or
provisions of Titles I and II of this violate the law of the contract
order, or public policy. by stipulation or by provision of
book, by the rules governing the without the consent of the others.
law. The heir is not liable beyond
GENERAL RULE: when there is no most analogous nominate
(Another limitation – Art. 1182) the value of the property he
law or when the law is silent, the contracts, and by the customs of
received from the decedent.
will of the parties prevails. the place. DETERMINATION BY 3RD PERSON
If a contract should contain some
EXCEPTIONS: when their contract Innominate Contracts – has no Art. 1309 The determination of stipulation in favor of a third
contravenes the limitations of specific name or designation. the performance may be left to a person, he may demand its
morals, good customs, public third person, whose decision
Governing Rules: fulfillment provided he
order, or public policy. shall not be binding until it has communicated his acceptance to
 Agreement of the parties been made known to both the obligor before its revocation.
Examples:
 Provisions of the Civil contracting parties. A mere incidental benefit or
Morals – A contract whereby X Code in ObliCon interest of a person is not
Note: the decision is binding only
promised to live as the common  Rules on the most sufficient. The contracting parties
after it is made known to both.
law wife of Y without the benefit analogous nominate must have clearly and
of marriage in consideration of contracts Example: deliberately conferred a favor
P100,000 is immoral.  Customs of the place. upon a third person.
X sold his parcel of land to Y. It was
Customs – X entered into a FOUR KINDS OF INNOMINATE agreed that Z, a real estate GENERAL RULE: A party’s rights
contract whereby X binds himself CONTRACTS: appraiser, would be the one to and obligations derived from a
to slap his father. determine the reasonable price of contract are transmissible to the
Do ut des (I give that you may
the land. Z, then, fixed the price. Z
Public Order – A stipulation in a give) successors.
must make known his decision to
contract of lease whereby the EXCEPTIONS:
Do ut facias (I give that you may X and Y who will be bound.
landlord can use force to eject the
tenant in case of failure of the do)  When the obligations arising
Art. 1310 The determination shall
latter to pay the rent agreed upon. Facio ut des (I do that you may not be obligatory if it is evidently from the contract are not
give) inequitable. In such case, the transmissible by their nature,
Public Policy – X stole the car of Y.
courts shall decide what is by stipulation, or provision of
Later, they entered into a contract Facio ut facias (I do that you may equitable under the law.
do) circumstances.

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 Where there is a stipulation Requisites: If Y died, X must pay the heirs of Y. Example:
pour autrui (in favor of a 3rd If Y assigns his credit to Z, then X is
 There must be a stipulation if X mortgaged his parcel of land in
party) liable to Z.
favor of 3rd person favor of Y as a security for his debt.
 Where a third person induces
 The contracting parties must If X dies and A is the heir, then A The mortgage is duly registered in
another to violate his contract
have clearly and deliberately assumes the obligations of X to Y. A the Registry of Property. Later on,
 Where, in some cases, third
conferred a favor upon a 3rd is bound by the contract entered X sold the same land to Z.
persons may be adversely
person into by X, his predecessor in
affected by a contract where Z bought the land subject to the
 Neither of the contracting interest, in view of the privity of
they did not participate. mortgage constituted thereon. Z is
parties bears the legal interest between him and X.
 Where the law authorizes the bound by the contract between X
representation or However, A is not liable beyond the
creditor to sue on a contract and Y although he is a stranger to
rd
authorization of the 3 party; value of the property he inherits
entered into by his debtor. said contract because the right of
 The 3rd person must have from X, the decedent.
Y to the mortgage, being real right,
GENERAL RULE: A third person has communicated his acceptance
Art. 1312 In contracts creating real follows the property wherever it
no rights and obligations under a to the obligor before it
rights, third persons who come goes.
contract to which he is a stranger. revocation by the obligee or
into possession of the object of
the original parties Art. 1313 Creditors are protected
EXCEPTIONS: the contract are bound thereby,
in cases of contracts intended to
NOTE: The stipulation must be part subject to the provisions of the
 Stipulation pour autrui (1311) Mortgage Law and the Land
defraud them.
of the contract. A mere incidental
 Contracts creating real rights benefit or interest of a person is Registrations laws. Example:
(1312) not sufficient
 Contracts entered into to GENERAL RULE: contract binds X is indebted to Y in the amount of
defraud creditors (1313) Fairest test – in determining only the parties. P1M. X sells a parcel of land to Z in
 Contracts which have been whether the 3rd person’s interest order that Y may not attach the
EXCEPTION: 3rd persons who come
violated at the inducement of a in a contract is a stipulation pour land in payment of his debt and X
into possession of the object of a
3rd person (1314) autrui or merely an incidental has no other property.
contract over which there is a real
interest. Examine the intention of
Stipulation pour autrui – right, are bound thereby even if Y, who is a stranger to the contract
the parties as disclosed by their
stipulation in a contract clearly and they were not parties to the between X and Z, is given by law
contract.
deliberately conferring a favor contract. the right to ask for rescission or
upon a 3rd person who has a right NOTE: it need not be in any cancellation of the sale in order
NOTE: real right is binding against
to demand its fulfillment provided particular form. that he may be paid in his claim.
the whole world. A real right binds
he communicates his acceptance the property over which it is
Examples:
to the obligor before its revocation exercised wherever it goes. If real
by the obligee or the original X is indebted to Y in the amount of right is not registered. 3rd persons
parties. P1000. X and Y are the parties to who acted in good faith are
the contract. protected under the law.

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INDUCEMENT BY 3RD PERSON NOTE: contract is perfected only ring to Y. Before the delivery of the provided by law until and unless
from the time an acceptance of an ring to Y, the contract of pledge is they are ratified according to law.
Art. 1314 Any third person who
offer is made known to the offeror not yet perfected.
induces another to violate his NOTE: valid but unenforceable in
contract shall be liable for Consensual contracts are UNENFORCEABLE CONTRACT courts unless they are cured or
damages to the other contracting perfected from the moment there ratified. Once ratified, these
Q: May a person enter into a
party. is agreement (consent) on the contracts may then be
contract for another?
subject matter (object), and the enforceable. (see Art. 1403)
Example:
cause or consideration. A: GENERAL RULE (Art. 1317)
Unauthorized Contracts – those
X, a movie actress, has one-year
Consequences of perfection: Art. 1317 No one may contract in entered into in the name of
contract with YZA Studio. If B, a
the name of another without another person by one who has
friend of X induces her, without  The parties are bound to the
being authorized by the latter, or been given no authority or legal
any justifiable cause, to break the fulfillment of what has been
unless he has by law a right to representation or who acted
contract, then YZA Studio can sue expressly stipulated and
represent him. beyond his powers.
B for damages. compliance thereof must be
in good faith, A contract entered into in the Requisite of a person to contract
NOTE: 3rd person cannot be held
 The parties are also bound to name of another by one who has in the name of another:
liable for greater damages
all the consequences which, no authority or legal
because it will lead to a result at  He must be duly authorized
according to their nature, representation, or who has acted
once grotesque and unjust. (expressly or impliedly); or
may be in keeping with good beyond his powers, shall be
 He must have by law a right to
CONSENSUALITY OF CONTRACTS faith, usage and law. unenforceable, unless it is
represent him
ratified, expressly or impliedly, by
How are contracts perfected? REAL CONTRACTS (guardian/administrator); or
the person on whose behalf it has
 Contract must be subsequently
Art. 1315 Contracts are perfected Art. 1316 Real contracts, such as been executed, before it is
RATIFIED expressly or impliedly
by mere consent, and from that deposit, ledge and commodatum, revoked by the other contracting
(by word or by deed)
moment the parties are bound are not perfected until the party.
not only to the fulfillment of what delivery of the object of the NOTE: mere lapse of time cannot
EXCEPTIONS:
has been expressly stipulated but obligation. cure the defect; it is not
also to all the consequences 1. when he is authorized by ratification required by law.
Real Contract – requires COC and
which, according to their nature, the other party;
delivery. Effect of Ratification – it cleanses
may be in keeping with good 2. when he has, by law, a
the contract from all its defects
faith, usage, and law. Commodatum – a loan where the right to represent him.
from the moment the contract
identical object must be return.
Consensual – perfected by mere Unenforceable Contracts – those was entered into. Hence, there is
consent Example: X borrowed from Y that cannot be enforced or given retroactive effect.
P1000. As security for the debt, X effect in a court of law or sued
promised to pledge his diamond upon by reason of certain defects

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NOTE: ratification must be clear expressly stipulated by the contract, in such a case, is Art. 1320 An acceptance may be
and express so as not to admit any parties. presumed to have been entered express or implied.
doubt or vagueness. into in the place where the offer
Accidental Elements – particular Art. 1321 The person making an
was made.
Example: stipulations, conditions, terms. offer may fix the time, place, and
Consent – conformity or manner of acceptance, all of
X borrowed P1000 from Y in Consent – presupposes legal
concurrence of wills (offer and which must be complied with.
whose favor he executed a capacity and the fulfillment of
acceptance). Meeting of minds.
promissory note. In the note it is conditions, should any be Art. 1322 An offer made through
stated that X is acting as the agent attached. Requisites of consent: an agent is accepted from the
of Z and that the money is time acceptance is
NOTE if there is absolutely no  There must be 2 or more
intended for Z. Z never authorized communicated to him.
consent, there is no contract. parties;
X to borrow money from Z.
Hence, the agreement should be  The parties must be capable OFFER BECOMES INEFFECTIVE
The contract of X is not considered void. or capacitated;
Q: What is the effect of
enforceable against Z. However, Z  There must be no vitiation
NOTE: If there is a vice of consent death/incapacity of the parties as
can ratify the contract unless it of consent;
such error, fraud, or undue to the offer?
has already been revoked by Y.  There must be no conflict
influence, the contract is not void;
between what was Ans:
ESSENTIAL REQUISITES: it is merely voidable.
expressly declared and
Art. 1323 An offer becomes
Art. 1318 There is no contract CONSENT what was really intended.
ineffective upon death, civil
unless the following requisites  The intent must be declared
Q: How is contract manifested? interdiction, insanity, or
concur: properly.
insolvency of either party before
Ans:
1. Consent of the contracting Requisites for the meeting of acceptance is conveyed.
parties; Art. 1319 Consent is manifested minds:
Example:
2. Object certain which is the by the meeting of the offer and
subject matter of the  An offer must be CERTAIN
the acceptance upon the thing A makes an offer to B on Jan. 1. B
contract; and the cause which are to  An acceptance must be makes known his acceptance in a
3. Cause of the obligation constitute the contract. The offer unqualified and absolute. letter received at the house of A
which is established. must be certain and the Offer – proposal made by 1 party on Jan. 5. However, on Jan. 4, A
acceptance absolute. A qualified (offerer) to another (offeree), had died. Here, the offer is
Valid Contract – manifests all the
acceptance constitutes a counter- indicating willingness to enter into ineffective because there was no
essential elements of a contract.
offer. a contract. meeting of the minds.
Natural Elements – those that are
presumed to exist in certain
Acceptance made by letter or Acceptance – manifestation by Other instances:
telegram does not bind the the offeree of his assent to all the expressly/impliedly rejects the
contracts unless contrary is
offerer except from the time it terms of the offer. offer, in due time, counter-offer,
came to his knowledge. The lapse of time.

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OPTION CONTRACT period to accept, the offer may be Art. 1325 Unless it appears insurance provided that he/she is
withdrawn at any time before otherwise, business 18 years old or above; savings
Q: What is an option contract?
acceptance by communicating advertisements of things for sale account provided that the minor is
Ans: such withdrawal. are not definite offers, but mere at least 7 years old; contracts of
invitations to make an offer. necessities such as food but the
Art. 1324 When the offeror has EXCEPTION: When the option if
persons legally bound to give
allowed the offerree certain found upon a consideration as Art. 1326. Advertisements for
them support shall pay therefor;
period to accept, the offer may be something paid or promised. bidders are simply invitations to
when they pretended to be of
withdrawn at any time before make proposals, and the
EXAMPLE: legal age, in ESTOPPEL; married
acceptance by communicating advertiser is not bound to accept
minors in personal property; both
such withdrawal, except when B is interested in buying a the highest or lowest bidder,
parties to contract are minors, the
the option is founded upon a particular car from S. S said the unless the contrary appears.
contract is unenforceable.
consideration, as something paid price is P2000. B, however, could
CANNOT GIVE CONSENT
or promised. not make up his mind whether to DEAF MUTES WHO DO NOT
buy or not. S gave 1 week to B. Q: Who may not give consent to a KNOW HOW TO READ AND
Option – contract granting a WRITE. If he does not know how
Before the week is over, S contract?
person the privilege, to buy or not to write, but he knows how to
withdraw the offer. If B gave P500
to buy, certain objects at any time Ans: read, he should be considered
to S in consideration for the
within the agreed period, at a capacitated.
option, S cannot withdraw the Art. 1327. The following cannot
fixed price.
offer to sell until after the give consent to a contract: (1) INSANE OR DEMENTED PERSONS
Option Contract – An option is expiration of the 1-week period. Unemancipated minors; (2) UNLESS THEY ACTED DURING
preparatory contract in which one Insane or demented persons, and
Perfected Contract of Option – it LUCID INTERVAL.
party grants to another, for a fixed deaf-mutes who do not know
is not perfected unless there is a
period and at a determined price, how to write. Art. 1328 Contracts entered into
meeting of minds on the option.
the privilege to buy or sell, or to during a lucid interval are valid.
Thus, an offer to grant an option, Unemancipated Minors - minors
decide whether or not to enter Contracts agreed to in a state of
even if founded on a discreet who have not been emancipated
into a principal contract. It is a drunkenness or during a hypnotic
cause or consideration, may itself by marriage, attainment of the
separate and distinct contract spell are VOIDABLE.
be withdrawn before the age of majority, or by parental or
from that which the parties may
acceptance of the offer of an judicial authority Art. 1329. The incapacity
enter into upon the
option. declared in Article 1327 is subject
consummation of the option. It IN GENERAL: Contracts which to the modifications determined
must be supported by a EXAMPLE: if S had offered TO they enter into are VOIDABLE. by law, and is understood to be
consideration distinct from the GRANT B a week’s time if B would
UNLESS: Upon reaching the age of without prejudice to special
price. give S P500, S can still withdraw
majority and ratify the same; thru disqualification established in the
the offer of option before B
GENERAL RULE: If the offerer has guardian and it has been approved laws.
signifies his acceptance to the
allowed the offeree a certain by the court; contracts of life
offer option.

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VITIATED CONSENT only when such identity or Mistake as to Object: 2. such identity or
qualifications have been the qualification must have
Art. 1330 A contract where 1. as to identity of the thing;
principal cause of the contract. A been the principal
consent is given through mistake, 2. as to the substance of the
simple mistake of account shall consideration for the
violence, intimidation, undue thing;
give rise to its correction. celebration of the
influence, or fraud is VOIDABLE. 3. as to the conditions of the
contract.
REQUISITES: thing;
CAUSES:
4. as to the quantity of the NOTE: error does not vitiate
1. The error must be
 Mistake thing. consent if the party in error is
SUBSTANTIAL regarding:
 Fraud a. Object of the contract; NOTE: as to quantity, a simple
negligent.
 Violence b. Conditions which mistake as to account, caused for ILLITERATE PARTY - VOIDABLE
 Intimidation principally moved or example by wrong mathematical
 Undue influence induced one of the parties; computation, would ordinarily
Art. 1332 When one of the parties
is unable to read, or if the
VOIDABLE CONTRACT - contract is c. Identity or qualifications if it give rise merely to correction, and
contract is in a language not
binding and valid, unless annulled was a principal cause of the not annulment of the contract.
understood by him, and mistake
by a proper action in court. It is, contract.
NOTE: if the mistake refers only to or fraud is alleged, the person
however, susceptible of 2. The error must not be caused
accidental or secondary qualities, enforcing the contract must show
ratification before annulment by negligence
the contact is not rendered that the terms thereof have been
(Art. 1390). 3. It must be a mistake of fact
voidable. fully explained to the former.
and not of law.
NOTE: There must be clear and Mistake as to person – error may Presumption: one always acts
convincing evidence of the Mistake:
refer either to the name or with due care and signs with full
presence of vitiated consent. 1. should refer to the identity or to the qualification of a knowledge of all contents of the
Mere preponderance of evidence substance of the thing person that may will vitiate document.
on this matter is not sufficient. which is the object of the consent.
Presumption cannot apply when:
MISTAKE- VOIDABLE contract; or
NOTE: mistake as to the name of
2. to those conditions which 1. one of the parties is
Art. 1331 In order that mistake one or both parties will not
have principally moved unable to read; or
may invalidate consent, it should invalidate the contract.
one or both parties to 2. if the contract is in a
refer to the substance of the enter into the contract. Requisites of error in persona: language not understood
thing which is the object of the by one of the parties.
contract, or to those conditions NOTE: it should be SUBSTANTIAL, 1. the mistake must be
which have principally moved SERIOUS, and IMPORTANT. either with regard to the Fraud – present when, through
one or both parties to enter into identity or qualification of insidious words or machinations
Mistake of Fact – vitiate consent.
the contract. Mistake as to the one of the contracting of one of the contracting parties,
It can be error in re (mistake as to
identity or qualifications of one of parties; the other is induced to enter into
object) or error in persona.
the parties will vitiate consent a contract.

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Art. 1333 There is no mistake if the age, sex and condition of the Art. 1336. Violence or Factors to be considered:
the party alleging it knew the person shall be borne in mind. A intimidation shall annul the
1. confidential, family,
doubt, contingency or risk threat to enforce one’s claim obligation, although it may have
spiritual, and other
affecting the object of the through competent authority, if been employed by a third person
relations between the
contract. the claim is just or legal, does not who did not take part in the
parties;
vitiate consent. contract.
Art. 1334 Mutual error as to the 2. mental weakness;
legal effect of an agreement Requisites for violence: Even if a third person exercised 3. ignorance;
when the real purpose of the the violence or intimidation, the 4. financial distress.
1. employment of a serious
parties is frustrated, may vitiate contract may be annulled. This is
or irresistible force; NOTE: undue influence from a 3rd
consent. because the consent is still
2. it must have been the party also vitiates consent.
vitiated.
Requisites for Mutual Error to reason why the contract
FRAUD – VOIDALBLE
Vitiate Consent: was entered into. UNDUE INFLUENCE - VOIDABLE
Art. 1338 There is fraud when,
1. there must be mutual Requisites for intimidation: Art. 1337 There is undue
through insidious words or
error; influence when a person takes
1. reasonable and well- machinations of one of the
2. the error must refer to the improper advantage of his power
grounded fear; contracting parties, the other is
legal effect of the over the will of another,
2. of an imminent and grave induced to enter into a contract
agreement; depriving the latter of a
evil; which, without them, he would
3. the real purpose of the reasonable freedom of choice.
3. upon his person, not have agreed to.
parties is frustrated. The following circumstances shall
property, or upon the
be considered: the confidential, Kinds of Fraud:
VIOLENCE AND INTIMIDATION person or property of his
family, spiritual and other
spouse, descendants, or 1. fraud in the CELEBRATION
Art. 1335. There is VIOLENCE relations between the parties, or
ascendants; of the contract;
when in order to wrest consent, the fact that the person alleged to
4. it must have been the 2. fraud in the
serious or irresistible force is have been unduly influenced was
reason why the contract PERFORMANCE of the
employed. There is suffering from mental weakness,
was entered into; obligations stipulated in
INTIMIDATION when one of the or was ignorant or in financial
5. the threat must be of an the contract.
contracting parties is compelled distress.
unjust act, an actionable
by a reasonable and well- NOTE: the fraud in Art. 1338 refers
wrong. Requisites:
grounded fear of an imminent to casual fraud (dolo causante).
and grave evil upon his person or Degree of intimidation – 1. improper advantage;
property, or upon the person or determined through age, sex, and 2. power over the will of Requisites of fraud:
property of his spouse, condition of the person another; 1. insidious words or
descendants or ascendants, to threatened. 3. deprivation of the latter’s machinations must be
give his consent. To determine will pf a reasonable employed by one of the
the degree of the intimidation, freedom of choice. contracting parties;

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2. must be serious; Q: X, desiring to buy certain Art. 1344 In order that fraud may 2. false appearance
3. must induce the other property, hired an expert to make a contract voidable, it intended by mutual
party to enter into the ascertain its true value. But the should be serious and should not agreement;
contract; expert’s opinion turned out to be have been employed by both 3. purpose is to deceive
4. must not have been wrong and X was, therefore contracting parties. Incidental other persons.
employed by BOTH of the misled. May X ask for the fraud only obliges the person
Art. 1346 An absolutely simulated
contracting parties or by annulment of the contract? employing it to pay damages.
or fictitious contract is VOID. A
3rd person.
ANS: No, because his own expert Requisites: relative simulation, when it does
FAILURE TO DISCLOSE FACTS: committed the error. not prejudice a third person and
1. fraud must be serious;
is not intended for any purpose
Art. 1339 Failure to disclose facts, FRAUD BY A THIRD PERSON 2. the parties must not be in
contrary to law, morals, good
when there is a duty to reveal pari delicto (mutual guilt).
Art. 1342 Misrepresentation by a customs, public order, or public
them, as when the parties are Otherwise, the contract
third person does not vitiate policy BINDS the parties to their
bound by confidential relations, will be valid.
consent, unless such real agreement.
constitutes FRAUD.
misrepresentation has created SIMULATION OF CONTRACTS
Absolutely Simulated – the
USUAL EXAGGERATIONS IN substantial mistake and the same
Art. 1345 Simulation of a contract parties do not intend to be bound.
TRADE is mutual.
may be absolute or relative. The The contract is VOID.
Art. 1340 The usual exaggerations Fraud by 3rd person Does not former takes place when the
Relatively Simulated – parties
in trade, when the other party make contract voidable, UNLESS: parties do not intend to be bound
conceal their true agreements.
had an opportunity to know the at all; the latter, when the parties
1. representation has created The parties are bound to the real
facts, are NOT in themselves conceal their true agreement.
substantial mistake; agreement, UNLESS:
fraudulent.
Simulation of Contract – process
2. mistake is mutual. 1. if the contract should
Caveat Emptor – let the buyer of intentionally deceiving others
prejudice a 3rd person
beware. it is the duty of the buyer Q: A and B entered into a contract by producing appearance of a
2. or if the contract is
to check the title of the seller, with X. A’s consent was obtained contract that really does not exist
contrary to law, morals,
otherwise the buyer gets the only because B had deceived or (absolute) or which is different
good customs, public
object at his own risk. defrauded him. May A ask for from the true agreement
order, or public policy.
annulment of the contract with X? (relative).
Usual exaggeration – dealer’s talk
NOTE: in absolute simulation, the
ANS: No, because X was not a Requisites:
Art. 1341 A mere expression of an parties may recover what they
party to the fraud. may have given to each other
opinion does NOT signify fraud, 1. an outward declaration of
UNLESS made by an EXPERT and Art. 1343 Misrepresentation will different from the will under the contract.
the other party has RELIED on the made in good faith is not of the parties;
NOTE: Please read the assigned
former’s special knowledge. fraudulent but may constitute cases.
error.

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OBJECTS OF CONTRACTS transmissible from one person to CAUSE OF CONTRACTS Art. 1351 The particular motives
another. of the parties in entering into a
Art. 1347 All things which are not Art. 1350 In onerous contracts
contract are different from the
outside the commerce of men, Real or possible – should exist at the cause is understood to be, for
cause thereof.
including future things, may be the moment of the celebration of each contracting party, the
the object of a contract. All rights the contract or can exist prestation or promise of a thing Motive – purely personal or
which are not intransmissible subsequently or in the future. or service by the other; in private reason which a party has
may also be the object of remuneratory ones, the service entering into a contract. It is
Licit – must not be contrary to law,
contracts. or benefit which is remunerated; different from the cause of
morals, good customs, public
and in contracts of pure contract.
No contract may be entered into order or public policy.
beneficence, the mere liberality
upon future inheritance except in Motive Cause
Determinate – or at least possible of the benefactor.
cases expressly authorized by Remote or Immediate or
of determination, as to its kind. indirect direct reason
law. Cause - It is the essential and
Art. 1348 Impossible things or impelling reason why a party reason
All services which are not May be Always known
services cannot be the object of assumes an obligation.
contrary to law, morals, good unknown to the
contracts.
customs, public order or public Also called “consideration” contracting
policy may likewise be the object Impossibility may be: parties
Classifications of Contracts as to
of a contract. Not an Essential
a. because of the nature of cause: essential element of
Requisites: transaction or because of element contract
Onerous – the cause is, for each
the law; Illegality of Illegality of
1. the thing or service must contracting party, the prestation
be within the commerce
b. Absolutely impossible (NO
or promise of a thing or service by one’s motive the cause
ONE CAN DO IT); does not affects the
of man; the other. (e.g. contract of sale)
c. Relative (subjectively, debtor render the validity of a
2. must be transmissible;
cannot comply); Remuneratory – the purpose of contract void. contract.
3. must not be contrary to
the contract is to reward the
law, morals, good NOTE: Difficulty is not enough.
service that had been previously
customs, public order, or Example:
Art. 1349 The object of every rendered by the party
public policy;
contract must be determinate as remunerated. (e.g. X rendered X sells his land to B for P1000. For
4. must not be impossible;
to its kind. The fact that the services as the defense counsel of X, the cause is the P1000. But his
5. must be determinate as to
quantity is not determinate shall Y, Y agreed to pay X P1000 for said motive or private reason may be
its kind or determinable
not be obstacle to the existence services) to use the money in business or to
without the need of a new
of the contract, provided it is buy another land. The motive
contract or agreement. Gratuitous – the cause is the mere which impel one to a sale or
possible to determine the same,
liability of the benefactor. (e.g.
Within the commerce of men – without the need of a new purchase are not always the cause
Donation)
susceptible of appropriation and contract between the parties. of the contract.

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Art. 1352 Contracts without Example: FORMS OF CONTRACTS 3. Antichresis

cause, or with unlawful cause, 4. Interest of loan of money
X sells to Y a parcel of land. In the Art. 1356 Contracts shall be
produce no effect whatsoever.
deed of sale, P1000 is stated as the obligatory, in whatever form they Public instrument:
The cause is unlawful if it is
price of the land. If this statement may have been entered into,
contrary to law, morals, good 1. Donation and acceptance
is false, then there is no contract provided all the essential
customs, public order or public of real property;
of sale. Unless X can prove that requisites for their validity are
policy. 2. Partnership where
the contract is founded upon present. However, when the law
immovable property was
Requisites of cause: another consideration then the requires that a contract be in
contributed.
contract shall be valid. some form in order that it may be
1. It must be present at the
valid or enforceable, or that a Example: X donated a real
time the contract was Presumption: Art. 1354 Although
contract be proved in a certain property to Y in a private
entered into. the cause is not stated in the
way, that requirement is absolute document. The donation is void
2. It must be true or real. contract, it is presumed that it
and indispensable. In such cases, because a real property is
3. It must be lawful. exists and is lawful, unless the
the rights of the parties stated in required to be in a public
debtor proves the contrary.
NOTE: if there is no cause the following article cannot be instrument to be valid. If it is
whatsoever, the contract is VOID. Art. 1355 Except in cases exercised. entered into orally, the contract is
specified by law, lesion or valid but unenforceable because
NOTE: Contracts with unlawful GENERAL RULE: Form does not
inadequacy of cause shall not the law requires that it be in
cause are null and void (See Arts. matter for the validity of a
invalidate a contract, unless writing to be enforceable.
1353, 1409, 1411, 1412, 1414, contract provided that all
there has been fraud, mistake or
1416-1422). essential requisites for its validity Art. 1357 If the law requires a
undue influence.
are present. (Consensual) document or other special form,
Art. 1353 The statement of a false
Lesion – inadequacy of cause, like as in the acts and contracts
cause in contracts shall render EXCEPTION: When the law
an insufficient price for a thing enumerated in the following
them void, if it should not be requires that a contract be in
sold. article, the contracting parties
proved that they were founded some form to be valid or
may compel each other to
upon another cause which is true GENERAL RULE: lesion of price enforceable or for the
observe that form, once the
and lawful. does not invalidate a contract. convenience of the parties.
contract has been perfected. This
(Formal Contracts)
NOTE: If the cause is false, the EXCEPTIONS: when, together with right may be exercised
contract is rendered void because lesion, there has been: Formalities which are required simultaneously with the action
the same actually does not exists. for validity of contracts: In upon the contract.
1. Fraud writing:
If the parties can show that there
2. Mistake NOTE: this article applies only
is another cause and that said
3. Or undue influence. 1. Donation of personal when form is needed only for
cause is true and lawful, then the
4. Or in cases provided by property – 5K+ convenience, not for validity or
parties are bound by their true
law (Arts. 1381) 2. Sale of real property by an enforceability.
agreement.
agent

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Art. 1358 The following must NOTE: The necessity for the public REFORMATION OF The remedy is ANNULMENT when
appear in a public document: document in the contracts INSTRUMENTS there has been no meeting of
enumerated here is only for minds, because of vitiated
1. Acts and contracts which Reformation – remedy in equity
convenience, not for validity or consent. It invalidates the
have for their object the by means of which a written
enforceability. contract.
creation, transmission, instrument is made or construed
modification or Examples: so as to express or conform to the Requisites for the action of
extinguishment of real rights real intention of the parties when reformation:
1. As security for his debt, X
over immovable property; some error or mistake has been
mortgaged his land to Y. this 1. There must be a meeting of
sales of real property or of committed.
mortgage must appear in a minds.
an interest therein are
public document. The Art. 1359 When, there having 2. The true intention is not
governed by Articles 1403,
extinguishment of mortgage, been a meeting of the minds of expressed in the instrument.
No. 2, and 1405;
upon payment of the debt by the parties to a contract, their 3. There must be clear
2. The cession, repudiation or
X, must likewise appear in a true intention is not expressed in convincing proof thereof.
renunciation of hereditary
public document. the instrument purporting to 4. It must be brought within the
rights or of those of the
2. X and Y are the heirs of Z, embody the agreement, by proper prescriptive period.
conjugal partnership of
their deceased father. X, reason of mistake, fraud, 5. The document must not refer
gains;
being financially stable, inequitable conduct or accident, to a simple unconditional
3. The power to administer
renounces his share in the one of the parties may ask for the donation inter vivos or to
property, or any other
inheritance. This reformation of the instrument to wills, or to a contract where
power which has for its
renunciation must appear in the end that such true intention the real agreement is void.
object an act appearing or
a public document. may be expressed.
which should appear in a NOTE: No new contract is made.
3. C is leaving for the US to
public document, or should If mistake, fraud, inequitable
study for 2 years. He appoints Art. 1360 The principles of the
prejudice a third person; conduct, or accident has
D, agent, to manage his general law on the reformation
4. The cession of actions or prevented a meeting of the minds
properties. The authority of D of instruments are hereby
rights proceeding from an of the parties, the proper remedy
to administer the property of adopted insofar as they are not
act appearing in a public is not reformation of the
C must appear in a public in conflict with the provisions of
document. instrument but annulment of the
document. this Code.
contract.
All other contracts where the 4. X mortgaged his land to Y to
In case of conflict between the
amount involved exceeds five secure the payment of a The remedy is REFORMATION – if
hundred pesos must appear in debt. This mortgage appears Civil Code and the principles of the
there is a meeting of minds but
writing, even a private one. But in a public document. The general law on reformation, the
there is a mistake, fraud,
sales of goods, chattels or things decision by Y of his right, as former prevails. The latter will
inequitable conduct or accident in
in action are governed by Articles mortgagee, to Z must also be have only suppletory effect.
the contract written. Reformation
1403, No. 2 and 1405. in a public document. does not invalidate the contract. Reformation is proper:

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1. Mutual mistake of the 3. The mistake of fact must signed the contract in the belief Art. 1366 There shall be no
parties. (Art. 1361) be mutual, that is, that it was really a contract of reformation in the following
2. One acted with mistake; common to both parties loan. A can ask for the reformation cases:
other acted fraudulently. to the instrument. of the instrument.
1. Simple donations inter vivos
(Art. 1362) 4. The mistake must cause
Art. 1363 When one party was wherein no condition is
3. Mistake by one, the failure of both parties
mistaken and the other knew or imposed;
concealment by another. to express their true
believed that the instrument did 2. Will;
(Art. 1363) intention.
not state their real agreement, 3. When the real agreement is
4. Ignorance, lack of skill,
Example: but concealed that fact from the void.
negligence, or bad faith
former, the instrument may be
on the part of the one X and Y entered into a contract NOTE: Donations are essentially
reformed.
drafting the instrument. whereby X sold to Y his horse acts of pure liberality. However, if
(Art. 1364) named “Silver”. By mistake, the NOTE: only the party in good faith the donation is conditional,
5. Mortgage/pledge but contract as written and signed by can ask for reformation. reformation may be resorted to so
instrument states the parties’ states that the horse that the real or true conditions
Art. 1364 When through the
absolute sale or with right sold is “Golden”. Here, the intended by the donor might be
of repurchase. (Art. 1365) ignorance, lack of skill, negligence
instrument may be reformed on brought out
or bad faith on the part of the
the ground of mutual mistake.
NO REFORMATION: (Art. 1366) person drafting the instrument or Art. 1367 When one of the parties
Art. 1362 If one party was of the clerk or typist, the has brought an action to enforce
1. Simple donation
mistaken and the other acted instrument does not express the the instrument he cannot
intervivos when no
fraudulently or inequitably in true intention of the parties, the subsequently ask for its
condition is imposed
such a way that the instrument courts may order that the reformation.
2. Wills.
does not show their true instrument be reformed.
3. Real agreement is void. Art. 1368 Reformation may be
intention, the former may ask for
Art. 1365 If two parties agree ordered at the instance of either
Art. 1361 When a mutual mistake the reformation of the
upon the mortgage or pledge of party or his successors in interest,
of the parties causes the failure of instrument.
real or personal property, but the if the mistake was mutual;
the instrument to disclose their
NOTE: the right to ask for instrument states that the otherwise, upon petition of the
real agreement, said instrument
reformation is granted only to the property is sold absolutely or injured party, or his heirs and
may be reformed.
party who was mistaken in good with a right of repurchase, assigns
Requisites: faith. Mistake is not mutual. reformation of the instrument is
Art. 1369 The procedure for the
proper.
1. There must be a mistake Example: A agreed with B that A reformation of instruments shall
of fact. would be loaned P10,000,000 by be governed by Rules of Court to
2. Such mistake must be B. In the contract signed by A and be promulgated by the Supreme
proved by clear and B, it was stated that A was selling Court.
convincing evidence. his house to B for said amount. A

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INTERPRETATION OF CONTRACTS distinct and cases that are Art. 1375 Words which may have the rate customarily paid in the
different from those upon which different significations shall be place where the services were
Art. 1370 If the terms of a
the parties intended to agree. understood in that which is most rendered.
contract are clear and leave no
in keeping with the nature and
doubt upon the intention of the Example: Art. 1377 The interpretation of
object of the contract.
contracting parties, the literal OBSCURE words or stipulations in
X sold his house “including all the
meaning of its stipulations shall NOTE: If there could be any doubt a contract shall NOT FAVOR THE
furniture therein”. The term “all”
control. as to the meaning of this language PARTY WHO CAUSED THE
should not be understood to
taken by itself, it would be OBSCURITY.
If the words appear to be include X’s refrigerator which is
removed by a consideration of the
contrary to the evident intention distinct and different from Reason: Since he caused the
general scope and purpose of the
of the parties, the latter shall furniture. obscurity, the party who drew up
instrument in which it concurs.
prevail over the former. the contract with ambiguous
Art. 1373 If some stipulation of
Q: If authority is given “to exact terms should be responsible
Interpretation of a contract – is any contract should admit of
payment by legal means,” does therefor; so the obscurity must be
the determination of the meaning several meanings, it shall be
this include authority to fi le construed against him.
of the terms or words used by the understood as bearing that
actions in court for the recovery of
parties in their written contract. import which is most adequate to Applies to contract of adhesion –
sums of money?
Process of ascertaining the render it effectual. contracts most of the terms which
intention of the parties from the ANS: Yes. The clause in question do not result from mutual
Example:
written words contained in the means “the power to exact negotiation between the parties
contract. X sold “his parcel of land” to Y. payment of debts due the as they are usually prescribed in
Now X has 2 lands, one owned by concerned by means of the printed forms prepared by one
Q: In case of conflict between the
him absolutely and another land institution of suits for their party to which the other may
words of the contract and the
which he is a co-owner with Z. Z recovery. adhere if he chooses nut which he
evident intention of the parties,
did not give his consent to the cannot change (e.g. contract of
which one must prevail? Art. 1376 The usage or custom of
sale. The sale should refer to the insurance, bill of ladings).
the place shall be borne in mind
ANS: The intention must prevail. land owned by X alone as this
in the interpretation of the Art. 1378 When it is absolutely
would make the contract
Art. 1371 In order to judge the ambiguities of a contract, and impossible to settle doubts by the
effectual.
intention of the contracting shall fill the omission of rules established in the preceding
parties, their contemporaneous Art. 1374 The various stipulations stipulations which are ordinarily articles, and the doubts refer to
and subsequent acts shall be of a contract shall be interpreted established. incidental circumstances of a
principally considered. together, attributing to the gratuitous contract, the least
Example: X rendered services to Y
doubtful ones that sense which transmission of rights and
Art. 1372 However general the but the contract did not provide
may result from all of them taken interests shall prevail. If the
terms of a contract may be, they for the amount of compensation
jointly. contract is onerous, the doubt
shall be understood to to be paid. In this case, the
comprehend things that are Must be interpreted as a whole. amount must be determined by

lOMoARcPSD|40691668
shall be settled in favor of the Example: VALID CONTRACTS: Unenforceable – cannot be sued
greatest reciprocity of interests. upon or enforced unless they are
D borrowed from C P5000 at 12% 1. Strictly comply with all legal
ratified. It has no effect but may
If the doubts are cast upon the interest. It cannot be determined requirements as to consent,
be effective upon ratification.
principal object of the contract in from the terms of the contract object, and cause (Art. 1318).
such a way that it cannot be whether the loan is payable in six 2. Entered into during lucid Void – it has no effect at all and
known what may have been the months or in one year. It must be interval (Art. 1328). cannot be ratified or validated.
intention or will of the parties, assumed that the period agreed 3. Relatively simulated contracts
RESCISSIBLE CONTRACTS:
the contract shall be null and upon is one year which results in a which do not prejudice a 3rd
void. greater reciprocity of interests person and not intended for a 1. Valid until rescinded (Art.
since D can use the money for 1 purpose contrary to law, 1380).
There may be doubts as to:
year, and C, can earn interest due morals, good customs, public 2. Economic/financial injury or
1. The principal object for 1 year instead of only 6 order or public policy (Art. damage to contracting party
2. Or the incidental months. 1346). or 3rd person (Art. 1381).
circumstances. 4. In divisible contracts, legal a. Lesion by more than ¼ of
Art. 1379 The principles of
terms may be enforced if the value of the object
Rules in case doubts impossible interpretation stated in Rule 123
same can be separated from against
to settle: of the Rules of Court shall
illegal provisions (Art. 1420). i. Ward by guardian
likewise be observed in the
1. Gratuitous Contracts – if there construction of contracts. 4 KINDS OF DEFECTIVE
ii. Absentee by
is doubt, interpretation should be representative
CONTRACTS:
made which would result in the NOTE: When an instrument b. In fraud of creditors;
least transmission of rights and consists partly of written words 1. Rescissible c. Entered into by
interests. and partly of a printed form, and 2. Voidable defendant over objects
the two are inconsistent, the 3. Unenforceable under litigation without
Example: former controls the latter (Sec. 13, 4. Void or inexistent knowledge or approval
R gave his car to E. It is not clear Rule 130, Revised Rules of Court). contracts. of litigants or of
whether the contract is a donation competent judicial
Sec. 8, Rule 130, Revised Rules of Rescissible – valid until rescinded.
or a commodatum. The contract authority;
Court - The language of a writing is All essential requisites of a
should be presumed as a mere d. Other contracts specially
to be interpreted according to the contract exist but by reason of
commodatum because it would declared by law to be
legal meaning it bears in the place economic injury or damage to one
transmit lesser rights than a subject of rescission;
of its execution, unless the parties of the parties or to 3rd persons,
donation since R retains e. Payment made in state
intended otherwise. such as creditors, the contract
ownership of the car. of insolvency (Art. 1382).
may be rescinded.
Sec. 17, Rule 130 - An instrument 3. Not susceptible of ratification
2. Onerous Contracts – doubts may be construed according to Voidable – valid till annulled 4. May be assailed NOT ONLY by
should be settled in favor of the usage, in order to determine its unless there has been a a contracting party but also
greatest reciprocity of interests. true character. ratification. by a 3rd person

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injured/defrauded (Art. to secure reparation of damages Art. 1380 Art. 1191 3. Those undertaken in fraud of
1383). caused them by a valid contract, Based on Based on non- creditors when the latter
5. Action for rescission is by means of restoration of things lesion or fraud performance cannot in any other manner
subsidiary: a) only to the to their condition in which they upon or non- collect the claims due them;
extent necessary to cover the were prior to the celebration of creditors. fulfillment of 4. Those which refer to things
damage caused (Art. 1384). said contract. the obligation. under litigation if they have
6. Mutual restitution of object The action is Action must been entered into by the
Requisites: instituted by be instituted
and cause defendant without the
either of the only by the
a. Not applicable if object is 1. The contract must be validly knowledge and approval of
contracting injured party
legally in possession of a agreed upon; parties or by to the the litigants or of competent
3rd person who did not act 2. There is an economic or 3rd persons. contract. judicial authority;
in bad faith (Art. 1385) financial prejudice to one of Courts cannot In some cases, 5. All other contracts specially
Hence, the parties or to a 3rd person; grant a period courts may declared by law to be subject
b. Indemnity for damages 3. The rescission must be based or term within grant a term. to rescission.
against the person who upon a case especially which to
GENERAL RULE: Lesion does not
caused the loss (Art. provided by law; comply.
Non- Non- invalidate a contract EXCEEPT only
1385). 4. There must be no other legal
performance performance in cases specified by law (Art.
c. Effects of rescission remedy to obtain reparation
by other party by other party 1355).
retroact to the date the for the damage;
is immaterial is important.
action for rescission was 5. The party asking for Ward – person under
instituted. rescission must be able to guardianship by reason of some
7. Period to file for rescission – 4 return what he is obliged to Art. 1381. The following contracts incapacity.
years from: (Art. 1389) restore by reason of the are rescissible:
a. Termination of guardianship Example: G is the guardian of M.
contract;
b. Time of domicile of absentee 1. Those which are entered G sells the property of M worth
6. The object of the contract
is known. into by the guardians P2000 for only P1500. – The
must not legally be in
whenever the wards whom contract cannot be rescinded
possession of 3rd persons
CHAPTER 6 they represent suffer lesion because the lesion is not more
who did not act in bad faith;
by more than one-fourth of than 1/4. However, if the
RESCISSIBLE CONTRACTS 7. The period for filing the
the value of the things which property is sold for less than
action for rescission must not
Art. 1380 Contracts validly agreed are the object thereof; P1500, M can rescind the sale by
have prescribed.
upon may be rescinded in the 2. Those agreed upon in proper action in court upon
cases established by law. 2 kinds of rescission: representation of absentees, reaching the age of majority.
if the latter suffer the lesion
Rescission – remedy granted by 1. Rescission in Art. 1380 Absentee – person who
stated in the preceding
law to the contracting parties and 2. Rescission in Art. 1191 disappears from his domicile his
number;
sometimes to 3rd persons in order (resolution). whereabouts being unknown, and

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without leaving an agent to Art. 1382 Payments made in a Art. 1385 Rescission creates the Q: What should be returned in
administer his property. state of insolvency for obligations obligation to return the things rescinding a contract?
to whose fulfillment the debtor which were the object of the
ACCION PAULIANA - The action to ANS: 1) The object of the contract,
could not be compelled at the contract, together with their
rescind contracts made in fraud of with its fruits, must be returned.
time they were effected, are also fruits, and the price with its
creditors. 2) The price, with its interest, must
rescissible. interest; consequently, it can be
be returned.
Requisites for accion pauliana: carried out only when he who
Requisites:
demands rescission can return Q: A bought real property from B.
1. There must be an existing whatever he may be obliged to
1. The debtor-payer must have A brought action to rescind the
credit prior to the contract restore.
been insolvent (it need not contract on the ground of non-
to be rescinded, although it
be judicially declared); delivery of the property. Does B
is not yet due or Neither shall rescission take
2. The debt was NOT YET due or have to give also the fruits
demandable place when the things which are
demandable. received in the meantime?
2. There must be fraud on the the object of the contract are
part of the debtor which Art. 1383 The action for rescission legally in the possession of third ANS: No, the fruits received need
may be presumed or is subsidiary; it cannot be persons who did not act in bad not be given to A because the right
proved; instituted except when the party faith. takes place only when “delivery of
3. The creditor cannot recover suffering damage has no other the thing sold has been made.”
In this case, indemnity for
his credit in any other legal means to obtain reparation
damages may be demanded Q: To defraud his creditors A sold
manner, not being required for the same.
from the person causing the loss. to B a piece of land. B is an
that the debtor be
NOTE: rescission is not a principal innocent purchaser in good faith,
insolvent. NOTE: there must be mutual
remedy; it can be availed only if who takes legal possession of the
restitution.
Things in litigation – Example: the injured party proves that he land. Since the creditors cannot
has no other legal means aside Requisites: rescind the contract, what is their
X sues Y for the recovery of a
from rescinding the contract to remedy?
parcel of land. In this case, the 1. The plaintiff must be able to
obtain redress for the damage
land is a “thing under litigation”. If return what has been ANS: Their remedy in this case
caused even if the contract is
during the pendency of the case, Y received by virtue of would be to demand indemnity
covered by Art. 1381.
sells the land to Z without the rescissible contract; for damages from the person
approval of X or the court, the sale Art. 1384 Rescission shall be only 2. The object of the contract causing the loss.
is rescissible at the instance of X in to the extent necessary to cover must not be in the legal
Art. 1386 Rescission referred to in
case he wins in his suit for the damages caused. possession of 3rd persons.
Nos. 1 and 2 of Article 1381 shall
recovery of land unless Z is in legal 3. There must be no other legal
NOTE: the entire contract need not take place with respect to
possession of the land in good remedy.
not be set aside by rescission if contracts approved by the courts.
faith. X however, may protect his 4. The action must be brought
the damage can be repaired or
right by filing a notice of lis within the proper
covered by partial rescission.
pendens. prescriptive period.

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Art. 1387 All contracts by virtue but he did not reserve enough especially when he is car be destroyed with or without
of which the debtor alienates property to pay all these debts. insolvent or greatly his fault, the Z is entitled to
property by gratuitous title are Instead, he made the donation. embarrassed financially; recover damages by Y.
presumed to have been entered Hence, the donation is presumed 5. The fact that the transfer is
If Y transferred the car to A who
into in fraud of creditors, when fraudulent. made between father and
also acted in bad faith. Then A sold
the donor did not reserve son, where there are
2. Onerous Alienations: it to C who did not know of the
sufficient property to pay all present some or any of the
presumed fraudulent when made purpose behind the previous
debts contracted before the above circumstances;
by persons: conveyance. As the first acquirer,
donation. 6. The failure of the vendee to
Y is liable first. If he cannot pay,
1. against whom some take exclusive possession of
Alienations by onerous title are then A will be liable.
judgment has been all the property; and
also presumed fraudulent when
rendered in any instance 7. It was known to the vendee NOTE: If the first transferee is in
made by persons against whom
2. or against whom some writ that the vendor had no good faith, the good or bad faith
some judgment has been
of attachment has been properties other than that of the next transferee is not
rendered in any instance or some
issued. sold to him. important. If the first transferee is
writ of attachment has been
in bad faith, the next transferee is
issued. The decision or Example: After a judgment had Art. 1388 Whoever acquires in
liable only if he is also in bad faith.
attachment need not refer to the been rendered against him, X sold bad faith the things alienated in
property alienated, and need not his property to Y. The sale is fraud of creditors, shall indemnify Art. 1389 The action to claim
have been obtained by the party presumed fraudulent because it the latter for damages suffered rescission must be commenced
seeking the rescission. was made after a judgement had by them on account of the within FOUR YEARS. For persons
been issued against X. alienation, whenever, due to any under guardianship and for
In addition to these
cause, it should be impossible for absentees, the period of four
presumptions, the design to Circumstances denominated as him to return them. years shall not begin until the
defraud creditors may be proved badges of fraud:
termination of the former’s
in any other manner recognized If there are two or more
1. the fact that the incapacity, or until the domicile
by the law of evidence. alienations, the first acquirer
consideration of the of the latter is known.
shall be liable first, and so on
Presumption of frauds: conveyance is fictitious or successively. GR: 4 years. XPNS: for persons
inadequate.
1. Gratuitous Alienations: under guardianship and absentees
2. A transfer made by a debtor NOTE: “due to any cause” includes
Presumed fraudulent — when the
after suit has begun and fortuitous events. Who can bring action?
debtor did not reserve sufficient
while it is pending against
property to pay all debts Example: X sold his car to Y in 1. The injured party;
him;
contracted BEFORE the donation. order to avoid payment of his debt 2. His heir, assigns, or successor
3. A sale upon credit by an
to Z, his creditor. Y knew of X’s in interest;
Example: A donated his land to B. insolvent debtor;
purpose. If the sale is rescinded, Y 3. The creditors of the above
Before the time he made the 4. The transfer of all his
must return the car, Should the entitled to subrogation.
donation, he had several debts, property by a debtor,

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CHAPTER 7 bring the action for a. Time defect of consent Rescission Annulment
annulment (Art. 1395); ceases; Basis is lesion Basis is vitiated
VOIDABLE CONTRACTS: (damage). consent or
3. May be assailed ONLY by a b. Time of discovery of
1. Valid until annulled; contracting party (obliged mistake or fraud; incapacity to
a. One party is incapable of principally or subsidiarily); c. Time guardianship ceases consent.
giving consent; (Art. 1391) Defect is external Defect is intrinsic
EXCEPT by: or intrinsic. (in the meeting of
b. Consent vitiated by
Art. 1390 The following contracts minds)
mistake, violence, a. Capacitated party as to the
are voidable or annullable, even Action is Action is principal.
intimidation, fraud, incapacity of the other subsidiary.
though there may have been no
undue influence (Art. party; This is a remedy. This is a sanction.
damage to the contracting
1390); b. Those who exerted Private interest Public interest
parties:
c. Contracts entered into intimidation, violence, governs. governs.
in the state of undue influence or 1. Those where one of the Equity Law
drunkenness or during employed fraud (Art. 1397); parties is incapable of predominates. predominates.
hypnotic spell (Art. 4. Mutual restoration of objects giving consent to a Plaintiff may be a Plaintiff must be a
1328); and causes; contract; party or 3rd party to the
2. Susceptible of ratification a. Incapacitated person not 2. Those where the consent is person. contract.
(Art. 1390); compelled to restitute vitiated by mistake, There must be Damage to the
a. Ratification cleanses except insofar as he has violence, intimidation, damage to the plaintiff is
contracts from all defect been benefitted by the undue influence or fraud. plaintiff. immaterial.
(Art. 1396); thing or price he received If plaintiff is Indemnity here
These contracts are binding, indemnified, has NO bar to the
b. Ratification retroacts to (Art. 1399);
unless they are annulled by a rescission cannot prosecution of the
constitution of contracts b. Loss of the thing thru fault
proper action in court. They are prosper. action.
(Art. 1396); of the person obliged to
susceptible of ratification. Compatible with A defect is
c. Ratification may be return said thing, he shall perfect validity of presupposed.
affected expressly or return the fruits received Voidable – those which possess all contract.
tacitly (Art. 1393); and value of the thing at the the essential requisites of a valid To prevent To prevent
d. Ratification may be time of loss (Art. 1400); contract but one of the parties is rescission, annulment,
effected by a guardian c. Action for annulment is incapable of giving consent, or ratification is not ratification is
(Art. 1394); extinguished upon loss of consent is vitiated by mistake, required. required.
e. Ratification extinguishes object thru fraud or fault of violence, intimidation, undue
action to annul contract person who has a right to influence, or fraud.
A contract where consent is vitiated,
(Art. 1392); institute annulment (Art.
f. Ratification needs no 1401); Annulment – remedy provided by such as by violence or intimidation, is
law, for reason of public interest, not void ab initio but only voidable,
conformity of other 5. Period to file annulment – 4
for declaration of inefficacy of and is binding upon the parties unless
party who has no right to YEARS from:
contract. annulled by proper action in court.

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Art. 1391 The action for into the contract. Such a fraud Requisites of ratification: renders the contract
annulment shall be brought vitiated his consent. Within what voidable;
1. The contract must be a
within FOUR YEARS. time must X bring the action for 2. Such reason must have
voidable one;
annulment? Within 4 years from ceased;
This period shall begin: 2. The person ratifying must
Jan. 4, 2006 X must bring action 3. The injured party must have
know the reason for the
In cases of intimidation, violence for annulment; otherwise, his executed an act which
contract being voidable;
or undue influence, from the time right to sue for said annulment will necessarily implies an
3. The cause must not exist or
the defect of the consent ceases. have prescribed. intention to waive his
continue to exist anymore
right.
In case of mistake or fraud, from In the case of contracts entered at the time of ratification;
the time of the discovery of the into by minors or incapacitated 4. Ratification must have been Example:
same. persons, from what time will the expressly or by an act
X, a minor, sold his land to Y. Upon
period within which to bring the implying a waiver of the
And when the action refers to reaching the age of majority, X
annulment begin? From the time action to annul;
contracts entered into by minors with full knowledge of his rights in
the guardianship ceases. 5. The person ratifying must
or other incapacitated persons, the premises, instead of
be the injured party.
from the time the guardianship RATIFICATION OF VOIDABLE repudiating the contract, disposed
ceases. CONTRACT: Art. 1393 Ratification may be of the greater part of the proceed,
effected expressly or tacitly. It is or collected the unpaid balance of
NOTE: An incapacitated person Art. 1392 Ratification
understood that there is a tacit the purchase price from Y. Hence,
has no capacity to sue. extinguishes the action to annul a
ratification if, with knowledge of there is tacit ratification by X.
voidable contract.
NOTE: If the action has prescribed, the reason which renders the
In an action for annulment of
the contract can no longer be set Ratification – one voluntarily contract voidable and such
contract of sale, X alleged that the
aside. adopts or approves some reason having ceased, the person
sale was executed by him through
defective or unauthorized act or who has a right to invoke it
Example: the threat and intimidation of Y. It
contract which, without his should execute an act which
appears, however, that X
X was intimidated into signing a subsequent approval or consent, necessarily implies an intention
deposited the check for the
contract on June 1, 1999. The would not be binding on him. to waive his right.
purchase price and withdrew the
intimidation continued until Sept. Effects of ratification: Express – oral or written money from time to time. The
1, 2001. From what time should contract is deemed ratified.
we compute the 4-year period of 1. The action to annul is Tacit – as from conduct implying a
annulment? From Sept. 1, 2001, extinguished, thus the waiver of rights. NOTE: remaining silent for a
the time the intimidation ceased. contract becomes certain period of time ratifies such
Requisites for tacit ratification:
completely a valid one; a contract.
On June 1, 2005, X entered into a 2. The contract is cleansed of 1. There must be knowledge
contract with Y. On Jan. 4, 2006, X Art. 1394 Ratification may be
its defect from the of the reason which
discovered that fraud had been effected by the guardian of the
beginning.
present at the time he entered incapacitated person.

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Q: Who may ratify? sale although at the time it was EXCEPTION: A person who is not Effects of annulment:
made he was not yet a creditor? obliged principally or subsidiarily
ANS: the guardian; or the injured 1. If the contract has not yet
Yes. Although ratification has a in a contract may exercise an
party himself provided that he is been complied with, the
retroactive effect, still his rights as action for nullity of the contract if
already capacitated. parties are excused from
an innocent third person must not he is prejudiced in his rights with
their obligations.
NOTE: An incapacitated person be prejudiced. respect to one of the contracting
2. If the contract has already
has no capacity to sue. parties, and can show the
Art. 1397 The action for the been performed, there must
detriment which could positively
In case of contract is voidable on annulment of contracts may be be MUTUAL RESTITUTION of:
result to him from the contract in
the ground of mistake, etc., instituted by all who are thereby a. The principal object,
which he had no intervention.
ratification can be made by the obliged principally or subsidiarily. with fruits;
party whose consent is vitiated. However, persons who are Example: X sold a parcel of land to b. The price, with
capable cannot allege the Y. The consent of X was vitiated by interest.
Art. 1395 Ratification does not incapacity of those with whom fraud. Subsequently, X sold the
require the conformity of the Example: If a sale of land is
they contracted; nor can those same lot to Z. In this case, Z can
contracting party who has no annulled, the seller must return
who exerted intimidation, bring an action to annul the sale.
right to bring the action for the purchase price with legal
violence, or undue influence, or
annulment. A minor contracted with X. X’s interest and the buyer must
employed fraud, or caused
heir, Y, sues for annulment on the return the land with its fruits.
NOTE: ratification is unilateral act mistake base their action upon
ground that the other party was a
by which a party waives the defect these flaws of the contract. GENERAL RULE: When the
minor. Annulment cannot
in his consent. The consent of the contract is annulled there must be
Party entitled to bring an action prosper, for just as X has no right
guilty part is not required. MUTUAL RESTITUTION of the
to annul: to sue, being the capacitated
principal object, fruits, price with
RETROACTIVITY: party, so also Y, who merely
1. The plaintiff must have an interest.
derives any right he has from his
Art. 1396 Ratification cleanses interest in the contract;
predecessor-in-interest, X. EXCEPTIONS:
the contract from all its defects and
from the moment it was 2. The victim and not the party Art. 1398 An obligation having 1. Art. 1398 cannot be availed
constituted. responsible for the defect been annulled, the contracting of by strangers to the
is the person who must parties shall restore to each other contract. Innocent third
Example: assert the same. the things which have been the parties cannot be obliged
A minor sold his land to X. When subject matter of the contract, to restore.
GENERAL RULE: the action for the
he became 22 years old, he with their fruits, and the price 2. Art. 1399 the incapacitated
annulment of contracts can only
became indebted to Y. To avoid with its interest, except in cases contracting party is not
be maintained by those who are
paying Y, the former minor provided by law. In obligations to obliged to make any
bound either principally or
decided to ratify the sale of the render service, the value thereof restitution.
subsidiarily by virtue thereof.
land. He then had no other shall be the basis for damages.
property. May Y still rescind the

lOMoARcPSD|40691668
Art. 1399 When the defect of the more obligation to return Art. 1402 As long as one of the
contract consists in the incapacity such thing. contracting parties does not
of one of the parties, the 2. If it is lost THROUGH his restore what in virtue of the
incapacitated person is not fault, his obligation is not decree of annulment he is bound
obliged to make any restitution extinguished but is to return, the other cannot be
except insofar as he has been converted to an indemnity compelled to comply with what is
benefited by the thing or price for damages consisting of incumbent upon him.
received by him. the value of the thing at the
Reason: when the contract is
time of loss with interest
GR: incapacitated person is not annulled, a reciprocal obligation
from the same ate and the
obliged to make restitution. of restitution is created.
fruits received from the
XPN: only to the extent he has time the thing was given to Example:
been benefited by what he him to the time of its loss.
X forced Y to take X’s car in
received.
Art. 1401 The action for exchange for Y’s ring. Y asked for
NOTE: The law does not presume annulment of contracts shall be annulment, and the court gave the
this enrichment or benefit; EXTINGUISHED when the thing decree of annulment ordering
therefore, the capacitated person which is the object thereof is each to return what had been
has the burden of showing such LOST THROUGH THE FRAUD OR received. Y refused to give X the
enrichment. FAULT of the person who has a car. May X be compelled to give
right to institute the proceedings. back the ring? No.
Art. 1400 Whenever the person
obliged by the decree of If the right of action is based upon X forced Y to sell to him (X) his (Y’s)
annulment to return the thing the incapacity of any one of the ring. Y sued for annulment, but X
cannot do so because it has been contracting parties, the loss of had already lost the ring thru a
lost through his fault, he shall the thing shall not be an obstacle fortuitous event. What is Y’s
return the fruits received and the to the success of the action, remedy?
value of the thing at the time of unless said loss took place
through the fraud or fault of the X can be compelled to pay its value
the loss, with interest from the
plaintiff. or damages, for it is as if X was a
same date.
possessor in bad faith who bears
Effects of loss of thing to be NOTE: the action for annulment the loss even in case of a
returned: shall be extinguished only if the fortuitous event.
loss is through the fault or fraud of
1. If the thing to be returned is the plaintiff.
lost WITHOUT the fault of
the person obliged to make
restitution, there is NO

lOMoARcPSD|40691668
CHAPTER 8 other than a mutual promise in a court of law or sued upon by STATUTES OF FRAUD:
to marry; reason of certain defects provided
UNENFORCEABLE CONTRACT Purpose – to prevent fraud and to
by law until and unless they are
(d) An agreement for the sale guard against the mistakes of
Art. 1403 The following contracts ratified according to law.
of goods, chattels or things in honest men by requiring that
are UNENFORCEABLE, unless they
action, at a price not less than VOIDABLE and certain agreements specified that
are ratified: UNENFORCEABLE
five hundred pesos (P500.00), RESCISSIBLE are susceptible to fraud must be
1. Those entered into in the name unless the buyer accept and Cannot be sued Produces legal in writing (need not be formal);
of another person by one who receive part of such goods and or enforced (no effects until otherwise they are unenforceable
has been given no authority or chattels, or the evidences, or effect yet) unless annulled or in court.
some of them, of such things ratified. rescinded.
legal representation, or who has
Applies only to:
acted beyond his powers; in action, or pay at the time
some part of the purchase Kinds of Unenforceable 1. executory contracts (no
2. Those that do not comply with money; but when a sale is Contracts: performance has yet been
the Statute of Frauds as set forth made by auction and entry is made, not partially or
in this number. In the following made by the auctioneer in his 1. Unauthorized contracts; completely executed
cases an agreement hereafter sales book, at the time of the 2. Those that fail to comply with contracts).
made shall be unenforceable by sale, of the amount and kind the Statute of Frauds; 2. Cannot apply if the action is
action, unless the same, or some of property sold, terms of sale, 3. Those where both parties are NEITHER for damages
note or memorandum thereof, be price, names of the purchasers incapable of giving consent to because of violation of an
in writing, and subscribed by the and person on whose account a contract. agreement nor for specific
party charged, or by his agent; the sale is made, it is a
evidence, therefore, of the Unauthorized Contracts – those performance of said
sufficient memorandum; entered into in the name of agreement.
agreement cannot be received
another person by: 3. It is exclusive; it applies only
without the writing, or a (e) An agreement for the
to the agreements or
secondary evidence of its leasing for a longer period 1. one who has no authority or contracts enumerated
contents: than one year, or for the sale legal representation; therein.
of real property or of an 2. who has authority or legal
(a) An agreement that by its 4. Defense of Statutes of
interest therein; representation but acted
terms is not to be performed Fraud may be waived.
within a year from the making (f) A representation as to the beyond his powers. 5. It is a personal defense of
thereof; credit of a third person. Example: Without my authority, the parties and cannot be
my sister sold my car, in my name, interposed by strangers to
(b) A special promise to 3. Those where both parties are
to X. The contract is unauthorized the contract.
answer for the debt, default, incapable of giving consent to a
and cannot affect me unless I 6. It is not applicable where a
or miscarriage of another; contract.
ratify the same expressly or writing does not express
(c) An agreement made in Unenforceable – those that implicitly, as by accepting the the true agreement of the
consideration of marriage, cannot be enforced or given effect proceeds of the sale. parties.

lOMoARcPSD|40691668
7. It does not declare that 3. Agreement in consideration of 6. Agreement for the sale of real 2. If this can’t be done,
contracts infringing it are marriage other than mutual property or of an interest therein. present a memorandum
void but merely promise to marry. or note in writing where
unenforceable. Example: X orally sold his land or the important details of
Example: X agrees to build a
8. It does not determine the his right of usufruct in said land to the contract are set forth.
house worth P5M for Y if Y will
credibility of an evidence. It Y. The agreement is also It must be signed by the
marry X. This must appear in
concerns admissibility. unenforceable, unless it has been party or his agent.
writing to be enforceable
partially executed. 3. If the written agreement
NOTE: agreements within the unless X ratifies the
has been lost and there is
scope of statute of frauds must be agreement. But a mutual
7. Representation as t the credit of no note or memorandum,
in writing to be enforceable. promise of X and Y to marry
a third person. there is still a remedy;
each other need not be in
Agreements within the scope of present secondary
writing. Example: X is seeking a loan
Statute of Frauds: evidence of the written
from Y. Z represents to Y that X is
NOTE: Marriage settlements agreement.
1. Agreement to be performed solvent and has good credit
and donations propter nuptias
within 1 year from the reputation. Relying upon this Q: In what kind of actions may
are agreements made in
making thereof; representation, Y extends a loan Statutes of Fraud be invoked?
consideration of marriage.
X who, actually, is insolvent.
Example: On Oct. 10, 2014, X ANS: These statutes may be
entered into an oral contract 4. Agreement for sale of goods, The representation of Z must be invoked in actions for damages for
with Y for the construction of etc. at price not less than in writing to be enforceable. breach of said agreement or for
Y’s house to begin on Oct. 10, P500. specific performance thereof, and
Duty of an attorney for the
2015. The contract must be in not in any other matter.
Example: X and Y mutually defendant: (if an agreement
writing to be enforceable.
promised to sell and buy a violates the statute of frauds, but When both parties are incapable
2. Promise to answer for the piano at a price of P12000. This action was bought against a party) of giving consent:
debt, default, or miscarriage contract must be in writing to
1. File a motion to dismiss; Example: A contract entered into
of another; be enforceable against either
2. Plead the statute of frauds by 2 Unemancipated minors
party unless there is a delivery
Example: X owes Y P50K with as an affirmative defense; without parental consent.
or partial or full payment, in
Z as guarantor. Here, Z has a 3. Make a timely objection in
which case, it is taken out from Art. 1404 Unauthorized contracts
special promise to answer for the course of the trial.
the operation of Statute of are governed by Article 1317 and
the debt of X in case X ails to Frauds. Duty of the attorney for the the principles of agency in Title X
pay the same. This promise is
plaintiff: of this Book.
unenforceable unless it is in 5. Agreements for leasing for a
writing signed by Z. longer period than 1 year. 1. Present the written
agreement or contract;

lOMoARcPSD|40691668
Art. 1405 Contracts infringing the and a public document may be CHAPTER 9 Unenforceable and Void
Statute of Frauds, referred to in made so that the sale can be Contracts distinguished:
VOID OR INEXISTENT CONTRACTS
No. 2 of Article 1403, are ratified registered.
UNENFORCEABLE VOID
by the failure to object to the Void Contracts – are those which,
Art. 1407 In a contract where May be ratified. Cannot be
presentation of oral evidence to because of certain defects,
both parties are incapable of ratified.
prove the same, or by the generally produce no effect at all.
giving consent, express or implied There is a contract No contract
acceptance of benefits under but it cannot be at all.
ratification by the parent, or Voidable and Void Contracts
them. enforced by a court
guardian, as the case may be, of Distinguished:
Modes of ratification under the one of the contracting parties action.
VOIDABLE VOID Cannot be assailed Can be
Statute: shall give the contract the same
May be ratified. Cannot be by 3rd persons. assailed by
effect as if only one of them were
1. failure to object to the ratified. anybody
incapacitated.
presentation of oral evidence. Produces effects Generally directly
2. acceptance of benefits under If ratification is made by the until annulled. produces no affected.
them. parents or guardians, as the case effect at all.
may be, of both contracting Defect is due to Defect is
Art. 1406 When a contract is incapacity or ordinarily
parties, the contract shall be
enforceable under the Statute of vitiated against public
validated from the inception.
Frauds, and a PUBLIC DOCUMENT consent. policy.
is NECESSARY for ITS Example: A and B, both 15 years Valid ‘til Void from the
REGISTRATION in the Registry of old, entered into a contract. The annulled. very beginning.
Deeds, the parties may avail contract is unenforceable because May be cured by Cannot be cured
themselves of the right under both parties cannot give consent. prescription. by prescription.
Article 1357. Now if the guardian or parent of A Defense maybe Defense maybe
ratifies expressly or impliedly the invoked only by availed by
Example: A sale of realty in a the parties or anybody,
contract, it becomes voidable,
private instrument is not valid and their successors whether he is a
valid unless annulled by the
enforceable; hence, a public in interest and party to the
guardian or parent of B. However,
document may be executed so privies. contract or not,
if the guardian or parent of B also as long as his
that the sale could be registered.
ratifies, the contract is validated interest is
An oral sale of real property is not
right from the time it was first affected.
enforceable; hence, one party
entered into. Referred to Referred to
cannot compel the other to
relative or absolute nullity.
execute the public document. Art. 1408 Unenforceable
conditional
However, if said oral sale of real contracts CANNOT be assailed by nullity.
property has been ratified, then it third persons.
is now both valid and enforceable,

lOMoARcPSD|40691668
Art. 1409 The following contracts Characteristics of Void or Contracts expressly prohibited or subdivision or
are inexistent and VOID FROM Inexistent Contracts: declared void by law: instrumentality thereof.
THE BEGINNING:
1. Generally, it produces no 1. Contracts upon future Art. 1410 The action or defense
1. Those whose cause, object force and effects inheritance except in cases for the declaration of the
or purpose is CONTRARY to whatsoever; expressly authorized by law inexistence of a contract DOES
law, morals, good customs, 2. It cannot be ratified; (Art. 1347). NOT PRESCRIBE.
public order, or public policy; 3. The right to set up defense 2. Sale of property between
NOTE: if a contract is void, a party
of illegality cannot be husband and wife except
thereto can always bring a court
2. Those which are waived; when there is a separation of
action to declare it void or
ABSOLUTELY SIMULATED or 4. The action or defense for property (Art. 1490).
inexistent; and a party against
FICTITIOUS; declaration of its 3. Purchase of property by
whom a void contract is sought to
inexistence does not persons who are specially
be enforced, can always rise the
3. Those whose cause or object prescribe; disqualified by law because
defense of nullity, despite the
DID NOT EXIST at the time of 5. The defense of illegality is their position or relation with
passage of time.
the transaction; not available to 3rd persons the person or property under
whose interests are NOT their care (Art. 1490). Art. 1411 When the nullity
4. Those whose object is DIRECTLY affected; 4. Every donation between proceeds from the illegality of the
OUTSIDE THE COMMERCE 6. It cannot give rise to a valid spouses during the marriage cause or object of the contract,
OF MEN; contract. shall be void except and the act constitutes a
moderate gifts which the CRIMINAL OFFENSE, BOTH
Two kinds of void contracts:
5. Those which contemplate an spouses may give each other parties being in PARI DELICTO,
IMPOSSIBLE SERVICE; 1. The inexistent ones; on the occasion of any family they shall have NO ACTION
2. The illegal or illicit ones. rejoicing (Art. 87, FC). AGAINST EACH OTHER, and both
6. Those where the INTENTION 5. Testamentary provision in shall be prosecuted. Moreover,
of the parties relative to the Simulated Contracts: favor of disqualified persons the provisions of the Penal Code
principal object of the 1. If absolutely simulated, (Art. 1031). relative to the disposal of effects
contract CANNOT BE the contract is void for 6. Any stipulation that or instruments of a crime shall be
ASCERTAINED; utter lack of consent. household service is without applicable to the things or the
2. If relatively simulated, the compensation (Art. 1689). price of the contract.
7. Those EXPRESSLY hidden or intended 7. Under the Constitution,
PROHIBITED OR DECLARED members of the congress are This rule shall be applicable when
contract is generally
VOID BY LAW. prohibited from being only one of the parties is guilty;
binding.
financially interested, directly but the innocent one may claim
These contracts CANNOT BE NOTE: See Arts. 1306, 1345, 1346, what he has given, and shall not
or indirectly, in any contract
RATIFIED. Neither can the right to 1347, 1348, 1378 (2). be bound to comply with his
with the government or any
set up the defense of illegality be promise.
waived.

lOMoARcPSD|40691668
Rules where contract is illegal and has not yet paid X, he shall Rules when contract is illegal but NOTE: the doctrine of “in pari
the act constitutes a CRIMINAL not be bound to comply with the act does NOT constitute a delicto” does not apply to void or
OFFENSE: his promise. criminal offense: inexistent contracts. It applies to
cases where the nullity arises from
1. When both parties are in Art. 1412 If the act in which the 1. Where both parties are in
the illegality of the consideration
PARI DELICO: unlawful or forbidden cause pari delicto:
or the purpose of the contract.
a. They shall have no action consists DOES NOT CONSTITUTE a. NEITHER may recover
When two persons are equally at
against each other; A CRIMINAL OFFENSE, the what he has given by
fault, the law does not relieve
b. Both shall be prosecuted; following rules shall be observed: virtue of contract; and
them.
c. The things or the price of b. NEITHER may demand the
1. When the FAULT is on the
the contract, as the performance of the Art. 1413 Interest paid in excess
part of BOTH contracting
effects or instruments of other’s undertaking. of the interest allowed by the
parties, NEITHER may
the crime, shall be usury laws may be recovered by
recover what he has given by Example: X agreed to live as
confiscated in FAVOR OF the debtor, with interest thereon
virtue of the contract, or common law wife of Y in
THE GOVERNMENT. from the date of the payment.
demand the performance of consideration of the promise
Example: X sold to Y the other’s undertaking; on the part of Y to donate a Art. 1414 When money is paid or
contraband articles for P1000. 2. When only one of the land to X. Here, the promise of property delivered for AN
Y paid only P500 and X did not contracting parties is at Y for its consideration an ILLEGAL PURPOSE, the contract
deliver all the articles agreed fault, he cannot recover immoral act which does not may be REPUDIATED by one of
upon. In this case, neither what he has given by reason constitute a crime. the parties before the purpose
party has a right of action of the contract, or ask for the has been accomplished, or before
2. Where only one party is
against each other. Both shall fulfillment of what has been any damage has been caused to a
guilty:
be prosecuted and the price promised him. The other, third person. In such case, the
a. The guilty party loses
and the articles shall be who is not at fault, may courts may, if the public interest
what he has given by
confiscated. demand the return of what will thus be subserved, allow the
reason of the contract;
he has given without any party repudiating the contract to
2. Where only one party is b. The guilty party cannot
obligation to comply with his recover the money or property.
guilty – the innocent one or ask for fulfillment of the
promise.
the less guilty party may other’s undertaking; Requisites:
claim what he has given and 2 kinds of illegal contracts: c. The innocent party may
1. The contract is for an illegal
shall be bound to comply demand the return of
1. Those where there is purpose;
with his promise. what he has given;
criminal offense; 2. The contract is repudiated
d. The innocent party cannot
2. Those where there is NO before the purpose has been
Example: In the preceding be compelled to comply
criminal offense. accomplished or before any
example, if Y was in good with his promise.
damage has been caused to a
faith, he can claim the return
3rd person;
of the price of P500; or if he

lOMoARcPSD|40691668
3. The court considers public Example: Art. 1419 When the law sets, or CAUSE not the prestation or
interest will be subserved by authorizes the setting of a object.
X donated to Y everything that he
allowing recovery. minimum wage for laborers, and
(X) possessed and owned, leaving Art. 1421 The defense of illegality
a contract is agreed upon by
Example: nothing for himself. This is of contracts is NOT AVAILABLE to
which a laborer accepts a lower
prohibited but not illegal per se. third persons whose interests are
In consideration of P1000 paid by wage, he shall be entitled to
Since public policy is hereby not directly affected.
X to Y, the latter promised to hide recover the deficiency.
enhanced, X will be allowed to
Z, who is accused of murder. Q: Who can avail the defense of
recover, at least that necessary for Art. 1420 In case of a divisible
Before Y could hide Z, X changed illegality of contracts?
his own support and the support contract, if the illegal terms can
his mind. In this case, the court
of his relatives. be separated from the legal ones, ANS:
may allow X to recover the P1000
the latter may be enforced.
given to Y. Art. 1417 When the price of any 1. The contracting parties;
article or commodity is Effect of illegality where contract 2. 3rd persons whose
Art. 1415 Where one of the
determined by statute, or by is: interests are directly
parties to an illegal contract is
authority of law, any person affected.
incapable of giving consent, the Indivisible – the whole contract is
paying any amount in excess of
courts may, if the interest of void, even if only some terms are Art. 1422 A contract which is the
the maximum price allowed may
justice so demands, allow illegal direct result of a previous illegal
recover such excess.
recovery of money or property contract, is also void and
Divisible – the legal terms may be
delivered by the incapacitated Example: inexistent.
enforced if same can be separated
person.
Suppose by E.O. of the President from the illegal terms. Example:
Example: the price per kilo of rice of a
Example: A promised to give B a car as a
particular brand and quality has
An insane man gave money to reward after B has killed C. Later,
been fixed at P20. If a person pays X sold to Y his car and shabu for
another to kill X. May the insane after the killing, the contract was
P22 for it, he can recover the P1000. The contract s wholly VOID
man recover what he has paid? changed to a lease of a big house
excess of P2. because there is only one
Yes, since the interest of justice so for a certain period. The second
consideration for both the car and
demands. Art. 1418 When the law fixes, or contract here is the direct result of
the shabu.
authorizes the fixing of the a previous illegal contract and is,
Art. 1416 When the agreement is
maximum number of hours of However, I the price of the car is therefore, null and void.
not illegal per se but is merely
labor, and a contract is entered P500 and the shabu is P500, the
prohibited, and the prohibition
into whereby a laborer contract, being divisible, is valid as
by the law is designed for the
undertakes to work longer than to the sale of the car.
protection of the plaintiff, he
the maximum thus fixed, he may
may, if public policy is thereby NOTE: Art. 1420 speaks of
demand additional
enhanced, recover what he has DIVISIBLE CONTRACT not of a
compensation for service
paid or delivered. divisible obligation. It refers to
rendered beyond the time limit.

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Obligations and Contracts Reviewer

Law On Obli, Cont & Bas Labor Laws (Adamson University)

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