Obligations and Contracts

1E 2009-2010 Obligations and Contracts Reviewer
Contracts || General Provisions
Art. 1305. A contract is a meeting of minds between

two persons whereby one binds himself, with respect
to the other, to give something or to render some
service.
remedy available is to
institute an action against
the
other party for
damages.
From the book of Jurado, contract was derived

from the word cum traho which means an agreement or
convention. However, do not be misled that contract is
synonymous with convention because the latter is broad
enough to include any kind of agreement which may
create, extinguish or modify patrimonial and even family
relations while contract is limited to only those which
create patrimonial obligations.
Both Jurado and Tolentino explained the

difference between a contract and a perfected and an
imperfect promises. Perfected promise merely tends to
insure and pave the way for the celebration of a future
contract while an imperfect promise is a mere unaccepted
offer.
Class Notes:
The definition of contract provided in the above
article seems to be incomplete. This is so because:
1. It only covers consensual contracts
2. It does not deal with the concept of formal
contracts
3. It only refers to unilateral contracts
4. It refers to contracts that only create obligations
and not those that extinguish
Sanchez Roman, on the other hand, defined
contract as a juridical convention manifested in legal form,
by virtue of which one or more persons bind themselves in
favor of another or others, reciprocally, to the fulfilment of a
prestation to give, to do, or not to do.
Note: Not all agreements constitute contracts. But all
contracts constitute an agreement.
In order to further understand the concept of
contract, Jurado distinguished an ordinary contract from a
marriage contract:
ORDINARY CONTRACT
Parties may be two or more
persons of the same or
different sexes.
The nature, consequences
and incidents of the contract
are primarily governed by
the agreement of the
parties.
Once executed, the result is
a contract.
It can be terminated or
dissolved
by
mere
agreement of the parties.
In case of breach, the
Auto-Contract
It is a kind of contract in which only one person acted in
behalf of the other party and himself or another person in
another capacity to establish a contract. Tolentino said that
in order that a contract be existing, it requires two parties
and not two persons, two declaration of wills and not two
wills.
Ex. Art. 18901 in Agency
Elements of contract:
a. Essential are those without which there can be
no contract
Common the consent of the
contracting parties, object or the
subject of the contract and cause of the
obligation
Special this is only present in certain
contracts such as delivery in real
contracts or form in solemn ones.
Extraordinary peculiar to a specific
contract, such as the price in a contract
of sale.
CONTRACT
OF
MARRIAGE
Necessary that the parties
must be one man and one
woman.
Nature, consequences and
incidents are governed by
law
Once executed the result is
a status.
It cannot be terminated by
mere agreement.
The usual remedy is a civil
action for legal separation

or a criminal action for
adultery or concubinage
b.
Natural those which are derived from the

nature of the contract and ordinarily accompany
the same. It is presumed by law, but it also be
excluded by the contracting parties if they so
desire.
c.
Accidental are those which only exist when the

parties expressly provide for them for the
purpose of limiting or modifying the normal
effects of the contract. (ex. Conditions, terms or
modes)
Art. 1890: If the agent has been empowered to borrow

money, he may himself be the lender at the current rate of
interest. If he has been authorized to lend money at interest,
he cannot borrow it without the consent of the principal.

CHARACTERISTICS OF A CONTRACT
1. Obligatory force / character of contracts
(Arts. 1159, 1308, 1315 and 1356)
It refers to the rule that once the contract is
perfected, it shall be of obligatory force upon both
parties. They are bound not only to the fulfilment
of obligations but also to all the consequences.
2.
-
3.
-
4.
-
Mutuality of contracts (Art. 1308 and the

nature of contract)
It refers to the position of essential equality that is
occupied by both contracting parties. The
contract must be binding upon both parties and
its validity or compliance cannot be left to the will
of only one party.2
Autonomy of contracts (Art. 1306)
The contracting parties may establish
agreements provided it is not contrary to law,
public order, morals, good customs or public
policy.3
Relativity of contracts (First paragraph of Art.
1311)
Contracts take effect only between parties, their
assigns and heirs.
Exception:
a. In case where the rights and obligations
arising from the contract are not transmissible by
their nature or by stipulation or by provision of
law.
STAGES OF CONTRACTS
1. Generation it comprehends the preliminary or
preparation or conception. It is the period of
negotiation and bargaining.
2. Perfection it is the moment when parties come to
agree on the terms of the contract
3. Consummation it is the fulfilment or performance of
the terms agreed upon in the contract.
CLASSIFICATION OF CONTRACTS
1. According to their relation to other contracts:
a. Preparatory those which have for their object
the establishment of a condition in law which is
necessary as a preliminary step towards the
b.
c.
2. According to their perfection:

a. Consensual those which are perfected by the
mere agreement of the parties.
b. Real those which are require not only the
consent of the parties for their perfection, but
also the delivery of the object by one party to the
other.
3. According to their form:
a. Common those which require no particular
form
b. Special those which require some particular
form
4. According to their purpose:
a. Transfer of ownership
b. Conveyance of use
c. Rendition of services
5. According to their subject matter:
a. Things
b. Services
6.
According to the nature of the vinculum which

they produce:
a. Unilateral those which give rise to an
obligation for only one party
b. Bilateral those which give rise to reciprocal
obligations for both parties
7. According to their cause:

a. Onerous those in which each of the parties
aspires to procure for himself a benefit through
the giving of an equivalent or compensation
b. Gratuitous those in which one of the parties
proposes to give to the other a benefit without
any equivalent or compensation.
8.
Art. 1308: The contracts must bind both contracting parties;

its validity or compliance cannot be left to the will of one of
them.
3
Art. 1306: The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
celebration of another subsequent contract

Principal those which can subsist
independently from the other contracts and
whose purpose can be fulfilled by themselves.
Accessory those which can exist only as a
consequence of, o in relation with, another prior
contract.
According to the risk involved:

a. Commutative those where each of
the parties acquires an equivalent of
his prestation and such equivalent is
pecuniarily appreciable and already
determined from the moment of the
celebration of contract.

b.
Aleatory those where each of the

parties has to his account the
acquisition of an equivalent of his
prestation, but such equivalent is not
yet determined at the moment of
celebrationj of contract. It depends
upon the happening of an uncertain
event.
health of the community.

e.
Public Policy broader in scope than public
order; it is defined as a principle of law which holds that
no person can lawfully do that which has a tendency to
be injurious to the public or against the public good; all
those considerations which are moved by the common
good.
According to their names or norms regulating

them:
a. Nominate those which have their own
individuality and are regulated by special
provisions of law.
b. Innominate those which lack individuality and
not regulated by special provisions of law.
2. In cases of social legislation in relation to pursuance

of social justice
E.g. in labor contracts; that which is more
favoured to those who are needy are more
favoured in the pursuit of social justice
3. Contract of adhesion: where only one of the parties
prepared the contract and would favour the other party
who did not prepare
In case of doubts in the interpretation of the
provisions, that which is more favourable to the
party who may not have the position to impose
agreement is more appreciated
9.
Art. 1306. The contracting parties may establish such

stipulations, clauses, terms and conditions as they
deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public
policy.
Autonomy characteristic of contracts
the right of the contracting parties to establish
any stipulation, clause, term or condition as they deem
convenient.
Limitations:
1. Stipulations must not be contrary to law, morals,
good customs, public order, public policy
a.
Law
those which are mandatory or prohibitive in
character
those which impose essential requisites
without which the contract cannot exist.
those, without being mandatory, are
expressive of fundamental principles of justice
only serve as suppletory to the stipulations
or the will of the parties.
b.
Morals Tolentino said that it means those
generally accepted principles of morality which have
received some kind of social and practical confirmation;
synonymous to good customs.
c.
Good customs Jurado acknowledged the
possible overlapping of the concept of good customs
and good morals. But he gave a distinction, he said that
if a moral precept or custom is not recognized
universally but is sanctioned by the practice of a certain
community, then it shall be included within the scope of
good customs.
d.
Public Order public weal, peace, safety, and
Art. 1307. Innominate contracts shall be regulated by

the stipulations of the parties, by the provisions of
Titles I and II of this Book, by the rules governing the
most analogous nominate contracts, and by the
customs of the place.
Kinds of innominate contracts:
a. Do ut des I give and you give. (Illustration A
will give one thing to B, so that B will give another
thing to A)
b. Do ut facias I give and you do (Illustration A
will give something to B, in order that B may do
something for A)
c. Facio ut des I do and you give (A binds himself
to do something for B, so that B will give
something to A)
d. Facio ut facias I do and you do (A will do
something for B, so that B will do something for
A)
What rules govern innominate contracts?
1. stipulation of the parties
2. provisions of Title I (Obligations) and II (Contracts) of
Obligations and Contracts
3. rules governing the most analogous nominate contracts
4. customs of the place
Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the

will of one of them.

Mutuality characteristic of contracts
The binding effect of the contract on both parties is
based on the principle that obligations arising from
contracts have the force of law between the contracting
parties and that there must be mutuality between the
parties based on their essential equality.
Rationale: to maintain the enforceability of contracts
Purpose: To render void a contract containing a condition
which makes its fulfilment dependent exclusively upon the
uncontrolled will of one of the contracting parties.
General Rule on Unilateral Cancellation: No one may be
permitted to change his mind or disavow and go back upon
his own acts, or to proceed contrary thereto, to the
prejudice of the other party.
* The termination of the contract may be left to the will of
one of the parties in the negative form of rescission is that
is so expressly stated in the contract. Reason: Since the
termination is in the contract, then it would not be a
violation but it would be in the fulfilment of the agreement
of the parties to the contract.
Art. 1309. The determination of the performance may
be left to a third person, whose decision shall not be
binding until it has been made known to both
contracting parties.
Art. 1310. The determination shall not be obligatory if it
is evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances.
Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contracts
are not transmissible by their nature, or by stipulation
or by provision of law. Their heir is not liable beyond
the value of the property he received from the
decedent.
If a contract should contain some stipulation
in favor of a third person, he may demand its fulfilment
provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a
favor upon a third person.
General Rule: The contract is only binding between the
contracting parties, their assigns and heirs. (relativity
characteristic of contracts)
Exceptions:
1. According to the first paragraph, the rule is not
applicable if the rights and obligations arising from the
contract are not transmissible:
By their nature
By stipulation
By provision of the law
Examples:
Agency, which is based on the confidence
reposed by the principal on the agent, is not
transmissible to the heirs of the agent.
When a person by agreement is required to do
something personally
Cases when contract may affect third persons:
a. when the parties transfer to third persons the rights
they acquired under the contracts
b. when the contract contains a stipulation in favor of a
third person
c. when third persons exercise the subrogatory action or
rescissory action
d. in suspension of payments and compositions under the
Insolvency Law
e. In labor contracts of collective bargaining under RA
No.875
f. In contracts creating real right
Stipulation pour autrui it is a stipulation in a contract
clearly and deliberately conferring a favor upon a third
person who has a right to demand its fulfilment provided he
communicates his acceptance to the obligor prior to its
revocation.
Kinds:
1.
2.
Those where the stipulation is intended for the

sole benefit of a third person
Those where an obligation is due from the
promise to the third person which the former
seeks to discharge by means of such stipulation.
Requisites:
There must be a stipulation in favor of third
persons
That the stipulation in favor of a third person
should be a part of the contract and not the entire
contract
That the contracting parties must have clearly and
deliberately conferred a favor upon a third person
The favourable stipulation should not be
conditioned or compensated by any kind of
obligation

That the person must have communicated his

acceptance to the obligor prior its revocation.
Neither of the contracting parties bears a legal
representation or authorization of the third party.
Test of Beneficial Stipulation

To constitute a valid stipulation pour autrui, it
must be the purpose and intent of the stipulating parties to
benefit the third person, and it is not sufficient that the third
person be incidentally benefited by the stipulation. So in
order to determine whether or not such stipulation exists,
one needs to rely upon the intention of the parties as
disclosed by their contract.
Rights of the parties
*The third person after acceptance has the rights of a party
to the contract, and therefore may sue either for specific
performance or resolution, with indemnity for damages.
Art. 1312. In contracts creating real rights, third person
who come into possession of the object of the contract
are bound thereby, subject to the provisions of the
Mortgage Law and the Land Registration Laws.
Contracts creating real rights the right created directly
affects the object of the contract and it follows the same
who ever comes into the possession of such property
Example: a mortgage to the property follows the property
wherever it goes, and whether the party is aware of the
mortgage or not.
*Although the contract may create a real right, it may not
affect a third person who comes into possession of the
property if the land and affected by such real right is
registered under the Mortgage Law or the Land
Registration Laws, and the real right in question is not
recorded in the Registry of Property.
Real contracts those which are perfected by the delivery
of the property in question.
Real right a right belonging to a person over a specific
thing, without a passive subject individually determined,
against whom such right may be personally enforced.
Art. 1313. Creditors are protected in cases of contracts

intended to defraud them.
is considered an exception to the relativity of contracts
creditors, who are not parties to the contract, may
interfere in the same through a rescissory action when
such contract should prejudice their rights.

Art. 1314. Any third person who induces another to
violate his contract shall be liable for damages to the
other contracting parties.
Interference in Contracts by third persons
- an injured party may recover damages for unlawful
interference with the contract by a third party who has
induced one of the parties of the contract to violate the
terms thereof.
Requisites:
1. Existence of a valid contract
2. Knowledge on the part of the third person of the
existence of the contract
3. Interference by the third person without legal
justification or excuse
Liability of the contracting party & third person joint
and solidary
Art. 1315. Contracts are perfected by mere consent,
and from that moment the parties are bound not only
to the fulfilment of what has been expressly stipulated
but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage
and law.
Consensual contracts
Consensual contracts perfected by mere consent and
that from that moment on the juridical ties between the
parties arises.
Art. 1316. Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of
the object of the obligation.
Real contracts
Perfection of contract - refers to that moment in the life
of a contract when there is finally a concurrence of the wills
of the contracting parties with respect to the object and the
cause
of
the
contract.
1E Obligations and Contracts Reviewer

Contracts || Form
Real contracts, when perfected by the delivery of the

thing or object of the obligation
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
General Provisions
Art. 1317. No one may contract in the name of another

without being authorized by the latter, or unless he has
by law a right to represent him.
A contract entered into in the name of another
by one who has no authority or legal representation, or
who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the persons in whose behalf has been
executed, before it is revoked by the other contracting
party.
Rule: No person may enter into a contract in the name of
another unless he has been duly authorized by the
person represented or he has by law a right to represent
him.
Effect if the contract entered into in the name of
another is without the authority of the latter either
given by law or by the person involved
= contract is NOT ENFORCEABLE
= exception: unless it is ratified, expressly or impliedly, by
the person in whose behalf it has been executed before it
is revoked by the other contracting party
Unenforceable contracts cannot be sued upon before
ratification; the defects therein are permanent in nature and
will exist as long as it has not been ratified.
Effects of Ratification
Once ratified, the contract can be sued upon. Effects
retroact to the time of its celebration.
Act is validated from the moment of the celebration of
the contract and not merely from the time of its ratification.
*The unauthorized contract produces a state of suspense;
its effectivity depends upon its ratification. If the contract is
not ratified by the person represented, the representative
becomes liable in damages to the other party, if he did not
give notice of the absence or deficiency of his power. This
liability is based on the fact that having represented himself
as having authority to act for another, he is responsible for
the truth of such affirmation.
Art. 1318. There is no contract unless the following

requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of
the contract;
(3) Cause of the obligation which is established.
Consent
Object
Cause
essential common elements
essential common elements those elements which

are found in all contracts, otherwise there can be NO
contract.
Essential elements of a contract:
1. Essential common those which are found in all
contracts
2. Essential special or essential proper those which
exist only in certain classes or groups of classes
E.g. delivery in real contracts; form in formal
contracts
3. Essential very special those which are necessary for
a particular contract
E.g. price in contracts of sale
Section 1. Consent
Art. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does
not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer
was made.
Consent
from the Latin word cum sentire meaning to feel
together or the convergence of two wills over the
same point

Contracts || Form
essence: conformity of the parties to the terms of the

contract
definition: the concurrence of the offer and the
acceptance over the thing and the cause which
constitute the contract.
Requisites:4(Castan as cited by Caguioa)
(1) Plurality of subjects
(2) Capacity of the contracting parties
(3) Intention of the parties
(4) Manifestation of the intention of the parties
(5) Concurrence between the intention of the parties
and its manifestation
Plurality of subjects
There must be at least two parties (not two

persons) and two declarations of will (not
two wills)5
Capacity of the contracting parties
- Refers to the legal capacity (i.e. age, mental
disposition) of the contracting parties to
contract
- A valid consent presupposes legal capacity.
Intention of the parties
- Must be formed and manifested in a manner
that is rational and conscious and should not
be vitiated by any vice which may destroy its
character.
- 4 traditional vices of consent:
o Error
o Fraud
o Violence
o Intimidation
Manifestation of the intention of the parties
- May be express, tacit, or may be presumed.
Express consent exists when the same is
manifested by words or by writing; the normal
way of manifesting consent.
Implied consent exists when certain acts are
performed which do not directly manifest the
consent but where the consent can be inferred
from the conduct of the person.
Presumed consent is a fiction which produces
-
determinate effects by virtue of a certain

situation; basis of quasi-contracts; e.g. lapse of
time given to repudiate an inheritance
Concurrence between the intention of the
parties and its manifestation

- an absolute concurrence between what is
intended and what is expressed.
*Divergence of intention when there is NO
concurrence
2 types:
o conscious when there is jovandi
causa or mental reservation or when
there is a simulation
o unconscious when there is an error in
the declaration or error substantibo
2 elements of consent:
(1) Offer
(2) Acceptance
* Manifestation of consent the meeting of the offer
and the acceptance
General Rule: There must be a concurrence of the offer
and acceptance with respect to the object and the cause of
the contract.
Exception: Not applicable to cases where other matters
beside the thing and the cause are considered material by
the parties, in which case, the area of agreement must
include those other things which are considered material by
the parties. (Magsaysay v. Cebu Portland Cement Co. as
cited in Caguioa)
Offer a unilateral proposition which one party makes
to the other for the celebration of a contract; or simply
put, a proposal to make a contract.
- requisites:
1. definite
2. complete
3. made with the intention to be bound
4. directed to person or persons with whom the offeror
intends to enter into a contract
According to Clarin vs. Rulona, as cited in Tolentino, the

following are the requisites of consent: (1) plurality of
subjects; (2) capacity; (3) intelligent and free will; (4) express
or tacit manifestation of the will; (5) conformity of the internal
will and its manifestation.
Jurado, on the other hand, enumerates the following as
requisites of consent: (1) consent must be manifested by the
concurrence of the offer and the acceptance; (2) contracting
parties must possess the necessary legal capacity; and (3)
consent must be intelligent, free, spontaneous and real
5
This thus gives way to the validity of auto-contracts
a. it must be definite
offer is definite when an acceptance thereof will
create a valid and subsisting contract.
not affected where the determination thereof is left
to the will of the other party.
e.g. I am in a position and willing to entertain the
purchase of a yacht. >>> not an offer but a mere

Contracts || Form
invitation to make an offer.6

Note: Definiteness is not affected where the
determination thereof is left to the will of the other party.
Example: An offer to sell as many sacks of rice as the
buyer is willing to purchase but not exceeding 500
sacks at P50 per sack is a valid offer.
b. it must be complete
when it indicates with sufficient clearness the kind of
contract intended and definitely stating the essential
conditions of the proposed contract, as well as the nonessential ones desired by the offeror
example: in a contract of sale, offer must specify the
object, price and terms
person or persons with whom the offeror wishes to enter

into a contract.
Exception: definite offers which are not directed to a
particular person but to the public in general (examples:
promises of reward, public auction)
In order for unilateral promises publicly made be
enforced, there must be an acceptance that shall
convert it into a contract. The performance of the
act for which a reward or prize is promised can
be considered as an acceptance.7
Acceptance the unconditional and unqualified
agreement to the offer.
- requisites: (ADICT)
1. absolute
2. directed to the offeror
3. made with the intention to be bound
4. made within the proper time
5. communicated to the offeror and learned by him
c. it must be made with the intention to be bound

the offer must be made seriously
examples of offers with NO intention to be bound:
Those made for fun or jest
Those made jocandi causa or as an

expression of courtesy
General Rule: Offers not seriously made and accepted by
the other party, aware of the non-seriousness of the offer,
is null and void and cannot give rise to a contract.
a. it must be absolute
- there is no variation whatsoever between the terms of
the offer and the acceptance.
It is necessary that the acceptance be
unequivocal and unconditional, and the
acceptance and the proposition shall be without
any variation whatsoever; and any modification
or variation from the terms of the offer annuls the
latter and frees the offeror.
means that the offeree should NOT desire
anything exactly than the proposed offer; his
acceptance must be for the totality of the
offer, nothing more, nothing less. Should the
acceptance be qualified (for example
when a pure obligation is accepted with a
condition, or when a term is established or
changed, or when a simple obligation is
converted into an alternative one), the
acceptance constitutes a counter-offer
and a counter-offer has the effect of
extinguishing the offer.
b. it must be directed to the offeror
c. it must be made with the intention to be bound
d. it must be made within the proper time, i.e. within
the period expressly or tacitly given
e. it must be communicated to the offeror and
learned by him
Unless the offeror knows of the acceptance, there
is no meeting of the minds of the parties, no real
*If the offeree is induced to take it seriously or he

was not aware that offer was not intentional,
act is VOID; hence there is NO CONTRACT; but he
may recover for damages which he has suffered by
reason of his belief that the offer was seriously made.
Exception:
*In cases of mental reservations (when a party
makes a declaration but secretly and without informing the
other party does not intend to be bound by such
declaration; exists when the manifestation of the will is
made by one party for the purpose of inducing the other to
believe that the former intends to be bound, when in fact he
does not)
act is VALID; and hence may give birth to a
contract. This is in line with the principle of estoppel
(Caguioa and Tolentino). Exception to the exception: But
when the other party is aware of such mental reservation, it
will not bind the offeror.
d. it must be directed to the person or persons with
whom the offeror intends to enter into a contract
General rule: The offer must be directed to a particular
6
Rosentoch v. Burke as cited in Caguioa, Tolentino &

Jurado
Tolentino, 2002, p. 459.

Contracts || Form
concurrence of offer and acceptance.8
acquire such knowledge by reason of

absence, sickness or some other cause.
d. Cognition theory contract is perfected from
the moment the acceptance comes to the
knowledge of the offeror; theory followed by
the Spanish Code and have been retained by
our Civil Code
Presumption: Contract has been entered
into the place where the offer was made.
If the offeror delays in bad faith (by not
reading or opening the letter of acceptance
although he can do so), contract must be
deemed perfected. [ Reason: It cannot
have been the intention of the law to leave
the perfection of the contract to the caprice
of the offeror.]
Exception: Art.54 of the Code of
Commerce can be applied only to purely
commercial contracts which are still
governed by the Code of Commerce such
as joint accounts and maritime contracts.12
Withdrawal of offer
Rule: Both the offer and the acceptance can be
revoked before the contract is perfected. Offeror may
withdraw his offer at any time before he learns of the
acceptance, even if such acceptance has already been
made, but not made known to him. 9
Lapse of Time
An offer without a period must be considered as
becoming ineffective after the lapse of more than the time
necessary for its acceptance, taking into account the
circumstances and social conditions.
Media by which the acceptance has been made known
to the offeror:
1. acceptance through intermediaries10
If the intermediary is a true agent who has the
power of binding the offeror,
Acceptance by the offeree made known to
the agent is binding on the offeror.
If the intermediary has no power to bind either
the offeror or the offeree,
Acceptance is not binding on the offeror until
the intermediary actually informs him of the
same.
2. acceptance by correspondence
4 different theories in pinpointing the exact
moment of perfection:
a. Manifestation theory contract is perfected
from the moment the acceptance is declared
or made. (theory followed by the Code of
Commerce)11
b. Expedition theory contract is perfected from
the moment the offeree transmits the
notification of acceptance to the offeror, as
when the latter is placed in the mailbox
c. Reception theory contract is perfected from
the moment that the notification of
acceptance is in the hand of the offeror in
such a manner that he can, under ordinary
conditions, procure the knowledge of its
contents, even if he is not able actually to
acceptance by telephone or telegram

is deemed to have been made by two
persons present and is considered to have
been entered at the place where the offer
was made.
4.
acceptance by silence
Rule: Whether or not silence can be considered
as an expression of the will depends upon the
circumstances for silence is in itself ambiguous.
When circumstances imply a duty to speak on
the part of the person for whom an obligation is
proposed, his silence can be construed as
consent.
Requisites:
a. that there is a duty on the part of the offeree
to express his refusal
b. that the silence on the part of the offeree
cannot be interpreted in any other way
c. that there is a concurrence between the
effect of silence and the undisclosed will of
the offeree
Art. 1870-1873 on agency; cases when
acceptance of the agency may be implied
from silence of the agent under certain
circumstances
Art. 1319, par.2: Acceptance made by letter or telegram

does not bind the offerer except from the time it came to his
knowledge. (This rule should also apply in case of
acceptance by cable or telephone according to Tolentino.)
9
Art. 1324
10
Art. 1322: An offer made through an agent is accepted
from the time acceptance is communicated to him.
11
Art. 54: Contracts entered into by correspondence shall be
perfected from the moment an answer is made accepting the
offer or the condition by which the latter may be modified.
3.
12
Jurado, 2002, p.399

Contracts || Form
Applicable Doctrines13
a. As between persons present
- If the silence is entirely unconnected with
any fact, there can be no contract.
b.
-
As between persons absent

If there has been no antecedent relation
between the parties, silence will not give rise
to a contract.
Revocation of Acceptance
The acceptance may be revoked before it comes to
the knowledge of the offeror.
New Contract Before Acceptance

Pending the acceptance of an offer, the offeror can
perfect a contract over the same thing with another
person.
If the first offer is not revoked by him before it is
accepted, he becomes liable for damages to the first
offeree for culpable impossibility of performance.
As between the two offerees, the one whose
acceptance perfected a contract first is given priority; the
other party has only an action for damages.
Art. 1320. An acceptance may be express or implied.
Manner of acceptance
Express consent exists when the same is manifested by
words or by writing; the normal way of manifesting consent.
Implied consent exists when certain acts are performed
which do not directly manifest the consent but where the
consent can be inferred from the conduct of the person.
Presumed consent is a fiction which produces
determinate effects by virtue of a certain situation; basis of
quasi-contracts; e.g. failure on the part of the heir to reject
the inheritance within 30 days from notice of the order of
the court distributing the estate
Art. 1321. The person making the offer may fix the
time, place, and manner of acceptance, all of which
must be complied with.
Contents of the offer
offeror must make the offer complete and definite in
order that acceptance of the same may constitute a binding
agreement
If the offeror fixes a period within which the

acceptance must be made in order to become
effective,
>>> acceptance must be made known to the offeror
before the period lapses; one made after the lapse of
the period is NOT considered an acceptance of the
offer.
Any variation whatsoever between the manner of
acceptance prescribed by the offeror and that offered
by the offeree constitutes a counter-offer = invalidates
the offer = NO CONTRACT
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him.
- See acceptance through intermediaries
Art. 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity or insolvency of either party
before acceptance is conveyed.
General Rule: Offer is extinguished upon the death, civil
interdiction, insanity or insolvency (CIDI) of either party
before acceptance is conveyed.
Cases where offer is extinguished:
1. upon the death, civil interdiction, insanity or insolvency of
either party (Art. 1323)
2. upon the rejection of the offeree (Batangan v.
Cojuangco)
3. upon the lapse of the period stated in the offer without
acceptance being conveyed
4. upon qualified or conditional acceptance, i.e. counteroffer (Logan v. Phil. Acetylene Co.)
5. upon revocation of the offer before knowledge of
acceptance (Art. 1324)
Art. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
Rule: The offeror may always withdraw the offer before
acceptance
In cases of arbitrary revocation, i.e. revoking
the offer without just cause, offeror may be held
liable for damages.14 But still, there will be NO
13
Above principles have been developed in French

jurisprudence and have been recognized as acceptable
doctrines according to Tolentino (Tolentino, 2002, p.456)
14
Based on the principle of abuse of right; Art. 19, NCC:

Every person must, in the exercise of his rights and in the

Contracts || Form
BINDING agreement between parties as there

was NO LEGAL OFFER upon withdrawal.
Option Contracts
an agreement whereby one party concedes to
the other, for a determinate period, and under fixed
conditions, the power, which is left to his sole will, to
decide whether a principal contract will be celebrated.
Where the offeror grants to the other party a
period within which to accept the offer or not
Requisites:
a. concession by one party in favour of the other of the
power to decide whether a contract will be celebrated
or not, without any obligation on the part of the latter
b. concession is exclusive
c. concession is for a fixed period
d. there is no other condition but the sole will of the
other
General Rule: Offeror still have the right to withdraw
offer before knowledge of acceptance. If acceptance has
been communicated and learned by the offeror, then there
is meeting of the minds and therefore offer CANNOT be
withdrawn.
Exception: In case of option contracts where the same are
not supported by an independent consideration distinct
from the price.
Illustration: Art. 147915 (Even though the unilateral
promise to buy or to sell has already been accepted, it can
still be withdrawn by the offeror if the accepted unilateral
promise (option contract) is not supported by any
consideration distinct form the price.)
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite
offers, but mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless
the contrary appears.
Art. 1327. The following cannot give consent to a
contract:
performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith.
15
Art. 1479: A promise to buy or to sell a determinate thing
for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
(1)
Unemancipated minors;
(2)
Insane or demented persons, and deaf-mutes
who do not know how to write.
Legal Effects of entering into contracts by parties
without legal capacity:
If both parties cannot give consent = CONTRACT
IS UNENFORCEABLE16
If only one of the parties is incapable of giving
consent = CONTRACT IS VOIDABLE17
Art. 1330. A contract where consent is given through

mistake, violence, intimidation, undue influence, or
fraud is voidable.
Characteristics of consent:
Intelligent
Free and voluntary
Spontaneous
Real
Vices of consent:
Mistake
- should refer to mistake of fact and not of law.
- must refer to the very substance of the thing (if error
refers to the nature of the contract, contract is VOID)
- must refer to the essential or substantial conditions of the
contract in order to vitiate consent
- requisites:
1. it must be of a past or present fact
2. mistake must have induced the consent
3. mistake must not be imputable to the party mistaken, i.e.
mistake is not inadvertent and excusable
4. mistake must be of fact and not of law
Violence
- refers to physical force or compulsion
- there is violence when in order to wrest consent, serious
or irresistible force is employed
- requisites:
1. force employed is serious or irresistible
2. it is the determining cause of consent
3. it is not justified
4. it is sufficient
Intimidation
- when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and
16
17
Art. 1403:
Art. 1407

Contracts || Form
grave evil upon his person or property, or upon the person

or property of his spouse, descendants or ascendants to
give his consent
- requisites:
1. it must produce a reasonable and well-grounded fear
when the person issuing the threat appears able to
inflict the harm threatened
in order to determine this, it is required that the age, sex
and condition of the persons be borne in mind.
2. fear must produce the consent
the fear produced by the same must be the direct and
the determining cause which compelled the consent to be
given.
3. fear is of imminent and grave evil upon person and
property
evil threatened must be serious or grave and imminent.
4. threat must be unjust
if the means threatened to be used to inflict the evil or
harm is unlawful or illegal or there is no right to inflict the
injury feared
Undue Influence
- when a person takes advantage of his power over the will
of another, depriving the latter of a reasonable freedom of
choice
- to determine whether the influence exerted is
unreasonable, the following circumstances shall be
considered:
1. confidential relations
2. family relations
3. spiritual relations
4. other relations between the parties
Fraud
- when through insidious words or machinations of one of
the contracting parties, the other is induced to enter in to a
contract which, without them, he would not have agree to.
- refers to deceit or fraud in the celebration of contract
- any kind of deception and includes words, machinations,
false promises, exaggerations of hope and benefits, abuse
of confidence, fictitious names, qualifications or authority.
- 2 kinds of deceit:
a. dolo causante (substantial fraud) that which affects the
substance of the agreement so that without it the party
would not have consented
b. dolo incidente (incidental fraud) that which affects, not
the substance but the incidentals of the agreement, so that
without it the party would have consented but under
different terms.
- requisites:
1. there must be a misrepresentation or concealment of a
fact
2. it must be serious
3. it must be employed by one of the contracting parties

and not by a third person
4. it must not be employed by both contracting parties
5. it must have induced the consent of the other party
6. it must be made in bad faith, i.e. with knowledge of its
falsity
Non-fraudulent cases:
Not every silence or concealment will constitute fraud. If
the concealment does not refer to material facts, i.e.
those that induce consent, it will not be fraudulent.
(Art.1339)
The usual exaggerations in trade (are said to be lawful
misrepresentations known as dolus bonus), when the
other party had an opportunity to know the facts, are not
in themselves fraudulent. (Art. 1340)
A mere expression of opinion does not signify fraud,
unless made by an expert and the other party has relied
on the formers knowledge. (Art. 1341)
Art. 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do
not intend to be bound at all; the latter, when the
parties conceal their true agreement.
SIMULATION is the declaration of a fictitious intent
manifested deliberately and in accordance with the
agreement of the parties in order to produce for the
purpose of deceiving others the appearance of a transation
which does not exist or which is different from their true
agreement.
requisites:
1. A deliberate declration contrary to the will of the
parties
2. Agreement of the parties to the apparently valid
act
3. The purpose is to deceive or to hide from third
persons although it is not necessary that the
purpose be illicit or for purposes of fraud
2 types:
a. absolute when the parties do not intend to be
bound at all
b. relative when the parties conceal their true
agreement
Effects of Simulation
If simulation is absolute = NO CONTRACT
If simulation is relative = VALID CONTRACT unless it
prejudices a third person or has an illicit purpose

Contracts || Form
Section 2 Object of Contracts

Object of a contract the subject matter; the
prestation which is the subject matter of the obligation
arising from the contract
requisites:
a. object must be real or possible (it exists at the
moment of the celebration of the contract, or at least
capable of existing thereafter)
b. it is licit (it is not contrary to law, morals, good
customs, public order, public policy)
c. it must be determinate or susceptible of
determination (the kind and quantity may be
determined without the aid of a new contract between
the parties)
Section 3 Cause of Contracts

Cause the essential or more proximate purpose
which the contracting parties have in view at the time
of entering into the contract (Manresa); the fact which
explains and justifies the creation of an obligation by
the will of the parties (Castan);
the reason, end or purpose of the obligation
requisites:
1. it must exist
2. it must be real
3. it must be lawful
Art. 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary.
Presumption: Even if the contract does not state a cause,
the law presumes that one exists and that the same is
lawful and hence it is incumbent on the party impugning the
contract to prove the contrary.
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue
influence.
CHAPTER 3
Forms
ART. 1356. Contracts shall be obligatory, in whatever
form they may have been entered into, provided all the
essential requisites for their validity are present.
However, when the law requires that a contract be in
some form in order that it may be valid or enforceable
or that a contract be proved in a certain way, that
requirement is absolute and indispensible. In such
cases, the right of the parties stated in the following
articles cannot be exercised.
Gen. Rule: Whatever may be the form in which the
contract may have been entered into, it shall be obligatory
provided all the essential requisites for its validity are
PRESENT.
Ex. Contract of partnership, although entered
verbally, is obligatory.18
Exceptions:
(Jurado)
1. When the law requires that the contract must be
in a certain form in order to be valid.
2. When the law requires that the contract must be
in a certain form in order to be enforceable.
(Caguioa)
1. Those where the form is required for the validity
of the contract.
a. Donations of real property require a public
document and donations of movables worth
more than P5,000
b. Transfer of large cattle
c. Sale of land through an agent
d. Interests in loan
e. Principal interest in antichresis
f. Contract of partnership to which a real
property or real rights are contributed
g. Negotiable instruments
Lesion any damage caused by the fact that the price is

unjust or inadequate.
General Rule: The mere fact the cause is unjust or
inadequate does not invalidate the contract.
Exception: Unless there is fraud, mistake or undue
influence.
18
2.
Those where form is required for the purpose of

proving the existence of the contract.
3.
Those where the form is required for the purpose

of making the contract effective against third
persons.
Fernandez v. De la Rosa, 1 Phil. 571

Contracts || Form
2.
Formalities for validity
3.
These contracts may be classified as follows:

1.
Contracts which must appear in writing

a. Donations of personal property whose value
exceeds five thousand pesos19
b. Sale of a piece of land or any interest
therein through an agent20
c. Agreements regarding payment of interest in
contracts of loan21
d. Antichresis22
2.
Contracts which must appear in a public

document
a. Donations of immovable property23
b. Partnerships where immovable property or
real rights are contributed to the common
fund24
3.
Contracts which must be registered

a. Chattel Mortgages25
b. Sales or transfers of large cattle26
Formalities for enforceability

According to Tolentino, the formalities may be
classified into three groups:
1. Those which are required for the validity of the
contract ad esentia, ad solemnitatem
2. Those required to make the contract effective as
against third parties27
3. Those required for the purpose of proving the
existence of the contract
Those which are necessary for the validity of the

contract
Those which are necessary for the enforceability
of the contract29
ART. 1357. If the law requires a document or other

special form, as in the acts and contracts enumerated
in the following article, the contracting parties may
compel each other to observe the form, once the
contract has been perfected. This right may be
exercised simultaneously with the action upon the
contract.
ART. 1358. The following must appear in a public
document:
1. Acts and contracts which have for their object
the creation, transmission, modification or
extinguishment of real rights over immovable
property; sales of real property or of an
interest therein are governed by Articles
1403, No. 2 and 1405;
2. The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
partnership of gains;
3. The power to administer property, or any
other power which has for its object an act
appearing or which should appear in a public
document, or should prejudice a third person;
4. The cession of actions or rights proceeding
from an act appearing in a public document.
All other contracts where the amount involved exceeds
five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in
action are governed by Articles 1403, No. 2 and 1405.
Form of Contracts Required by Law

1. Those which are necessary for the convenience
of the contracting parties or for the efficacy of the
contract28
19
Art. 748
Art. 1874
21
Art. 1956
22
Art. 2134
23
Art. 749
24
Art. 1771 and 1773
25
Art. 2140
26
Cattle Registration Act
27
Those mentioned in Arts. 1357 and 1358
28
Art. 1356 - 1358
20
29
Statute of frauds

Contracts || Form
CHAPTER 4
REFORMATION OF INSTRUMENTS
Art. 1359. When, there having been a meeting of the
minds of the parties to a contract, their true intention is
not expressed in the instrument purporting to embody
the agreement, by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract.
Reformation30 the remedy in equity by means of which a
written instrument is made or construed so as to express or
conform to the real intention of the parties when some error
or mistake has been committed.
Requisites:
1.
2.
3.
There must be a meeting of the minds of the

contracting parties
Their true intention is not expressed in the
instrument
Such failure to express their true intention is due
to mistake, fraud, inequitable or accident
Rationale:
The doctrine of reformation of instrument is
based on justice and equity. It would be unjust and
inequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the
minds of the parties.
Distinction from annulment of contracts:
Reformation of instruments presupposes a
perfectly valid contract in which there has already been a
meeting of the minds of the contracting parties, while
annulment of contracts are based on a defective contract in
which there has been no meeting of the minds because the
consent of one or both of the contracting parties has been
vitiated.
30
Caguioa, pp. 579
Art. 1360. The principles of the general law on the

reformation of instruments are hereby adopted insofar
as they are not in conflict with the provisions of this
Code.
Art. 1361. When a mutual mistake of the parties causes
the failure of the instrument to disclose their real
agreement, said instrument may be reformed.
Requisites of mistake31:
1. The mistake is one of fact
2. It is common to both parties
3. The proof of mutual mistake must be clear and
convincing
Mistake of fact the written evidence of agreement
includes something which should not be there, or omits
from such instrument something that should be there; it
simply sets forth something different from what is intended.
Art. 1362. If one party was mistaken and the other
acted fraudulently or inequitably in such a way that the
instrument does not show their true intention, the
former may ask for the reformation of the instrument.
Art. 1363. When one party was mistaken and the other
knew or believed that the instrument did not state their
real agreement, but concealed that fact from the
former, the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill,
negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the
parties, the courts may order that the instrument be
reformed.
Art. 1365. If two parties agree upon the mortgage or
pledge of real or personal property, but the instrument
states that the property is sold absolutely or with a
right of repurchase, reformation of the instrument is
proper.
Art. 1366. There shall be no reformation in the
following cases:
(1) Simple donations inter vivos wherein no
condition is imposed;
(2) Wills;
(3) When the real agreement is void.
31
Tolentino, pp. 550

Contracts || Form
Art. 1367. When one of the parties has brought an

action to enforce the instrument, he cannot
subsequently ask for its reformation.
Art. 1371. In order to judge the intention of the

contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
Rationale:
It is because there has been an election as
between inconsistent remedies, one in affirmance of the
written contract and the other in disaffirmance. The party
suing under the written contract may be said to have
ratified the same.
General rule:
Art. 1368. Reformation may be ordered at the instance

of either party or his successors in interest, if the
mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
Art. 1369. The procedure for the reformation of
instrument shall be governed by rules of court to be
promulgated by the Supreme Court.
CHAPTER 5
INTERPRETATION OF CONTRACTS
Art. 1370. If the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former.
Rule in interpretation of contracts:
The intention of the contracting parties should
always prevail because their will has the force of law
between them.
Jurado stressed that the cardinal rule in statutory
construction should be followed in interpreting contracts. If
the terms of contracts are clear and leave no doubt as to
the intention of the contracting parties, the literal sense of
its stipulations shall be followed.
Documents are interpreted in the precise terms in

which they are expressed, but the courts, in the exercise of
their sound discretion, are called upon to admit and
simultaneous circumstantial evidence necessary for their
interpretation with the purpose of making the true intention
of the parties prevail.
Art. 1372. However general the terms of a contract may
be, they shall not be understood to comprehend things
that are distinct and cases that are different from those
upon which the parties intended to agree.
In the construction of an instrument, when a
general and a particular provision are inconsistent32, the
latter is paramount to the former. A particular intent will
control a general one that is inconsistent with it.
Rules in interpreting contracts when the terms are
improper:33
1. If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail
over the former.
2. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent
acts shall be principally considered.
3. A particular intent will control a general one that
is inconsistent with it.
Art. 1373. If some stipulation of any contract should
admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it
effectual.
Art. 1374. The various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken
jointly.
A contract cannot be interpreted by parts, but
should be construed as a whole34 in relation to one
another.
32
Statutory Construction
Caguioa
34
Id.
33

Contracts || Form
Art. 1375. Words which may have different

significations shall be understood in that which is
most in keeping with the nature and object of the
contract.
the construction of contracts.
When there is doubt as to the meaning, it should

be determined by a consideration of the general scope and
the purpose of the instrument in which it occurs.35
Classes of Defective contracts:

1. Rescissible contracts
there is damage or injury to one of the
contracting parties or to third persons
considered valid and enforceable until

they are rescinded by a competent
court
The action for rescission may prescribe
Not susceptible of ratification
Maybe assailed only by a contracting
party
Assailed directly but not collaterally
Art. 1376. The usage or custom of the place shall be

borne in mind in the interpretation of the ambiguities of
a contract, and shall fill the omission of stipulations
which are ordinarily established.
Art. 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity.
Rules in interpreting contracts where there are
omissions:36
1. The usage or customs of the place shall be borne
in mind in order to fill in such omissions37
Rules to follow where terms are doubtful:38
1. The various stipulations shall be interpreted
together
2. If some stipulations of any contract should admit
of several meanings, it shall be understood as
having that import which is most adequate to
render it effectual.
3. The usage or customs of the place shall be borne
in mind in order to fill in such omissions.
Art. 1378. When it is absolutely impossible to settle
doubts by the rules established in the preceding
articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor
of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what
may have been the intention or will of the parties, the
contract shall be null and void.
Art. 1379. The principles of interpretation stated in Rule
123 of the Rules of Court shall likewise be observed in
35
Id.
Caguioa
37
Art. 1376
38
Supra. 19
36
CHAPTER 6
RESCISSIBLE CONTRACTS
2.
Voidable contracts
There is vitiation of consent or legal
incapacity of one of the contracting
parties
Considered valid and enforceable until
they are annulled by a competent court
The action for annulment may
prescribe
May be assailed only by a contracting
party
May be assailed directly or collaterally
3.
Unenforceable contracts
The contract is entered into in excess
or without any authority, or does not
comply with the Statute of Frauds, or
both contracting parties are legally
incapacitated
Cannot be enforced by a proper action
in court
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contract under no. 1 or 3 of Art. 1403,
may prescribe
Susceptible of ratification
May be assailed only by a contracting
party

Contracts || Form
4.
Void or inexistent contracts

One or some of the essential requisites
of a valid contract are lacking either in
fact or in law
Do not produce any legal effect
The action for declaration of nullity or
inexistence or the defense of nullity or
inexistence does not prescribe
Not susceptible for ratification
May be assailed not only by a
contracting party but even by a third
person whose interest is directly
affected
Art. 1380. Contracts validly agreed upon may be

rescinded in the cases established by law.
Rescissible contracts a contract which is valid because
it contains all the essential requisites prescribed by law, but
which is defective because of injury or damage to either of
the contracting parties or to third persons, as a
consequence of which it may be rescinded by a means of a
proper action for rescission.
A remedy to make ineffective a contract validly
entered into and which is therefore obligatory
under the normal conditions by reason of
external causes resulting in a pecuniary prejudice
to one of the contracting parties or their
creditors.39
Characteristics:
1. Their defect consists in injury or damage either to
one of the contracting parties or to third persons.
2. Before rescission, they are valid and, therefore,
legally effective.
3. They can be attacked directly only, and not
collaterally.
4. They can be attacked only by either by a
contracting party or by a third person who is
injured or defrauded.
5. They are susceptible of convalidation only by
prescription, and not by ratification.
Concept of rescission:
Rescission is a remedy granted by law to the
contracting parties, and even to third persons, to secure
the reparation of damages caused to them by a contract,
even if the same should be valid, by means of the
39
Mucius Scaevola (Cagiuoa)
restoration of things to their condition prior to the

celebration of the contract.
Rescission distinguished from resolution:
Rescission
The action may be instituted
not only by a party to the
contract, but by even a third
party.
There are several causes or
grounds such as lesion,
fraud and others expressly
specified by law.
There is no power of the
courts to grant an extension
of time for performance of
the obligation so long as
there is ground for
rescission
Any contract, whether
unilateral or reciprocal, may
be rescinded
Resolution
Instituted by a party to the
contract.
The only ground is failure of
one of the parties to comply
with what is incumbent
upon him
The law expressly declares
that courts shall have a
discretionary power to grant
an extension for
performance provided that
there is just cause
Only reciprocal contracts
may be resolved
Tolentino discussed rescission in reciprocal

obligations and gave the following similarities and
differences:
Similarities
Both presupposes contracts validly entered into and
existing
Both require mutual restitution when declared proper
Article 1911
May be demanded only by
a party to the contract.
May be denied by the court
when there is sufficient
reason to justify extension
of time
The only ground for
rescission is nonperformance
Applies only to reciprocal
obligations
Chapter 6
May be demanded by a
third person prejudiced by
the contract
Not applicable in this
chapter
There are various reasons
Applicable to both unilateral
and reciprocal obligations.

Contracts || Form
Art. 1381. The following contracts are rescissible:

1.
2.
3.
4.
5.
Those which are entered into by

guardians whenever the wards whom they
represent suffer lesion by more than onefourth of the value of the things which are the
object thereof;
Those agreed upon in representation of
absentees, if the latter suffer the lesion stated
in the preceding number;
Those undertaken in fraud of creditors when
the latter cannot in any other manner collect
the claims due them;
Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;
All other contracts specially declared by law to
be subject to rescission.
Grounds for rescission40:

1. Lesion or prejudice
2. Fraud or bad faith
3. Special cases governed by special provisions
(Arts. 1189, 1191, 1526, 1538, 1542, 1556, 1567
and 16590
Requisites:
1. The contract must have been entered into by a
guardian in behalf of his ward or by a legal
representative in behalf of an absentee
2. The ward or absentee must have suffered lesion
of more than one- fourth of the value of the
property which is the object of the contract
3. The contract must have been entered into
without judicial approval
4. There must be no other legal means for obtaining
reparation for the lesion
5. The person bringing the action must be able to
return whatever he may be obliged to restore
6. The object of the contract must not be legally in
the possession of a third person who did not act
in bad faith
Lesion - The injury suffered, in consequence of inequality
of situation, by one who does not receive the full equivalent
of what he gives in a commutative contract.
Kinds of rescissible contracts by reason of lesion:

1. Those entered into by guardians whenever the
wards whom they represent suffer lesion by more
than one-fourth of the value of the thing
2. Those agreed upon in representation of
absentees
3. Partition of inheritance where an heir suffers
lesion of at least one-fourth of the share to which
he is entitled.
Contracts in Fraud of Creditors
1. There must be a credit existing prior to the
celebration of the contract
2. There must be a fraud, or at least, the intent to
commit fraud, or at least, the intent to commit
fraud to the prejudice of the creditor seeking the
rescission
3. The creditor cannot in any other legal manner
collects his credit
4. The object of the contract must not be legally in
the possession of a third person who did not act
in bad faith
Purpose: To guarantee an existing credit
Jurado relates this with accion pauliana41, and in order that
such contract be rescinded, the following requisites must
first concur:
1. The plaintiff asking for rescission has a credit
prior to alienation
2. The debtor has made a subsequent contract
conveying a patrimonial benefit to a third person
3. The creditor has no legal remedy to satisfy his
claim
4. The act being impugned is fraudulent
5. The third person who received the property
conveyed has been an accomplice in the fraud
General rule: The rescission requires the existence of
creditors at the time of the alleged fraudulent alienation,
and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract.
Fraud as a ground for rescission: 42
1. Those undertaken in fraud of creditors
a. There must be an existing credit
b. That said credit existed prior to the contract to
be rescinded
c. There is existence of fraud or that the debtor
has the intention to injure by acting knowingly
and in bad faith
41
40
Caguioa
42
Art. 1381
Caguioa

Contracts || Form
d.
2.
3.
That the creditor cannot in any other way

recover the credit
Those which refer to things under litigation if they
have been entered into by defendant without
the knowledge and approval of the litigants or of
competent judicial authority.
Payments made in a state of insolvency
Art. 1382. Payments made in a state of insolvency for

obligations to whose fulfillment the debtor could not
be compelled at the time they were effected, are also
rescissible.
Requisites:
1. That it must have been made in a state of
insolvency
2. That the obligation must have been one which
the debtor could not be compelled to pay at the
time such payment was effected.
Insolvency a financial situation of the debtor by virtue of
which it is impossible for him to fulfill his obligations.
Art. 1383. The action for rescission is subsidiary; it
cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation
for the same.
Rescission is not a principal remedy. It is only
subsidiary, meaning that it can be availed of only if the
injured party proves that he has no other legal means aside
from rescinding the contract to obtain redress for the
damage caused.
Effects of the subsidiary nature of rescission:
1. The juridical concept of rescission in relation to
nullity is a subsidiary one
2. In its economic aspect, rescission is likewise
subsidiary since the creditor cannot avail of the
remedy unless he can show that he cannot
collect his credit in any other way
3. In its remedial aspect, it is likewise subsidiary
since the creditor must exhaust all other
remedies.
1384. Rescission shall be only to the extent necessary
to cover the damages caused.
The rescission shall only be to the extent of the
creditors unsatisfied credit. The policy of the law is to
preserve or respect the contract, not to extinguish it.
Art. 1385. Rescission creates the obligation to return

the things which were the object of the contract,
together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad
faith.
In this case, indemnity for damages may be demanded
from the person causing the loss.
The following should be returned to each other
when the court declares a contract rescinded:
1. The object of the contract with its fruit
2. The price thereof with legal interest
Rescission is not allowed on the following:
1. The remedy of rescission cannot be availed of if
the party who demands rescission cannot return
what he is obliged to restore under the contract.
2. If the property is legally in the possession of a
third person who acted in good faith.
Art. 1386. Rescission referred to in Nos. 1 and 2 of
Article 1381 shall not take place with respect to
contracts approved by the courts.
Art. 1387. All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to
have been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all
debts contracted before the donation.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom some
judgment has been issued. The decision or attachment
need not refer to the property alienated, and need not
have been obtained by the party seeking the
rescission.
In addition to these presumptions, the design to
defraud creditors may be proved in any other manner
recognized by the law of evidence.
Presumption of fraud:
Caguioa enumerated the possible existence of
fraud may be determined through the following:
1. Competent evidence of actual fraud
2. Presumptions

Contracts || Form
Circumstances denominated by courts as badges of

fraud:
1. The fact that the consideration of the conveyance
is fictitious or inadequate
2. A transfer made by a debtor after suit has begun
and while it is pending against him
3. A sale upon credit by an insolvent debtor
4. The transfer of all his property by a debtor
(especially when insolvent)
5. The fact that the transfer is made between father
and son, when there are present some or any of
the above circumstances
6. The failure of the vendee to take exclusive
possession of all the property
7. It was known to the vendee that the vendor had
no properties other than that sold to him
Art. 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors, shall indemnify the
latter for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively.
Liability of acquirers in bad faith:
1. If the first transferee acted in good faith, then the
action for rescission is barred.
2. The first transferee be in bad faith, then
rescission is allowable and he shall return the
property or be liable for damages if ever he
cannot return the property
3. If the first transferee acted in bad faith but the
subsequent transferee acted in good faith, the
rescission is barred and the creditor is only
entitled for indemnity for damages.
4. If both acted in bad faith, then rescission will
prosper.
Art. 1389. The action to claim rescission must be
commenced within four years.
For persons under guardianship and for absentees, the
period of four years shall not begin until the
termination of the former's incapacity, or until the
domicile of the latter is known.
Period for filing action for rescission:
General Rule: The action to claim rescission must be
commenced within four years from the date the contract
was entered into.
Exceptions:
1. Under guardianship the period shall begin from
the termination of incapacity
2. Absentees from the time the domicile is known
Persons entitled to bring action:
1. The injured party
2. His heirs, assigns or successors in interest
3. The creditors of the above entitled to subrogation
CHAPTER 7
VOIDABLE CONTRACTS
Art. 1390. The following contracts are voidable or
annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is
incapable of giving consent to a contract;
(2) Those where the consent is vitiated by
mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled
by a proper action in court. They are susceptible of
ratification.
Nullity43 - imperfection of a contract derived from
determinate vices of capacity or of consent of the parties
which gives rise to an action of annulment which if
exercised successfully produces the destruction of the act
with retroactive effect.
Voidable contracts those which possess all the
essential requisites of a valid contract but one of the parties
is incapable of giving consent, or consent is vitiated by
mistake, violence, intimidation, undue influence or fraud.
They are considered valid and binding unless
annulled by a proper action in court.
Once ratified, it becomes binding and can no
longer be annulled.
Kinds of voidable contracts:
Any contract is voidable if the defect is caused by
either:
1. Legal incapacity to give consent
2. Violation of consent, where the vitiation is done
by mistake, violence, intimidation, undue
influence or fraud
43
Caguioa

Contracts || Form
Note: It is essential that ONLY ONE of the parties be

incapacitated, because if both of them are incapacitated,
the contract is not voidable but unenforceable.
Annulment a remedy provided by law, for reason of
public interest, for the declaration of the inefficacy of a
contract based on a defect or vice
Distinguished from rescissible contract:
Voidable Contract
Rescissible Contract
The defect is intrinsic
The defect is external
The contract is voidable
The contract is rescissible
even without damage or
due to damage or prejudice
prejudice.
to either one of the parties
or a third person.
It is based on the law.
Based on equity.
Susceptible to ratification
Not susceptible to
ratification
Can only be invoked by a
Can be invoked by either
contracting party
party or a third person who
is prejudiced.
Art. 1391. The action for annulment shall be brought
within four years.
This period shall begin:
In cases of intimidation, violence or undue
influence, from the time the defect of the
consent ceases.
In case of mistake or fraud, from the time of
the discovery of the same.
And when the action refers to contracts entered into by
minors or other incapacitated persons, from the time
the guardianship ceases.
Art. 1392. Ratification extinguishes the action
to annul a voidable contract.
Ratification the act or means by virtue of which efficacy
is given to a contract which suffers from a vice of curable
nullity.
Requisites:
1. The contract should be tainted with a vice which
is susceptible of being cured.
2. The confirmation should be effected by the
person who is entitled to do so under the law44
3.
4.
On the other hand, Caguioa enumerated the

following instances when ratification is not applicable:
1. When there is ratification, express or implied
2. When the action to annul has prescribed
3. When the thing which is the object of the contract
is lost through fraud or fault of the person entitled
to the proceeding
4. The minor is barred by estoppels because of
misrepresentation of his age
Art. 1393. Ratification may be effected expressly or
tacitly. It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his
right.
Art. 1394. Ratification may be effected by the guardian
of the incapacitated person.
Art. 1395. Ratification does not require the conformity
of the contracting party who has no right to bring the
action for annulment.
Art. 1396. Ratification cleanses the contract from all its
defects from the moment it was constituted.
Effects of ratification:
1. Ratification extinguishes the action to annul a
voidable contract.46
2. Ratification cleanses the contract from all its
defects from the moment it was constituted.
Art. 1397. The action for the annulment of contracts
may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are
capable cannot allege the incapacity of those with
whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed
fraud, or caused mistake base their action upon these
flaws of the contract.
45
44
Arts. 1394 and 1395
It should be effected with knowledge of the vice

or defect of the contract.45
The cause of the nullity or defect should have
already disappeared.
46
Art. 1393
Art. 1392

Contracts || Form
Persons who can institute an action:

1. Those who have an interest in the contract
2. The victim and not the party responsible for the
vice must be the person who must assert the
same.47
Art. 1398. An obligation having been annulled, the
contracting parties shall restore to each other the
things which have been the subject matter of the
contract, with their fruits, and the price with its
interest, except in cases provided by law.
In obligations to render service, the value thereof shall
be the basis for damages.
Rule in Annulment of contract:
Upon annulment, the contracting parties should
be restored to their original position by mutual restitution.
Art. 1399. When the defect of the contract consists in
the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him.
General Rule in case of incapacity:
When the defect of the contract consists in the
incapacity of one of the contracting parties, the
incapacitated is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him.
Art. 1400. Whenever the person obliged by the decree
of annulment to return the thing cannot do so because
it has been lost through his fault, he shall return the
fruits received and the value of the thing at the time of
the loss, with interest from the same date.
Rule when loss is due to fault of defendant:
He shall return the fruits received and the value
of the thing at the time of the loss with interest from the
same date.
Art. 1401. The action for annulment of contracts shall
be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person
who has a right to institute the proceedings.
shall not be an obstacle to the success of the action,

unless said loss took place through the fraud or fault
of the plaintiff.
Rule where loss is due to fault of plaintiff:
If the loss is due to fraud of the party who is
entitled to institute the proceedings, the action for
annulment shall be extinguished through either of the
following modes:
1. Prescription
2. Ratification
3. Loss of the thing which is the object of the
contract through the fraud or fault of the person
entitled to institute the action.
Art. 1402. As long as one of the contracting parties
does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him.
CHAPTER 8
UNENFORCEABLE CONTRACTS (n)
Unenforceable contract are those which cannot be
enforced by a proper action in court, unless they are
ratified, because, either they are entered into without or in
excess of authority or they do not comply with the statute of
frauds or both contracting parties do not possess the
required legal capacity.
Classes of unenforceable contract:
1. Those contracts entered into in the name of
another person by one without any authority
or in excess of his authority.
2. Those which do not comply with the Statute
of frauds
3. Those where both contracting parties are
legally incapacitated.
Characteristics:
1. They cannot be enforced by a proper action in
court48
2. They are susceptible of ratifications 49
3. They cannot be assailed by third persons50
If the right of action is based upon the incapacity of

any one of the contracting parties, the loss of the thing
48
47
This is based on the principle that whoever goes to court
must do so with clean hands.
Art. 1403
Id., 1405, 1407, 1371
50
Art. 1408
49

Contracts || Form
Unenforceable Contract
Cannot be enforced by a
proper action in court.
Susceptible of ratification
Cannot be assailed by a
third person
Rescissible Contract
Can be enforced, unless
rescinded
Not susceptible of
ratification
Can be assailed by a third
person who are prejudiced
Art. 1403. The following contracts are unenforceable,

unless they are ratified:
(1) Those entered into in the name of another
person by one who has been given no
authority or legal representation, or who has
acted beyond his powers;
(2) Those that do not comply with the Statute
of Frauds as set forth in this number. In the
following cases an agreement hereafter made
shall be unenforceable by action, unless the
same, or some note or memorandum, thereof,
be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore,
of the agreement cannot be received without
the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is
not to be performed within a year
from the making thereof;
(b) A special promise to answer for
the debt, default, or miscarriage of
another;
(c) An agreement made in
consideration of marriage, other
than a mutual promise to marry;
(d) An agreement for the sale of
goods, chattels or things in action,
at a price not less than five hundred
pesos, unless the buyer accept and
receive part of such goods and
chattels, or the evidences, or some
of them, of such things in action or
pay at the time some part of the
purchase money; but when a sale is
made by auction and entry is made
by the auctioneer in his sales book,
at the time of the sale, of the amount
and kind of property sold, terms of
sale, price, names of the purchasers
and person on whose account the
sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a
longer period than one year, or for

the sale of real property or of an
interest therein;
(f) A representation as to the credit
of a third person.
(3) Those where both parties are incapable of
giving consent to a contract.
Contracts without or in excess of authority:
Jurado discussed that this kind of contract was
already provided by the old law to be a kind of void
contract, although susceptible of ratification. And the
following principles are applicable:
1. No one may contract in the name of another
without being authorized by the latter or unless
he has a right to represent him. If he is duly
authorized, he must act within the scope of his
powers.
2. A contract entered into in the name of another by
one who has no authority or legal representation,
or who has acted beyond his powers, is
unenforceable. This principle is reiterated in the
law on agency.
3. However, such contract may be ratified,
expressly or impliedly, by the person in whose
behalf it has been executed, before it is revoked
by the other contracting party.
Statute of fraud
It was enacted for the purpose of preventing
fraud
It is required that the contract be in writing and
subscribed by the party charged or by his agent.
In case of non-compliance, the contract is
unenforceable by action.
Classes covered:
1. An agreement that by its terms is not to be
performed within a year from the making
thereof.
2. A special promise to answer for the debt,
default or miscarriage of another.
3. An agreement made in consideration of
marriage, other than a mutual promise to
marry.
4. An agreement for the sale of goods,
chattels, or things in action, at a price not
less than five hundred pesos.
5. An agreement for the leasing of real
property for a longer period than one year,
or for the sale of real property or an interest
therein.

Contracts || Form
Mode of ratification:
1. Failure to object to the presentation of oral
evidence to prove the same
2. Acceptance of benefits under them
Art. 1404. Unauthorized contracts are governed by
Article 1317 and the principles of agency in Title X of
this Book.
Art. 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefit under
them.
Art. 1406. When a contract is enforceable under the
Statute of Frauds, and a public document is necessary
for its registration in the Registry of Deeds, the parties
may avail themselves of the right under Article 1357.
Art. 1407. In a contract where both parties are
incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may
be, of one of the contracting parties shall give the
contract the same effect as if only one of them were
incapacitated.
If ratification is made by the parents or guardians, as
the case may be, of both contracting parties, the
contract shall be validated from the inception.
Art. 1408. Unenforceable contracts cannot be assailed
by third persons.
CHAPTER 9
VOID AND INEXISTENT CONTRACTS
Void or inexistent contracts one which lacks
absolutely either in fact or in law one or some of the
elements which are essential for its validity
Void contracts refer to those where all of the
requisites of a contract are present, but the
cause, object or purpose is contrary to law,
morals, good customs, public order and public
policy. The concept of pari delicto is applicable.
Jurado said that there can still be legal effect on
this kind of contract.
Inexistent contract, on the other hand, refers to
those where one or some or all of the essential
requisites for the validity of a contract are lacking.
The concept of pari delicto is not applicable and
no legal effect may be produced.
Void or inexistent
contract
Produces no effect
Defect consists in absolute
lack in fact or in law of one
or some essential elements
of a contract
The nullity or inexistence of
the contract is based on the
law. it is a sanction.
It is imprescriptible.
third person (nullity or
inexistence)
Rescissible contract
Void or inexistent
contract
Produces no effect
Not susceptible to
ratification
It is imprescriptible.
Defense is available to third
person whose interests are
directly affected
Voidable Contract
It is valid unless rescinded

Defect consists in lesion or
damage to one of the
contracting parties or a third
person
Based on equity. It is only a
remedy.
Prescriptible
May be assailed by a third
person affected or damaged
Binding unless annulled

Prescriptible
Defense not applicable to
third persons.

Contracts || Form
Void or inexistent
contract
In reality, there is really no
contract
Not susceptible to
ratification.
Can be assailed by a third
person whose interests are
directly affected
Unenforceable contract
There is a contract but is
unenforceable by a court
action unless ratified.
third person
Art. 1409. The following contracts are inexistent and

void from the beginning:
(1) Those whose cause, object or purpose is
contrary to law, morals, good customs, public
order or public policy;
(2) Those which are absolutely simulated or
fictitious;
(3) Those whose cause or object did not exist
at the time of the transaction;
(4) Those whose object is outside the
commerce of men;
(5) Those which contemplate an impossible
service;
(6) Those where the intention of the parties
relative to the principal object of the contract
cannot be ascertained;
(7) Those expressly prohibited or declared
void by law.
These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived.
Characteristics:
1. They produce no legal effect
2. Not susceptible to ratification
3. The right to set up the defense of inexistence
cannot be waived or renounced
4. The action is imprescriptible
5. The absolute nullity of a contract cannot be
invoked be a person whose interests are not
directly affected.
Kinds of void contracts:
1. Those which lack an essential element or
requisite for a valid contract
a. Those defective for want of consent as
those which are absolutely simulated or
fictitious
b.
Those defective for want of object such as

those where object did not exist at the time
of the transaction
c. Those defective for want of cause
2. Those contracts which are illegal
3. Those contracts which are expressly prohibited
by law
4. Those declared void by law
Art. 1410. The action or defense for the declaration of
the inexistence of a contract does not prescribe.
Art. 1411. When the nullity proceeds from the illegality
of the cause or object of the contract, and the act
constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to
the things or the price of the contract.
This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with
his promise.
Exceptions to the concept of pari delicto:
1. Payment of usurious interest. In such case,
the law allows the debtor to recover the
interest paid in excess of that allowed by the
Usury Laws, with interest thereon from the
date of payment.
2. Payment of money for an illegal purpose,
where the party who paid or delivered
repudiates the contract before the purpose
has been accomplished, or before any
damage has been done to a third person.
3. Payment of money or delivery of property by
an incapacitated person.
4. Agreement which is illegal but is merely
prohibited by law.
5. Payment of any amount in excess of the
maximum price of any article or commodity
fixed by law.
6. Contract whereby a laborer undertakes to
work longer than the maximum number of
hours fixed by law.
7. Contract whereby a laborer accepts a wage
lower than the minimum wage fixed by law.

Contracts || Form
Art. 1412. If the act in which the unlawful or forbidden

cause consists does not constitute a criminal offense,
the following rules shall be observed:
(1) When the fault is on the part of both
contracting parties, neither may recover what
he has given by virtue of the contract, or
demand the performance of the other's
undertaking;
(2) When only one of the contracting parties
is at fault, he cannot recover what he has
given by reason of the contract, or ask for the
fulfillment of what has been promised him.
The other, who is not at fault, may demand
the return of what he has given without any
obligation to comply his promise.
Rules in case of illegal contracts:
1. Where both parties are in pari delicto, neither
party may recover what he has given by virtue of
the contract nor enforce performance from the
other.
2. Where both parties are in delicto but not in pari
delicto, the guilty party cannot recover what he
has given by virtue of the contract nor enforce
the performance of the contract.
Art. 1413. Interest paid in excess of the interest
allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the
payment.
Art. 1414. When money is paid or property delivered
for an illegal purpose, the contract may be repudiated
by one of the parties before the purpose has been
accomplished, or before any damage has been caused
to a third person. In such case, the courts may, if the
public interest will thus be sub served, allow the party
repudiating the contract to recover the money or
property.
Art. 1415. Where one of the parties to an illegal
contract is incapable of giving consent, the courts
may, if the interest of justice so demands allow
recovery of money or property delivered by the
incapacitated person.
Art. 1416. When the agreement is not illegal per se but
is merely prohibited, and the prohibition by the law is
designated for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has
paid or delivered.
Art. 1417. When the price of any article or commodity
is determined by statute, or by authority of law, any
person paying any amount in excess of the maximum

price allowed may recover such excess.
Art. 1418. When the law fixes, or authorizes the fixing
of the maximum number of hours of labor, and a
contract is entered into whereby a laborer undertakes
to work longer than the maximum thus fixed, he may
demand additional compensation for service rendered
beyond the time limit.
Art. 1419. When the law sets, or authorizes the setting
of a minimum wage for laborers, and a contract is
agreed upon by which a laborer accepts a lower wage,
he shall be entitled to recover the deficiency.
Exceptions to the rule of in Pari Delicto:
1. Where the contract is absolutely simulated
2. Where both parties are not guilty to the same
degree, recovery is allowed to the party with
lesser guilt, provided no third person is
prejudiced
3. Where plaintiff can establish his case without
revealing the illegal nature of the transaction
4. In null and void sale of homestead
5. Where one of the parties to an illegal contract is
incapable of giving consent
6. Where an agreement is not illegal per se but
merely prohibited of law is designed for the
protection of the plaintiff
7. Where contract s for an illegal purpose but one
party has repudiated the contract before
accomplishment of purpose or damage is caused
to third persons
8. For protection of weaker party, such as those in
violation of the maximum price law
9. In contracts covered by the Usury Law
10. Disbarment proceedings
Art. 1420. In case of a divisible contract, if the illegal
terms can be separated from the legal ones, the latter
may be enforced.
Art. 1421. The defense of illegality of contract is not
available to third persons whose interests are not
directly affected.
Art. 1422. A contract which is the direct result of a
previous illegal contract, is also void and inexistent.

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Contracts || General Provisions

Art. 1305. A contract is a meeting of minds between

From the book of Jurado, contract was derived

Both Jurado and Tolentino explained the

action for legal separation

Natural those which are derived from the

Accidental are those which only exist when the

Art. 1890: If the agent has been empowered to borrow

1E 2009-2010 Obligations and Contracts Reviewer

Mutuality of contracts (Art. 1308 and the

2. According to their perfection:

According to the nature of the vinculum which

7. According to their cause:

Art. 1308: The contracts must bind both contracting parties;

celebration of another subsequent contract

According to the risk involved:

1E 2009-2010 Obligations and Contracts Reviewer

Aleatory those where each of the

health of the community.

According to their names or norms regulating

2. In cases of social legislation in relation to pursuance

Art. 1306. The contracting parties may establish such

Art. 1307. Innominate contracts shall be regulated by

1E 2009-2010 Obligations and Contracts Reviewer

will of one of them.

Those where the stipulation is intended for the

1E 2009-2010 Obligations and Contracts Reviewer

That the person must have communicated his

Test of Beneficial Stipulation

Art. 1313. Creditors are protected in cases of contracts

such contract should prejudice their rights.

1E Obligations and Contracts Reviewer

Real contracts, when perfected by the delivery of the

Art. 1317. No one may contract in the name of another

Art. 1318. There is no contract unless the following

essential common elements

essential common elements those elements which

1E Obligations and Contracts Reviewer

essence: conformity of the parties to the terms of the

There must be at least two parties (not two

determinate effects by virtue of a certain

Concurrence between the intention of the

parties and its manifestation

According to Clarin vs. Rulona, as cited in Tolentino, the

1E Obligations and Contracts Reviewer

invitation to make an offer.6

person or persons with whom the offeror wishes to enter

c. it must be made with the intention to be bound

Those made for fun or jest

Those made jocandi causa or as an

*If the offeree is induced to take it seriously or he

Rosentoch v. Burke as cited in Caguioa, Tolentino &

Tolentino, 2002, p. 459.

1E Obligations and Contracts Reviewer

concurrence of offer and acceptance.8

acquire such knowledge by reason of

acceptance by telephone or telegram

Art. 1319, par.2: Acceptance made by letter or telegram

Jurado, 2002, p.399

1E Obligations and Contracts Reviewer

As between persons absent

New Contract Before Acceptance