CONTRACTS

Q:Are agreements contracts?

A: Contracts are agreement but not all agreements are contract.
Q: How come not all agreements are contracts? When agreements would involve the meeting of
the minds.
Eg. A and B agreed that manny pakyaw the best boxer in the world? is that an
agreement? yes. but is that a contract? NO. why not, because a mere agreement does not
necessarily mean a contract. the answer here is the nature of the contract.
Q: What is a contract?
A: a contract is one of the source of an obligation.
Art. 1159, one person binds himself to another to give something or to render some
service.
Thus, to that agreement, to consider a contract, there must be an obligation arising from
that contract. Now, in the same manner, dacion en pago is not a contract. dacion en pago is the
delivery of a thing by a debtor to his creditor in satisfaction of his debt. This is not a mere
agreement to deliver it is the delivery, without delivery there is no dacion en pago.
So dacion en pago is not a contract, not a source of an obligation.to the contrary, it is a
mode of extinguishing obligations. A contract creates obligation. Dacion en pago extinguishes.
A contract is not an obligation; rather a contract is one of the sources of obligations.
There are modes of extinguishing obligations. There are also modes of extinguishing
contracts. In special contracts e.g. contract of sale a group of mode extinguishment of obligations
in general. if a mode of extinguishing in obligations, mode same with sales. Except those already
been vested. 1157
OTHER SOURCES OF OBLIGATIONS
CASE: SALUDAGA V. FEU
e.g. the case of Saludaga vs. Feu 2008, student of feu. a sophomore was shot by security
guard. he survived and sued feu. what possible liability udner quasi delict? of course who is liable?
is feu liable under quasi delict. SC said no. because feu is not the employer of the guard. but even
if feu is not liable under quasi-delict. feu was held liable under a contract. Because when students
enrol in university, a contract is entered into. one of the obligations of the school is to maintain a
peaceful environement and conducive for learning. this contract was violated by feu. it relegated
the evaluation of the qualification of security guards. walang ginawa ang school in relation to the
qualification of security guards.
Q: is it possible a liability may arise from one source?
Q: is the right to enter into a contract a purely statutory right? NO. A will is a purely statutory right.
Uribe:I dont think so. This right is protected under the constitution. There is a clause in the
constitution of nonimpairment of contracts, not even the state can violate the right of the parties
with exception of course, if it is the in the exercise of police power. Those already vested.
Q: is marriage a contract?
-1305. it is not. in fact, marriage is considered as a FC a special contract. Why so special?
There are differences between marriage and contract.
Q: who may be the parties?

FC- as to marriage, the parties are: male and female.

in contracts-it doesnt matter.
Q: governing law?
C-governing law, what primarily govern the p: between parties of course subject.
A: answer is to limitations not contracty to law etc. the terms and conditions that would
primarily govern, of course subject to limitations, that they are not contrary to law, morals etc.
FC-.but of course as far as marriage is concern, of course the primarily concern, the rights of the
spouses shall govern by law and not by stipulations, except property relations nila, to the contrary.
Q: finally termination?
C-there are so many modes for termination of contracts.
Marriage- ordinarily is extinguished by death, except of course if there is annulment, even
declaration of nullity is not an extinguishment of marriage because in the first place, there is no
marriage.
Some of these definitions have defects, for example, as to contracts.
AS TO CONTRACT- the law defines contract, is a meeting of the minds between two persons. in
other words, there should be two persons in order for a contract to be perfected.
Q: But the question here is, may a person may contract with himself? in other words, may there be
rights and obligations arising from a contract if only one person participated in the execution of the
contract.
A: YES. this contract is known as an AUTO CONTRACT. A person may contract with himself. in
one capacity representing another person and in another capacity for himself, acting for himself or
even acting for another person.
a good example of auto contract: a person is authorized to borrow money, if he is authorized to
borrow money. Q: can he himself be the lender? under the law, YES.
The only limitation provided by law is that, the interest must be the market trade, in other words, in
that loan agreement, he will be signing as the representative of the principal of the borrower but he
will also be signing as the lender. This is an AUTOCONTRACT, this is valid contract.
Of course, there are contracts prohibited under Phil. law, by way of exception, law on sales. 1491 a
guardian is prohibited from acquiring by purchase the property of his ward, in other words in a deed
of sale, the guardian cannot be the seller and at the same time, the buyer.
Uribe: despite of the use of persons between two persons- code of commission really
contemplated- between two parties.
Now, if you will again consider this definition closely, thereafter provided that "whereby one person
binds himself with respect to other?
Q: Does it mean therefore that only one of the parties would be obligated in a contract? only one
of them bind himself in another, in other words, all contracts are unilateral contracts?
A: of course not, this is considered as a defect in this definition because i would even say ordinarily
reciprocal obligations would arise from a contract. in other words contract are bilateral in character.
both parties would be obligated. of couse there are contracts which are unilateral.
Q: but finally, may an obligation not to do arise on a contract?
A: if you will read the definition again, it says the last phrase, "to give something or to do some
service", so apparently obligations to give and to do may arise from a contract but then again , it is
not really accurate, because even obligations not to do may arise from a contract.

All of us must have observed there is no a single a taxi cab na Honda , di ba? have you noticed na
honda ang tatak, because in each of every contract of sale entered into by honda or the dealers of
honda, there will be a stipulation that the buyer cannot use the car as a taxi cab, so that is an
obligation no to do.
on the other hand, we must have noticed some stores, mga sari sari store, they would only sell
certain products d b? ung iba coca cola products, pepsi cola products, it is because in this
contracts, again there would be . stipulation that that they cannot sell the products of other brands.
kaya even from this contract obligations not to do may arise from a contract.
FUNDAMENTAL CHARACTERISTCS
Authors would classify or enumerate the fundamental characteristics into five.
1.
2.
3.
4.
5.

Autonomy
Consensuality
Mutuality
Obligatory forces/ obligatory ness
Relativity.

Q: What is this autonomy of contract?

A: under 1306- the contracting parties may establish such stipulation clauses and terms and
conditions, as may they deemed convenient.
Kaya sya autonomy because they can stipulate as may be deemed convenient, others
would call this as Liberty of contract or Freedom.
kaya lang example, in a contract of partnership, entered into by a b and c. And in that
contract it is stipulated that - profits of the partnership 50% will go to a. 50% will go to b. Thus, if a
hundred thousand profit was earned by the business of the partnerhsip, who would share this
profit. NO. because this stipulation as to sharing of profits is void. While the parties can stipulate,
can establish stipulation, clauses convenient, the requirement of the law is that stipulation not
contrary to law, morals, good conduct, public customs and public policy.
AS TO CLAUSE- rather as stipulation, whether contrary to law or not.
Uribe: Wala tayong magagawa. we must know the law, the clause that e.g. forfeiture clause.
Q: may a forfeiture clause in a contract be void, is there a law which states nullity.
A: There is, and that is applicable when you are confronted with Maceda law. it pertains to or
covered by the Maceda Law ,that law declares such law clause to be a void clause.
But in other instances, mukhang valid sya di ba?forfeiture clause, waivers, ordinarily a waiver may
be a valid waiver di ba? if all the requisites are present but are there any law which could consider
some waivers void, of course, there are many laws, example in Sales: if there is a waiver, as
against the seller, in case of eviction-that would be void waiver if seller was in bad faith.
Waiver as to future fraud, is a void waiver. Other stipulations like "pactum" void. pactum
commissorium, pactum leonam- exclude a parnter in a profits. pactum non aliendo. they are void
stipulations, of couse pactum leonina-a stipulation in the contract of partnership which excludes
parties from sharing in the profits-that is pactum leonina.
Pactum commissorium
is a stipulation in a contract of mortgage pledge provides that in the fauld of prinicipal
debtor, the property mortgaged or pledged will automatically owned by the pledgee or mortagagee
and pactum nul aliendo real estate mortgage is stipulation prohibiting the mortagagor from
alienating his property without the consent of the mortgagee a void stipulation.

But there are other stipulations which may or may not valid depending on circumstances.
Example:
This one , july 1, 1998 ryan leased space in a building for a period of five years at a rental
rate of 1k a month. the contract of lease contained in the proviso, in case of inflation or devaluation
of the peso, the monthly rental will automatically increase or decrease depending on the
devaluation or inflation of the peso to the dollar. starting march 1, 2001, the lessor increase the
rental to 2thousand a month, on the ground of inflation proven the fact of the exchange rate of the
phil. peso vs the dollar had increased from 25.00 to a dollar, 50.00 to a dollar. Bryan refused to pay
the increase rate and an action for unlawful detainer was filed against him, will the action prosper.
why?
Q: if you are confronted with a question of contract of lease, does it mean that, the answer
to the question to provision under the law on lease? - NOT NECESSARILY.
In other words, lease contract ang nakalagay pero and sagot nasa oblicon, thus he just
have to know the issue really in the problem . Uribe:hindi mo kelangan malaman ang provision sa
lease.
UPLC: NO, the action cannot prosper because there was no extraordinary inflation. in fact another
ALTERNATIVE ANSWER: no, because in order for 1250 apparently the applicable provision, to be
applicable there must be an extraordinary inflation declared by the BSP ,there being no declaration
of such action, there can be no as to compensation .
URIBE: with all due respect to those answers, i think those answers are wrong. i believe another
alternative answer is the best answer because nothing in the problem would tell us that the parties
requier an extra ordinary in inflation. hindi naman nila nirequire na ordinary so go to the stipulation
of the parties. it is the stipulation, clauses, and conditions agreed upon which will bind the parties
because this is similar to a case DEL ROSARIO VS. SHELL -validity as to rentals where the shell
was the lessee. if there is a devaluation . is that a reasonable reason in the increase of the rental,
of course kasi kung nagdevalue and peso , ikaw and lessor eh , wala ng silbi and rental sa yo. in
this case 100% ang devaluation, the rental should likewise increase to 100% , that is only a
reasonable stipulation . now the problem clearly pertains to a clause known as an ESCALATION
CLAUSE .
Take note: do not confuse with clause from ACCELERATION CLAUSE.
This is an escalation clause upon the happening of a contingency the compensation for the
person may be increased would normally happen a court. Depending on the happening of the
event.
However in case of lease contracts, it is the rental would increase. If you will be the counsel of
realty firm you would notice , if you are on the side of the contractor , you should always ensure
that you have an escalation clause in favor of your client, the contractor , for example, a common
escalation clause would be for that for every one peso increase in the minimum wage increase of a
worker in metro manila , there would be a corresponding increase in the compensation of the
contractor , that is a reasonable stipulation because pag nagincrease piso ang minimum wage of
2thou workers ay talo ko, ubos ang kita mo , lugi ka pa if you are the contractor , if there will be no
escalation as far as the compensation is concern.
Q: BUT may an escalation clause be considered void or ineffective? or may it not be given effect,
A: the answer is yes.
If this escalation clause is escalation clause in a contract of loan which would give the
bank for example the right to increase the interest because one of the reasons why this clause
would be void because there is no De-escalationclause , it is because there is a monetary board
resolution as far as loans are concerns that for an escalation clause to be valid there must be a
deescalation clause. the evil here is to be prevented is, the practice before if the interest in the
markettrade would increase , the bank would increase the rate but if the market trade would
decrease the bank will decrease the interest rate di ba? so there is that requirement , of course
there is a limitation also as far as this clause is concern is the bank cannot increase the rate more

than once in a year unlike in one case four time a year iniinvoke nya ang esclation clause that is
not possible again considering the monetary board resolution on the matter.
Non-Involvement Clause In A Contract Of Employment
Now in this case, you must have heard a non-involvement clause in a contract in an
employment , in a case decided in 2007 DAISY TIU V. PLATINUM PLANS , eto ang stipulation ,
non-involvement provision that the employee undertakes that during with her engagement with the
employer , in case of the separation with the company whether voluntary of for course he/she shall
not for the next two years thereafter shall not engage in or not involve in any corporation,
association or entity whether directly or indirectly engage in the same business or belonging to
industry of the employer any breach of the foregoing provision the employee is liable to the
employer in the amount of 100,000.00 for and as liquidated damages.
Q: now is this a valid provision? is this a valid clause non-involvement clause .
A: in one case the supreme court ruled that it is not a valid clause because it would limit a person
as far as his livelihood is concern this would be an unreasonable restraint .
HOWEVER, in this particular case a void provision as an unreasonable restraint of trade. the
supreme court said no. daisy tiu obviously resigned from platinum plans and joined another preneed company professional plans ata of the Philippines , now the reason given by the supreme
court this clause is not a void clause because this is not an absolute prohibition, there are
limitations to the prohibition in relation to the period , in relation to the trade , in relation to the area
and nakalagay lang ay two years. she cannot join any corporation engaged in the same business,
pre need business, thus, apparently because this pertains only to the Philippines , the supreme
court ruled is a reasonable protection to the rights of the employer especially because , daisy tiu
the defendant , petioner in this case was actually the vice president of the platinum plans in
charged for the asean region, her position in the company so important that she would know the
strategies of the company to protect the employer this provision was considered as a reasonable
limitation on the rights of the employee.
i mentioned kanina the escalation clause, the important clause of the escalation is that it should not
be solely a potestative clause in character , in other words the clause , whether or not the clause
would be applicable should not depend on the whim of only one of the parties the supreme court
would say it should be based on a reasonable and valid standards basta ganun pwede na maybe a
valid escalation clause . now, contrary to law .
CONTRARY TO MORALS.
well the supreme court would tell us that , whether a stiupulation is contrary to morals or is
not is the most difficult task to do, the most difficult to ascertain whether a stipulation is contrary to
morals because obviously moral to one is may not be moral to others . if i ask you the use of
contraceptives pills would that be moral or immoral, would be the sale of contraceptives immoral or
moral? of course others would say it is immoral. although almost everyone is using it.
what stipulation is considered immoral. ang pinakamadaming kaso pertain to Interest.
Interest Stipulation
Example, penalties, if the penalty is 5.00 pesos a day for every day of delay , would that be
contrary to morals, be excessive, iniquitous , unconscionable. of course, it depends on the principal
amount. kasi kung ang principal amount ay 10 million, what is 5.00 pesos interest. but in one case
where the amount is 465.00 and the penalty is 5.00 per day aba sabi ng Supreme Court the
interest is contray to morals, unconscionable, excessive because 5.00 per day for 465.00, almost
400% per annum ang penalty. into interest stipulation, you have read solongon vs. solongon ung
mga 5.5% interest per month or 6% per month would obviously be considered contrary to morals
excessive, iniquitous, unconscionable pero that would be because times 12 that is 72% per annum.
But would 3% per month be also unconscionable , immoral, or contrary to morals , the supreme
court ruled in the recent case , the case of MAKALINAO V. BPIdecided by the SC only last year.

sept. 17, 2009. a stipulation involving a credit card provides an interest per annum per month plus
penalty in case there is failure to pay on the date agreed upon , 3% and penalty effectively that is
36% per annum only but the Supreme Court in this case ruled that the interest stipulation and the
penal clause they are both void , they are unconscionable, iniquitous, contrary to morals if not
against contrary to law , 3% lang, samantalang ung iba 10% per month di ba? there are cases na
10% per month, of course 3% , this will have a grave effect as far as bank is concerned , what is
the effect pag void ang stipulation , does it mean that the lender can no longer recover interest ,
hindi naman the supreme court in this case consistent with other decisions only reduced the
interest to 1% per month pati na rin ang penalty reduced to 1% per month effectively that is 12%
per annum which is the legal rate as far as loans are concern so the lender can recover interest
pero legal rate na lang 12% per annum kaya kung may mga di kyo nabayaran sa bangko na dahil
sa credit card you might to invoke this ruling BPI bankers association of the Phils. claiming to be
applicable only to that case if you read the case it appears there is no basis as to that claim basta
any agreement involving credit cards may be invoked .
CONTRARY TO PUBLIC POLICY
Of course a stipulation or provision in a contract maybe contrary to public policy and
therefore again void , the first question here is , how would you know if there public policy in
relation to a certain topic , a certain subject matter and where will you find this public policy , saan
nyo to makkita . ordinarily if the law is passed there would be normally public policy behind the law
that will be cited by the lawmakers although sometimes wala there will not be at all be mentioned a
public policy but where will you find public policy in this country sympre nandun sa fundamental law
of the land , nasa constitution.
Q: Alma was hired as a domestic helper in HK by the dragon services limited through its
local agent the employment executed contract is signed by the Filipino service worker s
administration for the OFW, it provided for the employment for one year of one thousand USD a
month approved by the POEA wheneve she arrived in HK asked to sign another contract by the
dragon services limited which reduced her salary to only to 600 USD a month having no other
choice . alam signed the contract but she returned to the Phils. and when she return to the Phils.
she demanded payment salary differential 400USD both dragon services limited and its local agent
claimed that the second contract is valid and the laws of HK for binding on alma . is there claim
correct? Explain.
SIR: i would agree that the claim is not correct because even if that contract even the
stipulation contract where the salary would be 600USD is a valid stipulation and that contract is
valid under the law of HK . it cannot enforced in this jurisdiction because that contract specifically
stipulation is contrary to our public policy and the public policy under the constitution which
provides for protection to labor so if only for that claim of dragon services is not correct .
Case: Now, public policy, in certain cases the SC would declare null and void stipulation example
in the case of Arellano school of law . where cui was a student and he enjoyed a scholarship as a
student of arellano however it was stipulate that in that scholarship program that if you transfer into
another into another law school he would reimburse arellano for the amount which he had paid had
he not been a scholar , the law dean of arellano at that time was the uncle of cui and when the law
dean transferred into another law school , cui also transferred together with his uncle , there was
no problem at that time until he is about to take the bar because then he would then need the
grades from arellano but arellano refused to release the grades until he would reimburse arellano a
provision in the scholarhship agreement , e walang magawa ang cui he paid under protest for him
to be able to take exam he passed the bar exam and sued arellano ,
Ruling: sabi ng SC such stipulation is void. why is it void because it is against public policy . what
is the public policy involved in this case , scholarship grants are granted on the basis of merit and it
should be granted in order to bolster the reputation of law school . so that if a student want to
transfer to another lawschool he should not be required to reimburse whatever amount he should
have paid had he not been a scholar.iba ang grants there could be conditions that you have to
teach, work in the Phils. etc.

Case: In another case, involving an agreement of two persons vying for the official nomination as a
candidate of a party, nationalista party as official candidate for a congressional seat in Pangasinan.
it was stipulated in their agreement that they would have to go the process of convention and
whoever would lose on the convention shall not run as an independent nor a revel candidate,
obviously this sindico defendant lost in the convention but she still ran at mukhang nananlo sya. so
Saura sued Sindico for damages . will the action prosper?
Ruling: the SC cannot prosper because that stipulation which prohibited sindico from running as
an independent is a void stipulation because it is contrary to public policy. what is a public policy
involved in this case . the supreme court discussed two public policy that a mere agreement of two
persons cannot limit the right of a person to present himself as a candidate in an electoral contest
but the other public policy discussed was an agreement two persons cannot limit the right of an
electorate to choose among the candidate is fit in a particular position .
URIBE: this case was decided decades ago and i dare to say that the first discussed policy is no
longer a policy to day under our present constitution . it is no longer considered a right to a person
to present himself as a candidate rather this was now considered a privilege but the other public
policy is definitely a good public policy that a mere agreement of two or more persons can limit the
right of the electorate to choose who among the candidate is fit for that position . take note that
even public policy can change , hindi lang morals ang nagbabago, hindi lang batas maski public
policy may change although not as fast as certain laws, especially sa labor law , s civil law hindi
masyado .
ANOTHER FUNDAMENTAL PRINCIPLE , CONSENSUALITY OF CONTRACT.
under this principle, for a contract to be valid the parties must voluntarily their consent , in
other words no one is compelled to enter into a contract , if he was compelled , if you read this
case there is one other way of answering this question that other contract signed in HK may at
least be considered as voidable contract under Phil. law because of the statement having no other
choice it appears that there was vitiation of consent so you can attack the problem in that
perspective kung gusto mo dalawa ang sagot mo.
Not even the government can compel you , not even city hall can compel anyone into any contract
and believably in the case of REPUBLIC VS. PLDT, the government , filed an action to compel pldt
to enter into an interconnection agreement at that time when the action was filed yung
telecommucation services within the country was controlled by pldt and as far as
telecommucination industry with other country controlled by pldt except to the US , may mga
kakompetensya sya. and the government would want to have a used of this interconnection
services ng pldt mukhang ayaw ng pldt ang terms and conditions , it doesnt want to enter into that
contract , so the government filed this action. Ruling: obviously the Supreme Court ruled that pldt
cannot be compelled to enter into a contract , consent must be voluntary given in order for a
contract , there should be meeting of the minds , consent must be freely given , although if you
have read this case , this action is treated as an expropriation proceeding , so walang lusot ang
pldt , although this seemed to be improper, my proper proceeding which is expropriation .
CONTRACT OF ADHESION
Now in relation to this fundamental characteristic consensuality of contract , this is a
contract which is claimed to be void allegedly for lack of consent of one of the parties because the
contract was prepared by only of the parties , the terms and conditions have already been
prepared by party considered as the stronger party and such contract is presented to the other
party for his adhesion for him to sign the contract , in other words , there is no practically no
negotiation so the terms and conditions , there was no consent on the terms and conditions and
this contract is known as contract of adhesion. lahat tayo ay pumasok na sa kontratang ito.
sumakay na kayo ng eroplano or maski bus o kaya you sent items or letter through JRS or LBC
ang mga contracts ito ay contract of adhesion , kung ayaw mo ang terms and conditions nila , sa
iba ka na lang pumunta hindi ba? kung ayaw mo ang terms and conditions ng PAL sumakay ka sa

asian spirit, you fly as an asian , you land as a spirit pero ngayon iba ng pangalan, zest air, binili na
ni Mr. Gatchalian .
In fact in one case ONG YU VS. CA . Atty. Ong Yu was on his way to Butuan City , his
luggage was lost and he filed an action agaisnt PAL claiming damages as a result of the lost ,
damage kaya lang PAL invoked a provision in the contract that if at all PAL can be held liable , the
loss of luggage that cannot exceed one hundred pesos , of course the claim of Atty. Ong Yu was
that this is a contract of adhesion and this is a void contract because practically he did not sign in
the contract . sabi ng SC, of course not. a contract of adhesion is as a rule is a valid contract- is not
a void contract because after all the other party has a choice whether to accept or reject the
contract , if he bought the contract , he practically accept the terms and conditions . at that time , it
was really difficult for people like ong yu accept the terms and conditions not to accept because the
consequence before if you remember in 60's or 70's there was only one domestic commercial
airline company dto sa Pilipinas , wala pa namang cebu Pacific etc, in other words, if you don't
agree with the terms and conditions of PAL gusto mong pumunta sa Davao, ang alternative mo ay
lumangoy papuntang Davao or you can ride a ship of sulpicio lines, mga tipong princess of the
stars pero this ruling is much more acceptable because you really have a choice aside from asian
spirit, merong air philippines, merong cebu pacific etc.
Now, however, in relation to this contract , in this case, METROPOLITAN BANK VS.
JIMMY GO , 2007 case involving a trust receipt which is obviously a contract of adhesion , of
course jimmy go, claimed one of the issues whether or not the trust receipts are valid considering
that they are contract of adhesion but the SC said again this contracts are valid however, in this
contracts , if there is ambiguity, such ambiguity shall construed against the party who prepared the
contract , since it was metrobank who prepared the contract, the ambiguity was ruled against the
interest of metrobank, practically the second issue , when did the obligation of jimmy go arose,
considering that this contract was a contract of adhesion to when the goods have to be delivered
sabi ng SC the contract should be construed agaisnt metrobank , the obligation became due only
when the demand was made by metrobank.
FUNDAMENTAL CHARACTERISTICS:
scenario:
We will be discussing in detail this stipulation contract, known as stipulation pour atrui, a
stipulation for the benefit of the third person .
Now, in order for the beneficiary to be entitled to this benefit, one of the requirements
under the law is that, he must communicate his acceptance before to the obligor , before the
revocation of such benefit.
Q: A question here is, what if one of the parties of the contract not the beneficiary revoke the
benefit in fact he may sent a letter to the beneficiary informing the beneficiary that the benefit in
your favor in the contract may entered with B, had already been revoked. Does is it mean the
beneficiary and sent this letter, revocatory letter before the beneficiary could communicate his
acceptance. Does is it mean that the beneficiary could no longer be entitled to this benefit?
A: NOT NECESSARILY. He may still be entitled because in order for the revocation to be effective
it has to be consented to with both parties otherwise if only one of the parties would revoke the
benefit in favor of this beneficiary, which would be contrary to a fundamental principle in contracts
known as the mutuality of contracts principle. Under this principle, a contract must bind both
contracting parties and its validity or compliance cannot be left to the will of one of them. so as far
as the benefit is concern, as it was agreed upon by parties , both parties can only be revoked by
both parties, again a revocation by only one would be contrary to fundamental principle known as
mutuality of contracts.
Now, if an escalation clause may be invoked or would be invoked by a party at his whim
without any reasonable and valid standard , the supreme court would rule that is contrary to the

mutuality of contracts principle, thus again ,that clause to be given effect, it should be based and
valid and reasonable standard , it should not be solely based on potestative character.
Q: in relation to this fundamental principle, would the termination of a contract by one of the parties
be violative of this fundamental principle? if one of the parties in a contract is given the right to
terminate the contract by his own will, by his unilateral act, would that be contrary to fundamelntal
mutuality principle.
A: The SC said NO. Example in the case of Philbanking Lui Sy involving the contract of lease
where the lessee was given the right to terminate the contract by merely giving a notice to the
lessor and the termination woul take effect like 15 days from the date of receipt of notice of
termination, the SC said that does not violate the mutuality of contracts prinicple , that is not
covered by mutuality of contract . what is covered pertains to the validity of compliance . it does not
pertain to termination of the contract.

OBLIGATORY FORCE [OR OTHERS CALL IT, OBLIGATORINESS OF CONTRACTS]

Under this principle, obligations arising from contracts have the force of law between the
contracting parties.
This is not a law but it has a force of law between the contracting parties and therefore
should be complied in good faith. probably the first question here is, when would a contract have
the force of law between the contracting party, the fact that there is already a meeting of the minds
as to object or subject matter or the cause, does is it mean that the contract already have the force
of law? NOT NECESSARILY.
In order for a contract to have the force of law , the contract must be have been perfected .
it is that time that perfection of the contract, that either party to the contract can compel the party to
perform his obligations under that contract of course just because a contract had been perfected
,does is it mean the contract is enforceable? NOT NECESSARILY AGAIN, because the perfection
of a contract is also subject for example to the statute of frauds. a contract of sale may have been
perfected because there was also the meetings of the minds as to the object and the price.
However, if it is not in the form prescribed by law, not covered by 1403.that would be an
unenforceable contract.
A contract, generally would have a force of law between the parties upon the perfection of
such contract. example, in relation to mutuality and autonomy of contract.
the parties in a contract of loan of money, agreed that the yearly interest rate is 12% can be
increased if there is a law would authorize the increase of interest rate, suppose OB is the lender
increase by 5% the rate of interest to be paid by TY, the borrower without a law authorizing such
increase, would OB's action would be just and valid? why? has TY remedied against the imposition
of the rate increase. the answer would definitely NO. again, under the autonomy of contracts
principle , the parties can establish stipulation terms and clauses as they may deem convenient,
they agreed there are only increase a law, since there is no law, there is no valid increase, but in
one case, the parties agreed similar to the situation that there should be a law which authorizes the
increase of interest rate, thereafter at that time , the usury law had not yet been suspended, the
central bank at that time issued a monetary board resolution allowing the increase in the interest
rate now with that monetary board resolution allowing increase in the rate would now give the
lender the right to increase the interest rate considering their stipulation? the Supreme Court said
NO. because a law is not the same with monetary board resolution at ang monetary board
resolution may have the force of a law is not a law and therefore since the parties agreed that there
is a law would there be an increase , since there was no law merely a monetary board resolution
there can be no valid increase in the interest rate, in relation to the second scenario.
Don an American businessman secured parental consent for the employment of five
minors to play certain roles into movies producing at home in makati they worked at an hours of the
day and night but always accompanied by parents or adults . the producer paid the children talent
fees at rater better than adult rate , but a social worker reported to dswd, that these children often

missed going to school , they sometimes drank wine , aside from being exposed to drugs in other
cases they were filmed naked and wear revealing costumes, in his defense Don contended all of
these are part of artistic freedom cultural creativity. none of the parents complained and he also
said they signed a contract containing of their right to file any complaint in any office or tribunal
concerning the conditions of the children acting in the movies. is the waiver valid and binding why
or why not? the waiver is VOID. because this would obviously be contrary to law which provides for
the protection of minors, the employment of minors under our labor law, thus any waiver in relation
to these rights of minor.
RELATIVITY OF CONTRACT
A sold an item to B, thereafter B sold the same item to C, ordinarily, would A has a cause of action
against C?
Ordinarily, there would be NOne because there is no privity of contracts between A and C. si A and
B, in this contract and B and C sa other contract. So, who would be bound to a contract, ordinarily
would be the parties or who would be affected, be benefited, can be held liable. the rule would be
the parties, their assigns and heirs would be bound to a contract would be affected by a contract ,
parties, assigns and heirs. assigns and heirs are called privies of the contract- PRIVITY OF
CONTRACTS principles. 1311 contract take effect between the parties, assigns and heirs,
however, is it possible for a contract not to affect the heirs not to benefit the heirs .the answer is
yes. under this provision only the parties that a contract may take effect only between the parties if
the rights and obligations arising from this contract are intransmissible. when these rights become
instransmissible?
There are three scenarios: when the law so provides, if there is a stipulation and if the nature of the
right and obligations would not allow the transmissibility. Stipulation is the easiest. e.g. in a lease
contract decided by the supreme court, there was an stipulation in a contract that the rights and
obligations arising from their contract are intransmissible ganu ka literal ang stipulation. now the
lessee died. would his heirs have the right of the possession of the leased premises until the
expiration of the period. the SC said NO. because the death of the lessee, the contract was
extinguished because the rights and obligations arising from the contract are intransmissible by
stipulation. would heirs of the lessee have the right to continue to possess the answer is YES.
because the SC would rule that a lease contract is not a purely pesonal contract and therefore the
rights and obligations arising from that contract may be transmitted to the heirs and assigns. even
in lease contract also can a lessee ordinarily sublease the premises in part? the answer is yes.
EXCEPT if he is prohibited from subleasing the property.so again by stipulation.
is there a law provides intransmissibility of certain rights. the answer is YES. under the law on
usufruct, ordinarily when a usufructuary dies would his rights be transmitted to his heirs, the
answer is NO because the law so provides, there is an EXCEPTION to this, if there is a contrary
stipulation in the contract.
as to non transmissibility or intransmissiblity by contract or agreement, a good example
would pertain to a property right of a partner known as the right specific property by express
provision of law, a partner assigned his right in a specific partnership property without all the other
partners making the same assignment over the same property. kaya a partner alone without the
knowledge of the other parties cannot transmit his rights to an assignee nature of the rights and
obligations , the supreme court would say rights and obligations are purely personal or the
qualifications of the parties have been considered in the establishment of the contract this is
common of course in contract which would involve skills maybe a good example would be a
contract with regine velasquez the artist would sing in a concert of course of the nature of the rights
of regine . she cannot transmit such rights to judy ann santos because of the nature of the right a
purely personal right.
however, in relation to privity of contract while generally only the parties, the assigns and heirs,
may be affected under certain circumstances, a third peson may be bound to a contract . a third
person may be held liable under a contract in which she is not a party which is not even privy or a
person may have a cause of action . ordinarily, a third person may not have a cause of action in

relation to a contract . he would not have the right to rescind a contract of which is not a party/ privy
or he may be benefited or may be prejudiced by such contract and this time. and this time relativity
in general of contracts.
Would a third person may be bound to contract this would involve contracts or creating real rights.
in contracts, creating real rights, third persons who would take possession of object or subject
matter of the contract would be bound to such contract subject of course to the requirements sa
mortgage law, registration law etc. e.g. a real estate mortgage involving a parcel of land entered
into A and B, B being the mortgagee, A the mortgagor. Now, if A sell the land the C and thereafter if
A the mortgagor, is also the principal debtor he defaulted, can the mortagagee forclose this
mortgage over this parcel of land with the sale and the land may not have been delivered to C . C
may be the owner of the land but there may be a valid foreclosure of the land, even if the land is no
longer owned by the mortgagor? the answer is yes. it is possible because again in such contract
creates real rights the rights of the mortgagee attaches to the property whoever may be the owner
party will be bound to this mortgage. maski na xa ang mayari ownership shall be subject to the
rights of the mortgagee again subject to the qualification of the law. ang qualification ng batas
subject to the law on mortgage-registration laws, because for C to be bound to this contract C is
not a party to this contract. C is not even privy to this contract nonetheless he would be bound is
registered or at least not registered C has actual knowledge of this contract because as the SC
would say actual knowledge has the same as registration. Again, C a third person not party to the
mortgage but mortgage creates real rights.
pangalawa. fraud of creditor . here an example would be, itong si A sold a parcel of land to B but
the sale was in fraud of creditors like X. Ordinarily, X being a third person would not be bound,
would not have a right to this contract . Would that have a cause of action in relation to this contract
but because this contract is in fraud of the creditors the law grants him to rescind as one contract
as a rescissible contract under 1381
***may notes p s stipulation pour atrui, handwritten kc un. Hanpn k p ung notes q.
CLASSIFICATION OF CONTRACTS
According to degree of dependence
In answering questions involving contracts, you may be able to answer these questions by knowing
the nature of the contract, the type of contract involved.
Problem:
Q: A borrowed a sum of money from a bank and to secure the fulfilment of his obligations to the
bank, he mortgages his crops (Crop Loan). Thereafter, before the obligations became due, all the
crops were destroyed due to a fortuitous event. When the debts became due, the bank demanded
payment but the debtor claimed that his obligation to pay was extinguished by the loss of the crops.
Is he correct?
A: No. the problem requires you to determine what contract first was entered into. Una ano ang
mga kontrata? If you dont know what contracts were entered into, of course you cannot answer
the question.
First, the first contract obviously pertains to a loan, and the second contract to secure the fulfilment
of the obligation under the contract of loan appears to be a Chattel Mortgage. Now, the subject
matter of the Chattel Mortgage was the crops.
Q: So when the crops were destroyed, did that result in the extinguishment of obligation under the
law of contracts?
A: No, because a chattel mortgage is only an accessory contract and therefore even if an
accessory contract is extinguished that will not extinguished the principal contract because the
accessory only follows the principal not the principal which follows the accessory. So, even if the
crops were destroyed due to fortuitous event, at best it only extinguished the chattel mortgage.

Being an accessory contract, the extinguishment of the accessory contract does not at all affect the
obligation under the principal contract. The only net effect of that is the obligation under the
contract will now be unsecured.
It would have been totally different scenario, if the loan contract was the one which was
extinguished. By operation of law, the accessory contract would likewise be extinguished, the
accessory again would follow the principal. (REPUBLIC vs. GREJALDO)
Thus, which contract is considered as the principal and which contracts are considered as the
accessory contracts. PRINCIPAL CONTRACTS are contracts which can stand on their own.
ACCESSORY CONTRACTS depends on other contracts for their existence or for their validity.
Memorize all accessory contracts: These are the contracts you studied in credit transactions.
These are all security arrangements. Starting from guaranty, suretyship, pledge, chattel mortgage,
real estate mortgage and antechresis.
Q: is preparatory contracts are principal contract? Or are they accessory contracts?
A: Example is agency. If the agent did not enter into other contract as he bound himself to do so.
Ex. Agency to sell but he did not sell anything.
Q: Would that affect the validity of a contract of agency?
A: No. Preparatory contracts can stand on their own. Even if they are not the end by themselves,
they can stand on their own. They are not accessory contract, in fact, if he failed to comply with his
obligations under that contract, as a rule, he can be held liable for not performing his obligation.
According to Perfection
Scenario:
A borrowed money from B, now, to secure the fulfilment of his obligation, A agreed to deliver his
watch to B as a security in a verbal agreement. Without this watch being delivered to B and before
the delivery of the sum of money borrowed, was there a perfected contract involved in the
problem? What contracts again are involved in the problem? First, loan, which is a specifically a
mutuum.A borrowed money from B. the second contract appears to be a pledge. Now, before the
delivery of the money by the lender to the borrower and before the borrower delivered the watch to
the lender as a security, was there a perfected contract?
A: None. Both contracts involved are known as real contracts. For the perfection of these contracts,
delivery of the object or the subject matter of the contract is required. Actually, Art. 1316
enumerates real contracts. Though there are only 3 enumerated contracts under art. 1316 which
are pledge, deposit and commudatum, clearly a mutuum is also a real contract as expressly
provided under the law on simple loans. These contracts are only perfected upon the delivery of
the money or the thing borrowed to the borrower.
Bar Question:
Distinguish consensual contracts from real contract and name at least 4 kinds of real contracts
under the present law.
A: Of course, consensual contracts are contracts which are perfected by mere consent or better
yet, I encourage instead that you state that these contract is perfected upon the meeting of the
minds as to the object and the consideration. Y? Because just stating that this is perfected by mere
consent, what is meant by consent? But if you stated that there is a meeting of the minds as to the
object and the consideration, ay wala ng iba, diba. Because it is possible that can there be a
meeting of the minds as to the object but there was no meeting of the minds as to the
consideration? Yes and there would be no perfected contract in that scenario. But nonetheless, I
suppose an answer that consensual contract are perfected by mere consent, should also be
equally correct. However, real contracts as mentioned a while ago are contracts which are
perfected only upon the delivery of the object or subject matter of the contract.
Real contracts are those provided under Art. 1316, all the other contracts, you can presume that
they are consensual contract because they are not real contracts with exceptions. There is a third

classification of contract which is a formal contracts or solemn contracts, these contracts are not
perfected by mere consent, these contracts are not even perfected upon the delivery because the
law further requires that a certain form be executed in order for these contract to be valid.
Q: But if contract is not valid, may it be perfected?
A: Of course not, no obligation would even arise from such contract if it is a void contract. Ex. :
Antechresis. A donation is not best example because it is not even a contract, it is merely an act.
Although Prof. Tolentino would have even the position that the code should have categorized this
as a special contract because anyway consent is also required as to both parties. In fact, under the
law on donations, if the donation involves an immovable property, it has to be in a public instrument
otherwise, the donation is void. Of course if the donation is onerous in character, it should be
governed by the law on contracts.
Problem:
Merly offered to sell her automobile to Violy for P60K, after inspecting the automobile, Violy offered
to buy it for P50K, these offer was accepted by Merly. The next day Merly offered to deliver the
automobile, but Violy being short of funds secured postponement of the delivery, promising to pay
the price upon the arrival of the steamerhelena. The steamer however never arrived because it
was wreck by a typhoon and sunk somewhere of the coast of Samar. Is there perfected contract in
this case? Why?
A: Again, before you can correctly answer the question as to whether the contract is perfected, the
first thing that you should be considered is what contract was entered into. The facts are very clear
that this is a contract of sale and if you know the contract of sale is a consensual contract, then
your answer should be, yes, there was a perfected contract of sale in this case.
Q: The when Merly offered to Violy the P60K, was there a perfected contract?
A: None, because the P60K was not accepted, in fact a counteroffer was made. It was at that time
of the acceptance of the counteroffer that the contract was perfected.
Q: Was the contract perfected considering the fact that the buyer promise to pay the price upon the
arrival of the steamerhelena? In other words, a condition did not happen, nonetheless, was the
contract perfected?
A: Yes. The condition here is not the type of condition which you must have discussed in
obligations, whether the condition is suspensive or resolutory because if the condition there in
conditional obligations is suspensive, the obligation would arise only upon the happening of the
condition. If the condition did not happen the obligation will not even arise, but here the condition,
arrival of the steamer, is not for the obligation to arise because the contract had already been
perfected. The condition here is for the condition as to the fulfilment of the obligation. These is not
a condition for obligation to arise, kundi kung kalian. Ang kalian presupposes that there is already
an obligation.
There are other classifications of contracts. But this is not a favorite topic in the bar exam but there
is always a first.
According to Purpose
Q: In a problem involving a contract where a thing was delivered, what contract was entered into?
In other words, what will be the rights and obligations of the parties under that contract?
A: it will depend on the intention of the parties as to the effect of the delivery.
Q: Would the delivery result in transfer of ownership? Or was the purpose of the delivery only for
the use and enjoyment of the thing by the other party? Or was the delivery only for the purpose of
safekeeping?
A: Depende sa purpose ang nature ng contract.
Q: If it is for the transfer of ownership, what contract was entered into?
A: Probably, that contract or transaction if it is not a contract. If it is a contract, it could be a sale, it
could be barter but it could not be a lease, it cannot be commudatum because there is a transfer of

ownership. If this is merely a transaction, this could be dacion en pago, there is transfer of
ownership.
Q: But if there is no transfer of ownership and the purpose is for the use and enjoyment of the thing
by the other party to whom the thing was delivered, what contract was entered into?
A: Aba, this could be a lease this time, or this could be commudatum. The big difference this time
goes into the nature of the contract as to the cause because if there is a price to be paid for the use
or enjoyment of the thing that would be a lease but if the use or enjoyment is gratuitous, this could
be commudatum. So, again, you should know the kind of contract involved in relation to the
purpose and sometimes in relation to the consideration. Kung service, ang purpose is the rendition
of service, clearly this could be a contract of agency but this could be also a contract of lease of
service.
According to Nature of Obligation Produced
As to who would be obligated under a contracts. If both parties would be obligated, in other words,
reciprocal obligation would arise, this contract is considered as a bilateral contract, whereas if only
one would be obligated, this is a unilateral contract. One author erroneously claimed that a contract
daw is bilateral because there were two parties in a contract, this fundamentally wrong because the
implication of that statement is, in unilateral contract, there is only one party.
Q: But can there be a contact with only one party? Of course, wala, may nagpaparty ba na mag-isa
lang sya?
A: Syempre wala, pag party marami, maraming tao, dalawang involved at least. Kaya, a contract
is bilateral or unilateral not because of the number of parties, but rather as to who will be obligated.
Where lays the relevance of these classification, well, if it is bilateral, clearly, both of them would
have obligation but there are certain principles or concepts which may be applicable or which
certain rules may or may not be applicable.
Ex.: if you remember Art. 1191, rescission is only implied by law in reciprocal obligations, in other
words, rescission would be implied only in contracts known as bilateral contracts. If the contract is
a unilateral contract, obviously rescission is not implied as a remedy in this contract despite
breach.
According to Cause
You may have to know whether the contract is under the law, the law itself classifies contracts as to
cause, whether the contract is onerous, the law would call the other contract as pure beneficence,
although most commonly known as gratuitous, of course other would also called this as lucrative
contracts and finally there is a third kind of contract as to cause which is remuneratory.
Scenario:
If A and B had an agreement that A will render service to B and upon the completion of the service,
B will have to pay a certain amount to A. what kind of contract as to cause? Is this a remuneratory
contract because there is service involved?
A: No, in remuneratory contracts, this pertains to remuneration of service which had already been
rendered, past service. Under the facts A obliged himself to render service, this is exactly covered
by onerous contracts. In onerous contracts, the cause, as far as each contracting party is the
prestation or promise to give or sender service to the other party. Kaya dito, one obliged himself to
render service, ang kanyang cause is the payment of the price, as to the other party who would
pay the price, ang cause nya is the promise of the other to render service.
Q: In contract of sale, what is the cause in a contract of sale?
A: A common and not accurate answer is the price. Sasabihin ang cause the sale ay the price, the
SC would not agree on that because in contract of sale, the SC would tell us as to the seller, the
cause is the payment of the price but as to the buyer the cause is the delivery and transfer of
ownership. This is a good interpretation because a sale is an onerous contract and therefore, the
cause being an onerous contract is the promise or the prestation to be performed by the other
party.

Q: Why would we care if this is onerous or gratuitous?

A: Well, aside from the fact than in gratuitous contract, the cause is mere liberality of one of the
parties, in other words, if liberality lang, eh di wala syang marereceive from the other party, thank
you lang, hopefully may thank you. But there are also principles which can only be invoked if the
contract is onerous in the same manner that there are principles which can only invoked if the
contract is gratuitous. A good ex. when we go into interpretation of contracts.
Q: When would the least transmission of right be applicable?
A: Pag gratuitous but if the contract is onerous you should apply the greatest reciprocity of interest.
So you should know the nature of contract, whether it is onerous or gratuitous. In agency, that
would also relevant.
According to Risk
As to whether there is equivalence in the value of the prestation to be performed by both parties,
contracts are classified into commutative and aleatory. Others would say that this classification also
pertains to the risk of fulfilment. Ok lang un pareho lang yun. If there is equivalence in the value of
the prestations, commutative yan and a classic commutative contract is a sale.
Q: Why?, ordinarily, would a seller sell his property for a price less than its value?,
A: Ordinarily no, and would the buyer buy a thing at a price higher in its value, no, so ordinary there
would be equivalence in the value of the prestations, kaya a sale is a commutative contract.
Q: However, may a contract of sale be aleatory in character?
A: Yes, the law on sales expressly recognizes a kind of sale which is an aleatory contract, this is
called by law a sale of hope, sa bumibili ng lotto ticket, ayan ang aleatory contract of sale. Here,
there is no equivalence in the value of prestation because you only have to pay P10 or may be
P20, but you may actually win P200M. In other words, the performance of the obligation of one of
the parties is dependent upon the happening of a certain condition and the condition is an event
which may or may not happen. Ang condition dito sa lotto ticket is that the numbers which you will
chose will be the numbers that will be drawn. This is a valid contract, therefore you cannot demand
for the reimbursement of the amount you paid dahil lang walang nagappear ni-isang number. A
classic aleatory contract is an insurance contract.
According to Name
Nominate and innominate contracts.
Q: What is the relevance of this classification?
A: First of course is sabi nila, because, pag nominate there is a name, pag innominate walang
name but much more than that, the relevance goes into the governing law or what will govern the
rights and obligations, as to these two contracts as to what primarily govern, pareho lang. what
were primarily govern will be their stipulations, again consistent with the autonomy of contracts
principle pero after that ay magkaiba na, because in nominate contracts what will govern after their
stipulations would be the provisions of the law regarding that contract, if this is a sale then the
provisions on sale, if this is a lease then the provisions on lease.
Q: But if this an innominate contract after the stipulations or if the stipulations are not sufficient to
resolved a controversy, what will govern the rights and obligations?
A: The answer is the general principles in obligations and contracts.
Q: But if the general principles in obligations and contracts are still not sufficient, di pa din
maresolve ang problema, what then should govern?,
A: The answer is the provisions of that contract which is the most analogous contract to that
entered into by the parties.
Q: Example in Joint venture agreement, as such if the stipulation would suffice, if the provision in
oblicon also would not be sufficient, what rules what provisions should apply?

A: It will be the provisions sa partnership because the partnership contract is the most analogous
contract as far as joint venture agreement is concern. Of course, pag wala talaga, you go into
customs, but it is said in the order yan as provided by law hindi barabara. So, first the stipulations
second general principles of oblicon, third the provisions as to the most analogous to the contract
and last is the customs.
According to Subject Matter
Q: What may be the subject matter of a contract?
A: A contract may pertain to a thing, a right or service.
A: First, all contracts would have all the three subject matters?
A: The answer is no, there are certain contracts na ang subject matter lang nila ay things and
rights, example: sale, walang sale of service, hindi binbili ang serbisyo sabi nila nirerentahan lang,
in english lease of service.
Q: In the same manner, agency, what is the subject matter?
A: Hindi thing, it is service, the rendition of the service is the subject matter. So again, if you know
the subject matter of the contract more or less alam mo ang nature ng contract, dahil kung subject
matter ay thing or right ay hindi mo sasabihing lease of service, although a lease of service may
involve a thing as much an agency may involve a thing because a agent may required to sell a
thing but it is the rendering of service it is the selling of the thing which is the subject matter.
In contracts even in sales for example you may have to distinguish whether the subject matter is a
thing or a right. A good example of a concept requiring this distinction or determination would
pertain to delivery. As we discuss a contract of sale or the law on sales there are difference modes
of delivery in sale of rights kesa sale of thing, this is of course a recognition of the fact that rights
are incorporeal, they are intangible kaya you cannot physically deliver rights. Thus, the law
provides for the specific modes in delivery in sale of right.
The most important classification would go in to the status of contract, other would say, whether the
contract is valid and binding or whether is defective because authors would include void contracts
as defective contracts but I beg to disagree. A lot of problems, the question would be is the
contract valid and binding?, may the contract be enforced?, so it goes into the validity of the
contract.
STAGES OF CONTRACTS
If not all, almost authors would only consider 3 stages: Negotiation, Perfection and consummation.
De leon would define Consummation stage to be that stage where each contracting party had
already been performed his obligation.
Q: If that is the definition of consummation, would you actually be able to say that after the
perfection of the contract it is thereafter terminated?,
A: Mukhang hindi. Why there are cases sa SC is because precisely one or both parties did not
comply with his obligation. In other words, upon perfection ay walang automatic termination, in fact
I dare to say with this definition of termination there is a much more important stage recognized
expressly by the law which is the performance stage. From the perfection it goes to performance
before there can be termination. So many concepts may or may not be applicable depending on
whether there is already a performance of certain obligations.
Q: A very good example somebody sent me a text message, what is the meaning of the statement
that statute of frauds is only applicable as to executory contracts?
A: Simply the answer is, if the contract had already been partially performed, that will take the
contract out of the operations of the statute of frauds. In other words, the law recognizes this stage,
the performance stage which would have certain effects even another concept, substantial
performance as a concept.

Q: If there was a substantial performance which you must have studied in oblicon, Art. 1234, would
the rescission is a remedy?
A: The answer is no, if there was already substantial performance. Substantial performance
obviously presupposes there was performance but there was no termination of the contract but
rescission would not be a remedy. At any rate, J. Vitug would define the consummation stage, to
start from the performance stage, kung ganon ang definition mo ng consummation stage mukhang
wala ng performance kasi kasama na ang performance although mukhang di maganda ang
definition. But if there is merely performance may be just the beginning but thats not the
termination stage or consummation stage.
Negotiation Stage
Negotiation is initiated by an offer, there has to be an offer. Without an offer, ay walang
negosasyon, walang offer eh. No one is offering to sell, to buy, to have his car repaired, etc. this is
also known as the preparation stage, conception stage, generation stage.
Q: Would pertain to would there be a perfected contract under this stage?
A: The answer is yes, that contract is known as an OPTION CONTRACT. In this stage, what is
perfected there is not the contract which is the main contract, what is perfected is merely the option
contract. This would definitely arise when if there is an offer and the offeree, if there is an offer, the
parties there are called offeree and offerer. If there is an offer to sell, you dont called them buyer
and seller because there is no perfected sale yet. Now, if the offeree is not in a position to decide at
that moment and he ask a period within which he decide or the offerer himself gave him a period
within which to decide then there is an option agreement.
Q: Is this an option contract?
A: It depends, if there is a consideration paid for that option period separate and distinct from the
price, that agreement can be called an option contract. Do not call that agreement as a contract if
there was no such consideration which is separate and distinct from the price if this is an offer to
sell which is something paid or promise.
Take note, that consideration need not have been paid even there was only a promise to pay that is
already a sufficient consideration. But a common misconception at this point is, that a
consideration for this contract, option contract, is known as option money, that is not necessarily
so, the SC would tell us, it need not be money it may be any other prestation that was promised to
be performed, kung sabi ng offeree, bigyan mo ako ng 20 days, I will paid your house 3 times over,
that would be a sufficient consideration. I would agree that the most common consideration in an
option contract is known as option money kasi pera.
Q: What are the rights and obligation of the parties in relation to this option agreement or option
contract?
A: Take note that this would only applicable to sales but there will be special rules on sales.
Bar Exam Question:
Marvin offered to construct the house of Carlos for a very reasonable price of P900T giving the
latter 10 days within which to accept or reject the offer. On the fifth day, before Carlos could makeup his mind, Marvin withdrew his offer.
A) What is the effect of the withdrawal of Marvins offer?
A: because the withdrawal was done before the offeree could communicate his acceptance and as
to the problem in letter A, there appears to be no consideration paid or promised in relation to the
option. The withdrawal was a valid withdrawal. The law provides that if there is no such
consideration which is separate and distinct from the price the offerer can withdrew the offer at any
time and therefore there can be no longer a perfected contract.
B) Will your answer be the same if Carlos paid Marvin P10T as consideration for that option?

A: Of course the answer will no longer be the same because if there was as such consideration
separate and distinct from the price and the offer was withdrawn, that is a breach of contract which
is the option contract which can be the basis of action for damages.
C) Supposing that Carlos accepted the offer before Marvin could communicate his withdrawal
thereof, discuss the legal consequences.
A: If Carlos accepted the offer before the offer could be withdrawn or before there was a
communication or conveyance of the withdrawal there would be a perfected contract. It doesnt
matter if there was an option money or consideration.
The SC discuss this in the case of Sanchez vs. Rigos that even if the option agreement was
without a consideration separate and distinct from the price, the fact that the offer was accepted
before the offer could be withdrawn there already arise a perfected contract of sale because that
was a sale. Again, upon the meeting of the minds, the contract was perfected. The argument of
Mrs. Rigos was, since the option agreement had no consideration separate and distinct from the
price then the option agreement is void because for a contract to be valid daw, there has to be a
consideration. Of course the SC said that argument is erroneous because even if there is no such
consideration the fact remains that there was an offer, an offer does not require a consideration as
long as the offer is not withdrawn it remains as an offer and once it is accepted there would be a
perfected contract.
D) In relation to letter B, what is the effect of the withdrawal of Marvins offer? Even assuming that
there was a consideration paid for that option period and there was a withdrawal, would an action
for specific performance prosper?
A: The answer is no because with the withdrawal of the offer before the conveyance of the
acceptance there was no more offer to be accepted, there were no more meeting of minds as to
the object and the consideration. But since there was a consideration separate and distinct and
there was a withdrawal this is a breach of an option contract. Ang tamang ready ay hindi specific
performance kundi damages, specific performance presupposes a perfected contract.
Bar exam question:
Obaldo is the owner of a building which has been leased by Remegio for past 20 years. Obaldo
has repeatedly assured Remegio that if he should decide to sell the building he would give
Remegio the rights of refusal. On June 30, 1994 Obaldo informed Remegio that he was willing to
sell the building for 5M, the following day Remegio sent a letter to Obaldo offering to buy the
building at P4.5M. Obaldo did not reply, 1 week later Remegio received a letter from Santos
informing him that the building has been sold to him by Obaldo for P5M and that he will not renew
Remegios lease when it expires. Remegio files an action against Obaldo and Santos for
cancellation of sale and compelled Obaldo to execute a deed of absolute sale in his favor based on
his right of first refusal. Ang first question dito goes into the right of first refusal.
A: Of course there was no proper exercise of the right of first refusal because he was not willing to
buy it at a price where a third person is willing to pay. Ang third person dito P5M aba ang gusto nya
P4.5M that is not a proper exercise of the right of first refusal. Ang tamang exercise is if the third
person is willing to buy it at P7M then he should buy it at P7M.
Q: In the same manner, if Obaldo had given an option to purchase the building instead of a right of
first refusal, would your answer be the same?
A: The answer yes, because if the offer to sell is at P5M you have to buy it at P5M not at P4.5 or at
price lower than the offer of the owner of the building.
ELEMENTS OF CONTRACTS
Authors would classify contracts in general as to essential, natural and accidental elements.

NATURAL elements, they are natural elements because they are deemed part of the contract by
law even if not agreed upon by the parties and even if not know to the parties unless otherwise set
aside by the parties.
Ex.: under the law of sales-implied warranties. For example in a contract of loan, as to obligation to
pay interest this would definitely be considered as an accidental element because the law requires
for the lender be entitled to interest that it must have been expressly stipulated in writing.
An element is ACCIDENTAL if there would only be such element if it is had been agreed upon by
the parties such as interest in a contract of mutuum or simple loan.
So into the essential elements, in contracts, the law considers three elements as essentials. In
other words no contract would be valid without these 3 elements being present. If one of these
elements is lacking the contract is void. These are: (1) the consent of the contracting parties; (2)
the object or subject matter of the contract; and (3) the cause or consideration. These are the
essential elements of contract in general, but if you are asked as to the essential elements of a
specific contract by all means your answer should also as specific because the object or subject
matter of a sale is different from the object or subject matter of an agency or the cause or
consideration of sale is different from the cause or consideration in commudatum. But as to these
essential elements I would not also agree to an answer that one of the essential elements is
consent rather it is the consent of the contracting parties, it is not sufficient that only one would give
consent, the law requires the consent of the contracting parties.
Q: Is it possible that both contracting parties did not actually give consent?
A: When one of the parties only one gave consent this would be a fictitious contract, the most
common scenario is because the signature of one of the parties was merely forged and under Art
1409, fictitious contracts are void contracts because there is lack of one of the essential requisites
as far as one of the contracting parties. But it is possible that both contracting parties did not give
consent to a specific contract, they may even have signed, they may even have voluntarily affixed
their signatures but it doesnt mean that they actually intended to be bound to such contract, they
did not intend, they did not give consent to that contract. This contract is known under the civil code
as Simulated Contracts.
Civil code would classify simulated contract into two: (1) Absolute and (2) Relative.
In Absolute Simulated contracts the parties never intended to be bound to any contract but they
signed a deed, the most common deed which is simulated is a Deed of Sale. They would
voluntarily affix their signatures, they may even appear before a notary public but they actually
never intended to be bound to any contract. The common purpose of absolute simulation contract
is to defraud creditors, to make it appear that one of the parties which is normally a seller doesnt
have any property which may be reached by his creditors.
Q: Even if the contract is simulated contract, does it appear to be valid and binding contract?
A: Yes, it has all the appearance of a valid contract.
Q: Therefore, the Register of Deeds can he refuse to annotate that contract doon sa copy ng
certificate of title or can he refuse to cancel the TCT in the name of the seller and refuse to issue
another TCT?
A: Hindi, because it appears to be valid and binding contract, yung parties lang yung they did not
intend to be bound. Ang isang relatively common ngayon is to make it appear that the buyer as
property in his name, common eto sa mga Filipinos who would want to be permanent residence
abroad because etong mga bansa they will not accept you kung wala kang pera or properties. So
the more properties are registered in your name ay the greater the chance that your application will
be approved.
Take note, a party to that contract may be bound to that contract as far as third persons who dealt
with the property involved in such contract in good faith.

Relatively Simulated the parties actually intended or entered into a transaction but instead of
executing the document reflecting the real agreement they will simulate a contract. The most
common contract that relative simulated is a sale instead of executing a deed of donation for
purposes of tax evasion. Another purpose in simulating a sale relatively is to circumvent the
provision in succession involving collation because if it is donation it is subject to collation well if the
donors ordinarily the parents would want to give a specific property to a child they would make it
appear na sale so that the other heirs have no longer right over the property. But obviously since
this is a void contract there is a lack of one of essential requisites here of consent of the sale plus
the consent is fictitious, simulated ang cause. It is easy for other party to actually question the
validity. In an actual case it is merely proven that this allegedly buyer doesnt have any means of
purchasing the properties. Again, this is a void contract.
In relative simulated contracts, the party will be bound to the contract or transactions which are
really intended to enter thereto. On the other hand, if consent was given, even if consent is given
by both parties that do not have guaranteed that the contract would be a valid and binding contract.
The next thing on your mind is who gave consent, because the party into that contract who gave
consent may be incapacitated or under the law he cannot validly gave consent. In relation to
consent given by the incapacitated person, there are 2 kinds of incapacity: (1) absolute or (2)
relative. Absolute because this person having this absolute incapacity cannot validly give consent
in any contract with any one over anything.
On the other hand if the incapacity is merely relative, this person is actually prohibited in entering
into a specific contract may be only a sale but sometimes even as to sales hindi lahat ng sale, only
in a particular capacity like he is only prohibited as a buyer or he may be prohibited as a buyer but
only for a specific thing not everything.
If the incapacity is absolute bear in mind that there are 2 kinds of capacity under the civil code: (1)
juridical and (2) the capacity to act. In juridical capacity, this is the fitness to be the subject of a
legal relation. For ex. a fetus.
Q: Can a fetus be the subject a legal relationship or a transaction?
A: The answer is yes subject only to the requirement provided under Art. 41. In others words, all
living natural persons basta buhay sila maski baliw they have juridical capacity.
Q: Sino ang wlaang juridical capacity?
A: Obviously as to natural person, those who are already dead because death extinguished
juridical capacity.
Q: Pero kung patay na sya, how can he be considered to have entered into a contract?
A: Well, there is a possibility that his signature may have been affixed by his thumb mark, but it is
void because he has no juridical capacity at the time his thumb marks affixed.
Q: In one case, even if the person is still alive when his signature was affixed by those persons
interested of his parcel of land, anong status ng contract?
A: there was fraud clearly because he was about to die, almost 100 years old. The fraud here, is
this a kind of fraud which only vitiates consent and therefore the contract is merely voidable or is
this a fraud which really goes into the essential requisite because there was fraud this person
actually did not give consent. The SC held that the fraud here resulted in lack one of the essential
requisites, he actually did not give consent.
Q: In relation to juridical person, when would be a contract be void because one of the parties
doesnt have juridical capacity?
A: A common case where the SC would consider a contract void for lack of juridical capacity would
pertain to one of the parties which is a corporation which has not been registered with the SEC and
therefore the sale if void because one of the parties doesnt have juridical capacity.

In to the capacity to act

Ex. of restriction to capacity to act is suffering from civil interdiction, wala na ba syang capacity?,
meron pa naman, pwede nga syang mg-asawa eh sa loob ng kulungan kaya lang because there
is such a restriction his capacity to alienate his properties inter vivos would be affected.
Q: Thus, ano etong mga restriction in ones capacity to act?
A: Ang pinakacommon ay minority and insanity subject to lucid interval.
Take note in minority that even the law provides emancipated but under the present law there is no
such creatures as emancipated minors, pwede yun before RA. 6809, a minor may be emancipated
either by marriage or by concession of the parents. The law here is not the family code, with all due
respect that would say that family code reduced the age of majority to 18, hindi totoo yan. When
the FC took effect on Aug. 8, 1988, the age of majority is at the age of 21. It was in 1989 December
that RA 6809 took effect where the majority age was reduced to 18. In other words, under the FC
pwede pa ang emancipation by marriage because the marital age is 18 and age of majority was
21. But ngayon wala na because once a person is 18 he has the capacity to marry under the FC as
amended. But if only one contracting parties is incapacitated at the time of the execution of the
contract, take note that the contract is voidable. But if both parties are incapacitated the contract is
unenforceable. Ex. parehong baliw ang pumasok sa kontrata, unenforceable ang contract,
however, if one of them recovered from the insanity and ratify the contract, what is the status of the
contract?, balik sa voidable because then only one of the parties are incapacitated.
CONSENT
RELATIVE INCAPACITY
If one of the parties to a contract is relatively incapacitated.
ABSOLUTE INCAPACITY
MINORITY
Where the minor maybe bound to a contract even if, ordinarily he would have a right to
institute an action for annulment that may not happen, if the minor ACTIVELY misrepresented as to
his age.
ACTIVELY MISREPRESENTED- recognition of fact that under the Civil law- recognizes
misrepresentation in good faith.
E.g. in a deed of sale, after the name of the party, Fil, legal age, 19, in fact he is 17, active
representation for which the minor has no right to institute an annulment.
SC would cite the principles of estoppel as the basis why such minor would not be able to annul
such contract, of course a few justices will disagree to this basis because if a person is a minor,
how would he know the legal consequences of his acts. Nonetheless, the majority of the justices
and in latter case, in unanimous decision, a minor who misrepresented his age would be bound to
a contract.
Relative incapacity would pertain to a prohibition.
The law prohibits a person from entering into a contract but it may only pertain into a
specific contract or only on a specific capacity like buyer or only with respect to certain persons like
spouse, or even to specific property, a guardian in respect to the property of the ward.
Q: who are these persons who are prohibited from entering into certain contracts?
SALES:
-1491
The law provides that the following cannot acquire by purchase, in other words they are
prohibited from acquiring, meaning only as a buyer, they are not prohibited from selling.
Guardian
He cannot acquire by purchase the property of his ward.
Agent

He cannot acquire by purchase the property under his administration or the property he is
supposed to sell.
There is a qualification that a valid sale, if consented to by the principal. This cannot happen in
relation to guardians because the ward cannot validly give consent. Kaya may guardianship baka
kasi baliw xa or minor xa.
Public officers and employees and judges, properties under litigation.
Q: what is the status of these contracts?
A: some authors including Tolentino, contracts under 1491 are merely voidable.
Vitug, Baviera: considered these contracts as void.
De leon and Pineda: first 3: voidable; last 3, VOID.
Sir: all these contracts are VOID.
First: De Leon: first 3: VOIDABLE, because [guardians, agent, executor/administrator would only
affect public interest.
Q: Does it matter whether private interest would be affected or not? Does the interest of the agent,
principal or whether the stipulation void or valid?
SIR: it doesnt matter.
De Leons rationale: these people are prohibited because of public policy.
Q: now, if a contract/stipulation is contrary to public policy, would that contract be a voidable
contract?
Sir: I dont think so. Any act, any contract, any stipulation which is contrary to public policy is a
VOID contract or a void stipulation.
SECOND: De Leon considered these contracts only voidable because these contracts can be
ratified. So, if a contract can be ratified, it is not void. Void contracts cannot be subject to
ratification.
SIR: the misconception is based on the ruling of the SC in the case RUBIAS VS. BATILLER.
RUBIAS VS. BATILLER
In relation to 1st par. of 1491, the SC said these contracts can be ratified.
So, if the guardian bought the property of his ward during the guardianship, he is
prohibited under 1491.
Q: But what if the ward attained the age of majority, so hindi na xa ward. What if he sold the same
property to guardian, is the sale valid?
A: YES. Kasi wala na ang incapacity, at the time of the execution fo the 2nd contract.
In a way, therefore, the 2nd contract ratified the first.
Q: But the SC said ratified because would the effect of the 2nd contract retroact to the day of the
execution of the first contract?
A: SC said NO. the effect of the 2nd contract will only start from the moment the contract was
executed.
In other words, the 2nd contract did not really ratify the 1st contract because in the real sense of
ratification, that would have cleansed the first contract of all defects from the very start, as if the
contract had no defect, the contract is really void, not subject to ratification.
THIRD. Wolfson v. Martinez
Sir: this is really wrong. In the case of Rubias v. Batiller had ruled that the ruling in Wolfson v.
Martinez to the effects that these contracts are merely voidable had long been abandoned by the
SC even before the effectivity of the SC.
Sir: these contracts are void and not merely voidable, because these persons are prohibited and
1409, par. 7. P
Prohibited contract are void contracts.
1490- spouses are prohibited from selling to each other, so a husband cannot sell to his wife, as a
rule, there are exceptions, unless they agreed for a separation of property in their marriage or even
without such marriage settlement, they obtained a judicial separation of property decree.
In 1490, the contracts are void, in the same manner in 1491, these contracts should also
be void.
EXECUTORS

CASE: in relation to assignment of right of an heir, after the death of the person whose property is
under consideration, which happened a sale to take executor of his rights before partition of the
estate.
Q: would that be covered by 1491.
A: No. a sale covered by 1491 should involve a property which is a part of the estate under the
administration of the executor.
What was assigned by the heir to the executor his rights in relation to the estate is not a property
which is part of the estate. It is his own property.
LAWYERS, JUDGES, MEMBERS OF THE STAFF OF THE COURT- are prohibited from acquiring
property under litigation. pag tapos na client can sell the property to his lawyer.
ALIENS (a favorite)
Q: Contract of sale, involving a private land is entered by an alien, is the sale void?
A: No. Under the constitution, he is only prohibited from acquiring transfer to, conveyance to, not
from and therefore, if he is the seller, there is no problem.
Q: If he is the buyer of this land, is it actually possible for the sale to be valid?
A: YES, because there is another exception under the constitution, if he is a FORMER NATURALBORN FILIPINO CITIZEN, the law only acquire such foreigner to acquire for residential purposes.
UNPAID SELLER
Prohibited from buying. Unpaid seller in the exercise of the right of resale cannot directly or
indirectly purchase the thing.
Q: Consent was given by persons who have the capacity to give consent, does that mean the
contract is valid and binding?
A: NOT NECESSARILY, because even if the person giving the consent has the capacity to give
consent, the consent may have been vitiated or the person gave consent but it was in
representation of another and the person giving consent has the capacity to give consent, but he
was not given authority by the person he is representing, obviously, this contract is
UNENFORCEABLE, unless he has the authority of the law or the authority of the court. He may not
have the authority of the person he is representing but if he has the authority of the law, the
contract is VALID. E.g. guardian, he authorized by ward but he can be authorized by the court in
behalf of the ward.
A sheriff may sell a property of a person even against the will that person.
VITIATION OF CONSENT
The law enumerated 5 causes that vitiate consent aka VICES OF CONSENT: mistake or
error, violence, and undue influence, fraud.
Nature of the cause
Q: what is the effect of each cause?
Q: what is the effect of mistake?
MISTAKE- similar to the effect of fraud.
It prevents a person from having knowledge of certain facts. This affects awareness, thus it goes
into cognition.
On the other hand, violence, intimidation, undue influence ALL would affect the voluntariness of the
act. They are compelled to give consent and because there was violence, intimidation, undue
influence considering the effects of these causes.
Effect of violence, intimidation, undue influence employed by a THIRD PERSON upon one of the
parties, even without the connivance of the party
If violence is employed by a third person, upon the the other party even without the
knowledge of the other partythe law allows the party to institute action for annulment.
The person upon whom violence was employed even if not employed by the other contracting party
would have the right to institute an action for annulment, in the same manner, that if the intimidation
is employed, that would have the same result- the contract would also be VOIDABLE.
Q: What if undue influence is employed by a third person?
SIR: not expressly provided.
Q: Would that result to a voidable contract? NO. [sir: this argument is wrong]

Violence and intimidation would affect the voluntariness of the act, however, undue influence would
also have the same effect.
Q: does it matter if such was employed by other contracting party or by third person
A: it should not matter.
Even of the Code Commission itself, even if it is not expressly provided, that violence employed by
a third person would result in a voidable contract. It would have the same effect with violence and
intimidation.
1.MISTAKE
Mistake should pertain to a fact. As a rule, mistake as to law will not result to a voidable contract
because of art. 6 of NCC, ignorance of the law excuses no one from compliance therewith.
EXCEPTION: 1334,if there is mutual error, as to the legal effect of an agreement and the
purpose of the parties is frustrated that may vitiate consent for the contract to be voidable. TAKE
NOTE: the law provides mutual error as to the legal effect of an agreement.
RULE: mistake should pertain to a fact.
Q: would every mistake pertain to a mistake of fact.
A: OF COURSE NOT.
E.g. sale of a car, and the buyer filed an action for the annulment of the contract, on the ground
that there was mistake as to the stereo in the car. Akala nya pioneer.Alps pala.
SIR: this mistake is not a ground for annulment because the law would require that for mistake of
fact to be a ground for the annulment of a contract, the mistake must pertain either to the
substance of a thing or to a condition which principally move that party to enter into that contract.
Q: is the stereo the substance of the car?
SIR: I dont think so, because you dont buy a car because of the stereo. You change the stereo.
Q: but if there is a mistake as to the engine of the car? Akala nya 3.0, un pala 1.3that goes to the
substance of a thing.
Q: but what if the mistake of pertain to a condition?
A: VOIDABLE CONTRACT.
SCENARIO:
If a person entered into a contract of sale involving a parcel of land, house and lot, and
there was a mistake as to the classification of the are. Akala nya commercial area, where in fact
zoning ordinance, it was still a residential area.
SIR: I think this is a mistake which principally move one of the parties to enter into a contract and
therefore the contract maybe annulled.
Mistake as to the identity of a person or mistake as to the qualification, like if a party would filed an
annulment on the ground that he thought the buyer was a lawyer, e hindi pala. Would that be a
valid ground for the annulment?
SIR: as a rule, not a valid ground. Who cares if the buyer is a doctor or not, as long as he has the
purchasing power. Basta taong grasa basta may pera xa. Ok nay an, under the law on sales.
Q: When would the qualification or identity be the principal cause of the contract?
E.g. contract of guaranty, where the qualification of the guarantor would be more much relevant as
to whether or not the creditor would enter into such contract? Akala nya napakayamn, hacienda.
2. VIOLENCE
Q: what if what was mentioned was DURESS?
Q: Is DURESS one of the vices of consent?
SIR: not expressly recognized under the law.
*Actually, duress covers both violence and intimidation
General duress or collective duress
Q: is this a ground for the annulment of a contract.
Sir: NO.
This, general duress or collective duress pertains to intimidation of violence employed in general,
in a particular locality, e.g. contracts entered into under the Japanese administration, they would
claim because violence was employed upon our neighbors, we were compelled also to sell our
propertiessir: this is not a valid ground.
General duress or collective per se is not a ground, duress, violence of intimidation must be
employed upon specific persons.
Q: the question is upon whom?
Q: upon whom should violence be employed for the contract to be voidable?

Q: what if violence was employed upon the child of one of the

Parties?
SIR: if you read the provision, this would not result in a voidable contract, that would not give rise to
right to institute an action because the law says there is violence when order to rest consent when
an irresistible force is employed, the law did not provided that even if employed upon a person not
one of the contracting parties, the contract would be voidable.
Unlike in intimidation, the law is very clear that if this employed upon person of the party to the
contract but also upon his spouse, ascendants or descendants, the contract would be voidable.
Intimidation- threat pa langthe party has right of action.
Violence-serious force employed upon his child.
SIR: the same effect as to spouse, ascendant, descendant
Q: what if hindi xa party, not to his spouse, ascendants or descendants? May the contract be still
be voidable.
SIR: it may still be voidable, even if employed upon the person who is not mentioned among
persons under the law. As long as he can prove that there was really vitiation of consent, he was
really compelled because of the serious force, intimidation to enter into that contract, there was
physical compulsion or moral compulsions to enter into that contract. However, I would agree with
one of the authors that the further the relationship between the party to the contract and the person
upon whom violence or intimidation was employed, the greater would be the difficulty of proving the
vitiation of consent. E.G. fiance, ikakasal n kyo and violence was employed.
3.INTIMIDATION
In intimidation always have to consider the age, sex, etc, in relation to the persons. Kasi
naman if the persons. Kasi naman if the person claiming intimidation was already 35 yo and the
person who allegedly intimidated him only is 14 yo parang hindi kapanipaniwala.
4.UNDUE INFLUENCE
There must have been a relationship between the parties, where one would have the
power over the other.e.g. a priest and his parishioner; teacher and student.
5.FRAUD
1170-1171Not fraud in relation to consent.
-fraud in the performance of an obligation
-the premise is that there is already an obligation and there was fraud in the fulfillment.
Fraud in contracts is fraud in obtaining consent, this is only the kind of fraud because this fraud
occur only in the contract. It is only in contracts that consent is required.
Effect of fraud under 1170 v. 1338 v. 1344
Fraud under 1170 would result in damages, can be the basis for action for damages.
Fraud in 1338, causal fraud or dolo causante, without such fraud, a party would not have entered
into that contract.
-Other party misrepresented as to the thing that was sold. E.g. 24k gold ring, when in fact gold
plated.
Incidental fraud under 1344, this would not result into a voidable contract but would rather entitle
the aggrieved party to damages
In this kind of fraud, one of the parties would still enter into that contract but probably in different
terms and conditions.e.g. 24k baka 22k lang. he may have bought the right nonetheless, but he
may have bought up a price less than that agreed upon. An action for annulment therefore would
not be the appropriate: REMEDY: action for damages
Q: if consent was reluctantly given would that affect the validity of the contract?
CASE: LAGUNZAD V. GONZALEZ
An action was filed against the producer of the movie by the heirs of Moses Padilla. Now, in a way
he entered contract with his heirs, in relation to the royalties etc. but later on he dont want to
recognize this contract, on the ground that there was vitiation in consent because he reluctantly
gave consent, otherwise the showing of the motive would have been suspended because of the

action, but the SC obviously ruled that just because he reluctantly gave consent does not affect the
validity of the contract. The contract would still valid and binding.
OFFER AND ACCEPTANCE (not a favorite)
Under the law consent is manifested by the meeting of the offer and acceptance in relation
to the object and the consideration, then there is consent.
The law requires that the offer to be certain.e.g. billboard, some are things offered, parcel
of land but the law provides that unless it appears otherwise business advertisement of things for
sale are not definite offers. But there are instances wherein you would consider an offer to be
definite. The specific location of the property may have been stated in the advertisement, even the
TCT num, area of the land, etc. so if there is an acceptance of such offer, there could have been a
perfected contract.
Before the acceptance of the offer, if the offerer died or the offerer became insolvent or he
suffered civil interdiction or he became insane, then the offer be deemed terminated. Wala na.
even if thereafter an acceptance, there would be no perfected contract.
BAR QUESTION:
If the offer was not accepted, rather if there is a qualified acceptance, e.g. 60k, 50k was agreed
qualified acceptance, no perfected contract here. Instead there is a counteroffer.
In a counteroffer, offeree now became the offerer, and the offerer decision would have the decision
whether to accept or reject the counter offer.
Acceptance must be absolute.
If the offer was made through an agent, would it suffice that acceptance was also made or
conveyed to the agent? YES.
The acceptance need not have known to the principal because the scenario here could have been
after the offer was made by an agent in representation of the principal and the offerree conveyed
his acceptance to the agent and before the agent could inform the principal, the principal died. Is
there a perfected contract? Would the estate of the deceased principal still be bound to this
contract? The answer is YES. The moment the acceptance was conveyed to the agent that already
binds the principal even if the principal had no knowledge- still this is already a valid and binding
contract.
OBJECT OF CONTRACT
Object may pertain to right, things or service.
What are the requirements in order for a thing, service or right to be the subject matter of a valid
contract?
The easiest would pertain to a right because the only requirement for a right to become the
subject matter of a contract is that the right must not be intransmissible.
Q: when would a right become instransmissible?
Because the law so provides, nature, stipulation.
If you will be a counsel of a corporation, ordinarily when a corporation enters into a contract, there
would be clause, commonly known as NON-ASSIGNABILITY CLAUSE, thus by stipulation by the
parties from the contract, the rights arising from contract cannot be assigned at least without the
consent of the other party.
Rights would include credit. As a creditor, a credit is a right which you can assign or you can sell.
Share of stocks are rights.
As to services, the law requires that the service should not be impossible. The service shall not be
contrary to law, morals etc.
As to rights, the law did not require that the right should not be contrary to law, moral, etc.
In fact, the law requires thing must not be licit.
But why not as to rights, is it not required that right must not contrary to law, mukhang hindi na. kasi
nga right xa eh. It is in the nature of the concept. It is a right. It should not be contrary to law. Kasi
kung contrary to law, wrong na xa. Take note: a right would change, a right may no longer a right
today. Panapanahon lang yan.
As to things
There are requirements for a thing to become a subject matter of a valid contract. E.g. the
air in this room, d nkkita pero u can feel, mejo my electricfan. Would that be valid sale of the air, the

answer is NO, because such is the outside of the commerce of men. Air is not a subject of
commercial transactions which of common ownership. Take note sa water sa rivers, dagat, water
flowing out of a well. BUT the moment there is appropriation of such thing it now becomes the
subject of commercial transaction, as to air, ang component ng air ay oxygen, if you can
appropriate the oxygen you can now sell. In hospitals kelangan ng air.
Water, pag naapropriate mas mahal na kesa oil.
Thing outside the commerce of men, e.g. roads.
Are roads outside the commerce of men? Not all roads. There are private roads, forbes park would
maintain private ang roads.
Edsa is outside the commerce of men.
Internal organs. May that be a valid transaction for sale? When i say transaction, that would include
donation. But with a commercial transaction like a sale, it may be valid. Basta hindi lang sa tao. Sa
kalabaw lang, kabayo.
Human internal organs, the sale is not a valid sale, outside the commerce of men.
MARTINEZ V. CA. SC: Portions of navigable rivers. Portions were sold 8 times. Did the 8 buyers
acquired ownership? SC said no, never because this is outside the commerce of men. The
contracts are void.
Sacred things, including churches, church here is the physical church of course the Catholic
church, the physical church is outside of commerce of men as ruled by the SC. Sir: I think this is a
good ruling. Churches were built because of blood. The effort of our countrymen. Kaya the pope
has no right to sell church. Sacred items.
Endangered animals, and therefore mere possession of this endangered animal is unlawful.
Thing must be licit. Thing must not contrary to law, etc.
Thing contrary to law that includes shabu, marijuana. Marijuana is regulated, for medical purposes.
It is prohibited. No inherent illegality in the substance. In can be the subject of abuse. Just because
naaubuso, doesnt mean na masama. Itak, bolo, pede mong gamitin for agriculture purposes. It
depends really on the use. There are substances that are really regulated. A certain mg pero wag
naman kilokilo, pusher k n nun.
Thing contrary to morals.Pills is considered as contrary to morals. Philippine law do not consider as
illicit. Pills, condoms are sold anywhere.
Again do not confuse subject matter/ object from things. The object of the contract need not be a
thing. The object of the contract may be the rendition of the service. Object is then subject matter
which may pertain to a thing.
CAUSE
A person bought a gun in order for him to kill somebody else. And he in fact killed that person.
Would that affect the validity of the sale? Would the sale be a void sale? The answer is NO.
because the law expressly provides that the cause of a contract is different from the motive. The
cause in a contract is the essential reason impels a party to enter into such contract.
In onerous contracts, the cause as to contracting party is the promise or prestation to be delivered
or to be performed by the other party.
So a person would buy a gun because the other promise to deliver and transfer ownership. As to
the cause, the parties are aware but ordinarily the party would not know the motive of the other
party or they wouldnt even care.
Since motive is different from the cause, would the illegality of the motive affect the validity of the
contract?. As a rule, it does not, EXCEPT when the motive maybe regarded as the cause, if the
motive predominates the purpose of the contract. WHY? The party into the contract because of the
motive. A good example is, when the motive of the seller was to defraud his creditors. Obviously,
this is contrary to law and therefore the law provides, when the transaction is in fraud of the
creditors, it may be considered as a RESCISSIBLE CONTRACT.
Also, for example if the motive of the sale or the transactions was to circumvent a provision of a
law, this would result into a VOID CONTRACT, e.g. would pertain to art. 1490 prohibits spouses
from selling to each other. What if the wife would sell to a third person and the third person would
sell to the husband. Obviously, the sale would only to circumvent 1490 .
What is a cause in an accessory contract? PLEDGE, mortgage. Is it the same cause in the
principal contract? NOT NECESSARILY. It depends WHO entered into that accessory contract
because accessory contracts like pledge and mortgage maybe executed by third person. If the

person who entered into the contract of pledge or mortgage is the principal debtor himself, there is
no problem. The cause in the principal contract will be the same reason why he pledged his
property. However, if he is a THIRD PERSON the cause maybe liberality kaya xa nagpledge ng
property kasi brother nya ang principal debtor, kasi anak nya ang principal debtor . Liberality may
be the cause in an accessory contract.or some people would require compensation in order for him
to mortgage his property and that would be an onerous contract.
What if in the deed of sale, there was nothing mentioned as to the price, would that sale be void?
NOT NECESSARILY.
In fact who would have the burden of proving that it is void is the party who is claiming that it is void
because the law provides that even if the cause is stated in the contract, it is presumed to exist.
There is the presumption of the law that price exist AND price presumed to be lawful. Whoever
would claim that cause is unlawful would have the burden such. On its face parang ung
presumption is illogical, dapat in a deed of sale kung walang price, walang cause but the law says
no. even it is not stated, it is presumed with cause. Sir: I agree to this presumption because a
person enters into a contract, there must be a reason. If he was the seller, he must have been
promised a price to pay. Kaya xa pumasok s kontrata.In other words. Why there is no price on the
contract, maybe there is a verbal agreement, hindi lang linagay sa kontrata or there could be side
agreement.
Why the parties did not state the price on the contract? Sir: may mga reasons.
Sir: in actual contract, I prepared for a corporation, the reason was that corporation had several
and similar properties and they want to dispose these properties, as to the first buyer and they
dont want to be bound in relation to other items. So kung nagagree d2 n 2.5M, they want to sell
the other items at a higher price.
The presumption as to the price is disputable presumption.
The cause must exist. Kung walang cause, no valid contract.
Take note that it is wrong to say that in gratuitous contract there is no cause. The cause in a
gratuitous contract is the liberality. If there is no cause, then such gratuitous contract is void. It can
never have an effect.
Another requirement: the cause must be real. It must be true. Because under the law, if the cause
is a false cause. The contract is void. TAKE NOTE: This statement is no longer ABSOLUTELY true.
Unlike in the old Civil Code, napag false ang cause kapag false cause ang cause in a deed of sale
or in a contract, it is void. Under the present provision, under the New Civil Code of the Philippines,
even if the cause is false, the contract may still be a valid contract. If it can be proven that there is
another cause which is real and lawful. A good case here is contract of guaranty entered into by
spouses, and when the principal debtor was a partnership, when the partnership failed to pay or
defaulted, the creditor went after to the guarantor spouses. Now the spouses claim that the
contract of guaranty was void because the cause why they entered in to a contract allegedly was
their belief that they were partners in that partnership and in turned out they were not partners and
they were able to prove such fact to the court. Hindi pala sila partners, so claiming that there was a
false cause for the contract then the contract is void. However the creditor was able to prove that
even if the spouses as guarantors were not partners in the partnership, they actually creditors of
the partnership and therefore, there was cause? The Supreme Court said YES. It is in the interest
of spouses that the partnership should have financial viability in order for the partnership to pay
each debt to the spouses kaya there was a cause though the cause stated in the contract is a false
cause. There was another cause, real and lawful cause and therefore is the contract of guaranty a
valid and binding contract.
A contract of sale involving a car, the price stated in the sale is 1 peso, valid sale? YES. Because
under the law lesion or inadequacy or even gross inadequacy of the price, this is easily reflected in
the contract of sale.If the price is grossly inadequate. Ang value nya could be 350,000k, pero 1
peso ang nasa deed. The sale may still be a valid sale. Lesion as a rule does not affect the validity
of the contract.
I entered this kind of contract. Normally, why the deed of sale reflect only 1 peso, because there is
actually another cause. Ang cause which is the service I rendered to the company like for three
years already.
Trinoma is a joint venture of 7 corporations, includning fil estate, rancar, unilab, for 3 others. They
leased the property from the government, rental annually 1 peso. Because itong companies, isa sa
parties, doon sa build and transfer agreement with the government in relation to line 3, Edsa line.

Ngaun government n ang may control. But when they leased, they were only assured as rental
15% ROI or return on investment. Kumbaga palabok n lang ito, ung lease covered by trinoma.
They can lease for so long of years for 1 peso annually.
Take note, as the Supreme Court would warn us, if the price is gross and inadequate, that may be
the effect of a vitiated consent. Court should be vigilant always of the possibility of vitiation of
consent. That is why one of the contracting parties agreed even if there was lesion or gross
inadequacy of the price. Kaya nga kung sale involving a parcel of land worth 1M ang price 10k
lang, maybe because there was violence employed.
Contract maybe voidable not because of lesion per se but because of the vitiation of consent in
other words the party claiming the vitiation of consent would have to prove there was vice of
consent. It would not suffice that they claim that the price was grossly inadequate or a party to a
contract may even be able to show to the court that the contract is void because they really
intended another transaction kaya grossly inadequate ang price. This contract maybe a simulated
contract.
Lesion per se may result to a defective contract, e.g entered into by guardian or by a
representative or absentees because when the ward of the absentees suffered lesion which is
more than 25% or of the value of the property, the law provides that the contract is rescissible.
FORMS
Verbal sale?Valid sale? YES. It may be a valid and binding sale.
Verbal Lease? YES. Because under 1356 the law provides that contract shall be obligatory in
whatever form it may have been entered into provided all the essential requirements are present.
That is a GENERAL RULE. Unless the law requires a particular form for the validity of the contract
or unless the law provides for the enforceability of the contract.
However the law may also provide for the particular form as to how the contract maybe proved.
This time as to the last scenario- this requirement as to form is necessary for the greater efficacy or
the convenience of the parties.
Where the form is necessary as to how the contract maybe proved. The contracts enumerated
under 1358 under Contracts must be in a public instrument. Contracts involving the creation,
transmission, modification, extinguishment of real rights over immovables must be in a public
instrument.
In other words, sale of a parcel of land would result into a transmission of right involving an
immovable property. Therefore, is the form required for the validity of the contract? Of course not.
The Supreme Court consistently would rule, under 1358- the form prescribed by law is neither
necessary for the validity nor necessary for the enforceability. It is only necessary, for the greater
efficacy of the contract. In other words, in order for a contract to bind third persons, that contract as
a rule must be in that form-public instrument. Why?
As to parcels of land specifically, may a deed of sale, which would result into the transmission of
rights be registered if it is not in a public instrument, the answer is no. the register of deeds has no
business accepting an instrument which is merely a private instrument for registration. So it is
necessary in order for the contract to be registered, in other words for the contract to be proven at
least with the registered of deeds or its registration bind third persons.
If fact the law, specifically provides even that sale of immovables covered by 1403, which means
statutes of frauds, that the only requirement for its enforceability, the contract must be in writing.
Another contract mentioned in 1358 apparently required in a public instrument is the power to
administer property or any other power for which its object, an act of appearing or which would
appear in a public instrument and that would include for example, administration of parcel of land.
Clearly, this is only again necessary to bind third persons. As to the contracting parties, in relation
to the administration of property, a power of attorney need not be in a public instrument it may
simply be a private instrument.
Contracts, where the law requires particular form for the validity of a contract, lets start with the
contract of sale.
Is there a provision in the Civil Code of the Philippines requiring a particular form as to the contract
of sale in order for a sale to be valid, a common answer is yes. E.g. sale of immovable or sale of
parcels of lands which is WRONG. The Civil Code did not require such sale to be in writing for its
validity. It only requires such sale for its enforceability of the contract.
In other words, sale of a parcel of land or sale of an immovable property which is not in writing is
NOT VOID. It is merely an unenforceable under the statue of frauds. However, there is a special

law, obviously not under the civil code, which a particular sale to be in a public instrument, for the
sale to be valid and this is the cattle registration decree in relation to sale of large cattle.
More than just the requirement that the sale must be in a public instrument, the law therefore
provides that the sale must be registered and the certificate of title must be obtained by the buyer
for such sale to be valid.
Ang kalabaw my certificate of title din. Parang lupa ang halaga.
Sa large cattle my picture, sa lupa wala. Pero hindi naman colored ang picture.
Donation
Not really a contract. a transaction which requires a particular form. Donation of an
immovable must be in a public instrument. Donation of a movable property. Take note where the
value exceeds 5,000.00 pesos should be in a private instrument and the acceptance should
likewise be in such instrument. If however the donation, pertains to a movable property where the
value does not exceed 5000.00 pesos- the law did not require a particular form. Rather, the law
requires shall be simultaneously delivery of the thing delivered, in order for the donation to be valid.
Partnership
The form required is not the partnership contract itself. When an immovable property is
contributed, the law requires that there should be an inventory of such immovable property. The
form does not pertain to the partnership itself. But it requires a form because an inventory is always
in writing. In fact, it should be signed by all contracting parties in order for the partnership to be
valid.
Agency
Being a preparatory contract, if the authority of the agent, is not in writing, it may have an
effect on the validity of the agency? The answer is NO. Even if the authority of the agent is only a
verbal authorization that will not result in a void agency. But it may result in a void contract entered
by the agent, specifically this would happen under 1874- if the agent is authorized to sell a parcel
of land and his authority is not in writing, it is the sale that is void. Hindi agency ang void, sale ang
void. Even the sale is in writing, it doesnt matter. It is void. Because of the authority of the agent is
not in writing.
Antichresis
A formal contract because the law requires a particular form, as far the principal or interest
is concerned, the law requires that it should be in writing. Otherwise, the antichresis is VOID.
Certain stipulations
Hindi na buong kontrata, but only stipulations which required to be in writing. Otherwise,
the stipulation would not be a valid stipulation. In loans, simple loans, in order for a creditor to be
entitled to interest which is compensantory interest, meaning the interest here is compensation for
the use of the money which means this is the interest from the time the money was borrowed to the
time the obligation to pay becomes due and demandable, because from the time the obligation
became due, and there was demand and there was failure to pay, he would already be liable to pay
interest by way of damages. So ditto, d n kelangan ng stipulation, even if there was no stipulation
or agreement on interest, there can be liability for interest, because he is already in delay. But not
from the time he borrowed money but from the time he was in delay.
Compensatory interest, the law requires that there must be an express stipulation in writing, in
order for the creditor to be entitled to interest
Lease of service, involving common carriers, contract of carriage
Stipulation providing for a lesser degree of diligence, as to the diligence that should be
observed by a common carrier, in a transportation of goods for example. It may be a valid
stipulation only again if it is put into writing and signed by the shipper, otherwise such stipulation
would be void.
The last question here, how would you know when a law requires form for its validity? Or the law
requires for its enforceability, or maybe for the greater efficacy. Thus, if the law requires a form and
the parties failed to comply with the form prescribed by law. Does is it mean that the contract is
automatically void? NOT NECESSARILY. E.G: Contract of partnership, where the contracting
parties contributed a property or money which is 3000.00 or more. The law requires that such
contract shall be in writing and must be registered with SEC. if you consider the rule on statutory
construction, ordinarily, when the law uses the word SHALL and MUST, they are necessary,
mandatory yan, if not the contract would be void.

A contract of partnership maybe valid even if the partnership is not put into writing despite the fact
that they promise to contribute money is more than 3000.00
When would a contract be void if there is a failure to comply with the formality prescribed by law
and when it would not be void? SC: ruled, in the case of HERNAEZ V. DELO ANGELES, Hernaez,
a starlet, noong 70s, this case pertains to a movie project which is not in writing, the SC ruled that
the, if the law requires a form and the form was not complied with, the contract would only be void,
if the law so provides its nullity of the contract. In other words, even if the law requires a form, but
the law does not requires for the nullity of the form in case of noncompliance then that is not
necessary for the validity. In other words, that form is necessary for enforceability or that form
requires only for the greater efficacy of the contract.
Kaya sa antichresis, when the law says that the agreement as to the principal and interest requires
that it must be in writing, the law further states, otherwise the antichresis is void.
In donation, if there is donation of an immovable property, the law requires that it must be in a
public instrument, otherwise the donation is void. So the law itself would provide for the nullity of
the contract, in case that formality is necessary for the validity of the contract.
The law may requires for the enforceability, only to groups of contracts. 1st group: covered by
statute of frauds. 2nd group: unenforceable because of its failure to comply with the formality
prescribed by law are those under 1878- under the law on agency. Certain acts and contracts, the
agent must have a special power of attorney, if he doesnt have a SPA, as a rule, the contract
entered into by the agent with a third person is an unenforceable as against the principal.
Scenario:
A delivered a sum of money to B and a year thereafter A demanded for the return of the sum of
money, may be P100K plus an interest. B refused to return the P100K claiming that it was a
donation when obviously A intended to be such a loan with interest, nothing was put into writing. Is
a reformation a remedy?
A: No, because under the facts there was really no meeting of the minds, in order for the
reformation to be a remedy there was a meeting of minds, a contract may have been perfected.
But there one other reason where reformation cannot be a remedy under the circumstances
because nothing was put into writing. As to a remedy this is known as remedy of instruments, there
must have been a written agreement. Why reformation is a remedy because, there was a meeting
of the minds, the intention of the parties was not reflected in the instruments. So, the real intention
was not reflected and therefore, this remedy in equity is intended for the real instrument be
reflected for that contract to be construed as to conform with the real intention.
A common problem in reformation would involve a sale whether a sale with a right to repurchase or
even in absolute sale because this instruments may actually be regarded as an equitable mortgage
and therefore under the law, reformation would be the remedy.
Q: Why would the instrument not reflect the real intentions?
A: there are many reasons, it could be by share ignorance of the person who prepared the
contract. It could be because of negligence, lack of skill, bad faith on the part of the person who
prepared or could it be faith on the part of one of the contracting parties. Maybe one of the
contracting parties asked the other to sign an instrument which does not reflect the real intention.
It could also because of mistake, but the mistake must be on the instrument, it should not be a
mistake in obtaining consent because if the mistake again pertains to any of the consent the
remedy is annulment because the contract would be voidable. However if the mistake is on the
instrument itself and the instrument doesnt reflect the real intention, the remedy is reformation.
Q: In the deed of sale, the object of the contract was cocaine but what was stated in the contract is
morphine, would reformation be a remedy?
A: No, if the real contract is a void contract, reformation is not valid remedy. On its face the contract
is void.
There are also some contracts or acts which cannot be the subject of reformation. Ex. in wills, if the
will does not reflect the real intention, obviously, if he is still alive his remedy is execute another will
or maybe a codicil just to explain the will which he previously executed or if he is already dead, the

remedy here under the law is to present the pieces of evidence to show the real intention of the
deceased. Another example, simple donations inter vivos where no condition is imposed cannot be
subject to the reformation.
Interpretation of contract
This pertains to the meaning of the words or terms used by the parties in the contract.
Q: What if the terms of the contract are clear as to their meaning, therefore the literal meaning of
the stipulation shall control?
A: Not necessarily, the terms of the contract may be clear but the terms of the contract may not
reflect the real intention what will prevail still the intention of the parties.
Q: How would you know the real intention if the terms of the contract are clear as to their meaning?
A: The law would provide for the manner in determining whether that goes into the intention of the
parties which is to consider the contemporaneous and subsequent acts of the parties.
CASE: Citizen Surety vs. CA there were few contracts entered into, merong sale, to secure the
fulfilment of the sale, mayroong bonds issued by citizen surety tapos my indemnity agreement
meron ding deed of assignment. The issue here pertains to the deed of assignment because the
principal debtor here in relation to the sale claimed that the deed of assignment was by way of
dacion en pago which extinguish its obligation under the indemnity agreements.
Q: Was a deed of assignment a form of dacion en pago?
A: The SC considered the subsequent acts of the parties, eto ang mga subsequent acts, after the
execution of the deed of assignment this debtor continued to pay, the deed of assignment is not a
form of dacion en pago because he executed a real estate mortgage in favor of the creditors. The
deed of assignment is obviously does not part take the nature of dacion en pago in fact it was only
a form of security arrangement.
CASE: Lim vs. CA the parties here entered into a contract of sale and it was stipulated in the
contract that the price is deemed paid upon the signing of the contracts. Despite of that stipulation
an action was filed by the seller claiming that the price had not yet been paid. Eh nakalagay sa
deed of sale, deemed paid upon signing. Is it possible that there was as such stipulation but the
price had really not been paid? Well, it is possible. But in this case, was the price paid already?
The SC considered the subsequent acts of the parties, the contemporaneous and subsequent acts
in determining the price in fact had already been paid. Of course considered first the fact that after
the signing of the deed of sale, yung mga delivery orders had been delivered already to the buyers.
With this, apparently, the price had already been paid. The court ruled that in fact there was already
payment of the price.
Another reason is that, if there is ambiguity in a contract the interpretation of the obscure
words or stipulations in a contract shall not favour the party who caused the obscurity. In this case,
it was the seller who prepared the contract and therefore the SC also cited as basis to its
conclusion that since the corp. was the one who prepared the contact, any ambiguity in the
contract shall be construed against the interest of the party who caused the obscurity.
CASE: Eastern Shipping vs. Margarina-Verkaufs in relation to the interpretation of a provision in
a bill of lading as to the extent of the liability of the common carrier as a result of damage caused to
the goods of the shipper. Since there was an ambiguity and the bill of lading obviously is prepared
by the common carrier itself, the ambiguity is resolved against the interest of the common carrier
and in favour of the interest of the shipper.
Scenario: What if a parcel of land was the object of a contract of sale and the subject matter was
described as a parcel of land located at the corner of Jose Rizal and Bonifacio St. in one city. It
turned out that, as would normally happen in an intersection, there would be 4 corners, what if the
seller had at least 2 parcels of land and the buyer would claim I bought these particular parcels of
land but the seller would say no I sold the other parcel of land at the other corner. How would this
obscurity or ambiguity be resolved?

The problem pertains to a doubt cast upon the principal object of the contract and in such a way
that it cannot be known what may had been the intention of the parties, the law provides that the
contract is void, it should be considered as null and void.
On the other hand, in an agreement where A oblige himself to deliver and transfer ownership over
a determinate car and when that car was delivered to B, B noticed that the stereo was no longer
there, it was removed by A claiming that he is entitled also to the stereo he demanded for the
delivery of the stereo to him. A claimed that he is not obliged to deliver the stereo to B. Who is
correct?
A: it depends on the nature of the contract or transaction as to cause, whether the contract is
gratuitous or the transaction is an onerous transaction because if the transaction entered into
between A and B is an onerous transaction like a sale, the rule that should be applied in case the
other rules in interpretation of contract are not applicable, the rule that should be applied is the
greatest reciprocity of interest. It should be settled in favour of the greatest reciprocity of interest.
But if the transaction was a gratuitous transaction like a donation, the law provides that the least
transmission of rights and interest shall prevail.
A donated a car to B, should A be entitled to the stereo, should be entitled to the stereo as well?
A: Mukhang hindi kasi donation lang eto. B did not pay for the car, in other words, if he would really
demand for the delivery of the stereo also ang tawag sa kanya ay swapang. So, the law provides
that such pertain to the donor.
Defective Contract: Rescissible, Voidable and Unenforceable.
Q: Void contracts are defective contracts?
A: No because void contracts are not merely defective contracts there are actually inexistent
contracts.
Rescissible
Q: Is there a void contract that can be ratified?
A: Yes, Art. 1898, a contract which is void can be ratified wherein an agent entered into a contract
in excess or outside of his authority and the third person with whom he entered into such contract
knew that the agent is acting outside or in excess of his authority, that contract is not merely
unenforceable but void. However, the law also expressly provides that contract can be ratified by
the principal.
In rescissible contracts, no ratification because there is nothing wrong with the essential requisites
of this contract. In fact if there is a defect in a contract the defect goes into the fact that a party to
the contract or a third person would suffer economic prejudice or lesion in relation to the contract.
In voidable, the defect basically would pertain to incapacity which pertains to the capacity to act
the power to do act with legal effects. Aside from the capacity to act is the vitiation of the consent.
Ex.: A contract of sale entered into by a spouse over a property which is a conjugal property. Under
the Civil Code this is a voidable contract but under the Family Code this is a void contract because
there lack of consent of one of the contracting parties, one of the spouses and therefore it should
not merely voidable it should be void.
Unenforceable bec.it is not in the form prescribed by law, under the Statute of Frauds or may be
because both parties are incapacitated. Another because while the person is authorized to
represent the other, he acted in excess or outside the scoop or with no authority.
Void Contracts because of lack of one of the requisites or it is contrary to law etc.
Rescissible Contracts

Take note the contract here is rescissible because a rescission is a remedy does it mean that the
contract is rescissible?
A: Not necessarily, in Article 1191, the rescission may be a remedy not because the contract is
rescissible but because there was substantial breach of one of the parties.
Diff. bet. Art. 1191 and Art. 1380 &1381
CASE: A motion to dismiss was filed because an action had already been prescribed because the
action was filed more than 4 years from the date of the contract. Was this motion granted?
The SC said that the reason why this motion was not appropriate because the ground for
rescission here was not of an economic prejudice.
In rescission under Art. 1191, if the contract is in writing the action would prescribe only after 10
years.
The other major difference is under Art. 1381 this is a subsidiary remedy, there should be no other
legal remedy available to the aggrieved party whereas in Art. 1191 the rescission there is a
principal remedy, he can invoke that remedy without invoking any other remedy. In rescission in Art.
1191 was just the result of an erroneous translation of the Spanish term, it should have been
resolution.
Q: When would a contract be a rescissible contract?
A: Only because the law so provides, there has to be a law which to declares the contract to be a
rescissible contract.
Rescissible contracts are enumerated under Art. 1381. When the guardian enters into a contract
involving a property of his ward and the ward suffered lesion of more than 25% or of the value of
the thing. First, you should always bear in mind that in that contract if this is a sale, the buyer must
not be the guardian himself for the contract to be rescissible because if the buyer is the guardian,
Art. 1381 is not applicable, what is applicable is Art. 1491 where the guardian is prohibited from
acquiring by purchase, this contract is void. But if the buyer is a third person Art. 1381 may apply.
Another requirement is that the property must be the property of the ward. The law further provides
that rescission may not be a remedy even if the contract is rescissible because the ward suffered
lesion of more than 25%, when the court approved such contract.
Q: Does it matter if both parties to that contract faithfully complied with their respective obligations?
A: it doesnt matter. The contract would still be rescissible. Even if the guardian delivered or the
buyer paid, the contract still be a rescissible contract because the ward suffered a lesion for more
than of the value. Same rule as to representative in relation to the properties of the absentee,
more than ang lesion.
Problem: What if the property of the ward was sold for a price where the was suffered a lesion for
more than 25% in a sale of shares of stocks where the value is P100T and the guardian sold only
for P60T, there is lesion of more than 25%. If thereafter the ward who attained the age of majority
filed an action for rescission would rescission only pertain to the portion of the shares of stocks
where the ward suffered lesion which is P40T shares or should rescission pertain to all P100T
shares sold to this buyer. There appears to be an inconsistency bet. Art. 1384 & 1385, because in
Art. 1384 the law provides that rescission should be to the extent necessary to cover the damages
cost meaning only to the extent of P40T shares. But in Art. 1385 the law provides it would create
an obligation to return whatever was delivered in effect this is the usual effect of rescission which is
mutual restitution, therefore the buyer should return all the shares of stocks as much as the ward
would have return the P60T which he received. Which is applicable in this scenario?
A: Professor Tolentino said that on the first and second par, the applicable provision is the Art.
1385. There would be an obligation return, mutual restitution would be the effect. Art. 1384 can only
be invoked if the contract is rescissible because it is in fraud of creditors.

Ex. A debtor is indebted in the total amount of P100T to his creditor. Thereafter he sold 3 parcels of
land identical and the value of each is P100T. If rescission would be granted in favour of the
creditor, should rescission pertain to all parcels of land or would it suffice that rescission should
only pertain to one parcel of land?
A: Article 1384 would only applicable to the extent necessary to cover damage. The unpaid debt is
only P100T and the value of one of the parcels of land is P100T that would cover already the
damage that may be caused to the creditor and therefore there should not be rescission as to the
sale involving the 2 parcels of land. As to the other scenario, mutual restitution should be a remedy.
A thing was sold by the defendant without the knowledge of the plaintiff and no knowledge and
approval of the court. That sale between the defendant and the third person under the law is a
rescissible contract. The common misconception for this par. is because the property was sold the
property under litigation this would only be in fraud of creditors and therefore there has to be a
proof of fraud in order for the contract to be rescissible, this is wrong. Iba ang contracts in fraud of
creditors iba ang thing under litigation. The fact that the thing is under litigation and it was sold by
the defendant to the third person, the law provides that the contract is rescissible. The premise of
this article however is that the plaintiff won.
Contract in Fraud of Creditors
Q: How is fraud proven?
A: The law actually provides for 2 ways in proving fraud. You can simply invoke a presumption or
you may present evidence which is known as Badges of Frauds.
CASE: Cabaliw vs. Sadorra The wife filed an action against his husband for support and the court
decided the case in favour of the wife and therefore the wife here is the creditor of the husband.
After this judgment was promulgated the husband sold his properties to his Son-in-Law. Is this sale
of these parcels of land is in Fraud of Creditors?
SC: Yes, again 2 ways, first there is presumption of fraud and second there is badges of fraud.
Q: As to the presumption of fraud when would a presumption arise that the contract or transaction
is in fraud of creditors?
A: 2 scenarios, these may arise: (1) when a contract is onerous; or (2) when a contract is
gratuitous. That the contract was in Fraud of Creditors even if the contract is an onerous contract
would arise if the contract was entered into after a judgment was rendered in favour of a creditor or
there was an order of an attachment against the debtor.
Take note that in this case the sale was entered after judgment was rendered in favour of the wife
and therefore under the law this is presumed to be in fraud of a creditor. This is rebuttable
presumption. (Atty. Uribe)
Q: Is it required that the judgment or order should already be final and executory at the time the
transaction was entered into by the debtor?
A: The law did not so require.
But if the transaction is gratuitous, when would presumption arise?
Ex.: in case this debtor had properties valued at P10M. Out of those properties he donated
properties valued at P7M but he has creditors. Is the donation therefore presumed to be in fraud of
his creditor?
A: Not necessarily, because the presumption would only arise if with the donation he did not
reserve sufficient properties to cover his debts. In this case there would be no presumption.
As to the badges of frauds, in the case of Cabaliw vs. Sadorra, one badge of fraud is the close
relationship between the parties to the contract. In this case, the seller was the Father-in law and
the buyer was the Son-in-law.
Case: Hongkong & Shanghai Bank vs. Pauli

Close relationship between the parties alone does per se cannot be a basis for the court to
conclude that the contract was in Fraud of a creditor, because there may be a valid and binding
sale, a good faith sale between a parent and a child.
Another badge of fraud in a contract of sale would be the fact that the seller did not take
possession after the sale. It seems that this is simulated sale. The others badges would include the
in adequate consideration of the conveyance.
Q: If the consideration is fictitious would the contract merely be rescissible?
A: No. these is not a badge of fraud that would make a contract rescissible because if a
consideration is fictitious the contract should be void not merely rescissible.
Ex.: If a person is a debtor who has debt of P500T and he sold his property valued at P1M in the
amount of P50T it seems there is in fraud of creditors.
Another badge of fraud would pertain to a sale by a debtor and that debtor is already insolvent. A
sale upon credit or credit by an insolvent debtor is also a badge of fraud.
Other requirements of rescission to be a remedy is he must able to return whatever he may have
mutual restitution.
Scenario: in a sale where the seller is the debtor but he sold his properties to a buyer in fraud of a
creditor. The law provides that rescission would not be a remedy if the thing which is the subject of
the contract is lawfully in the possession of a person who did not act in bad faith.
Q: So what if the buyer acted in good faith, would rescission be a remedy? Or in that provision is it
required that a person who may be in legal possession should be a third person in relation to the
sale?
A: the third person referred to who may be in good faith is the buyer from this debtor, he is the third
person in relation to this debt as long as the buyer is a buyer in good faith and for value he would
be protected under the law, and rescission of the sale would not be a remedy.
As a rule, in order that an action for rescission be prosper, it should be filed within the 4 years of
the contract. However, if the ground for rescission is because the contract was in fraud of creditor
the law provides that the 4-year period will be reckoned from the discovery of the fraud. However a
qualification to this rule, discovery of the fraud, it need not be the actual discovery, it could be at the
time of the registration of the sale because in the case of Hongkong & Shanghai vs. Pauli, the
bank filed an action for rescission within 4 years from the time the bank actually discovered but it
just happened that the sale was registered more than 4 years from the filing of the action. The SC
ruled, the action had already prescribed. It is from the time of registration that the 4 year period will
be reckoned. If the ground pertains to contracts entered to by the guardian the 4 year period would
be reckoned from the time the ward attained the age of majority or recovered from the incapacity.
Voidable Contracts the defect pertain to the incapacity and vitiation of consent. This would also
apply to other agreements like partition.
Problem: X was the owner of the 10sqm property, X married Y and out of their union A, B, C were
born. After the death of Y, X married Z and they begot a children D. E, F. After the death of X the
children of the 1st and 2nd marriages executed an extra-judicial partition of the stated property on
May 1, 1970. D, E & F were given 1,000sqm portion of the property. They were minors at the time
of the execution of the document. D was 17 years old, E was 14 and F was 12 and they were made
to believe by A, B and C that unless they sign the document they will not get any share. Z was not
present then. In January 1974, D, E & F filed an action in court to nullify the suit alleging they
discovered the fraud only in 1973. A) Can the minority of D, E & F be a basis to nullify the partition?
Explain your answer. How about fraud? Explain your answer.

A: a) Yes, when they entered into agreement for this partition they were minors in 1970. When the
action filed in 1974 the action was filed within 4 years, from the time D attained the age of majority.
Thus, minority would be a ground.
b) Yes, this pertains to the vitiation of consent. There was fraud because they were made to believe
that unless they will sign they will not get any share.
Q: Voidable contracts are subject to ratification, is the consent of both parties required for
ratification?
A: No, because only the party who is incapacitated or only the party whose consent was vitiated
would have the right to institute an action for annulment and therefore he alone can ratify the
contract.
Q: May a third person have the right to institute an action for annulment?
A: Yes, as long as he is subsidiarily obliged to that contract. Ex. guarantors, pledgors, mortgagors.
Otherwise, as rule, third person who are not subsidiarily obliged would not have a right to institute
an action for annulment.
However, the SC ruled that a third person may have a right to institute an action for annulment if he
can show prejudice if the contract will not be annulled.
Scenario: a thing was sold to a buyer but there was vitiation of consent on the part of the seller.
Thereafter the seller sold the same thing to a 2nd buyer. The 2nd buyer is not a privy to the 1st not
even subsidiarily obliged to the first but he will be definitely prejudice if the first sale is not annulled.
Then the third person would have a right to institute an action for annulment.
Ratification may be expressed or implied.
Ex. if the minor leased his parcel of land when he was only 17 years old, does the contract would
be voidable?
A: there is implied ratification if he continued to received rentals, he accepted the benefits arising
from such contract.
If the agreed party is in not a position to return what he received, annulment would not be a
remedy. But if it is due to the fortuitous event and due to the fault of the other party, annulment will
be a remedy.
UNENFORCEABLE CONTRACTS
.. into unenforceable contracts; again, these contracts cannot be enforced even through court
action unless ratified; and if there is a proper objection, obviously there would be no ratification. In
fact a kind of ratification is the failure to properly object, when oral evidence is presented to prove
the existence of the contract.
Now what contracts are considered as unenforceable contracts? Basically Ive mentioned the three
(3) already. Contracts wherein both parties are incapacitated are unenforceable contracts. Again, if
one of the parties ratified, then it would have the effect as if only one of the parties in incapacitated,
therefore the contract would only be voidable. Another contract which is unenforceable is a contract
entered into by a person in representation of another, but he does not have the authority of that
person; unless of course, like I mentioned, unless he has legal representation (maybe he has
authority of the law or he was authorized by the court to enter into such contract). Now a third
group of contracts which are unenforceable are contracts enumerated under Article 1878, entered
into by an agent without SPA. We will discuss these contracts enumerated under Article 1878 when
we discuss the law on agency. Today, we will discuss the last group of contracts which are really
the favourites in the bar exams (like those covered by the Statute of Frauds).
Let us start with the first in the enumeration. The question here would be: A contract for a piece of
work: Would it be covered by the Statute of Frauds or may it be covered by the Statute of Frauds?
If not in writing, would it be enforceable? Or a contract of agency perhaps, if not in writing, would it
be covered by the Statute of Frauds? A misconception of at least one author is a claim that the SoF

would only apply if a contract is either a contract of sale or contract of lease --- that is definitely
wrong, because under Article 1403, any agreement under its terms is not to be performed within
one year, and it is not in writing, would be unenforceable. Again, the law uses the word any. Thus
a contract of agency, piece of work, or any other contract for that matter, where under its terms, it is
not to be performed within a year, then it would be unenforceable if not in writing. This particular
scenario as to this paragraph under Article 1403, is not really consistent with the original purpose of
the Statue of Frauds this is somehow a deviation. Kaya sa SoF, the purpose of the statute is to
prevent fraud being committed by one party against the other because the contract is not in writing.
However, in this particular scenario, where the agreement is not to be performed within one year,
its not really that fraud is to prevented but rather this recognizes the fact that even honest men
may commit mistake. Well, I would hear from my students that if they cannot give the correct
answer but they have read the subject matter 3 days ago (ngayon hindi na nila alam, nakalimutan
na nila yung sagot). Thus if it is not to be performed within one (1) year, lalo na! nagkakalimutan
na! This is especially true in Obligations. I have read somewhere, that in psychology that our brain
has this function, parang may power siya to shut off yung mga bad memories, and therefore you
would not normally remember yung mga experience mo na hindi maganda (lalo na yung obligation
ha hindi masyadong maganda. Haha), kaya it would not be unusual if you have a friend who is
indebted to you who you would see everyday; as a creditor maaalala mo yung taong ito, na Oy,
may utang skin yung taong to, pero sya parang wala lang diba, parang wala siyang utang, diba?
Not because probably of fraud, but because he may have forgotten that he has an obligation. Kaya
ang kailangan ay medyo iremind mo siya, lalo na kung in writing. Thus even a contract for a piece
of work, which in its terms is not to be performed within one (1) year may be covered by SoF, k?
Another one, itong bar question last year; Answer true if the statement is true, if the statement is
false explain your answer in not more than 2 sentences.
An oral partnership is valid. This statement is true. Technically speaking, even if one of the parties
contributed an immovable property, what the law requires is not the partnership to be in writing but
there should be an inventory of such immovable property which should be signed by all the
contracting parties. But of course there is a debate here. The debate in partnership (tutal nandito
na rin yung tanong), is that if an immovable property is contributed, is it not also required, as stated
in Article 1771 in re 1773, the partnership shall be in a public instrument. In fact, it is said that
inventory should be attached in the public instrument. Well, I would agree here with Professor
Bautista, Professor Agbayani that that requirement as to form is not necessary for the validity of the
contract. If you read the provision, there is nothing in the provision which would tell you if the form
is not complied with, the contract would be void. What is clear from those provisions is that if there
is no inventory of such immovable property signed by all the contracting parties, then the
partnership would be void. In other words, while the law requires a form public instrument to the
partnership if an immovable is contributed, that form is not necessary for the validity of the contract.
Professor Bautista would tell us that it is necessary to protect third persons, so that they would
know the purpose of the partnership, etc. when they deal with the partnership.
But I mentioned to you this scenario: oral promise of guaranty is valid and binding. A guaranty is
entered into always by a third person. The guarantor here is not the principal debtor (walang
guarantor na siya rin yung principal debtor). And therefore this would fall under the Statue of
Frauds a special promise to answer for the debt of another. And since this is not in writing as it is
merely an oral promise of guaranty, then it cannot be a valid and binding contract. It would be
unenforceable under Article 1403.
Now, into this case, Cabagui vs. _____ (verify please ). The father and his son had a verbal
agreement with another father and his daughter that the son and the daughter will be married and
that before the marriage, the father and the son will cause the repair of the house of the father and
the daughter. This agreement appears to be a usual agreement then because normally the
reception after wedding would be the house of the bride, diba? Mukhang ngayon hindi na, sa KFC
na yung reception. Pursuant to this verbal agreement, the father and the son had the house
repaired. For that they spent around Php 700 (at that time malaking amount na yun). However after
the house was repaired, the daughter refused to marry the son (narepair na yung bahay eh. Haha).

Because of that, the father-and-son, filed an action for damages against the father-and-daughter.
Did this action prosper? Sabi ng Supreme Court, lets consider the causes of action in this case. As
to the fathers action against the father-and-daughter, this is based on the agreement in
consideration of marriage. And therefore under the SoF, this has to in writing for it is only a verbal
agreement; that agreement is unenforceable, and the action was dismissed. However, as to the
son vs. father-daughter, the SC held that it pertains to an action under a mutual promise to marry,
which is not covered by the SoF; sabi ng SoF, an agreement made in consideration of marriage
other than a mutual promise to marry. So the SC remanded the case back to the trial court for
further proceedings. Now I would warn you however that, ordinarily, a mere breach of a promise to
marry is not actionable. However, the manner of breach can be a basis for an action for damages.
If you remember this case of Wasmer vs. Velez, where the groom sent a telegram only about a day
before the wedding to tell the bride that the wedding will not push through, at a time when
expenses have been incurred for the wearing apparel, food, etc, invitations have already been
sent, the SC said that this act of the groom was contrary to morals under the provisions on human
relations for which he was held liable. Now, althought actually when the Code Commission
recommended yung Proposed Civil Code of the Philippines, there was a whole chapter for liability
in case of breach of promise to marry. But congress found it necessary to delete the entire chapter,
otherwise, baka lahat sila maging liable . But apparently, ok naman, because if someone would tell
you that I will marry you, tingnan mo naman kung seryoso o hindi; kung nabola ka lang, sorry ka!
Haha! An agreement made in consideration of marriage is required to be in writing, otherwise it
would be unenforceable.
But of course, I would agree that the most common contracts which are covered by SoF are sales
and lease. Lets start with a contract of sale. If it involves an immovable property, and it is not in
writing, it would be unenforceable. Maybe this is for the second time, but I would have to
emphasize that the SoF doesnt require the contract to be in a public instrument! The law merely
requires that it be in writing to be a valid and binding contract. So in sale of an immovable property,
as long as it is already in writing, that would be a valid and binding contract between the parties.
But ordinarily it would not bind third persons because a private instrument cannot be registered and
therefore only the parties would be bound except again those 3ps who have actual knowledge of
this contract. Now, does it matter if the price agreed upon in this contract of sale involving an
immovable is Php 300 only or less than Php 500? The answer is NO! The price in the sale of an
immovable is irrelevant, k? Although others would ask, kung meron bang sale of parcel of land for
only Php 300? Of course there were such sales before nung 1950s -70s. Pero today,kung bibili ka
ng land for Php 300, nasa paso lang yan . If you want to buy 1 square meter of lot sa Makati, mga
Php 400k per square meter, ganun lang kamura. Haha. But in sale of movables, e.g. If A sold a bag
to B, which bag he purchased 3 days ago, for Php3.5k, but he sold it to a friend and it is not in
writing, therefore it would be covered by the SoF? Not necessarily! What is relevant under the SoF
in sale of movables is not the value of the thing but the PRICE agreed upon by the parties. And
therefore, even if the value if Php 3.5k, if he sold it only for Php 350, that would not be covered by
the SoF. The law on sales follows the general rule in contracts that lesion as a rule does not affect
the validity of the contract. Kung magbenta ka ng palugi, ok lang yan under the law on sales . Now,
a contract of sale involving a movable where the price is less than Php500, may that contract still
be covered by the SoF? Yes! If it would fall under the first paragraph if under the terms of the
contract, it is not to be performed within 1 year. In relation to lease contracts, where you have a
contract of lease for 3 years and it was merely a verbal contract, would that be covered by SoF?
Not necessarily! A common mistake is to claim that because the lease is more than 1 year and it is
not in writing, then it is unenforceable. This is wrong because you should read the provision in its
entirety. What is really required to be in writing is a contract of lease of more than one year and the
subject matter of the lease is a REAL PROPERTY. So kung car lang ang nilease even for more
than a year, even if it is not in writing, that would be a valid and binding lease, ok? Again, it is the
lease of a real property for more than 1 year which is required to be in writing under the SoF. Kaya
lang when we go to Agency, 1878 would include a contract of lease entered into by an agent if the
contract of lease would involve a real property and the period is more than 1 year, not only must
the lease be in writing, but the agent must have a special power of attorney. So ang bar exam
questions would sometimes be a combination of 1403 and 1878 in re: enforceability of such
contract of lease.

Bar Exam Question: X came across an advertisement in the Manila Daily Bulletin about the rush
sale of 3 2nd hand Toyota Cars for only Php 200k each. Finding the price very cheap and making
sure that he at least gets one unit ahead of the others, X immediately phoned the advertiser, Y, and
placed an order for one car. Y accepted the order and promised to deliver the unit on July 15, 1989.
On the said date, however, Y did not deliver the said unit. X brings an action to compel Y to deliver
the said unit. Can such action prosper? A good answer is that this action will not prosper if there is
a proper objection. Ill give you a tip: kapag nagsimula nag examiner ng will, start your answer
with will as well; if he starts with may, just follow the lead. So will the action prosper? Yes, the
action will not prosper if (you can qualify your answer) there is a proper objection. But if oral
evidence was presented to prove the existence of the contract and there was no proper objection,
the action may prosper. Now, as this obviously involves a sale of a movable property and the price
is more than Php 500. Under 1403, this contract should have been in writing; and since under the
facts, X merely phoned the advertiser, then this is obviously merely a verbal agreement.
Bar Exam Question: A and B entered into a verbal contract whereby A agreed to sell to be his only
parcel of land for Php 20k, and B agreed to buy. B went to the bank and withdrew the necessary
amount. A however, had changed his mind and refused to go through with the sale. Is the
agreement valid? Will an action by B vs. A for specific performance prosper? Take note that there
are 2 questions to this problem. These questions are really different from each other. As to the first
question, YES, the agreement is valid; although it cannot be enforced in a court action if there has
been a proper objection because a sale of an immovable property which is not in writing is covered
by SoF. As to the second question, again unenforceable contracts are valid contracts; It will not
prosper if there has been a valid objection. I would always agree with the term proper objection
because you should not object after the presentation of evidence, diba? At the moment na
ippresent palang yung testimony, there should already be an objection. By now, you should
remember that when there is a witness who would be testifying, there would be an offer
testimony/evidence before he would actually testify; so you can already object at that moment; wag
mong hintayin na nakapagtestify na siya because by then , there would already be a ratification.
But there may be a claim that this contract was taken out of the operation of the SoF because there
was partial fulfilment. Under the facts, B went to the bank to withdraw the money to be paid to A.
Can this be considered as partial fulfilment? Far from it! Malayo! Only preliminary to the fulfilment
of the obligation to pay it is not the same as if he had paid; he only planned to pay; there was
merely preparation to pay. Hence the contract is still covered by SoF.
In the same manner, consider this one: Suppose that in an oral contract which by its terms is not to
be performed within a year from execution, one of the contracting parties has already performed
within the year, the obligations imposed upon him by the contract, can the other party avoid
fulfilment by invoking the SoF? No! SoF cannot be invoked if there has already been performance
by the other party. You see, the reason why a person can invoke the SoF is because the contract is
still wholly executory. Thus there is no proof of the existence of the contract. If there has already
been performance even only partial, then it presupposes that there was a contract in the first place.
Therefore, the reason of the law for the statute of frauds would no longer be present. Again, this
SoF is intended to prevent fraud and not protect fraud.
Question: of a parcel of land belonging to A and B was sold by X to Y for Php 1.5k. The sale was
executed verbally. One year later, A and B sold the entire land to X. Is the sale executed verbally by
X to Y valid and binding? Take note the sale between X and Y is a verbal sale and it involves a
parcel of land. On its face it appears to be covered by the SoF. But then again the suggested
answer to this question by the UP Law Center was: Yes, the sale is valid and binding because
there was already payment, and hence took it out of the operation of the SoF. CU: Basahin nyo
yung facts, wala akong makitang payment. It was only stated that the property was sold for Php
1.5k. It was not mentioned that there was actual payment. Now another alternative answer is this:
Even if X was not the owner at the time of the sale, when he thereafter acquired ownership, by
operation of law, ownership passed to his buyer Y. Apparently, the basis of this answer is 1434.
Now, is 1434 really applicable? With due respect to that alternative answer, I also cannot agree
because for 1434 to apply, the law further requires that there must have been delivery of the thing

by the seller to the buyer, even if the seller was not the owner and no right to sell, he must have
delivered the thing to the buyer in order for ownership to automatically pass to the buyer the
moment the seller acquires ownership of the thing. Under the facts was there any mention of
delivery? Mukhang wala rin, diba? Kaya, Id rather agree with the last alternative answer: that since
it a sale of an immovable property and it is a verbal sale, there being no partial fulfilment, this
contract is unenforceable under SoF. By now, you must have read the suggested answers,
hopefully not only the suggested answers ng UP Law Center but also The Philippine Association of
Law Schools. If the suggested answer would be totally different from the alternative answer, I would
tell you not to panic. Sometimes sumasagot kayo under the alternative. Again, its not something
that you should worry about. Ang hindi ko lang natatanggap minsan is an answer which is contrary
to law. Otherwise, if it can be the subject of a debate, I can accept the alternative answers.
Now, just because a contract involves a real property, does not mean that it will covered by
SoF. For example, an agreement as to the parcel of land, obviously, a parcel of land is an
immovable property, but that agreement is not covered by SoF. The SoF would be applicable if the
action filed is to enforce a contract which is covered or to claim damages because of breach of that
contract. Example in a case where an ejectment suit was filed and the plaintiff was about to testify
as to the existence of a verbal contract in relation to the land - to prove his right to evict the
occupant. The lawyer of the defendant invoked the statute of frauds. Was it proper? No! Because
the action filed is not an action to enforce an unenforceable contract; not to enforce a contract
covered by SoF; not an action for damages base on an unenforceable contract. This involves a
third person, and a third person under the law cannot assail an unenforceable contract. Now also, I
mentioned a while ago, the doctrine of part performance that the SoF is only applicable if the
contract is wholly executor in character. Thus if there is only partial fulfilment, the contract is taken
out of the operation of the SoF. The misconception according to the SC in relation to this doctrine is
the claim that there should either be partial payment or partial delivery. Kaya pag wala raw partial
payment/delivery, the doctrine raw is not applicable. That is not correct! Because partial fulfilment
may pertain to any obligation arising from a verbal contract. Example, in a case decided by the
SC, involving a sale of a parcel of land as verbally agreed upon, the buyer paid yung mga real
property taxes; the buyer also had the property surveyed; he also constructed a building more or
less of permanent character. So far do any of these obligations have anything to do with payment?
Wala! With delivery? Wala rin! But nonetheless the SC ruled because of partial fulfilments arising
from those contract; the contract was taken out of the operation of the SoF. Again, ang fulfilment,
hindi kailangan na related to payment of delivery.
If a contract was covered by the SoF, and the plaintiff would want to present a witness who
would testify without any document at hand. In other words, oral testimony lang tlga; walang
documentary evidence to be presented. And there is an objection under the SoF. Necessarily the
judge should sustain the objection because the contract is covered by the SoF? SC: It would
depend on the purpose of the testimony, because if the purpose of the testimony is to prove partial
fulfilment, then the SoF is not applicable. In other words partial fulfilment may be proven wholly by
oral testimony; no documentary evidence is required with respect to partial fulfilment. However, SC:
even if 3 witnesses would testify in court as to partial fulfilment, the court should not automatically
conclude that there was indeed partial fulfilment. The court should satisfy itself, based on the
testimony, that there was indeed partial fulfilment. Tama yan, kasi maski sampu witnesses mo to
prove partial fulfilment, kung mukhang sinungaling naman yung sampung ito, eh the court should
not consider the testimony; nasa weight nan g testimony yung question ditto, k? On the other hand
yung SoF, does not pertain to the weight of evidence. The SoF affects the admissibility of evidence.
In other words, if the contract is covered by the SoF, the testimony may not even be allowed, under
this objection. It goes into the admissibility of the evidence.
Of course again, unenforceable contracts can be ratified: (1) by the acceptance of the benefits
under such contract; (2) for failure to object to an oral presentation of evidence at the proper time.
Thus, what else.. I think that should be sufficient as far as unenforceable contracts are
concerned.
VOID/INEXISTENT CONTRACTS
Article 1409 enumerates contracts which are void and somehow I believe we have
discussed each and every ground for nullity of contracts.

Examples;
Those whose cause is contrary to law, morals, good customs, public order, and public policy.Again,
emphasis on public policy so if the cause is contrary to public policy, the contract is not merely
voidable but void/inexistent.
Fictitious or Absolutely simulated contracts. I dare to say relatively simulated contracts are included
the simulated contract itself is void, but they will be bound to the contract they entered into.
Cause or did not exist at the time of the transaction. There has to be a cause because if it did not
exist, then one of the essential requisites is lacking, and therefore the contract would be void. One
author however would claim that the cause need not exist at the time of the transaction as long as
there is a potentiality for its existence. Is there anything good with this claim? Wala! There is a
misconception here again that object is a thing. The object is not a thing, it is the subject matter of
the contract. The claim of that author would have been good in a contract of sale where a sale may
be valid even if the things is not yet in existence as long as it has the potentiality of existence.
Again, in a contract, there has to be a cause. Kasi kung wala ka naming subject matter, ano
contract mo? Eh di wala!
Objects that are outside the commerce of men.
Those which contemplate an impossible service.
Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained.
Those expressly prohibited by the law. This is the basis for the notion that those contracts covered
under 1491 are void contracts and not merely voidable contracts. Now if there is one as to the
effects in re: void contracts.
If you have read the case of Tongoy vs. CA. (a few authors would actually copy the statement of
the court in their books), the SC in this case said that as a rule, a void contract produces no legal
effect whatsoever. Is this an accurate statement of the law? The implication of this statement is that
under certain scenarios, a void contract would produce some legal effects. Una, by way
observation, if you would be reading decisions of the SC, I dare to say that 99% of the cases state
that a void contract produces no legal effect whatsoever, If you would read Article 1352: if the
contract has no cause or lawful cause, it produces no legal effect whatsoever. Hindi sinabi ng batas
na as a rule. In the first place, the law considers this contract as inexistent; and if such is
inexistent how can it produce any legal effects. But cge, tingnan nten..if an action is filed to enforce
the contract, would the action prosper? Absolutely no! Any action to enforce a void contract will
never prosper. Because there is nothing to be enforced. However, consider this scenario: If a
contract is void and one of the parties delivered something to the other. May he be able to recover
what he delivered to the other party? Now, ordinarily, if the contract is an illegal contract, meaning
the cause is contrary xxx, he can no longer recover based on the pari delicto rule. The SC would
tell us that the courts should leave them as they are. No aid shall be given to the parties of this
illegal contract. Again, under the in pari delicto rule. Because they are equally guilty, they should
have no cause of action upon upon the contract. Kaya lang, there appears to be exceptions to this
rule that the party in an illegal contract can no longer recover what he delivered pursuant to the
contract. Examples are:
If one of the parties to this illegal contract was incapacitated at the time the contract was entered
into, he may be allowed to recover what he delivered to the party. Is there wisdom to this rule? I
think so. Precisely because he is incapacitated, he does not know the legal consequences of his
act. Public interest would allow him to recover what he has delivered.
Despite the fact that the contract was illegal, a party may be allowed to recover if he repudiated the
contract before the consummation or before damage is caused to a third person. Is there wisdom?
Meron pa rin! That party recognized that he did wrong in entering into that contract. Nagkamali
sya, so he repudiated. Although requires when he should repudiate the contract.
Nota Bene: Distinguish a void contract from voidable contracts
>existence
>if capable of ratification
>in relation to defect
In 1950, the Bureau of Lands issued a homestead patent to A. 3 years later, A sold the
homestead to B. A died in 1990 and his heirs filed an action to recover the homestead on the
ground that the sale is void under Sec. 118 of the Public Land Law. B however contends that the

heirs cannot recover anymore because their action has prescribed and that A was in pari delicto.
Decide.
Ordinarily, when you answer the question, sagutan mo nalang based on the arguments of the
parties. Wag mo na pakialaman ang iba. In the present case, lets focus on the two arguments. As
to the first argument that the action has prescribed, this is not a good defense because the sale
made between three years of the grant of a homestead patent is a void sale; any alienation of the
land under this law within the 5 year prohibitory period is a void alienation. Again, an action to have
a contract null and void does not prescribe! Imprescriptible! As to the second defense, this is one of
the exceptions provided by law; that when a law declares a contract to be void but there is no
inherent illegality in that contarct; and the declaration of the nullity by law is intended to protect one
of the parties to that contract, that person in whose favor the law would so provide its nullity may
recover what he sold to the other party. Here, the prohibition is intended to protect the grantee and
his family because if he alienates the property within that period, he will have nothing more to
cultivate for himself and his family. Kaya he would still have the right to recover even if such
contract was void (in pari delicto rule is not applicable in this scenario). Kung tinanong sana ditto: If
you were the counsel of A, what defense would you raise? A better defense would have been
latches. 40 years have elapsed since the sale..bakit ngayon lang kayo nagfile ng case? In a way
the grantee and his heirs slept on their rights.
M an unwed mother gave her child for adoption to a childless couple, BC, for which the
latter paid Php 20k. In the civil register of birth, the father was listed as unknown. 2 years later,
after BC learned to love the child and adoption proceedings commenced, F the father of the child
appeared to stop the adoption and seek custody of the child. M sided with BC, claiming that F had
abandoned her when he learned that she was with child and declaring that she wanted BC to keep
the child. Could BC recover the Php 20k that they paid? Reason
Well, the answer is definitely No! It would seem that M sold the child to the spouses.
Obviously the sale is void because the object is contrary to law, xxx. And the contract being an
illegal contract, the in pari delicto rule would be applicable; whatever was delivered by a party to
the other can no longer be recovered; the court cannot give aid to either party to such contract.