CHAPTER 2 2.
Offer – proposal made by the one party (offerer)
ESSENTIAL REQUISITES OF CONTRACTS
Art. 1318.
There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obligation which is established.
(1261)
 Classes of Elements of a Contract
1. Essential Elements – without which there will be
no contract that validly exist regardless the
intentions of the party; requisites of a contract
a. Common - present in all contracts:
Consent, Object and Cause (C.O.C)
b. Special - not common to all contracts;
peculiar to certain specified contracts
and such peculiarity may be:
i. Form: delivery in real
contracts, chattel mortgage
ii. Subject matter – real property
in antichresis(a debtor pledges i.e.,
conveys possession but not title) real
property to a creditor,
allowing the use and
occupation of the pledged
property, in lieu of interest on
the loan), personal property in
pledge
iii. Consideration/cause: price in
sale, liberty in commodatum
(refers to a gratuitous loan of a
movable property which is to be
returned undamaged to the lender.)
2. Natural Elements – presumed to exists in certain
contracts unless contrary is expressly stipulated
by the parties; ex: warranty against eviction/
warranty against hidden charges
3. Accidental Elements = particular stipulations,
clauses, terms or conditions established by the
parties in their contract like conditions, period,
interest; exist only when they are expressly
provided by the parties.
SECTION 1. - CONSENT
Art. 1319.
Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not
bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to
have been entered into in the place where the offer was
made. (1262a)
 Definitions:
1. Consent – conformity or concurrence of wills
(offer and acceptance) and with respect to
contracts; agreement of the will of one
contracting party with that of the other, upon
the object and terms of the contract; mutual
assent or agreement takes place when there is
an offer and acceptance of the offer.
to another (offeree), indicating willingness to
enter into a contract; more than an expression
of desire and hope; a promise to act/ refrain
from acting on condition that the terms thereof
are accepted by the person to whom is made
 Offer must be certain and seriously
intended
i. Offer must be certain or
definite so that the
liability/rights of the parties
may be exactly fixed
ii. Offer made in jest or in anger
or emotionally upset or way
indicating the same was not
seriously intended is not a
valid offer; lack of serious
intent to enter into a contract
where in such condition the
offeree honestly believed the
offer was seriously intended,
does not invalidate the offer.
3. Acceptance – manifestation by the offeree of his
assent to all the terms of the offer; no
acceptance, no meeting of the minds between
the parties
 Acceptance of offer must be clear and
absolute
 Must not only be clear, must
also be absolute,
unconditional or unqualified
 Identical in all respects with
that of the offer as to produce
consent
 If acceptance is qualified as
when it is subject to a
condition, merely constitutes a
counter-offer(rejection of the
original & attempt by the
parties to enter into a contract
on a diff, basis)
 Qualified acceptance must be
accepted absolutely that there
will be a contract
Art. 1320.
An acceptance may be express or implied. (n)
 Forms
 Express acceptance – promise to pay a certain
amount of something/ to do something, may be
oral or written
 Implied Acceptance – inferred from act of
conduct
ARTICLES 1321-1326 HAVE BEEN ADOPTED FROM THE
AMERICAN LAW
Art. 1321.
The person making the offer may fix the time,
place, and manner of acceptance, all of which must be
complied with. (n)
 Matters That Offerer May Fix
 Person making the offer has the right to
prescribe the time, place and manner of
acceptance which all of it must be complied.
 An acceptance departing from the terms of the
offer constitutes a counter offer, thus
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 extinguishes the original offer creating a new
offer which the original offerer may accept or
reject
 Communication of the Offer
 Offer must be communicated and received by
the offeree
 May be express or implied by the language or
acts of the offerer understood as such by the
party.
Art. 1322.
An offer made through an agent is accepted from
the time acceptance is communicated to him. (n)
 Communication of Acceptance
 To offerer – acceptance of offerer must be
absolute; must be communicated to the offerer;
acceptance may either be expressed or implied
subject to the terms of the offerer
 To agent – agent is considered an extension of
the personality of his principal; if duly
authorized, the act of the agent is (in law) the
act of the principal.
 The article applies only if the offer
is made through the agent and
acceptance is communicated
through him
 No meeting of minds if the
principal himself made the offer
and the acceptance is
communicated to the agent, unless
he/she is authorized to receive the
acceptance
Art. 1323.
An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed. (n)
 Offer Becomes Ineffective
 Offer may be revoked or withdrawn at any time
before it is accepted by communicating such
intentions to the other party
 Acceptance will not produce a meeting of minds
if either of the party’s offer is ineffective due to
death, civil interdiction, insanity or insolvency
 At the time acceptance is communicated, both
parties must be living and capacitated
 Other Grounds Which Render Offer Ineffective
 Failure to comply with the condition of the offer
 Expiration of the period fixed in the offer for
acceptance
 Destruction of the things due before acceptance
 Rejection of the offer
Art. 1324.
When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as
something paid or promised. (n)
 Definitions
1. Option – refers to the privilege given to the
offeree to accept an offer within a certain
period
2. Option Contract – giving a person for a
consideration a certain period within which to
accept the offer of the offerer
3. Option period – period given within which the
offeree must accept the offer
4. Option Money – money paid or promised to be
paid in consideration for the option; not an
earnest money(partial payment of the purchase
price)
 Withdrawal Of Offer Where Period Stipulated For
Acceptance
 General rule is that the offer may be withdrawn
as a matter of right at any time before the
acceptance.
 Exception is when option is founded upon a
consideration, as something paid or promised
 Articles 1324 & 1479 compared
 Article 1324 lays down the general rule
regarding offer & acceptance; Interpreted as
modified provision of article 1479
 A unilateral promise to buy or sell a determinate
thing not supported by any consideration
distinct from the price for which that thing was
intended to be sold to by/to the promise
(offeree) does not bind the promissor, even if
accepted, may be withdrawn anytime
 An accepted unilateral promise to buy or to sell
a determinate thing for a price certain is binding
upon the promissor if the promise is supported
by a consideration distinct from the price
Art. 1325.
Unless it appears otherwise, business
advertisements of things for sale are not definite offers, but
mere invitations to make an offer. (n)
 Business Advertisements Generally Not Definite Offers
 Business ads. on things for sale are not definite
offers, acceptance of which will perfect a
contract
 Merely invitations to the reader to make an
offer
 If ads is complete in all particulars necessary in a
contract, it may amount to a definite offer
which, if accepted, will produce a perfected
contract
Art. 1326.
Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept
the highest or lowest bidder, unless the contrary appears.
(n)
 Advertisements For Bidders Generally Not Definite Offers
 Advertiser is not the one making the offer, the
bidder is the one making the offer which the
advertiser is free to accept/reject
 Acceptance by the advertiser of a given bid is
necessary for a contract to exist, regardless of
the terms and conditions of his bid.
 General rule: advertiser is not bound to accept
the highest or lowest bidder unless the contrary
appears.
 In judicial sales, however, the sheriff/auctioneer
is bound to accept the highest bid
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Art. 1327
The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes
who do not know how to write. (1263a)
 Capacity To Give Consent Presumed
 Civil code does not define who have the capacity
or legal ability to give consent to a contract
 It defines on the contrary who have no capacity
by which it can be inferred that capacity is the
general rule, which exists in those of whom law
has not denied it
 Burden of proof is on the party who asserts
incapacity
 Person Who Cannot Give Consent
 A contract entered into where one of the parties
is incapable of giving consent is voidable
 A voidable contract is valid and binding until is
annulled by a proper action in court; susceptible
of ratification
1. Unemancipated minors – persons who have not
reached the age of majority are still subject to
parental authority
2. Insane/Demented Persons – insanity exist at the
time of contracting; unless proved otherwise a
person is presumed sane
3. Deaf-mutes – if the deaf-mute knows how to
write, the contract is valid for then he is capable
of giving intelligent consent; a contract entered
into by a deaf-mute who knows how to read is
valid although he cannot write because of some
physical reasons
 Reasons For Disqualification
 Persons mentioned can easily be victims of
fraud as they are not capable of
understanding/knowing the nature or
importance of their actions
Art. 1328
Contracts entered into during a lucid interval are
valid. Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable. (n)
 Definition
 Lucid Interval – temporary period of sanity
 A contract entered into by an insane or
demented person during a lucid interval is valid
 It must be shown, however, that there is a full
return of the mind to sanity as to enable him to
understand the contract he is entering into
 Effect Of Drunkenness and Hypnotic Spell
 Both impair the capacity of a person to give
intelligent consent
 These conditions are equivalent to temporary
insanity, hence the law considers a contract
entered into in a state of drunkenness or during
a hypnotic spell voidable and it is not required
that such state was procured by the
circumvention of the other party
Art. 1329.
The incapacity declared in Article 1327 is subject to
the modifications determined by law, and is understood to
be without prejudice to special disqualifications established
in the laws. (1264)
 Incapacity Declared In Article 1327 Subject To
Modifications
 In general, contracts entered into by the
persons enumerated in Article 1327 are
voidable
 However in certain cases. Their incapacity may
be modified by the law, that is, they can also
give valid consent. Thus:
i. When necessaries such as food are sold
and delivered to a minor or other
person without capacity to act, one
must pay a reasonable price
ii. A minor 18 year old or above may
contract for life, health and accident
insurance provided the insurance is
taken on his life and the beneficiary
appointed is the minor’s estate/family
iii. Contract is valid if enter through a
guardian or legal representative
iv. Contract is valid where the minor
misrepresented his age and
convincingly led the other party to
believe in his legal capacity
v. Contract is valid where a minor
between 18 and 21 years old
voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of
his obligation; oblige has spent or
consumed it in good faith
 Special Disqualifications May Be Provided By Law
1. Under the rules of court, the ff. are considered
incompetents and may be placed under
guardianship:
i. Persons suffering the accessory penalty
civil interdiction
ii. Hospitalized lepers
iii. Prodigals (spendthrifts)
iv. Deaf and dumb who are unable to read
and write
v. Those who are of unsound mind even
though they have lucid intervals
vi. Those who, by reason of age, disease,
weak mind and other similar causes,
cannot (without outside aid) take care
of themselves and manage their
property, becoming an easy prey for
deceit and exploitation
2. Contract entered into by any of the above is
valid except where it is voidable by reason of
incapacity under Articles 1327 and 1328 or of
causes which vitiate consent (1330) or where
incompetent has been placed under
guardianship. Thus, a prodigal is presumed to
have capacity to enter into a contract
a. Insolvents until discharged
b. Married women in cases specified by
law
c. Husband and wife with respect to sale
of property to each other
d. Other persons especially disqualified by
law
Art. 1330
A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
(1265a)
 Characteristics of Consent
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  For consent to be valid for purposes of contract
it is required that it must be given with exact
understanding over the thing consented to
 In other words, the contract must be based on
the genuine assent of both parties to the
contract and the terms thereof
 There is no valid consent unless:
i. It is intelligent – there is capacity to act
ii. It is free and voluntary – no vitiation of
consent by reason of violence or
intimidation
iii. It is conscious or spontaneous – no
vitiation of consent by reason of
mistake, undue influence or fraud
 Articles 1330 enumerates in a negative manner
the different requisites of consent
 The contracting parties must possess the
necessary legal capacity to give consent to a
contract
 Vices of Consent
 Aside from incapacity and simulation of
contract, the following are the causes that
vitiate consent or render it defective so as to
make the contract voidable:
i. Error or mistake (Art. 1331)
ii. Violence or Force (Art 1335)
iii. Intimidation/threat/Duress
iv. Undue Influence (Art. 1337)
v. Fraud or Deceit (Art 1338)
 Causes Vitiating Consent vs. Causes of Incapacity
1. The former are temporary, while the latter are
more or less permanent
2. The first refers to the contract itself, while the
second, to the person entering the contract
3. Both make a contract “voidable” only.
Art. 1331
In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the
object of the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such identity or
qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its
correction. (1266a)
 Definition
 Mistake/error – false notion of a thing or a fact
material to the contract
 Nature of Mistake
1. Mistake may be of fact or of law. In general, the
mistake to which Article 1331 refers is mistake
of fact. It may arise from ignorance or lack of
knowledge
2. The mistake contemplated by law is substantial
mistake of fact. The party would not have given
his consent had he known of the mistake.
Hence, not every mistake will vitiate consent
and make a contact voidable
3. The mistake may be unilateral when only one
party is mistaken about a material fact; bilateral
when both parties are in error. Generally, a
person who makes mistake cannot avoid liability
to the innocent party unless he shows that he
was free of fault or negligence
 Mistake Of Fact To Which Law Refers
 In order that mistake may vitiate consent, it
must refer to:
i. The substance of the thing which is the
object or the contract
ii. Those conditions which have principally
moved one or both parties to enter
into a contract
iii. The identity or qualifications of one of
the parties provided the same was the
principal cause of the contract
 No. 1 above includes mistake regarding the
nature of the contract. Both contracting parties
believed that the other is selling when in fact
both are buying
 Mistake Of Fact Which Does Not Vitiate Consent
1. Error as regards the incidents of a thing or
accidental qualities thereof not taken as the
principal consideration of the contract, doesn’t
vitiate consent unless the error is caused by
fraud of the other
2. Mistake as to quantity or amount gives rise to
its correction does not vitiate, unless it goes to
the essence of the contract
3. Error as regards the motives of the contract
does not vitiate, unless the motives constitute a
condition or cause of the contract
4. Mistake as regard the identity or qualifications
of a party does not vitiate for the reason that
contracts are entered into more consideration
of the things or services which form their
subject matter rather than of persons
- Exception is when such identity or
qualifications have been the principal cause of
the contract
5. Error which could have been avoided by the
party or which refers to a fact known to him, or
which he should have known by the exercise of
ordinary diligence or which is so patent and
obvious that nobody could have made it will not
invalidate consent
 Effect of mistake of account
1. Where mistake is simple – simple mistake of
account or calculation does not avoid a contract
because it doesn’t affect its essential requisites;
the defect can be corrected
2. Where mistake is gross – mistake was so gross
that it was clearly apparent to one party and
would be impossible to escape his notice;
cannot liability on the ground of mistake in
computation
Art. 1332.
When one of the parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully
explained to the former. (n)
 Burden Of Proof In Case Of Mistake/Fraud
 Person signs a document, it is presumed he has
full knowledge and understanding of the
contents and thus bound to by all its terms
 Should he later on allege fraud/mistake, it is
incumbent for him to prove his allegation
 A presumption is a fact that is affected as true
until proved otherwise
 Article 1332 is an exception to the above rule
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  The party enforcing the contract who is duty-
bound to show that there has been no fraud or
mistake and that terms have been fully
explained
 “this is rule is necessary where there is still fairly
large number of illiterates and documents are
usually in English/Spanish
Art. 1333.
There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the
contract. (n)
 Effect of Knowledge or Risks
 If a party knew beforehand the doubt
contingency or risk, it is assumed that he was
willing to take chances and cannot claim mistake
 Especially true where contract is aleatory in
nature
Art. 1334.
Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated may
vitiate consent. (n)
 Mistake of Law Meaning
 Arises from an ignorance of some provision of
law or from an erroneous interpretation of its
meaning or from an erroneous conclusion as to
the legal effect of an agreement, on the part of
one of the parties
 Effect of Mistake of Law
 Mistake of law doesn’t invalidate consent
because “ignorance of the law excuses no one
from compliance therewith”
 This doctrine is based on public policy dictated
by expediency and necessity
 When Mistake of Law Vitiates Consent
 When there is a mistake on doubtful question of
law or on the construction or application of law,
this is analogous to a mistake of fact and the
maxim of ignorantia legis neminem excusat
(ignorance of law excuses no one) should have
no proper application
 Why should a layman be held accountable for
his honest mistake on a doubtful legal issue?
When highest courts are sometimes divided
upon difficult legal questions
 Requisites for the Application of Article 1334
1. Error must be mutual
2. Must be as to the legal effect of an agreement
3. Must frustrate the real purpose of the parties
Art. 1335.
There is violence when in order to wrest consent,
serious or irresistible force is employed.
There is intimidation when one of the contracting
parties is compelled by a reasonable and well-grounded fear
of an imminent and grave evil upon his person or property,
or upon the person or property of his spouse, descendants
or ascendants, to give his consent.
To determine the degree of intimidation, the age,
sex and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate
consent. (1267a)
 Nature of Violence or Force
 Violence requires the employment of physical
force
 Under Article 1335, to make consent defective,
the force employed must be either serious or
irresistible
 Nature of Intimidation or Threat
 For intimidation to vitiate the consent of a party
to a contract, the ff. requisites must be present:
i. It must produce a reasonable and well-
grounded fear of an evil
ii. Evil must be imminent and grave
iii. Evil must be upon his person or
property or that of his spouse,
descendants or ascendants
iv. It is the reason why he enters into the
contract
 Intimidation need not resort to physical force. It
is internal while violence is external
 Factors To Determine Degree Of Intimidation
 Whether or not the fear is reasonable and well-
grounded or evil imminent and grave depends
upon the circumstances
 If contract is signed merely out of reverential
fear (fear of displeasing a person to whom
respect & obedience are due) contract is valid
because it does not annul consent in the
absence of actual threat, unless fear so deprives
one of the reasonable inference that undue
influence has been exercised
 Threat To Enforce Just Or Legal Claim
 Threat of a court action as means to enforce a
just/legal claim is justified and doesn’t vitiate
consent
 It is a practice followed by creditors to demand
payment of their accounts with the threat that
upon failure to do so, an action would be
instituted in court
 Such a threat is proper within the realm of the
law as a means to enforce collection
Art. 1336.
Violence or intimidation shall annul the obligation,
although it may have been employed by a third person who
did not take part in the contract. (1268)
 Violation Or Intimidation By A Third Person
 Violation/intimidation may be employed by a
third person who didn’t take part in the contract
 However, to make the contract voidable or
annullable, it is necessary that the violence or
intimidation must be of the character
Art. 1337.
There is undue influence when a person takes
improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the
confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress. (n)
 Meaning of Undue Influence
 Undue influence – influence of a kind that so
overpowers the mind of a party as to prevent
him from acting understandingly and voluntarily
to do what he would have done if he had been
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 left to exercise freely his own judgment and
discretion
 Influence must be undue or improper to avoid a
contract
 Mere general or reasonable influence is not
sufficient
 If gained by kindness and affection or argument
and persuasion, the influence will not vitiate
consent
 Circumstances To Be Considered (whether undue
influence is exercised)
i. Confidential, family, spiritual and other relations
between the parties
ii. Mental weakness
iii. Ignorance
iv. Financial distress of the person alleged to have
been unduly influenced
Art. 1338.
There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he
would not have agreed to. (1269)
 Definition of Causal Fraud
 Fraud committed by one party before or at the
time of the celebration of the contract to secure
consent of the other
 Used by a party to induce the other to enter into
a contract without which the latter would not
have agreed to
 Must be distinguished from the fraud dealt with
in Article 1170
 How Causal Fraud is Committed
 Committed through insidious words or
machinations or by concealment
 “Insidious words or machinations” include any
misrepresentation in words or actions done with
a fraudulent purpose
 If fraud didn’t have the effect of causal fraud
(other party give his consent), it gives rise only
to an action for damages
 Requisites Of Causal Fraud
 In order that fraud may annul consent, the ff.
requisites must be present:
i. There must be misrepresentation or
concealment of a material fact with
knowledge or its falsity
ii. Must be serious
iii. Must have been employed by only one
of the contracting party; fraud
committed by a third person does not
vitiate consent unless it was practiced
in connivance with or at least with the
knowledge of, the favored contracting
party
iv. Must be made in bad faith or with
intent to deceive the other contracting
party who had no knowledge of the
fraud
v. Must have induced the consent of the
other contracting party
vi. Must be alleged and provide by clear
and convincing evidence
 Falsity of the representation is ordinarily proved
from the representation itself and the
circumstances under which it was made
Art. 1339.
Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential
relations, constitutes fraud. (n)
 Fraud by Concealment
 Neglect or failure to communicate or disclose
that which a party to a contract knows and
ought to communicate constitutes concealment
 Concealment is equivalent to misrepresentation
or false representation
 Injured party is entitled to rescind or annul the
contract whether the failure to disclose the
material facts is intentional or unintentional as
long there is a duty to reveal them and the party
is misled or deceived in entering into the
contract
 If failure is unintentional, basis of annulment is
not fraud but there is no duty to make the
disclosure, the parties are bound by their
contract
Art. 1340.
The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent. (n)
 Usual Exaggerations In Trade
 Exaggeration of merchants and traders to make
a sale at the highest price possible
 The person dealing with them had an
opportunity to know the facts, the usual
exaggerations in trade are not in themselves
fraudulent
 Law allows considerable latitude to seller’s
statements/ dealer’s talk; and experience
teaches that it is exceedingly risky to accept it at
its face value
 Customers are expected to know how to take
care of their concerns and to rely on their own
independent judgment
 Any person who relies on said exaggeration
does so at his peril
 Law doesn’t consider such exaggerations even if
known as false by the party making them, as
fraud that affect the validity of the contract
 To constitute fraud, the misrepresentation must
be of a fact, past or present and note mere
expression of an opinion
 Dealer’s talk or trade’s talk are representation
which do not appear on the face of the contract
and these don’t bind either party
Art. 1341.
A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has
relied on the former's special knowledge. (n)
 Expression of Opinion
 A mere expression of an opinion doesn’t signify
fraud. In order that it may amount to fraud the
following requisites must be present:
i. Must be made by an expert
ii. Other contracting party has relied on
the expert’s opinion
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 iii. Opinion turned out to be false or
erroneous
Art. 1342.
Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (n)
 Fraud By A Third Person
 Third person has no connection with a contract
 A party should not be made to suffer for the
imprudence of another in believing the fraud of
a third person
 Presumption is that both contracting parties are
acting in good faith
 If misrepresentation has created substantial
mistake and the same is mutual that affects
both parties, contract may be annulled but
principally on the ground of mistake\
 If misrepresentation has been employed by a
third person in connivance with/knowledge of
the party benefited by the fraud, is deemed to
have been exercised by such party upon the
other contracting party
 It should be remembered that force or
intimidation employed by a third person on one
of the parties makes a contract voidable
because consent is vitiated
Art. 1343.
Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
 Effect Of Misrepresentation Made In Good Faith
 If misrepresentation is not intentional but made
in good faith (person making the false statement
believed it to be true), it is considered a mere
mistake /error
 Fraud is more serious than mistake, thus, the
party guilty of fraud is subject to greater liability
Art. 1344.
In order that fraud may make a contract voidable, it
should be serious and should not have been employed by
both contracting parties.
Incidental fraud only obliges the person employing
it to pay damages. (1270)
 2 Kind Of (Civil) Fraud In The Making Of Contract
 Causal Fraud – which is a ground for the
annulment of a contract; although it may also
give rise to an action for damages
 Incidental Fraud – which only renders the party
who employs it liable for damages because the
fraud was not the principal inducement that led
the other to give his consent
 Requisites Of Causal Fraud
 In order for causal fraud may vitiate consent
under the said article, the ff. are the requisites:
i. Should be serious
ii. Should not have been employed by
both contracting parties (should not be
in pari delicto: article 1411,1414)
iii. Should not have been known by the
other contracting party
 Requirement that fraud should be serious
excludes slight and usual deviations from the
truth
 When fraud is employed by both parties, neither
may ask for annulment as the fraud of one
neutralizes that of the other; contract is valid
therefore
 In accordance with the principle that “he who
comes to court, must come with clean hands”
Art. 1345.
Simulation of a contract may be absolute or
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties
conceal their true agreement. (n)
Art. 1346.
An absolutely simulated or fictitious contract is
void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy
binds the parties to their real agreement. (n)
 Definition
 Simulation of a Contract – act of deliberately
deceiving others, by feigning or pretending by
agreement the appearance of a contract which
is either non-existent or concealed
 Kinds of Simulation
1. Absolute Simulation – contract does not really
exist and the parties do not intend to be bound
at all; absolutely simulated or fictitious contracts
are inexistent and void
2. Relative Simulation – contract entered into by
the parties is different from their true
agreement. Parties are bound by their real
agreement provided it doesn’t prejudice a third
person and is not intended for a purpose
contrary to law, morals, good customs, public
order and public policy.
SECTION 2. - OBJECT OF CONTRACTS
Art. 1347.
All things which are not outside the commerce of
men, including future things, may be the object of a
contract. All rights which are not intransmissible may also
be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals,
good customs, public order or public policy may likewise be
the object of a contract. (1271a)
Art. 1348.
Impossible things or services cannot be the object
of contracts. (1272)
 Concept of Object Of A Contract
 Object of a contract is its subject matter
 Object of every contract is the obligation
created
 Since a contract cannot exist without an
obligation, it may be said that the thing, service
or right which is the object of the obligation is
also the object of the contract
 Kinds Of Object Of Contract
 Object certain is the second essential element of
a valid contract
 Object may be things (as in sale), rights (as in
assignment of credit), or services (as in agency)
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 Requisites of Things (As Object of Contract)
i. Thing must be within the commerce of men,
that is, legally be the subject of commerce
transaction
ii. Must not be impossible, legally or physically
iii. Must be in existence or capable of coming into
existence
iv. Must be determinate or determinable without
the need of a new contract between the parties
 Requisites of Services (As Object of Contract)
i. Service must be within the commerce of men
ii. Must not be impossible, physically or legally
iii. Must be determinate or capable of being made
determinate
 Rights as Object Of Contract
 General rule: all rights may be the object of a
contract; exceptions are when they are
intransmissible by their nature, or by stipulation
or by provision of law
 Examples:
a. Outside the commerce of men – clings
of public ownership such as sidewalks,
public places, bridges, streets; things
common to everybody like air, and
sunlight
b. Impossible, physically or legally –
prohibited drugs and all illicit objects,
to get soil from Jupiter
c. Determinable things – all the cavans of
rice in a bodega, all the eggs in a
basket, my land with the smallest area
d. Future things or rights – things to be
manufactured, raised or acquired after
the perfection of the contract such as
wine that a vineyard is expected to
produce, rice to be harvested next
harvesting season, milk that a cow may
yield
- future things include future rights,
thus, an author may assign the royalty
which he expects to receive from his
publisher
e. Intransmissible Rights – political rights
such as the right to vote; family, marital
and parental rights, right to public
office
 Definition Of Future Inheritance
 Any property or right (not in existence or
capable of determination at the time of the
contract) that a person may inherit
 Such person having only an expectancy of a
purely hereditary right
 Inheritance ceases to be future upon the death
of the decedent or deceased
 Validity of Contracts Upon Future Inheritance
 A contract concerning future inheritance is void,
except in cases expressly authorized by law
 Law permits contracts on future inheritance:
i. In the case of donations by reason of
marriage between future spouses with
respect to their future property to take
effect, only in the event of death, to
the extent laid down by law in
testamentary succession
ii. In the case of partition of property by
act inter vivos by a person (i.e.
owner/source of the property) to take
effect upon his death
 Kinds of Impossibility
1. Physical – when the thing or service in the very
nature of things cannot exist or be performed.
With particular reference to services, the
impossibility may be:
a. Absolute – when the act cannot be
done in any case so that nobody can
perform (fly like bird)
b. Relative –arises from special
circumstances of the case (make
payment to a dead person, drive a car
on flooded highway) or special
conditions or qualifications of the
obligor (paint a portrait of a blind
person)
2. Legal – when the thing or service is contrary to
law, morals, good customs, public order, or
public policy; an act is contrary to law, either
because it is forbidden by penal law (to sell
shabu) or a rule of law makes it impossible to be
done (to make a valid will, where the testator is
under 18 years of age)
Art. 1349.
The object of every contract must be determinate
as to its kind. The fact that the quantity is not determinate
shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the
need of a new contract between the parties. (1273)
 Quantity Of Object Of Contract Need Not Be Determined
 object of contract must be determinate as to its
kind or at least determinable without the
necessity of anew or further agreement
between the parties (same is true of the
quantity of the object of the contract)
 sufficient that it is possible to determine the
same without the need of a new contract
between parties
 when the obligation consists in the delivery of a
generic thing, whose quality and circumstances
have not been stated, Article 1246 governs.
SECTION 3. - CAUSE OF CONTRACTS
Art. 1350.
In onerous contracts the cause is understood to be,
for each contracting party, the prestation or promise of a
thing or service by the other; in remuneratory ones, the
service or benefit which is remunerated; and in contracts of
pure beneficence, the mere liberality of the benefactor.
(1274)
 Definition
 Cause (causa) is the essential reason or purpose
which the contracting parties have in view at the
time of entering into the contract
 the immediate, direct and proximate reason
which justifies the creation of an obligation
through the will of the contracting parties.
 Something bargained for or given by a party in
exchange for a legally enforceable promise of
another
 Civil Code term for: consideration in Anglo-
American or common law
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 Cause vs Object
 In a bilateral or reciprocal contract like a
purchase and sale, the cause for one is the
subject matter or object for the other and vice
versa
 Hence the distinction is only a matter of
viewpoint
 Classification of Contracts Accdg. To Cause
1. Onerous –parties are reciprocally obligated to
each other: ex: sale, lease of thing, partnership
2. Remuneratory or remunerative – purpose of the
contract is to reward the service that had been
previously rendered by the party remunerated;
ex: K rendered services as the defense counsel
of y, he agreed to pay K money for the services
3. Gratuitous – liberality of the benefactor or giver;
ex: commodatum, pure donation,
Art. 1351.
The particular motives of the parties in entering
into a contract are different from the cause thereof. (n)
 Definition of Motive
 Motive – purely personal or private reason
which a party has in entering into a contract;
different from cause
 Motive vs. Cause
 Cause is immediate or direct reason; motive is
remote or indirect reason
 Cause is always known to the other contracting
party; motive may be unknown
 Cause is an essential element of a contract; is
not
 Illegality of cause affects the validity of a
contract; illegality of one’s motive ideas doesn’t
render a contract void
Note: may be regarded as cause if founded upon a fraudulent purpose to prejudice a
third person
Art. 1352.
Contracts without cause, or with unlawful cause,
produce no effect whatever. The cause is unlawful if it is
contrary to law, morals, good customs, public order or
public policy. (1275a)
Art. 1353.
The statement of a false cause in contracts shall
render them void, if it should not be proved that they were
founded upon another cause which is true and lawful.
(1276)
 Requisites of Cause
i. Must exist at the time the contract is entered
into
ii. Must be lawful
iii. Must be true or real
 Effect of Absence of Cause
 Absence or want of cause means that there is a
total lack of any valid consideration for the
contract
 Contracts without cause confer no right anf
produce no legal effect, thus:
a. A contract which is absolutely
simulated or fictitious is inexistent and
void
b. Where there is, in fact, no
consideration (ex: price) the statement
of one in the contract will not suffice to
bring it under the rule of Article 1353
as stating a false consideration
c. Promises to make a gift or to render
some gratuitous service in the future
are not enforceable as contracts
because they contain no consideration
d. Promises made in gratitude for good
deed of others cannot be enforced for
they constitute only moral (not legal)
consideration
 Effect Of Failure Of Cause
 Absence of cause should be distinguished from
inadequacy of cause which, as a general rule, is
not a ground for relief and from failure of cause
which does not render a contract void
 Contract of sale is void for being without cause
when the purchase price is appeared theron as
paid, has in fact never been paid by the buyer to
the seller
 Failure to pay the stipulated price after the
execution of a contract of sale does not convert
the contract void without cause or consideration
 Effect of illegality of Cause
 Implies that there is a cause but the same is
unlawful or illegal
 Contracts with unlawful cause are null and void
 Effect of Falsity of cause
 Falsity of cause: Meant that the contract states
a valid consideration but such statement is not
true
 False cause may be erroneous or simulated
 (Erroneous) If the cause is false, the contract is
rendered void because the same actually does
not exist
 (Simulated)Does not always void the contract
because it may happen that the hidden but true
cause is sufficient to support the contract
 If the parties can show that there is another
cause and the cause is true and lawful then the
parties shall be bound by their true agreement
Art. 1354.
Although the cause is not stated in the contract, it
is presumed that it exists and is lawful, unless the debtor
proves the contrary. (1277)
 Cause presumed to exist and lawful
 Not necessarily that cause is expressly stated at
in the contract
 Presumption is that the cause exists and is
lawful unless the debtor proves contrary
 This presumption is in accord with the natural
order of things
 Presumption is not conclusive but only prima
facie and may be contradicted by contrary
evidence
Art. 1355.
Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence. (n)
 Definition
 Lesion – any damage caused by the fact that the
price is unjust or inadequate
- is the injury suffered in consequence of
inequality of situation, by one party who doesn’t
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 receive the full equivalent for what he gives in a
commutative contract (like a sale)

 Effect of Lesion or Inadequacy of Cause

1. General Rule: lesion or inadequacy of cause
doesn’t of itself invalidate a contract
a. Law assumes that the parties
themselves remain the best judges of
how much their bargain is worth
b. Court cannot follow every step of one’s
life and extricate him from bad
bargains, protect him for unwise
decisions or annul the effect of foolish
acts
c. Courts cannot constitute themselves
guardians of everyone
2. Exceptions – lesion will invalidate a contract:
a. When there has been fraud, mistake or
undue influence
b. In cases specified by law
 “Art 1470. Gross inadequacy of price doesn’t
affect a contract of sale except as it may indicate
a defect in the consent or that the parties really
intended a donation or some other act or
contract”

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