CONTRACTS performed their respective obligations

Article 1305. DEFINITION CHARACTERISTICS OF CONTRACT

Contract 1. Autonomy (Art. 1306) – where there is a

sense of freedom; contracting parties may
- is a meeting of the minds between two establish contract as long as it is not contrary to
persons whereby one binds himself to give law, public policy, morals.
something or render some service.

Limitations:
- there must be at least two persons or parties

1. Law – contract entered into must conform to

an applicable statute
DISTINGUISHED FROM OBLIGATION.

2. Police power – contract shall not contravene

Contract is one of the sources of obligation morals, good customs, public order or policy.
(1157), while obligation is a legal tie that exists
after a contract is entered into.
2. Consensuality (Art. 1315, sent.1) –
perfected by mere consent
NO CONTRACT = NO OBLIGATION. But an
Obligation may exist without a Contract.
* Classification of contracts according to
perfection
DISTINGUISHED FROM AGREEMENT.

1. consensual – like sale, lease, agency

Contract are enforceable agreements through
legal proceedings. All contracts are agreement
but not vice versa. Art. 1316
*2. Real – perfected by DELIVERY of the thing

STAGES
- those that are deposit (safe keeping), pledge
(sanla), commodatum (pahiram).
1. Preparation – all the steps taken by the
parties leading to the perfection of the contract.
Parties have not yet arrived to an agreement.
3. Mutuality (Art. 1308) – that contract is
binding to both parties

2. Perfection – when parties have come to an

agreement or meeting of the minds
- a contract which its fulfillment or
extinguishment is dependent upon the will of
ONLY ONE of the parties is VOID.
3. Consummation – when the parties have

- no party can renounce or violate the law of
the contract without the consent of the other
4. Obligatoriness (Art. 1315) – contract is
complied with good faith (Art. 1157)
- parties are also bound to all the consequences
5. Relativity (Art. 1311) –
GENERAL RULE: Contracts take effect only
between the PARTIES, their ASSIGNS and
HEIRS
EXCEPTIONS:
*STIPULATION POUR AUTRUI
1. If the contract has STIPULATION
2. re IN FAVOR of a THIRD person
3. the contracting parties has CLEAR AND
DELIBERATE CONFERMENT OF SUCH
FAVOR upon the third person
4. Third person COMMUNICATED his
acceptance to such stipulation
stipulation pour autrui is a stipulation in a
contract clearly and deliberately conferring a
favor upon a third person who has a right to
demand its fulfillment provided he
communicates his acceptance to such.
Classes of stipulations pour autrui:
1. those intended for the sole benefit of a
person
(ex. A leases a house and told C that ¼ of its
rentals will be given to him (c) )
2. those where an obligation is due from the
promise to the third person which former seeks
to discharge
EXAMPLE:
A owes P10,000.00 to B with a monthly
interest of 14%. it was agreed upon that the
P1,400 will be given to S to whom B is indebted
of the same amount.
ACCION DIRECTA
Art. 1313 – creditors are protected in cases of
contracts intended to defraud them
1. Lessor vs. sub lessors – Arts. 1651,
1652
Art. 1651 example:
A (lessor) leased B (lessee) a room. B find it too
large for him, hence, he subsequently leased it
to C (sub lessee; making B a sub-lessor). Hence,
C will be liable for all the acts agreed upon
originally by A and B with regards to the use
and preservation of the thing leased.
2. Laborers/materialmen vs. Owner –
Art. 1729
Example:
S (owner) hired X (contractor) who hired A and
B (laborers) for the construction of S's building.
 - conformity of the wills of both parties

If X do not pay A and B their compensation, A

and B and go after S.
– manifested by meeting of the offer and the
acceptance

3. Negotorium gestio – Arts. 2150, 2151

Offer – a proposal made by one party to
another to enter into a contract.
example:

Acceptance – manifestation by the offeree of

A and B are two land owners. A was out of town. his assent to the terms of the title offer.
There came a raging storm. B, a generous Without it, no meeting of the minds.
neighbor, takes care of A's land while the
latter's away. So B can reimburse to A to
whatever laibility.
Article 1320. Acceptance may be express or
implied

4. Article 1314
Article 1321. the person making the offer may
fix the time, place and the manner of
*example ni Sir, A is the exclusive distributor acceptance, all must be complied with.
ng Nike Shoes; while X, induces the contractor
of A to also allow him sell Nike shoes in a lower
price, without the knowledge/consent of A.
Article 1322. If offer is made thru an agent,
the offer is accepted from the time the same is
communicated.
ARTICLE 1317 – UNAUTHORIZED
CONTRACTS
Article 1323. When does an offer becomes
ineffective?
– instance when the contract is entered into the
name of another who is not the authorized
person or representative
1. death
– Unenforceable in nature
2. civil interdiction
– but can be cured by ratification
3. insanity
4. insolvency OF EITHER PARTY
Art. 1318
ESSENTIAL REQUISITES OF
Article 1324. CONTRACT OF OPTION;
CONTRACTS
OPTION PERIOD; OPTION MONEY
- no contract unless the following elements are
present:
– when the period of the offer's acceptance is
certain, it is withdrawable until it is not yet
accepted

1. CONSENT (Art. 1319)

Article 1325 and Article 1326. BUSINESS
ADVERTISEMENTS NOT DEFINITE OFFERS,
ONLY MERE INVITATION. 2. conditions which have principally moved one
or both parties to enter into contract;

Who cannot give consent to a contract?

(Article 1327). 3. the identity of one of the parties provided in
the same was the principal cause of the
contract
1. unemancipated minors;

ARTICLE 1332. BURDEN OF PROOF IN

CASE OF MISTAKE OR FRAUD
2. insane or demented persons;

– THE PARTY ENFORCING THE CONTRACT

3. deaf-mutes/illiterates has the duty to show that there is no mistake or
fraud on the terms of the contract

Article 1328.
– if a party knew about the doubt, contingency
or risk affecting the object of the contact, it is
– contracts entered into during lucid interval is presumed that he was willing to take a chance
VALID (ARTICLE 1333).

– during drunkenness or hypnotic spell is

VOIDABLE
ARTICLE 1334. MISTAKE OF LAW
- arises from an ignorance of some provision of
law, or from an erroneous interpretation of its
meaning
ARTICLE 1330.
Consent given thru MISTAKE (1331),
VIOLENCE (1335 p.1), INTIMIDATION (1335, – EFFECT: does not invalidate consent
p.2/1336), UNDUE INFLUENCE (1337) OR
FAUD (1338) is VOIDABLE!
– APPLICATION:

ARTILE 1331. MISTAKE OR ERROR

1. when the error is mutual

– the false notion of thing or a fact material to 2. it must be as to the legal effect of an
the contract agreement
3. it must frustrate the real purpose of the
parties
Mistake of fact to which law refers:

ARTICLE 1335. VIOLENCE &

1. substance of the thing which is the object of INTIMIDATION TO VITIATE CONSENT
the contract;
 ARTICLE 1338. FRAUD

Violence – requires physical force

Causal fraud (dolo causante)

Intimidation – there is a reasonable and well- - employed prior to or simultaneous to the

grounded fear of an evil that is imminent and consent or creation of the contract.
grave upon a person or property so a person
will enter into a contract
REQUISITES:

ARTICLE 1337. UNDUE INFLUENCE

- when a person takes improper advantage of 1. There must be MISREPRESENTATION
his power over the will of another (Art. 1338 – thru insidious words or
machinations) or CONCEALMENT (Art. 1339
– failure to disclose facts).

2. It must be serious (Art. 1344)

- in order that fraud may make a contract

VOIDABLE, it must be serious.

3. it must have been employed by only one of

the contracting parties (Art. 1342)

* misrepresentation by a third person does not

vitiate consent , unless it creates substantial
mistake and the same is mutual.

4. it must be made in bad faith or with intent to

deceive (Art. 1343)

5. it must have induced the consent of the other

contracting party (Art. 1338)

6. it must be alleged and proved by clear and

convincing evidence

FRAUD BY CONCEALMENT
(Art. 1339)
- a neglect or failure to communicate that
which a party to a contract knows and ought to
communicate constitute concealment.
- when this arises, the injured party has the
right to rescind or annul the contract
Art. 1341 - Expression of opinion
- a mere expression of opinion does not signify
consent, unless made by an expert and the
other party has relied on the former's special
knowledge
TWO KINDS OF FRAUD IN MAKING OF
A CONTRACT (Art. 1344)
1. causal fraud – which may be a ground for
annulment of a contract, but also gives rise for
action for damages
2. incidental fraud – renders only the party
who employs it liable for damages (Art. 1344,
par. 2)
Art. 1170 – refers to incidental fraud
(dolo incidente)
- Committed in the performance of an
obligation (at the stage of
consummation)
- Ex. When you were shown a pendant
and it looked real so you entered into
buying it but the seller gave you a fake
pendant instead.
It is comparable to causal fraud (dolo
causante, Art. 1338)
- means a fraud employed in the execution of
contract which vitiates consent and makes the
contract voidable
- the other party is induced by word to enter
into the contract (happens at the stage of
perfection)
SIMULATION OF A CONTRACT (Art.
1345)
- the act of deliberately deceiving other, by
feigning or pretending by agreement, the
appearance of a contract which is neither
inexistent or concealed.
KINDS:
1. Absolute – when the contract does ot really
exist and the parties do not intend to be bound
at all.
Ex.
D is indebted to C. Upon learning that C is
going to enforce his credit, D pretended to sell
his land to F. D did not receive any single
centavo for the transaction and he continued in
possession of the land as the contract was
merely simulated or fictitious.
2. Relative – when the contract entered into
by the parties is different from their true
agreement
Ex.
C and D entered into a contract of mortgage.
But wanting to hide the mortgage, it was made
to appear in the form of deed of sale.
(Example ni Sir about sa kotse na kukunin din
ng creditor, ibabalik lng pag nagbayad si debtor)
OBJECT OF A CONTRACT
(Art. 1347)
- the subject matter
- the object of every contract is the obligation stipulation or provision of law (1311).
created

Ex.
KINDS OF OBJECT IN A CONTRACT:

1. things outside of commerce of men – like

1. Things (like sale) things of public ownership (sidewalks, bridges,
streets)

2. Rights (like assignment or credit)

FUTURE INHERITANCE (1347, par. 2)

3. Services (like agency)

- any property or right, not in existence at the
time of the contract, that a person may inherit
in the future.

Requisites of THINGS as Object of a

contract - unless expressly stipulated by law, contract
concerning future inheritance is VOID.

1. must be within the commerce of men

2. must not be impossible - inheritance ceases to be in future upon death
of the decendant
3. must be in existence or capable of
4. must be determinate (not generic)
IMPOSSIBLE THINGS cannot be OBJECT of a
contract (1348)
Requisites of SERVICES as Object

1. Physical – when the thing or service in the

very nature of things cannot exist
1. must be within the commerce of men
2. must not be impossible
3. must be determinate a. Absolute – when the act cannot be done
in any case (ex.flying)

RIGHTS as Object
b. Relative – when it arises from the
special circumstance of the case (ex. To make
payment to a dead person)
GEN RULE: All rights may be the object of a
contract.
2. Legal – when the thing or service is contrary
to public morals, law, good customs, public
EXCEPTION: order or policy (ex. Selling prohibited drugs)

When they are transmissible by their nature, EFFECT:

 Causa – the essential or more proximate
purpose which contracting parties have in view
Absolute – nullifies the contract at the time of entering into a contract

Relative – if temporary, does not nullify the CLASSIFICATION OF CONTRACT

contract; if permanent, it annuls the contract ACCORDING TO CAUSE

Art. 1349 The object of a contract must be 1. Onerous

determinate as to its KIND but the quantity
need not be determinate. - one the cause of which , for each contracting
party, is the prestation or promise of a thing or
service by the other.

- in this contract, both parties are obligated to

each other

Ex. B & E signed a document which in effect

stated that if T was allowed to live with them,
and T should marry or leave them, she would
receive ½ of their property.

Should the contract be given effect? YES.

Because the contract is more of a donation con
cause onerosa which means it is governed by
the provisions of the Civil Code relating to
contracts.

2. Renumenatory – one the cause of which is

the service or benefit which is renumerated.
The purpose is to give reward the service that
had been previously rendered by the party
renumerated.

3. Gratuitous – one the cause of which is the

mere liberality of the benefactor or giver such
as commodatum, pure donation and the like.

Art. 1351 – Motive

- purely personal or private reason which a
party has in entering into a contract
CAUSE OF CONTRACTS (1350)
 CAUSE MOTIVE
Effect of falsity of cause (Art. 1353)
Juridical reason of a Psychological and
contract purely personal reason - “statement of a false cause in contracts shall
render them void, if it should not be proved
Direct reason Indirect reason that they were founded upon another cause
which is true and lawful”.
Always known to the May be unknown
other contracting party
- the contract is void because the same actually
Essential element of a Not an essential does not exist
contract element

Affects the contract's Does not render the
validity contract void
Art. 1352. Requisites of Cause
1. It must exist (no cause, no effect)
Ex. X promised to give Y P1,000.00 as payment
for the past services allegedly rendered by Y
which in truth have not been rendered. Here,
the cause of X, which is the renumeration, is
erroneous as it is based upon facts believed to
be existing but really inexistent.

Is it necessary for the cause to be

expressly stated?
2. it must be lawful – not contrary to law,
moral, xxx (Art. 1354)

- No. In such instance, the presumption is that

the cause exists and is lawful, unless the debtor
3. It must be true (Art. 1353) proves the contrary (Art. 1354)

Effect of absence of cause LESION (Art. 1355)

- contracts without cause confers no right and - any damage caused by the fact that the price
produce no legal effect is unjust or inadequate

Effect of inadequacy of cause/failure of

cause
- does not render a contract void
Ex. failure to pay the full amount stipulated in
a contract does not nullify the contract
immediately.
Gen. Rule – does not invalidate the contract
Exp. - when there has been fraud, mistake or
undue influence / or in cases specified by law.
NOTE: Lumalabas sa exam
Various incidents of causal incidents in
a contract:

Effect of Illegality of cause

1. non-existent cause
- makes the contract null and void
- VOID (1352, 1st part)
Ex. A promise of marriage based upon carnal
connection
2. False cause in an ABSOLUTELY
simulated contract
- VOID (1346, 1353)

3. False cause in a RELATIVELY

simulated contract
- parties are bound to their real agreement
(1346, 1353)
-what is their remedy? REFORMATION (1359)

4. Inadequate cause (1355)

- ex. Nagbenta ka ng lupa worth 1M, binenta
mo ng 100k or 1/10 of its value
- shall not invalidate contract unless there's
fraud. Mistake or undue influence
FORM OF CONTRACTS
- REMEDY: Reformation (1470)
- legal basis para maghabol ang creditor – Art.
1381 Form of a contract – the manner in which a
contract is executed.

5. Failure of cause
- if the seller failed to realize the price or does
not deliver the thing to buyer = BREACH
-REMEDY: Rescission
- maybe in oral, writing or partly oral and
partly in writing.
- if in writing, it may be in a public or private
instrument
- all its terms must be in writing

GENERAL RULE: Contracts may be in any

form as long as the three essential elements are
present

WHEN IS FORM NECESSARY?

**EXCEPTIONS to the Gen. Rule:

1. When the law requires a certain form for it to

be valid.
Ex. reason of fraud, mistake or undue influence
fails to express such true intention

Donation of real property – public

instrument REQUISITES:
Donation of personal property – in - for reformation to be availed of as remedy,
writing the following should be present:
Sale of land thru an agent – in writing
Contract of antichresis – in writing 1. there is meeting of the minds of the parties;
stipulation to pay interest – in writing,
otherwise, no interest due
2.written instrument that does not express the
contract of partnership – in a public true agreement;
instrumeny
transfer of sale of large cattle – registered;
in a public instrument 3. failure to express true intention due to fraud,
mistake, inequitable conduct or accident;
negotiable instruments – in writing

4. the relief are put in issue by the pleadings;

and,
2. when the law requires form for it to be
enforceable (Art. 1403, p.2)
5. there is a clear and convincing evidence of
- if the contract is not in writing, it is valid but mistake, fraud, xxx.
it cannot be proved and cannot be enforced
unless ratified.
INSTANCES when reformation is the
remedy:
3. when form is required for it to be
convenient to the parties or for the third
party (Art. 1357).
1. mutual mistake (1361)
- an action that can be used by parties to
compel each other to follow a certain form of - when both parties causes the failure of the
their contract for their own conveniences instrument to disclose their real agreement

Art. 1358 – Documents that must appear in a 2. unilateral mistake (1362)

public document

3. concealment (1363)
REFORMATION OF INSTRUMENTS - when one party was mistaken and the other
(Art. 1359) knew that the instrument did not state their
real agreement but concealed it to the former.

Reformation – remedy by means of which a

written instrument is amended or rectified so 4. mistake by a third party (1364)
as to express the real agreement when by - when thru ignorance, lack of skill, negligence
or bad faith on the part of the third person
drafting the instrument and the latter does not
express the true agreement
ex. stenographer had a mistake in typing the
records of the trial
5. mortgage or pledge as a sale (1365)
- when two parties agreed upon the mortgage
or pledge of real property but the instrument
states that the property is sold with right of
repurchase.
WHEN IS REFORMATION NOT
ALLOWED?
(Art. 1366)
In cases of:
1. simple donations
2. wills
3. when the real agreement is void
INTERPRETATION OF CONTRACTS
- determination of the meaning of the terms
used by the parties in their contract
- involves a question of law
- if the language is clear, the contract is
interpreted in its literal meaning (Art.
1370)
- Evident intention of parties prevail over the
terms of contract
- in judging the intention of the
contracting parties, their
contemporaneous and subsequent acts
should be principally considered (1371)
- special intent prevails general intent
(1372)
ex. S sold his house “including all the furniture
therein”. The term “all” should not be
understood to include S' refrigerator which is
distinct from “furniture”.
- in contracts with stipulation with several
meanings, it shall be understood as bearing the
import which is most adequate to render it
effectual (1373)
- various stipulations of a contract shall be
interpreted together, jointly (1374)
- words which may have different significations
shall be understood in that which is most in
keeping the nature and object of the contract.
(1375)
- resort to custom or usage as aid in
interpretation of the contract (the usage or
custom where the contract was entered into)
1376
- the interpretation of obscure words or
stipulations in a contract shall not favor the
party who caused the obscurity (1377)
Rules in case of doubts are impossible to settle
(1378)
1. when despite application of the preceding
rules, certain doubts still exist, such will be
resolved in accordance with the supplementary
rules like the least transmission of rights and
interests shall prevail.
ex. R gave his car to E, it is not clear whether it
is commodatum or donation. Hence, it should
be presumed as mere commodatum because it
would transmit lesser rights than a donation.
2. if the doubts are cast upon the principal
object in such a way that it cannot be known
what may have been the intention of the parties,
the contract shall be NULL AND VOID (1378,
par. 2)
RESCISSIBLE CONTRACTS
(Art. 1380)
Rescission – a remedy granted by law to the
contracting parties and sometimes even to
third persons in order to secure reparation of
damages caused them by a valid contract, by
means of the restoration of things to their
condition prior to the celebration of said
contract.
Rescissible contracts – those validly agreed
upon because all the essential elements exist
but in the cases established by law, the remedy
of rescission.
Requisites of Rescission
1. the contracting parties must be validly
agreed upon (1380)
2. there must be lesion to one of the
parties or to a third person (1381)
* contracts that are rescissible:
1. contracts entered into in behalf of
wards, the latter suffered ¼ of the value
of the object
ward – a person under guardianship by reason
of some incapacity.
Ex. G is the guardian of W. G sells the property
of W worth P20,000.00 for only P15,000.00.
The contract of sale cannot be rescinded
because the lesion is not more than ¼ of the
value. However, if the property is sold for less
than P15,000, W can rescind the sale by proper
action in court.
2. Contracts agreed upon in
representation of absentees; the latter
suffered ¼ of the value of the object
- Absentee – a person whi disappears from his
domicile, his whereabouts unknown
**In nos. 1 & 2, when the contract entered into
is approved by the court, rescission cannot take
place because it is valid whether there is lesion
or not (1386).
3. Contracts undertaken in fraud of
creditors
- in order for this instance be a ground, the
following must be present:
1. there must be a credit prior to the contract to
be rescinded;
2. there must be fraud on the part of the debtor
which may be presumed or proved;
3. the creditor cannot recover his credit in any
other manner; debtor's insolvency is not
required.
4. contracts which refer to things under
litigation
- Ex. S sues B for the recovery of a parcel of
land. In this case, the land is a “thing under
litigation”. Hence, if during the pendency of the
case, B sells the land to C without S approval,
the sale is rescissible by S.
5. Other instances
RESCISSION FOR BREACH OF
CONTRACT versus RESCISSION BY
REASON OF LESION
1. Rescission on account of breach is not
predicated on injury to economic interests but
on the breach of faith by the defendant that
violates the reciprocity between the parties. It
is not a subsidiary action.
Art. 1385 EFFECT OF RESCISSION
1. Obligation of mutual restitution
- when the parties declare a contract to be
rescinded, the parties must return to each
other (a) the object of the contract with its
fruits and (b) the price thereof with legal
interest.
2. Abrogation of contract
- the party seeking rescission cannot ask
performance as to part and rescission as to
remainder
WHEN RESCISSION IS NOT ALLOWED?

2. On the other hand, rescission by reason of 1. If the party who demands rescission cannot
lesion, the cause of action is subordinate to the return what he is obliged to restore under the
existence of the prejudice. contract (1385, p.1)

Art. 1382 Payments made in the state of 2. if the property is legally in possession of a
insolvency are rescissible third person who acted in good faith (1385, p.2)

- a debtor is insolvent if he does not have

sufficient properties to meet his obligations.
Art. 1387. Alienation presumed in fraud
Art. 1383. The action for rescission is of creditors
subsidiary, it cannot be instituted except when
the party suffering damage has no other legal
means to obtain reparation
- the provision establishes fraud in case of
alienation of property by the debtor.

Art. 1384. Rescission shall only be to the extent

necessary to cover the damage caused.
- the presumption applies only when there has
been an alienation or transfer, whether
gratuitous or onerous.
Ex. G, guardian of M, a minor, authorized by
the court to sell 2 parcels of land valued at
P200k each. G sold the 2 lands for only P200k.
- only actual creditors can ask rescission.
In this case, the entire contract need not be
rescinded, rescission can only be applied to one
parcel of land to cover the damage caused by G.
Ex.
1. alienation by gratuitous title 2. his heirs, assigns, or successors in interest
- R made a donation of parcel of land to E. 3. creditors of the above entitled to subrogation
before the date of the donation, R contracted
several debts. With the donation to E, the
remaining property of R is not sufficient to pay
all his debts. Hence, the said donation is
presumed fraudulent unless otherwise proved.

Art. 1388 Liability of purchaser in bad

faith

- whoever acquires in bad faith the things

alienated in fraud of creditors, shall indemnify
the later for damages suffered by them on
account of alienation.

- if there are two or more alienations, the first

acquirer shall be liable first, and so on VOIDABLE CONTRACT
successively.
(Art. 1390)
- are those which possess all the essential
Ex. S sold his car to B in order to avoid the elements of a valid contract but there is defect
payment of his debt to C, his creditor. B knew as to the consent.
of S's purpose. If the sale is rescinded, B must
return the car. - binding unless properly annulled and can be
cured by ratification

Art. 1389 Prescription period for

Rescission
- the action to claim rescission must be
commented within four (4) years.
- the period shall be counted from the time the
creditor has known the contract.
*the following contracts are voidable or
annullable, even though there may have been
no damage to the contracting parties:
1. those where one of the parties is incapable of
giving consent to a contract;

2. those where the consent is vitiated by

- for persons under guardianship and
absentees, the period of four years shall not
begin until the termination of the former's
incapacity, or until the domicile of the latter is
unknown.
Persons entitled to bring the action:
1. injured party or the defrauded creditor
mistake, violence, intimidation, undue
influence or fraud.
**ANNULMENT – remedy granted by law,
for reason of public interest, for the declaration
of inefficacy of a contract based on a defect or
vice in the consent.
Art. 1391. the action for annulment shall
be brought within four (4) years.
3. the injured party must have executed an act
which necessarily implies an intention to waive
his right.
This period shall begin:

Ex. S, a minor, sold his land to B. upon

In case of: Start of period: reaching the age of majority, S, with full
knowledge of his rights in the premises, instead
Intimidation, violence From the time of the of repudiating the contract, collected the
or undue influence defect of the consent unpaid balance of the purchase price from B.
CEASES There is a tacit ratification by S.

Mistake or fraud From the time of the

discovery of the Art. 1394 Who may effect ratification?
same*

Action entered into by From the time the 1. In a contract entered into by an incapacitated
minors or other guardianship ceases person:
incapacitated persons - guardian, or
*discovery of fraud must be reckoned to have - the injured party himself provided he is
taken place from the execution of the contract already capacitated

Art. 1392 – RATIFICATION 2. party whose consent is vitiated

- ratification extinguishes the action to annul a
voidable contract
Art. 1395. conformity of guilty party to
ratification is not required
Art. 1393 – Express or implied
ratification
Art. 1396. Effect of ratification

express – when the ratification is manifested in

words or writing - ratification cleanses the contract from all its
defects from the moment it is constituted

implied – it may take in diverse forms

Ex. B forced S to sell the latter's horse. Later,
the horse gave birth to a colt. If S should ratify
the contract after the birth of the colt, who is
Requisites of implied ratification
entitled to the colt?

1. there must be knowledge of the reason which

- B, because ratification has a retroactive effect.
renders the contract voidable
It validates the contract from the date of its
execution.

2. such reason must have ceased

Art. 1397. Party entitled to bring action
to annul
1. the plaintiff must have an interest in the
contract
2. the victim and not the guilty party is the
person who must assert the same.
Rights of successors-in-interest to bring an
action
- he can sue for the annulment of contract
Right of strangers to bring an action – no legal
capacity to challenge the validity of the contract
Art. 1398 duty of mutual restitution
upon annulment
- if the contract is annulled, the parties must
restore to each other the subject matter of the
contract with its fruits and the price thereof
with legal interest.
- in obligations to render service, the value
thereof shall be the basis for damages
Art. 1399. person who is not obliged to
any restitution
- when the defect of the contract consists in the
incapacity of one of the parties, the
incapacitated person is not obliged to make any
restitution
except: insofar as to what he has been
benefited by the thing or price received by him
Art. 1400. effect of loss of thing to be
returned
- if the thing to be returned is lost without the
fault o the person obliged to make restitution,
there is no more obligation to return such thing.
- if it is lost through his fault, his obligation is
not extinguished but is converted into an
indemnity for damages consisting of the value
of the thing at the time of the loss with interest
with fruits.
Ex. S sold his plow carabao to B. on the petition
of S, the contract was annulled by the court.
But the carabao died in the possession of B
thru his fault. Is B liable?
Yes, under art. 1400, B must pay the value of
the carabao at the time of his death, with
interest from the same date.
Art. 1401. Extinguishment of action for
annulment
- if the person who has the right to institute an
action will not be able to restore the thing he is
obliged to return because the thing is lost thru
his fraud or fault
- if the right of action is based upon the
incapacity of any one of the contracting parties,
the loss of the thing shall not be an obstacle to
the success of the action
except: if the said loss took place through the
fraud or fault of the plaintiff
Art. 1402 effect where a party cannot
restore what he is bound to return
- when a contract is annulled, reciprocal
obligation of restitution is created.
- in effect, there will be no annulment if the
party cannot restore what he is bound to return.

- however, if the party who lost the thing

through a fortuitous event offers to pay its
value with the fruits received if any, the other
can be required to make restitution. UNENFORCEABLE CONTRACTS
(Art. 1403)
Ex. B forced S to sell the latter's horse. The
contract was annulled by the court at the
instance S. - those that cannot be enforced in court or sued
upon by reason of defects provided by law until
and unless they are ratified according to law.
* If the horse died through the fault of B,
Article 1400 governs.
- unenforceable contracts, although valid, are
* if the horse died due to fortuitous event, S can unenforceable unless ratified.
refuse to return the purchase price.
* but if B offers to pay the value of the horse at
the time of its death, he can compel S to return - cannot be enforced by legal action
the price with the interest.

KINDS:

1. Those entered into in the name of another by

one without or acting in excess of authority;

2. those that do not comply with the Statute of

Frauds;

3. Those were both parties are incapable of

giving consent.

UNAUTHORIZED CONTRACTS
- those entered into in the name of another
person by one who has been given no authority
or legal representation or who has acted beyond
his powers.

Art. 1405. Ratification

1. by failure to object to the presentation of oral
evidence to prove the contract – tantamount to
a waiver and makes the contract binding.

2. acceptance of benefits under the contract.

Art. 1406. Right of a party where contract

enforceable.

Art. 1407.

When unenforceable contract becomes a

voidable contract
- where both parties to a contract are incapable
of giving consent, the contract is unenforceable.

- However, if the parent or guardian, or if one

of the parties after regaining capacity, ratifies
the contract, it becomes voidable.

When unenforceable contract becomes a

valid contract

- if the ratification is made by the parents or

guardians of both contracting parties, or by
both contracting parties after regaining capacity,
the contracts is VALIDATED and its validity
retroacts to the time it was entered into.

Art. 1408. Unenforceable contracts cannot

be assailed by third persons

VOID OR INEXISTENT CONTRACTS
(Art. 1409)
- those which, because of certain defects,
generally produce no effect at all.
- considered inexistent from the very beginning
Inexistent contracts – refer to agreements
which lack one or some or all the elements
which are essential for the existence of a
contract
CHARACTERISTICS:
1. Cannot be ratified (1409, p.2)
2. the right to set-up defense of illegality cannot
be waived
3. the action for the declaration of inexistence
does not prescribed
4. the defense of illegality is not available to the
persons whose interests are not directly affected
5. it cannot give rise to a valid contract
INSTANCES OF VOID OR INEXISTENT
CONTRACTS
1. Contracts whose cause, object or purpose is
contrary to law, etc.
2. Contracts which are absolutely simulated or
fictitious
- a contract of sale is void where the price,
which appears thereon as paid, has in facts
never been paid.
3. Contracts without cause or object
4. Contracts whose object is outside the
commerce of men (see Arts 1347 and 1348)
5. Contracts which contemplate an impossible
service (see Arts 1347 and 1348)
6. Contracts where the intention of the parties
relative to the object cannot be ascertained
7. Contracts expressly prohibited or declared
void by law
Ex.
1. contracts upon future inheritance
2. sale of property between husband and wife
3. purchase of property by persons who are
specially disqualified by law (like guardians,
agents, etc.) because of their position or relation
with the person or property under their care.
Art. 1410. action for declaration of
inexistence of a contract does not prescribe
- also, necessity of judicial declaration is not
needed
Art. 1411. Rules where contract is illegal and
the act constitutes criminal offense
1. where both parties re in pari delicto (in equal
fault) :
- both parties shall have no action against each
other
- both shall be prosecuted
- the things or the price of the contract shall be
confiscated in favor of the government
Art. 1412. Rules where contract is illegal but
the act is not a criminal offense
1. where both parties in pari delicto:
- neither party may recover what he has given
by virtue of the contracts
- neither party may demand the performance of
the other's undertaking
WHEN PARI DELICTO RULE NOT
APPLICABLE?
1. Breach of warranty cases
2. simulated contracts
Art. 1413. Interest paid in excess of the interest
allowed by the usury laws may be recovered by
the debtor, with interest thereon from the date
of the payment.
Art. 1414. Recovery where contract for an
illegal purpose
- allows recovery by one of the parties even
both parties have acted contrary to law
1. the contract is for an illegal purpose;
2. the contract is repudiated before the purpose
has been accomplished or before the damage
has been caused to a third person;
3. the court considers that public interest will be
subserved by allowing recovery
Art. 1415. Recovery by an incapacitated
person
- Exception to the Articles 1411-1412.
- recovery can be allowed if one of the parties
is incapacitated
Ex. if X is a minor or an insane person, the
court may allow X to recover the money paid if
the interest of justice so demands.
Art. 1416. Recovery where contract not
illegal per se
- another exception to Arts. 1411-12
Recovery is permitted when:
1. the agreement is not illegal per se but is
merely prohibited;
2. the prohibition is designed for the protection
of the plaintiff;
3. public policy would be enhanced by allowing
the plaintiff to recover
Art. 1417. Recovery of amount paid in excess
of ceiling price
Art. 1418. Recovery to additional
compensation for service rendered beyond
time limit
Ex. when in a contract, the laborer undertakes
to work longer than the maximum period fixed,
he may demand additional compensation.
Art. 1419. Recovery of amount of wage less
than minimum fixed

Art. 1420. Effect of illegality where contract

is indivisible/divisible

1. where the consideration is entire and single

the contract is indivisible, so if the part of such
is illegal, the whole contract will be void.

2. where the contract is divisible, only the

illegal parts are void.

Art. 1421. Persons entitled to raise defense of

illegality or nullity

*third person may avail defense of illegality.

Art. 1422. Void contract cannot be novated