CONTRACTS
* Classification of contracts according to
Article 1305. DEFINITION
Contract
- is a meeting of the minds between two
persons whereby one binds himself to give
something or render some service.
- there must be at least two persons or parties
DISTINGUISHED FROM OBLIGATION.
Contract is one of the sources of obligation
(1157), while obligation is a legal tie that exists
after a contract is entered into.
NO CONTRACT = NO OBLIGATION. But an
Obligation may exist without a Contract.
DISTINGUISHED FROM AGREEMENT.
Contract are enforceable agreements through
legal proceedings. All contracts are agreement
but not vice versa.
STAGES
1. Preparation – all the steps taken by the
parties leading to the perfection of the contract.
Parties have not yet arrived to an agreement.
2. Perfection – when parties have come to an
agreement or meeting of the minds
3. Consummation – when the parties have
performed their respective obligations
CHARACTERISTICS OF CONTRACT
1. Autonomy (Art. 1306) – where there is a
sense of freedom; contracting parties may
establish contract as long as it is not contrary
to law, public policy, morals.
Limitations:
1. Law – contract entered into must conform to
an applicable statute
2. Police power – contract shall not contravene
morals, good customs, public order or policy.
2. Consensuality (Art. 1315, sent.1) –
perfected by mere consent
perfection
1. consensual – like sale, lease, agency
Art. 1316
*2. Real – perfected by DELIVERY of the thing
- those that are deposit (safe keeping), pledge
(sanla), commodatum (pahiram).
3. Mutuality (Art. 1308) – that contract is
binding to both parties
- a contract which its fulfillment or
extinguishment is dependent upon the will of
ONLY ONE of the parties is VOID.
- 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.
If X do not pay A and B their compensation, A
and B and go after S.
3. Negotorium gestio – Arts. 2150, 2151
example:
A and B are two land owners. A was out of
town. There came a raging storm. B, a generous
neighbor, takes care of A's land while the
latter's away. So B can reimburse to A to
whatever laibility.
4. Article 1314
*example ni Sir, A is the exclusive distributor
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 1317 – UNAUTHORIZED
CONTRACTS
– instance when the contract is entered into the
name of another who is not the authorized
person or representative
– Unenforceable in nature
– but can be cured by ratification
Art. 1318
ESSENTIAL REQUISITES OF
CONTRACTS
- no contract unless the following elements are
present:
1. CONSENT (Art. 1319)
- conformity of the wills of both parties
– manifested by meeting of the offer and the
acceptance
Offer – a proposal made by one party to
another to enter into a contract.
Acceptance – manifestation by the offeree of
his assent to the terms of the title offer.
Without it, no meeting of the minds.
Article 1320. Acceptance may be express or
implied
Article 1321. the person making the offer may
fix the time, place and the manner of
acceptance, all must be complied with.
Article 1322. If offer is made thru an agent,
the offer is accepted from the time the same is
communicated.
Article 1323. When does an offer becomes
ineffective?
1. death
2. civil interdiction
3. insanity
4. insolvency OF EITHER PARTY
Article 1324. CONTRACT OF OPTION;
OPTION PERIOD; OPTION MONEY
– when the period of the offer's acceptance is
certain, it is withdrawable until it is not yet
accepted
Article 1325 and Article 1326. BUSINESS
ADVERTISEMENTS NOT DEFINITE
OFFERS, ONLY MERE INVITATION.
Who cannot give consent to a contract?
(Article 1327).
– if a party knew about the doubt, contingency
or risk affecting the object of the contact, it is
presumed that he was willing to take a chance
(ARTICLE 1333).
ARTICLE 1334. MISTAKE OF LAW
- arises from an ignorance of some provision of
law, or from an erroneous interpretation of its
meaning

1. unemancipated minors; – EFFECT: does not invalidate consent

2. insane or demented persons; – APPLICATION:

3. deaf-mutes/illiterates 1. when the error is mutual

2. it must be as to the legal effect of an
Article 1328. agreement
3. it must frustrate the real purpose of the
– contracts entered into during lucid interval is parties
VALID
ARTICLE 1335. VIOLENCE &
– during drunkenness or hypnotic spell is INTIMIDATION TO VITIATE CONSENT
VOIDABLE
Violence – requires physical force

ARTICLE 1330. Intimidation – there is a reasonable and well-

Consent given thru MISTAKE (1331),
VIOLENCE (1335 p.1), INTIMIDATION (1335,
p.2/1336), UNDUE INFLUENCE (1337) OR
FAUD (1338) is VOIDABLE!
ARTILE 1331. MISTAKE OR ERROR
– the false notion of thing or a fact material to
the contract
grounded fear of an evil that is imminent and
grave upon a person or property so a person
will enter into a contract
ARTICLE 1337. UNDUE INFLUENCE
- when a person takes improper advantage of
his power over the will of another

Mistake of fact to which law refers:

1. substance of the thing which is the object of

the contract;

2. conditions which have principally moved one

or both parties to enter into contract;

3. the identity of one of the parties provided in

the same was the principal cause of the
contract

ARTICLE 1332. BURDEN OF PROOF IN

CASE OF MISTAKE OR FRAUD

– THE PARTY ENFORCING THE CONTRACT

has the duty to show that there is no mistake or
fraud on the terms of the contract

ARTICLE 1338. FRAUD
Causal fraud (dolo causante)
- employed prior to or simultaneous to the
consent or creation of the contract.
REQUISITES:
1. There must be MISREPRESENTATION
(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
created
KINDS OF OBJECT IN A CONTRACT:
1. Things (like sale)
in the future.
- unless expressly stipulated by law, contract
concerning future inheritance is VOID.
- inheritance ceases to be in future upon death
of the decendant
IMPOSSIBLE THINGS cannot be OBJECT of a
contract (1348)
1. Physical – when the thing or service in the
very nature of things cannot exist
a. Absolute – when the act cannot be done
in any case (ex.flying)

2. Rights (like assignment or credit) b. Relative – when it arises from the special
circumstance of the case (ex. To make payment
3. Services (like agency) to a dead person)

2. Legal – when the thing or service is contrary

Requisites of THINGS as Object of a to public morals, law, good customs, public
contract order or policy (ex. Selling prohibited drugs)

1. must be within the commerce of men EFFECT:

2. must not be impossible
3. must be in existence or capable of
4. must be determinate (not generic)
Requisites of SERVICES as Object
Absolute – nullifies the contract
Relative – if temporary, does not nullify the
contract; if permanent, it annuls the contract

1. must be within the commerce of men Art. 1349 The object of a contract must be
2. must not be impossible determinate as to its KIND but the quantity
3. must be determinate need not be determinate.

RIGHTS as Object

GEN RULE: All rights may be the object of a

contract.

EXCEPTION:

When they are transmissible by their nature,

stipulation or provision of law (1311).

Ex.

1. things outside of commerce of men – like

things of public ownership (sidewalks, bridges,
streets)

FUTURE INHERITANCE (1347, par. 2)

- any property or right, not in existence at the

time of the contract, that a person may inherit

CAUSE OF CONTRACTS (1350)
Causa – the essential or more proximate
purpose which contracting parties have in view
at the time of entering into a contract
CLASSIFICATION OF CONTRACT
ACCORDING TO CAUSE
1. Onerous
- 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 MOTIVE
Juridical reason of a Psychological and
contract purely personal reason
Direct reason Indirect reason
Always known to the May be unknown
other contracting
party
Essential element of a Not an essential
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)
2. it must be lawful – not contrary to law, moral,
xxx (Art. 1354)
3. It must be true (Art. 1353)
Effect of absence of cause
- contracts without cause confers no right and
produce no legal effect
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.
Effect of Illegality of cause
- makes the contract null and void
Ex. A promise of marriage based upon carnal
connection
Effect of falsity of cause (Art. 1353)
- “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”.
- the contract is void because the same actually
does not exist
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?
- No. In such instance, the presumption is that
the cause exists and is lawful, unless the debtor
proves the contrary (Art. 1354)
LESION (Art. 1355)
- any damage caused by the fact that the price is
unjust or inadequate
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:
1. non-existent cause
- VOID (1352, 1st part)
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
- REMEDY: Reformation (1470)
- legal basis para maghabol ang creditor – Art.
1381
5. Failure of cause
- if the seller failed to realize the price or does
not deliver the thing to buyer = BREACH
-REMEDY: Rescission
FORM OF CONTRACTS
Form of a contract – the manner in which a
contract is executed.
- 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.
Donation of real property – public
instrument
Donation of personal property – in writing
Sale of land thru an agent – in writing
Contract of antichresis – in writing
stipulation to pay interest – in writing,
otherwise, no interest due
contract of partnership – in a public
instrumeny
transfer of sale of large cattle – registered;
in a public instrument
negotiable instruments – in writing
2. when the law requires form for it to be
enforceable (Art. 1403, p.2)
- if the contract is not in writing, it is valid but it
cannot be proved and cannot be enforced unless
ratified.
3. when form is required for it to be
convenient to the parties or for the third
party (Art. 1357).
- an action that can be used by parties to compel
each other to follow a certain form of their
contract for their own conveniences
Art. 1358 – Documents that must appear in a
public document
REFORMATION OF INSTRUMENTS
(Art. 1359)
Reformation – remedy by means of which a
written instrument is amended or rectified so as
to express the real agreement when by reason of
fraud, mistake or undue influence fails to
express such true intention
REQUISITES:
- for reformation to be availed of as remedy, the
following should be present:
1. there is meeting of the minds of the parties;
2.written instrument that does not express the
true agreement;
3. failure to express true intention due to fraud,
mistake, inequitable conduct or accident;
4. the relief are put in issue by the pleadings;
and,
5. there is a clear and convincing evidence of
mistake, fraud, xxx.
INSTANCES when reformation is the
remedy:
1. mutual mistake (1361)
- when both parties causes the failure of the
instrument to disclose their real agreement
2. unilateral mistake (1362)
3. concealment (1363)
- when one party was mistaken and the other
knew that the instrument did not state their real
agreement but concealed it to the former.
4. mistake by a third party (1364)
- 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.

2. On the other hand, rescission by reason of
lesion, the cause of action is subordinate to the
existence of the prejudice.
Art. 1382 Payments made in the state of
insolvency are rescissible
- a debtor is insolvent if he does not have
sufficient properties to meet his obligations.
Art. 1383. The action for rescission is subsidiary,
it cannot be instituted except when the party
suffering damage has no other legal means to
obtain reparation
Art. 1384. Rescission shall only be to the extent
necessary to cover the damage caused.
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. 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.
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?
1. If the party who demands rescission cannot
return what he is obliged to restore under the
contract (1385, p.1)
2. if the property is legally in possession of a
third person who acted in good faith (1385, p.2)
Art. 1387. Alienation presumed in fraud
of creditors
- the provision establishes fraud in case of
alienation of property by the debtor.
- the presumption applies only when there has
been an alienation or transfer, whether
gratuitous or onerous.
- only actual creditors can ask rescission.
Ex.
1. alienation by gratuitous title
- R made a donation of parcel of land to E. 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
successively.
Ex. S sold his car to B in order to avoid the
payment of his debt to C, his creditor. B knew of
S's purpose. If the sale is rescinded, B must
return the car.
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.
- 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
2. his heirs, assigns, or successors in interest
3. creditors of the above entitled to subrogation
 express – when the ratification is manifested in
words or writing
VOIDABLE CONTRACT
(Art. 1390) implied – it may take in diverse forms
- are those which possess all the essential
elements of a valid contract but there is defect Requisites of implied ratification
as to the consent.
- binding unless properly annulled and can be 1. there must be knowledge of the reason which
cured by ratification renders the contract voidable

*the following contracts are voidable or
annullable, even though there may have been no
damage to the contracting parties:
1. those where one of the parties is incapable of
giving consent to a contract;
2. those where the consent is vitiated by
mistake, violence, intimidation, undue
influence or fraud.
**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.
This period shall begin:
2. such reason must have ceased
3. the injured party must have executed an act
which necessarily implies an intention to waive
his right.
Ex. S, a minor, sold his land to B. upon reaching
the age of majority, S, with full knowledge of his
rights in the premises, instead of repudiating
the contract, collected the unpaid balance of the
purchase price from B. There is a tacit
ratification by S.
Art. 1394 Who may effect ratification?
1. In a contract entered into by an incapacitated
person:
- guardian, or
- the injured party himself provided he is
already capacitated

In case of: Start of period: 2. party whose consent is vitiated

Intimidation, violence From the time of the Art. 1395. conformity of guilty party to
or undue influence defect of the consent ratification is not required
CEASES
Art. 1396. Effect of ratification
Mistake or fraud From the time of the
discovery of the - ratification cleanses the contract from all its
same* defects from the moment it is constituted

Action entered into by From the time the Ex. B forced S to sell the latter's horse. Later, the
minors or other guardianship ceases horse gave birth to a colt. If S should ratify the
contract after the birth of the colt, who is
incapacitated persons
entitled to the colt?

*discovery of fraud must be reckoned to have - B, because ratification has a retroactive effect.
taken place from the execution of the contract It validates the contract from the date of its
execution.
Art. 1392 – RATIFICATION
- ratification extinguishes the action to annul a Art. 1397. Party entitled to bring action to
voidable contract annul
1. the plaintiff must have an interest in the
Art. 1393 – Express or implied contract
ratification 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.
Ex. B forced S to sell the latter's horse. The
contract was annulled by the court at the instance
S.
* If the horse died through the fault of B, Article
1400 governs.
* if the horse died due to fortuitous event, S can
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
the price with the interest.
UNENFORCEABLE CONTRACTS
(Art. 1403)
- 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.
- unenforceable contracts, although valid, are
unenforceable unless ratified.
- cannot be enforced by legal action
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

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
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