Contracts

CONTRACTS
CONTRACTS
A contract is a meeting of minds
between two persons whereby one
binds himself, with respect to the
other, to give something or to render
some service.
Classification of Contracts
(a) According to perfection or formation:
1) consensual (perfected by mere consent;
example sale)
2) real (perfected by delivery; examples
depositum, pledge, commodatum). (Art. 1316, Civil
Code).
3) formal or solemn (those where special
formalities are essential before the contract may
be
perfected) (Example: A donation inter vivos of real
property requires for its validity a public
instrument.)
(b) According to cause or equivalence of the value of
prestations:
1) onerous where there is an interchange of
equivalent valuable consideration (such as sale,
barter)
2) gratuitous or lucrative this is FREE, thus one
party receives no equivalent prestation except a
feeling that one has been generous or liberal
3) remunerative (one where one prestation is
given for a benefi t or service that had been
rendered PREVIOUSLY)
(c) According to importance or dependence of one
upon another:
1) principal (here, the contract may stand alone
by itself; examples: sales, lease)
2) accessory (this depends for its existence upon
another contract;
example: mortgage) (Here the
principal contract is one of LOAN.)
3) preparatory (here, the parties do not consider the
contract as an end by itself, but as a means thru
which future transaction or contracts may be made;
examples: agency, partnership)
(d) According to the parties obligated:
1) unilateral [where only one of the parties
has an obligation; example: commodatum
(like the borrowing of a bicycle)]
(NOTE: Even here, the giving of consent
must be mutual or bilateral.)
2) bilateral (or synalagmatic) (here, both
parties are required to render reciprocal
prestations; example: sale)
(e) According to their name or designation:
1) nominate (here the contract is given a
particular or special name; examples:
commodatum, partnership, sale, agency,
deposit)
2) innominate (also called contratos
innominados) those not given any special
name; example: do ut des, meaning I give
that you may give)
4 Kinds of Innominate Contract
1. Do ut des I give that you give
2. Do ut facias I give that you do
3. Facio ut des I do that you give
4. Facio ut facias I do that you do
(f) According to the risk of fulfillment:
1) commutative (here the parties
contemplate a real fulfillment; therefore,
equivalent values are given; examples: sale,
lease)
2) aleatory (here the fulfi llment is
dependent upon chance; thus the values
vary
because of the risk or chance; example:
an
insurance contract)
(g) According to the time of performance or fulfi

llment:
1) executed (one completed at the time the
contract is entered into, that is, the
obligations
are
complied with at this time;
example:
a sale of property which has
already been
delivered, and which has already been paid for)
2) executory (one where the prestations
are to be complied with at some future time;
example: a perfected sale, where the property
has not yet been delivered, and where the price
has not yet been given) (In
themeantime,
there is only a chose in action.)
(h) According to subject matter:
1) contracts involving things (like SALE)
2) contracts involving rights or credits
(provided these are transmissible, like a contract of
usufruct, or
assignment of credits)
3) contracts involving services [like agency,
lease of
services, a contract of common
carriage, a contract
of carriage (simple carriage)]
(i) According to obligations imposed and
regarded by the law:
1) ordinary (like sale; the law considers
this as an ordinary contract)
2) institutional [like the contract of
marriage; the law considers marriage also as
an inviolable social institution.]
(k) According to the number of persons
actually and physically entering into the
contracts:
1) ordinary (where two parties are
represented by different persons; example:
sale)
2) auto-contracts (where only one
person represents two opposite parties,
but
in different capacities; example: an
agent representing his principal sells a
specific car
to himself, as a buyer)
Characteristics of Contracts: (ROMA)

1. Relativity
2. Obligatoriness and Consensuality
3. Mutuality
4. Autonomy
RELATIVITY
GENERAL RULE:
Contract is only validbetween parties,
assigns and heirs.
RELATIVITY
EXCEPTIONS:
1. Stipulation pour atrui - stipulation in
favor of a third person.
RELATIVITY
Requisites:
1. the stipulation must be part, not whole of the
contract;
2. the contracting parties must have clearly and
deliberately conferred a favor upon a third
person;
3. the third person must have communicated his
acceptance; and
4. neither of the contracting parties bears the legal
representation of the third person.
RELATIVITY
example...
D obtained a loan from C amounting to
P10,000.00. The parties agreed that the
loan shall bear an interest of 1% per
month to be paid by D to X until the
principal is paid.
RELATIVITY
EXCEPTIONS:
2. When a third person induces a party
to violate contract
RELATIVITY
Requisites:
1. Existence of a valid contract
2. Knowledge of contract by third person
3. Interference by third person without
justification
RELATIVITY
example...
Nadine has a contract for 5 years with
ABS-CBN company. During the second
year of the contract, GMA company, with
knowledge of the existing contract
between Nadine and ABS-CBN, induced
Nadine to sign a contract as TV talent of
GMA. ABS-CBN may sue GMA (and also
D) for damages under the contract
between Nadine and ABS-CBN although
GMA is not a party thereto.
RELATIVITY
EXCEPTIONS:
3. Third persons who come into
possession of the object of the contract
creating real rights
RELATIVITY
example...
D obtained a loan of P20,000.00 from
C. The loan is secured by a mortgage of
D's lot, which C recorded with the Register
of Deeds. Later, D sold the lot to X who
was aware of the ,ortgage.
RELATIVITY
When D could not pay the loan on due
date, C foreclosed the mortgage on the
lot. Here, X would be bound by the
mortgage although he was not a party
thereto because the mortgage created a
real right in favor of C. This is true even if
X was not aware of it since the registration
of the mortgage operates as a notice to
the whole world of the existence thereof.
RELATIVITY
EXCEPTIONS:
4. Contracts entered into in fraud of
creditors
RELATIVITY
example...
D owed C P100,000.00. To defraud C,
D sold his only lot to X who knew of D's
fraudulent intent, i.e., in bad faith. Here, C
may sue for the rescission of the sale
between D and X although he was not a
party to it.
MUTUALITY
The contract must bind both parties; its
validity or compliance must not be left to
the will of one of them.
AUTONOMY
The parties are free to stipulate
anything they deem convenient
provided that they are not contrary to
law, morals, good customs, public
order and public policy.
CONSENSUALITY
Contracts are perfected by mere
consent andfrom that moment, the parties
are bound not only to the fulfillment of
what has been expressly stipulated but
also to all consequences which, according
to their nature may be in keeping with
good faith, usage and law.
Essential Elements
1. Consent
2. Object or Subject Matter
3. Cause or Consideration
CONSENT
Manifested by the meeting of the
offer and acceptance upon the thing
and the cause which are to constitute
the contract.
CONSENT
Requisites:
1. Legal capacity of the contracting parties
2. Manifestation of the conformity of the
contracting parties
3. The parties conformity to the object, cause,
the terms and conditions of the contract must be
intelligent, spontaneous and free from all vices
of consent
4. The said conformity must be real and not
simulated or fictitious
The following cannot give consent:

1. Minors
2. Insane or demented person
3. Deaf-mutes who do not know how to
write.
CONSENT
Offer
a proposal made by one party to
another to enter into a contract
CONSENT
Acceptance
Manifestation by the offeree of his
assent to the terms of the offer
CONSENT
NOTA BENE:
The offer must be certain and the
acceptance absolute.
CONSENT
RULES ON OFFER:
1. The offer must be certain because
there could be no meeting of the minds if it
is vague or not definite.
CONSENT
RULES ON OFFER:
example...
If S, who has several lots, offers to sell
his lot to B without designating which of
the lots he is selling, the offer is not
certain.
CONSENT
RULES ON OFFER:
2. An offer becomes ineffective upon
the death, civil interdiction, insanity or
insolvency of either party before
acceptance is conveyed.
CONSENT
RULES ON OFFER:
3. 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.
CONSENT
Concept of OPTION
Option is a contract whereby the offeror
gives the offeree a certain period within
which to buy or not to buy a certain object
for a fixed price. It may or may not be for a
valuable consideration.
CONSENT
Right of the offeror to withdraw the offer:
a. If there is no consideration for the
option, the offerer may withdraw the offer
at anytime within the option period
provided there has not yet been any
acceptance.
CONSENT
b. If there is a consideration, the offerer
may not withdraw the offer before the
lapse of the period agreed upon.
Otherwise, he will be liable for damages to
the offeree for breach of contract.
CONSENT
example:
S promised to sell his car to B for
P100,000.00 giving B 30 days to decide. B
accepts the promise. S may withdraw his
promise even before the lapse of the 30day period by informing B of the
withdrawal.
CONSENT
However, if B had given to S option
money of say, P1,000.00, S cannot
withdraw the offer before the lapse of the
option period because the option given to
B was founded upon a consideration.
CONSENT
NOTE BENE:
In both cases, the option is
extinguished upon the lapse of the period,
unless in the meantime, the offeree has
accepted the offer.
CONSENT
RULES ON ACCEPTANCE:
1. The acceptance must be absolute. If the
acceptance varies the offer, there is no
contract since there is no meeting of the
minds.
CONSENT
If the acceptance is qualified, it
constitutes a counter-offer and has the
effect of rejecting the offer.
CONSENT
example...
S offers to sell his ar for P100,000.00
to B. B accepts the offer but is willing to
pay the price of P95,000.00 only. The
acceptance made by B is a qualified
acceptance which constitutes a counteroffer.
CONSENT
example...
Accordingly, no contract is perfected.
However, if S accepts the counter-offer,
then there will be a perfected contract at
the price of P95,000.00.
CONSENT
2. 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 the place where
the offer was made.
CONSENT
3. Acceptance may be express or implied.
CONSENT
Aceptance is express if made orally or
in writing. It is implied if it can be inferred
from the conduct of the parties.
CONSENT
example...
S offers to sell a kilo of his magoes to B
for P20.00, and B, without saying anything
to S, takes the mangoes and begins to eat
one and offers the rest to others, then B is
deemed to have impliedly accepted the
offer of S.
CONSENT
4. An offer made through an agent is
accepted from the time it is communicated
to him.
VICES OF CONSENT
(a) mistake (or error)
(b) fraud (or deceit)
(c) violence
(d) intimidation
(e) undue influence
VICES OF CONSENT
A contract where consent is
given through mistake, violence,
intimidation, undue influence, or fraud
is voidable.
VICES OF CONSENT
A voidable contract is binding and
valid, unless annulled by a proper action in
court. It is, however, susceptible of ratifi
cation before annulment. Annulment may
be had even if there be NO damage to the
contracting parties.
VICES OF CONSENT
Mistake
- 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
contact
- It is a false belief about something.
VICES OF CONSENT
Examples...
If B bought a lot on which he wanted to
construct a factory believing that it was
situated in an industrial area, he can have
the contract annulled if the lot was actually
situated in a residential area.
VICES OF CONSENT
Requisites for Mistake to Vitiate Consent:
(a) The error must be substantial regarding:
1) the object of the contract
2) the conditions which principally moved or
induced one of the parties (error in quality or
in
quantity error in qualitate or in quantitate).
3) identity or qualifi cations (error in
personae),
but only if such was the principal cause of the
contract.
(b) The error must be excusable (not caused by
negligence).
(c) The error must be a mistake of fact, and not
of
law.
VICES OF CONSENT
Examples...
S sold his car to B for P100,000.00
cash because he needed the money to
settle a debt. The deed of sale signed by
him showed, however, that the price would
be paid in 4 equal installments. S can
have the sale annulled because of
mistakes as to the condition of the
contract.
VICES OF CONSENT
Examples...
D donated a lot to C believing that C
was his illegitimate son. D found out later,
however, that C was not his son. The
identity of C was material to the contract;
hence, D can have the contract annulled
on the ground of mistake as to the identity
of the donee.
VICES OF CONSENT
Intimidation
when one (1) of the contracting parties
is compelled by a reasonable & wellgrounded fear of an imminent & grave evil
upon his person or property of his spouse,
descendants or ascendants, to give his
consent.
VICES OF CONSENT
example...
If the seller signed the deed of sale
because the buyer pointed gun on the
former's head and threatened to shoot
him, if he did not sign the deed sof sale.
VICES OF CONSENT
example...
If the buyer threatened to burn the
bouse of the seller of the latter did not sign
the deed of sale.
VICES OF CONSENT
Violence
when in order to wrest consent, serious
or irresistible force is employed
VICES OF CONSENT
example...
S signed a deed of sale of his land to B
because B twisted and threatend to break
his arm if he refused to sign.
VICES OF CONSENT
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
VICES OF CONSENT
example...
If a church minister improperly takes
advantage of his power over a member of
his congregation who regularly confides in
him by persistently telling the member to
sell his property to him.
VICES OF CONSENT
Fraud
When, through insidious words or
machinations of One (1) of the contracting
parties, the other is induced to enter into a
contract which, without them, he would not
have agreed to.
VICES OF CONSENT
example...
S induced B to buy a ring which S
claimed was made of pure gold. However,
S knew all along that the ring was only
gold-plated. B can have the contract
annulled on the ground of fraud.
VICES OF CONSENT
Kinds of FRAUD...
1. Causal fraud
2. Incidental fraud
3. Fraud in the performance of the
obligation
OBJECT
The object of a contract is
really to create or to end obligations
which, in turn, may involve things or
services. Hence, elliptically, it may be
said that the object of a contract is a
thing or a service.
OBJECT
Requisites:
1. It must be w/in the commerce of man
2. It must be licit or not contrary law,
morals, good customs, public order or
public policy
3. It must be possible
4. It must be determinate as to its kind
OBJECT
Things which are
commerce of men:
1. public plaza
2. streets
3. sidewalks
4. future inheritance
not
within
the
OBJECT
Rights which are not transmissible:
1. parental authority
2. political right, such as right to vote or
right to run for public office
CAUSE OF CONTRACTS
It is the essential and impelling
reason why a party assumes an
obligation.
Strictly speaking, there is no cause
of a contract, but there is a cause for
an obligation.
CAUSE OF CONTRACTS
Requisites:
1. Cause should be in existence at the
time of the celebration of the contract
2. Cause should be licit or lawful
3. Cause should be true
CAUSE OF CONTRACTS
example...
A contract stated that S sold his car to
B for P100,000.00. The fact, however, is
that B did not give S P100,000.00 but a
diamond ring. The cause of the contract is
false.
CAUSE OF CONTRACTS
Contracts without cause, or with
unlawful cause, produce no effect
whatsoever. The cause is unlawful if it is
contrary to law, morals, good customs,
public order or public policy
CAUSE OF CONTRACTS
Rules:
1. 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.
CAUSE OF CONTRACTS
Rules:
example...
S sold his car to B for P100,000.00.
The cause for S is the payment of, or the
promise to pay, P100,000.00 by B, while
the casue for B is the delivery of, or the
promise to deliver, the car by S.
CAUSE OF CONTRACTS
Rules:
example...
C, a CPA, entered into a contract with
B, a businessman, to audit the books of
the latter, for a professional fee of
P10,000.00. The cause for C is the
payment of the the professional fee of
P10,000.00, while the cause for B, is the
audit of his books by C.
CAUSE OF CONTRACTS
Rules:
2. In remuneratory contracts, the
service or benefit which is remunerated.
CAUSE OF CONTRACTS
Rules:
example...
C saves D from drowning, and as a
reward, D gives C P5,000.00. The saving
of D from downing is the service
remunerated. THe service here is not
recoverable debt to distinguish it from an
onerous contract where there is a promise
of service by a party.
CAUSE OF CONTRACTS
Rules:
3. In contracts of pure beneficence,
the mere liberality of the benefactor.
CAUSE OF CONTRACTS
Rules:
example...
Donation whose cause is the liberality
of the donor, or commodatum whose
cause is the liberality of the lender.
STAGES OF CONTRACT
1. Preparation or conception This involves preliminary negotiations
and bargaining, discussion of terms and
conditions, with no arrival yet of a definite
agreement. Negotiation begins from the
time the prospective contracting parties
manifest their interest in the contract and
ends at the moment of their agreement.
STAGES OF CONTRACT
2. Perfection or birth This is the point when there is a
meeting of the minds between the parties
on a definite subject matter and valid
cause.
STAGES OF CONTRACT
3. Consummation This occurs when the parties fulfill or
perform the terms agreed upon in the
contract, culminating in the extinguishment
thereof.
FORM OF CONTRACTS
GENERAL RULE:
Contracts
shall
beobligatory,
in
whatever form they may have been
entered into, provided all the essential
requisites for their validity are present.
FORM OF CONTRACTS
EXCEPTIONS:
1. When the law requires that a contract be in
some form in order that it may be valid
2. When the law requires that a contract be in
some form in order that it may be enforceable
3. For the convenience of the parties
FORM OF CONTRACTS
Examples of Formal Contracts
(a) Donations of real property (these require a public
instrument).
.
(b) Donations of personal property (these require a
written contract or document if the donation exceeds
P500).
(c) Stipulation to pay interest on loans, interest for the
USE of the money (said stipulation must be in
writing).
FORM OF CONTRACTS
Examples of Formal Contracts
(d) Transfer of large cattle (this requires the transfer of the
certificate of registration).
(e) Sale of land thru an agent (here, the authority of the
agent
must be in writing; otherwise, the sale is null and void).
(f) Contracts of antichresis (here the principal loan, and the
interest if any, must be specifi ed in writing; otherwise, the
contract of antichresis is void).
FORM OF CONTRACTS
Parties may compel each
other to comply with the form required
once the contract has been perfected.
REFORMATION OF
INSTRUMENTS
Reformation is that remedy in
equity by means of which a written
instrument is made or construed so as to
express or conform to the real intention of
the parties when some error or mistake
has been committed.
REFORMATION OF INSTRUMENTS
The rationale of the doctrine is
that it would be unjust and inequitable to
allow the enforcement of a written
instrument which does not refl ect or
disclose the real meeting of the minds of
the parties.
Requisites:
1. meeting of the minds to the contract

2. true intention is not expressed in the instrument
by reason of mistake, accident, relative
simulation, fraud, or inequitable conduct
3. clear and convincing proof of mistake, accident,
relative simulation, fraud, or inequitable conduct
example...
S sold to B his lot consisting of 1,000 square
meteres for P100,000.00 cash. However,
the contract they signed showed an area
of 1,200 square meters because of the
clerk's error. The parties had the meeting
of the minds but the contract did not show
their true intention as to the area of the lot.
Either party may ask for the reformation of
the contract so as to show the actual area
of 1,000 square meters.
Instances when there can be no
reformation:
1. Simple unconditional donations inter
vivos;
2. Wills;
3. When the agreement is void;
4. When one of the parties has brought
anaction to enforce the instrument, no
subsequent reformation can be asked.
Who may ask reformation:
1. If the mistake was mutual, by either
party, or his successor in interest, such as
his heirs or assigns.
2. In other cases, by the injured party,
or his heirs or assigns.
DEFECTIVE CONTRACTS
1. Resciscible Contracts
2. Voidable Contracts
3. Unenforceable Contracts
4. Void or inexistent contract
DEFECTIVE CONTRACTS
NOTA BENE:
(a) The rescissible contract is valid until
rescinded; there is a sort of extrinsic
defect consisting of an economic damage
or lesion.
DEFECTIVE CONTRACTS
NOTA BENE:
(b) The voidable contract is valid till
annulled. It can be annulled. It cannot be
annulled, however, if there has been a
ratification. The defect is more or less
intrinsic, as in the case of vitiated consent.
DEFECTIVE CONTRACTS
NOTA BENE:
(c) The unenforceable contract cannot be
sued upon or enforced, unless it is ratifi
ed. In a way, it may be considered as a
validable transaction, that is, it has no
effect now, but it may be effective upon
ratifi cation.
DEFECTIVE CONTRACTS
NOTA BENE:
(d) The void contract is one that has no
effect at all; it cannot be ratified or
validated.
RESCISSIBLE CONTRACTS
A rescissible contract is one which
has all the essential requisites of a
contract but which may best set aside by
reason of equity on account of damage to
one of the parties or upon third person.
THE FOLLOWING ARE

(1) Those which are entered into by the
guardians whenever the wards whom they
represent suffer lesion by more than onefourth of the value of the things which are
the object thereof;
example...
G, the guardian, of M, sold the corn
harvested from M's farm for P40,000.00.
The value of the corn is P60,000.00. The
sale is rescissible because the lession of
P20,000.00 is more than 1/4 of
P60,000.00, or P15,000.00.
(2) Those agreed upon in representation of
absentees, if the latter suffer the lesion
stated in the preceding number;
An absentee is a person who
disappears from his domicile, his
wherabouts being unknown, and without
leaving an agent to administer his
property. Thus, if it was the representative
of an absentee who sold the corn in the
preceeding example, the sale is also
rescissible.
(3) Those undertaken in fraud of creditors
when the latter cannot in any other
manner collect the claims due them;
example...
D owes C. To defraud C, D sells his
only lot to T who knows of the fraudulent
intention of D. The sale is rescissible.
(4) Those which refer to things under
litigation if they have been entered into by
the defendant without the knowledge and
approval of the litigants or of competent
judicial authority;
example...
C sued D to recover some pieces of
jewelry. While the case was pending, D,
without authority from the court or from C,
sold the jewelry to T who was aware that
the jewelry was the subject of litigation.
The sale is rescissible.
(5) All other contracts specially declared by
law to be subject to rescission.
Rescission, Concept
- it is the remedy allowed by law to the
contracting parties and even to third
persons, to secure the reparation of
damages caused to them by a contract,
even if it should be valid, by means of the
restoration of things to their condition at
the moment prior to the celebration of the
said contract.
Extent of rescission Rescission shall only be to the extent
necessary to cover the damages caused.
example...
G, guardian, sold 100 sacks of rice
harvested from the farm of M, his ward, for
P700.00 per sack, or a totla price of P70,000.00
to B. However, the value of each sack is
P1,000.00, or total value of P100,000.00. The
rescission of the sale of 30 sacks of rice is
sufficient to cover the damage of P30,000.00
(which is more than one-fourth of the total value
of P100,000.00). Thus, B must return 30 sacks
of rice to M.
Liability for Damages of

Persons acquiring things in
alienations in fraud of
Creditors
1. If the purchase was made in bad faith
The purchaser in bad faith shall
indemnify the creditors for damages
suffered by them on account of the
alienation whenever due to any cause, it
would be impossible for him to return
them. This applies even if the cause of the
loss is a fortuitous event.
If there are two or more alienations, the
first acquirer shall be liable first, and so on
successively provided they shall also in
bad faith.
2. If the purchase was made in good faith
The purchaser in good faith shall not
be liable nothwithstanding the fraudulent
intention of the debtor in disposing the
property. Hence, rescission will not be
available. If there are subsequent
transfers, the tranferees shall not be liable
even if they were in bad faith.
VOIDABLE CONTRACTS
A voidable contract is one that is
defective by reason of the incapacity or
vitiated consent of one of the parties. It is
binding unless annulled by a proper action
in court. It is susceptible of ratification.
VOIDABLE CONTRACTS
The following contracts are

voidable or annullable
VOIDABLE CONTRACTS
(1) Those where one of the parties is
incapable of giving consent to a
contract;
VOIDABLE CONTRACTS
(2) Those where the consent is vitiated
by mistake, violence, intimidation,
undue influence or fraud.
VOIDABLE CONTRACTS
3. Contracts agreed to in a state of
drunkenness;
VOIDABLE CONTRACTS
4. Contracts agreed to during a hypnotic
spell.
VOIDABLE CONTRACTS
Annulment, Concept It is an action brought to set aside a
voidable contract.
Distinctions Between a Rescissible

andRESCISSION
a Voidable Contract
ANNULMENT
(a) The basis here is (a) The basis here is
lesion (damage).
vitiated consent or
incapacity to consent.
(b) The defect here is (b) The defect here is
intrinsic
(in
the
external or intrinsic.
meeting
of
the
minds).

andRESCISSION
a Voidable Contract
ANNULMENT
(c)
The
action
subsidiary.
(d) This is a remedy.
(e)
Private
governs.
is (c)
The
action
principal.
is
(d) This is a sanction.
interest (e)
Public
governs.
interest

andRESCISSION
a Voidable Contract
ANNULMENT
(f) Equity predominates.
(f) Law predominates.
(g) Plaintiff may be a (g) Plaintiff must be a

party or a third
party to the contract
person.
(whether
bound
principally
or
subsidiarily).

andRESCISSION
a Voidable Contract
ANNULMENT
(h) There
damage
plaintiff.
must be (h) Damage to the

to
the
plaintiff is immaterial.
(i) Indemnity here is no

(i)
If
plaintiff
is
bar to the prosecution
indemnified,
of the action.
rescission
cannot
prosper.

andRESCISSION
a Voidable Contract
ANNULMENT
(j) Compatible with the (j) Here, a defect is
perfect validity of the
presupposed.
contract.
(k)
To
prevent
(k)
To
prevent
annulment, ratification
rescission, ratifi cation
is required.
is not required.
VOIDABLE CONTRACTS
When action must be brought The action for annulment must be
brought within four (4) years which period
shall begin:
1. in cases of intimidation, violence or
undue influence, from the time the defect
in the consent ceases.
VOIDABLE CONTRACTS
2. In case of mistake or fraud, from the
time of discovery of the same.
3. In cases, of minority or other
incapaity of
party, from the time
guardianship ceases
VOIDABLE CONTRACTS
Persons Who May Ask for Annulment The action for the annulment of
contracts may be instituted by all who are
thereby obliged principally or subsidiarily.
However, persons who are capable cannot
allege the incapacity of those with whom
they contracted; nor can those who
exerted intimidation, violence, or undue
infl uence, or employed fraud, or caused
mistake base their action upon these fl
aws of the contract.
VOIDABLE CONTRACTS
example...
A minor contracted with X. Xs heir, Y,
sues for annulment on the ground that the
other party was a minor.
Annulment cannot prosper, for just as
X has no right to sue, being the
capacitated party, so also Y, who merely
derives any right he has from his
predecessor-in-interest, X.
VOIDABLE CONTRACTS
Effects of Annulment (a) If the contract has not yet been complied
with, the parties are excused from their
obligations.
(b) If the contract has already been
performed, there must be MUTUAL
RESTITUTION (in general) of:
1) the thing, with fruits;
2) the price, with interest.
VOIDABLE CONTRACTS
NOTA BENE:
When the defect of the contract
consists in the incapacity of one of the
parties, the incapacitated person is not
obliged to make any restitution except
insofar as he has been benefi ted by the
thing or price received by him.
VOIDABLE CONTRACTS
NOTA BENE:
As long as one of the contracting
parties does not restore what in virtue of
the decree of annulment he is bound to
return, the other cannot be compelled to
comply with what is incumbent upon him.
example...
A forced B to take As car in exchange
for Bs ring. B asked for annulment, and
the court gave the decree of annulment
ordering each to return what had been
received. B refused to give A the car. May
A be compelled to give back the ring?
VOIDABLE CONTRACTS
Ratification, Concept It is the adoption or affirmation of a
contract which is defective because of a
party's vitiated consent or incapacity.
VOIDABLE CONTRACTS
How ratification is made 1. Express - When made orally or in
writing.
VOIDABLE CONTRACTS
2. Implied or tacit - There is tacit
ratification if with knowledge of the reason
which renders the contract voidable and
such reason having ceased, the person
who has a right to invoke it executes an
act which necessarrily implies an action to
waive his rights.
VOIDABLE CONTRACTS
example...
S, 17 years old, sold his computer to B,
25, for P50,000.00 payable in 10 equal
monthly installments. When S turned 18
years old, 6 installments were still due. If S
continues to collect the remaining
installments
instead
of
suing
for
annulment, he is deemed to have ratified
the contract.
VOIDABLE CONTRACTS
Who may ratify 1. The guardian of the incapacitated
person during the latter's incapacity
2. The incapacitated person after he
has attained capacity
3. The party whose consent is vitiated
by mistake, violence, intimidation, undue
influence or fraud.
VOIDABLE CONTRACTS
Effects of ratification a. It extinguishes the action to annul a
voidable contract.
b. It cleanses the contract from all its
defects from the moment it was
constituted. In other words, the contract is
validated from inception.
UNENFORCEABLE CONTRACTS
An unenforceable contract is one
that cannot be enforced unless
ratified.
Kinds of Unenforceable Contracts (a) Unauthorized contracts.
(b) Those that fail to comply with the Statute
of Frauds.
(c) Those where both parties are incapable
of giving consent to a contract.
The following contracts are

unenforceable, unless they are
ratified:
(1) Those entered into in the name of
another person by one who has been
given no authority or legal representation,
or who has acted beyond his powers;
example...
1. A sells P's car to B in the name of P
without P's authority. B cannot enforce the
contract against P unless P ratifies.
example...
2. P authorizes A to sell P's car for
P100,000.00 cash. A sells the same to B
for P100,000.00 in installments. B cannot
enforce the contract against P unless P
ratifies it because although A had the
authority to sell the car, he acted in excess
of authority.
(2) Those that do not comply with the
Statute of Frauds as set forth in this
number.
The following contracts must be in writing;
otherwise, they are unenforceable:
(a) An agreement that by its terms is
not to be performed within a year from the
making thereof;
example...
On January 1, 2015, C and D orally
entered into a contract for the construction
of C's building which shall begin on
February 1, 2016. Neither one may
enforce the contract against the other on
February 1, 2016 as it was not in writing
and subscribed y either or both of the
parties.
(b) A special promise to answer for the
debt, default, or miscarriage of another;
example...
D borrowed from C P10,000.00 with G
as guarantor. The guaranty was made
orally. If D cannot pay, C cannot enforce
the guaranty against G.
(c)
An
agreement
made
in
consideration of marriage, other than a
mutual promise to marry;
example...
1. F, the father of G, orally agreed to
give a house and lot to G, the groom, an
B, his bride, in consideration of their
marriage. The agreement is unenforceable
against F since it is not in writing.
example...
2. M and W mutually agreed to marry
each other within 6 months. The
agreement was oral. At the end of 6
months, M refused to marry W. If
preparation have been made for the
wedding, M can enforce the contract for
the purpose of claiming damages,
although the mutual promise was not in
writing, but not the specific promise to
marry.
(d) Agreement for the sale of goods, etc. at
a price not less than P500.00;
example...
S orally sold his radio for P1,000.00 to
B. The parties agreed that the radio would
be delivered and the price paid the
following day. Here, neither party may
enforce the contract since it was not in
writing.
example...
However, if the price of the radio is
P500.00 or less, the sale is enforceable
although it is wholly executory.
(e) An agreement for the leasing for a longer
period than one year, or for the sale of real
property or of an interest therein;
NOTA BENE:
If the object of the lease is personal
property, the contract is enforceable
regardless of the length of the lease.
(f) A representation as to the credit of a third
person.
example...
D wants to buy construction materials
on credit from C. T orally tells C that D has
a good credit standing and pays his loans
promptly. C thus sells on credit to D. If the
representation is false, C cannot prove
such misrepresentation against T to
recover
damages
because
it
is
unenforceable not being in writing.
Applicability of the statute of frauds The statute of frauds applies only
to executory contracts, not to those that
are already partially or completely fulfilled.
Ratification They are susceptible of ratification
through any of the following means which
will render them enforceable:
1. By the failure to object the presentation of
oral evidence to prove them.
2. By the acceptance of benefits under
them.
example...
S orally sold to B a radio for P800.00.
The parties agreed that S would deliver
the radio the following day. B, however,
gave a down payment of P200.00. The
sale is enforceable because S had
accepted a benefit under the contract.
(3) Those where both parties are incapable
of giving consent to a contract.
example...
The contract is unenforceable if one
party is a minor, while the other party is
insane.
VOID OR INEXISTENT
CONTRACTS
A void contract is one which has no

force and effect from the very beginning,
as if it had never been entered into, and
which cannot be validated either by time
or ratification. It is equivalent to nothing; it
presupposes no civil effect.
VOID OR INEXISTENT CONTRACTS

What
contracts are void:

1. Those whose cause, object or
purpose is contrary to law, morals good
customs, public order or public policy;

2. Those whose object is outside the
commerce of men;

3. Those which
impossible service;
contemplate
an

4. Those where the intention of the
parties relative to the principal object of
the contract cannot be ascertained; and

5. Those expressly
declared void by law.
prohibited
or

What
contracts are inexistent:

1. Those which are absolutely simulated
or fictitious; and
2. Those whose cause or object did not
exist at the time of the transaction.

Principle of Pari Delicto GENERAL RULE:When the defect of a
voidcontract consists in the illegality of the
cause or object of the contract and both of
the parties are at fault or in pari delicto,
the law refuses them every remedy and
leaves them where they are.

EXCEPTIONS:
1. Payment of usurious interest

2.Payment of money or delivery of property
for an illegal purpose, where the party who
paid or delivered repudiates the contract
before
the
purpose
has
been
accomplished, or before any damage has
been caused to a 3rd person.

example...
A hired B to kill X by giving P20,000.00
to B. Later, A changed his mind and told B
not to kill X anymore. A may be allowed by
the court to recover the amount he gave to
B.

3. Payment or delivery made by an
incapacitated person

example...
A, a minor of 17 years, gave
P10,000.00 to B foe a dangerous drug.
The court may allow A to recover the
amount he gave if the interest of justice so
demands.

4. Agreement or contract which is not illegal
per se & the prohibition is designed for the
protection of the plaintiff

example...
F, a Filipino, is allowed to recover a
piece of land (located in the Philippines)
he sold to A, an alien, because the
restoration of the land to him would
enhance the public policy to conserve
lands for Filipinos.

5. Payment of any amount in excess of the
maximum price of any article or
commodity fixed by law

6. Contract whereby a laborer undertakes to
work longer than the maximum number of
hours fixed by law

7. Contract whereby a laborer accepts a
wage lower than the minimum wage fixed
by law.
Pre-Test
1. The following statements concerning the payment by cession are
true, except one. Which is it?
a. The creditors become the owners of the properties of the
debtor that were ceded to them
b. Payment by cession extinguishes the obligations only to the

extent covered by the proceeds of the sale of the debtors properties
c. The debtor must be insolvent
d. Cession affects all the properties of the debtor except those

exempt from execution.
Pre-Test
2. The delivery and transmission of ownership of a
thing by the debtor to the creditor as an
accepted equivalent of performance is known
as:
a. Payment by cession
b. Dation in payment
c. Application of payment
d. Consignation
Pre-Test
3. The offer made by the debtor to pay his
obligation to his creditor is known as:
a. Consignation
b. Tender of payment
c. Application of payment
d. Dation in payment
Pre-Test
4. M owes P P10,000.00. The obligation is evidenced by a
promissory note. Subsequently, P assigned the note to
A, A to B, B to C and C back to M. The obligation of M is
extinguished by:
a. Compensation
b. Confusion
c. Condonation
d. The obligation is not extinguished because
there was no payment
Pre-Test
5. One of the following is not a requisite of legal
compensation. Which is it?
a. That each one of the obligors be bound
principally, and that he be at the same time a principal
creditor of the other
b. That the two debts are due
c. That both debts be liquidated and demandable
d. That the debts are payable at the same time
Pre-Test
6. D owes C P10,000.00 with G as guarantor. C, on the other hand,
owes D, P8,000.00. Both the debts are already due but D is
insolvent. In this case a. C may collect from G P10,000.
b. C may collect from G P2,000.00 because a guarantor can
set up compensation as regards what the creditor owes the principal
debtor
c. C may collect nothing from G because D is insolvent
d. C may collect P8,000.00 from G.
Pre-Test
1. A third person who has an interest in the
TRUE
fulfillment of the obligation, such as guarantor,
may compel the creditor to accept payment
2. Payment made for an obligation which is
FALSE
interest-bearing must first be applied to the
principal before the interest
Pre-Test
3.The debtor of a thing may compel the
FALSE
creditor to accept a different one if the latter is
moRe valuable than that which is due.
4. The debtor may compel the creditor to
FALSE
accept a certified check as payment since the
bank guarantees the check to be covered with
sufficient funds.
Post Test
1. Payment means not only the delivery of
TRUE
money but also to the performance of the
obligation in any other manner.
2. Payment made in good faith by the debtor
TRUE
to a person in possession of the credit releases
him from liability.
Post Test
3. Payment to an incapacitated creditor shall
TRUE
be valid if he has kept the payment.
4. If an obligation is physically divisible, the
FALSE
debtor may compel the creditor to accept partial
payment.
Post Test
5. For dacion en pago to apply, the debtor
FALSE
must be insolvent.
6. Consignation without tender of payment is
TRUE
sufficient if two or more persons claim the same
right.
Post Test
7. Confusion which takes place in the person
FALSE
of the guarantor extinguishes the principal
obligation.
8. If the old obligation is void, the novation
FALSE
will still be valid if the new obligation is valid.
Post Test
9. Conventional subrogation requires the
consent of the original parties and third persons.
TRUE
10. A debt which consists in sum of money
FALSE
and another debt which consists in a
consumable thing are extinguished by legal
compensation as long as both debts have the
same amount and are already due.
1. B bought a baby boy from S. B knew

that the baby boy was his illegitimate son
by a woman named, W, and W sold to S.
The contract between B and S is:
a. Valid
b. Void
c. Unenforceable
d. Voidable
2. An absolutely simulated contract is:

a. Void
b. Voidable
c. Valid
d. Unenforceable
3. S sold his lot consisting of 1,000 square

meters to B. However, the deed of sale signed
by the parties showed a total area of 1,200
square meters due to the secretarys mistake.
Later, S discovered the mistake. What remedy is
available to either party?
a. Annulment
b. Reformation
c. Rescission
d. Declaration of nullity of the contract
4. D, out of love and affection for C,

donated a parcel of land to the latter who
accepted it. The formalities required by
law were complied with. The contract
between D and C is:
a. An onerous contract
b. A gratuitous contract
c. A remuneratory contract
d. An accessory contract
5. In January 2010, S, 17 years old, sold his

only car to B, 21 years old. The sale was without
the knowledge of G, the guardian of S.
Assuming that an annulment case is filed today:
a. S may bring an action for annulment
b. G may bring an action for annulment
c. B may bring an action for annulment
d. Annulment will not prosper whoever will
file it.
6. The following contracts are void or inexistent,

except:
a. Those whose object is outside the commerce of

man
b. Those which contemplate an impossible service
c. Those where the intention of the parties relative
to principal object of the contract cannot be ascertained
d. Those where one of the parties is guilty of fraud
in performing his obligation
7. Reformation of instruments has the

following requisites, except:
a. There must be a meeting of the minds of

the parties to the contract
b. The true intention of the parties is not
expressed int the instrument
c. The failure of the instrument to express
the true intention of the parties is due to mistake,
fraud, inequitable conduct or accident
d. The contract must be in public
instrument
8. Which of the following contract is rescissible?

a. Contracts entered into during the hypnotic spell
b. Contracts entered into in a state of drunkenness
c. Contracts entered into to defraud creditor when
the latter cannot collect the debts due them
d. Contracts where both parties are incapable of
giving consent
9. On June 1, S offered to sell a specific generator set to B for

P3000,000.00. B sent his letter of acceptance to S on June 8. On
June 10, however, B became insane. On June 12, S received Bs
letter of acceptance.
a. The contract was perfected on June 8 when B sent his letter
of acceptance, at which time he was still sane
b. The contract was perfected on June 12, when S learned of
the acceptance
c. The contract was not perfected because the insanity of B
occurred before S came to learn of the acceptance of his offer by B
d. The contract was perfected on June 1 because the
acceptance made by B on June 8 retroacts to the date of offer
10. S and B entered into a contract whereby S sold his car to B

for P100,000.00. Based on the foregoing, which of the following is
incorrect?
a. The contract is voidable if S is 17 years old and B is 25 years
old.
b. The contract is unenforceable if S is 17 and B is insane.
c. The contract is void if B, 25 years old, compelled S, 30 years
old, to sign the deed by threatening to burn the house of S
d. The contract is rescissible if at the time of the sale, the car
was the subject of litigation brought by X against S to recover the
car, and the court and X did not give authority to the sale.

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CONTRACTS

(g) According to the time of performance or fulfi

Characteristics of Contracts: (ROMA)

The following cannot give consent:

1. meeting of the minds to the contract

THE FOLLOWING ARE

Liability for Damages of

The following contracts are

Distinctions Between a Rescissible

Distinctions Between a Rescissible

(d) This is a sanction.

Distinctions Between a Rescissible

(f) Law predominates.

(g) Plaintiff may be a (g) Plaintiff must be a

Distinctions Between a Rescissible

must be (h) Damage to the

(i) Indemnity here is no

Distinctions Between a Rescissible

The following contracts are

A void contract is one which has no

VOID OR INEXISTENT CONTRACTS

contracts are void:

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

contracts are inexistent:

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT CONTRACTS

b. Payment by cession extinguishes the obligations only to the

c. The debtor must be insolvent

d. Cession affects all the properties of the debtor except those

1. B bought a baby boy from S. B knew

2. An absolutely simulated contract is:

3. S sold his lot consisting of 1,000 square

4. D, out of love and affection for C,

5. In January 2010, S, 17 years old, sold his

6. The following contracts are void or inexistent,

a. Those whose object is outside the commerce of

7. Reformation of instruments has the

a. There must be a meeting of the minds of

8. Which of the following contract is rescissible?

9. On June 1, S offered to sell a specific generator set to B for

10. S and B entered into a contract whereby S sold his car to B

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