Contracts

Prepared by: Jun Martinez

Contract

 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
Kinds of Contracts

 According to perfection
 CONSENSUAL
 perfected by mere consent, such as sale or barter. Essential
requisites of consensual contracts are: contents, certainty of
object and cause or consideration.

 REAL
 perfectedby delivery of the object of contract, such as
pledge, loan and deposit. Essential requisites of real contracts
are: consent, object certain, cause or
Types of Real contracts
 DEPOSIT
 PLEDGE
 COMMODATUM
Types of Real contracts
 DEPOSIT
 Is constituted from the moment a person receives a
thing belonging to another, with the obligation of
safely keeping it and returning the same.
 it is essential that the depository is not the owner of
the thing deposited
 Example : bank deposits
Types of Real contracts
 PLEDGE
 A contract by virtue of which one person delivers to another
movable property as security for the payment of the principal
obligation, that the thing pledged, with all its accessions and
accessories, shall be returned by the creditor to the debtor upon
the fulfillment of the principal obligation.
 A Bailment or delivery of Personal Property to a creditor as
security for a debt or for the performance of an act.
 Example:
 John asks to borrow P500 from Mary. Mary decides
first that John will have to pledge his stereo as
security that he will repay the debt by a specific
time.
Types of Real contracts
 COMMODATUM
 Is a contract whereby one of the parties delivers to another
something not consumable so that the latter may use the
same for a certain time and return it.
 lends to another a tiling for a definite time, to be enjoyed
and used under certain conditions, without any pay or
reward
 Example: X borrows a car from Y, to be used for a certain
period of time. X has the responsibility of returning the car
as it was before he borrowed it.
Kinds of Contracts

 According to Degree of Importance

 PRINCIPAL
 can stand alone, such as sale, barter, deposit and loan

 ACCESSORY
 Itsexistence and validity is dependent upon another
contract such as pledge, mortgage or guaranty.
Kinds of Contracts

 According to name
 NOMINATE
with special name, such as pledge, barter or
license

 INNOMINATE
Without any name
Kinds of Contracts

 According to Nature produced / number of parties

 UNILATERAL
 Where only one of the parties is obliged to give or to do
something such as commodatum, gratuitous deposit and
gratuitous mutuum.

 BILATERAL / SINAGNATICO
 Bothparties are obliged to give, or to do something such as
barter and lease
Elements of Contracts

 Essential Elements
 Natural Elements
 Accidental
Essential Elements

 Those without which a contract can not exist:

 (a) Consent of the contracting parties,
 (b) subject matter,
 (c) cause of consideration.
Natural Elements

 Those that accompany certain contracts, unless

otherwise suppressed by agreement of the
parties.
 those elements which are found in a contract by
its nature and presumed by law to exist, such as
Warranty of hidden defects or eviction in contract
of sale.
Accidental

 The particular stipulation agreed upon by

the parties, such as time of payment, rate
of interest and place of delivery.
 Example: The interest upon the contract of
loan
Stages of Contracts

 CONCEPTION / PREPARATION
 Preliminary stage of negotiation and bargaining until an
agreement is reached.
 BIRTH / PERFECTION
 The moment when the minds of the parties meet or agree
on all the terms of the contract.
 DEATH / CONSUMATION
 When the contract is performed and its terms fulfilled.
Distinction between Contract and
Obligation
 Contract
 It is a source of obligation
 It is the agreement of both parties

 Obligation
 It is the legal relation itself
 Itis the remedy which the law affords for its
enforcement
Article 1306:
A contract is void if it is against the:
 Law
 Morals
 Good customs
 Public policy
 Public order
Article 1307 : Innominate contracts

 Innominate (unnamed) contracts shall be

regulated by the stipulations of the parties, by
the provisions of Titles I and II of this Book, by the
rules governing the most analogous nominate
contracts, and by the customs of the place
Kinds of Innominate Contracts

1. DO UT DES – “ I give, you give.”

2. DO UT FACIAS – “ I give, you do.”
3. FACIO UT DES – “ I do, you give.”
4. FACIO UT FACIAS – “ I do, you do.”
Article 1308

 The contract must bind both contracting parties; its

validity or compliance cannot be left to the will of
one of them.
 Example
 Gaya and Laura entered into a contract to sell,
whereby Gaya binds herself to sell her only parcel of
land to Laura if Gaya decides to leave for States. The
contract is void because the fulfillment of the
condition depends on the will of Gaya.
Article 1309

 The determination of the performance may

be left to a third person, whose decision
shall not be binding until it has been made
known to both contracting parties.
Example

 Santos enters into a contract with Reyes whereby Santos

agrees to sell Reyes 10 sacks of Macan Rice at a
reasonable price to be determined by their mutual friend
Ledesma. This is freely agreed by both parties. Ledesma
then fixes the price at P200.00 per cavan, having due
regard circumstances, the market, the kind, etc. and
informs both Santos and Reyes of his decision.
 Santos is obliged to deliver to Reyes 10 sack of Macan rice
while Reyes is under the obligation to pay the reasonable
price fixed by the third person Ledesma.
Article 1310

 The determination shall not be obligatory if it is

evidently inequitable. In such case, the courts
shall decide what is equitable under the
circumstances
 The determination of the performance may be left to a third
person, whose decision shall not be binding until it has been made
known to both contracting parties (Article 1309)
Illustration

 In the preceding example, supposing Ledesma fixed the

price of the sacks of Macan rice at P95.00 per sack when
the current market price is P200.
 In such case, Santos need not deliver the 10 sacks of rice
because the price fixed by Ledesma is HIGHLY inequitable,
unfair and unjust. He may file a case in court for the
court to fix the just price.
Article 1311

 Contracts take effect only between the parties,

their assigns and heirs, except in case where the
rights and obligations arising from the contract
are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not
liable beyond the value of the property he
received from the decedent (deceased person).
Illustration

 Doroteo is indebted to Matias an amount of

P1000.00. On the due date of the obligation,
Matias dies leaving his son Cirilo as his sole heir.
 Doroteo must pay the amount of P1000.00 to
Cirilo, the heir left by Matias. The right of Matias
is transmissible to his heir, Cirilo.
Article 1312

 In contracts creating real rights, third persons

who come into possession of the object of the
contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land
Registration Laws
Article 1313

 Creditorsare protected in cases of

contracts intended to defraud them
Article 1314

 Any third person who induces another to violate

his contract shall be liable for damages to the
other contracting party.
Illustration

 A theatre operator, enters into a contract with Y, a

celebrity singer, where the latter will sing X’s theatre for
a period of twenty days at an agreed compensation. After
performing for two days in X’s theatre, Z, another theatre
operator, entices Y to sing in his theatre doubling the
compensation which the latter accepted. Performing in Z’s
theatre from the 3rd to the 20th day.
 Z who is a third person is liable for damages
Article 1315

 Contracts are perfected by mere consent, and

from that moment the parties are bound not only
to the fulfillment of what has been expressly
stipulated but also to all the consequences which,
according to their nature, may be in keeping with
good faith, usage and law.
Example: Consensual

 A vendor of a Mercedez Benz car, even if already

sold to be delivered two weeks later, would be
obliged to take good care of it as if still the owner
of the car, such that , if the car fades or is dented
by reason of omission of that degree of care
during the interim he would be liable for damages
Article 1316

 Real contracts, such as deposit, pledge and

Commodatum, are not perfected until the
delivery of the object of the obligation.
Article 1317

 No one may contract in the name of another without

being authorized by the latter, or unless he has by law a
right to represent him. A contract entered into in the
name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall
be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting
party
Illustration

 X enters into a contract selling a sports car belonging to Z

without the latter’s consent to Y for P100,000.00. Three
days later, Y goes to Z offering to pay and demanding the
delivery of the car. Z can refuse because he has not given
his authority to X to sell the car.
 But if Z accepts the payment, in whole or on part, the
acceptance amounts to ratification, hence, he should
deliver the car.
ESSENTIAL REQUISITES OF
CONTRACTS
Article 1318

There is no contract unless the following requisites

concur:
 Consent of contracting parties ;
 Object certain which is the subject matter of the
contact;
 Cause of the obligation which is established.
Article 1318

 Consent
 permission for something to happen or agreement to do
something.
 SUBJECT MATTER
 Must be within the commerce of man, lawful, not impossible and
must be determinate as to its kind or capable of being made
determinate without any new agreement between the parties.
 CAUSE
 Must exist, must be true and lawful.
Section 1: Consent

 Consent is manifested by the meeting of the offer and the

acceptance upon the thing and the cause which are to
constitute the contract. Acceptance made by letter or
telegram does not bind the offeror except from the time
it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where
the offer was made
Requisite of Consent

 It must be given by two or more parties.

 Capacity on the part of the contracting parties.
 It must be an express or tacit manifestation of the
will of the contacting parties.
 The consent must be intelligently and freely
given.
Article 1320

 An acceptance may be express or implied

Article 1321

 The person making the offer may fix the time,

place, and manner of acceptance, all of which
must be complied with.
Article 1322

 An offer made through an agent is accepted from

the time acceptance is communicated to him.
 Agent - is considered the extension of personality of his
principal. (Article 1910). If duly authorized, the act of
the agent is, in law, the act of the principal.
Article 1323

 An offer becomes ineffective upon the death, civil

interdiction, insanity, or insolvency of either party before
acceptance is conveyed.
 If any of these circumstances will supervene after the
acceptance has been made, the contracts will continue to
have force and effect but the rights and obligations
arising therefrom will descend to the heirs and assigns of
the parties depending upon whether they are
transmissible by nature, by law or by stipulation
Article 1324

 When the offeror 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
Illustration

 For instance, if X offers to sell concrete mixer to

Y giving the latter ten days within which to
accept, X may revoke the offer at any time before
Y accepts it. But if Y had promised or given
something to Y in order that the latter will give
an option or extension of a period to accept, then
X cannot withdraw the same until the appointed
or designated time.
Article 1325

 Unless it appears otherwise, business advertisements of

things for sale are not definite offers, but mere invitations
to make an offer
 Example:
 FOR SALE: 200 square meters lot at Green Plains Village,
Quezon City for P1,000,000.00 – Tel. No. 344-1284
 This is not a definite offer
Article 1326

 Advertisements for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears.
Illustration

 An advertisement appears in the Bulletin today reading :

For sale : 1980 lancer, 2 door, good running condition and
fully loaded , P60,000, 200 G. Tuazon, Sampaloc Manila,
See Vangie Mendoza.”
 X immediately saw Miss Mendoza informing her that he is
buying the car and tendering the exact amount. Miss
Mendoza can refuse because advertisements are not
definite offers
Article 1327

 Thefollowing cannot give consent to a

contract:
 Un-emancipated minors;
 Insane
or demented persons, and deaf-mutes
who do not know how to write.
Article 1328

 Contracts entered into during a lucid

interval are valid.
 Contractsagreed to in a state of
drunkenness or during a hypnotic spell are
voidable.
Article 1330

A contract where consent is given through

mistake, violence, intimidation, undue
influence, or fraud is voidable
Causes vitiating (void) consent
 MISTAKE
 Asto the substance of the thing or object of
the contract., as to conditions which have
principally moved one or both parties into the
contract; mistake of account, mistaken of
identity or qualifications.
 VIOLENCE
 The external physical force.
Causes vitiating (void) consent
 INTIMIDATION
 The internal force operating in the mind of the party
intimidated.
 UNDUE INFLUENCE
 The unlawful control by one person over another so as
to substitute his will for violation of the victim.
 FRAUD
Article 1331
 In order that mistake may invalidate consent, it
should refer to the substance of the thing which is
the object of the contract, or to those conditions
which have principally moved one or both parties
to enter into the contract. Mistake as to the
identity or qualifications of one of the parties will
vitiate consent only when such identity or
qualifications have been the principal cause of
the contract. A simple mistake of account shall
give rise to its correction
Example

 When one sells and the other buys a sugar land

believed by them to have an area of 20 ha and
yielding 2000 piculs (1 picul = 60.48kg) per
season which actually had an area of 18 ha and
producing only 600 piculs.
 Despite the consumption of the the contract, the
same may be annulled in court at the initiative of
the buyer.
Article 1332

 When one of the parties is unable to

read, or if the contract is in a
language not understood by him, and
mistake or fraud is alleged, the person
enforcing the contract must show that
the terms thereof have been fully
explained to the former
Example

 Juan and Illongo, entered into a contract worded

in Tagalog by Pedro. On the due date Juan
refused to comply with his obligation claiming
that he erred in entering into it.
 To enforce the contract in court, Pedro should
prove by convincing evidence that the contract
was read and explained fully to the satisfaction of
Juan before signing it.
Article 1333

 There is no mistake if the party

alleging it knew the doubt,
contingency or risk affecting the
object of the contract
Article 1334

 Mutual error as to the legal effect of an

agreement when the real purpose of the
parties is frustrated, may vitiate consent.
Example

 Dealer X sells to Y 144 sacks of cement at P54.20

per sack and Y paid only P7,104.80 instead of
P7,804.80 due to mistake in addition. Dealer X
may demand payment of the difference after
correction of the error in the amount of P700.00
Article 1335

 There is violence when in order to wrest consent, serious

or irresistible force is employed. There is intimidation
when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and
grave evil upon his person or property, or upon the person
or property of his spouse, descendants or ascendants, to
give his consent. To determine the degree of intimidation,
the age, sex and condition of the person shall be borne in
mind
Example

 To secure Y’s consent to sell his land, X

prepares a written document of sale to be
signed by Y. Then X, with the aid or armed
men kidnapped and then beat Y in a secluded
place. To avoid further beating and injury, Y
signs the document.
 Under the circumstance, the consent of Y is
vitiated by violence, hence the contract is
voidable.
Article 1336

 Violence or intimidation shall annul the

obligation, although it may have been employed
by a third person who did not take part in the
contract.
Example : Violence

 To secure Y’s consent to sell his land, X

prepares a written document of sale to be
signed by Y. Then X, with the aid or armed
men kidnapped and then beat Y in a secluded
place. To avoid further beating and injury, Y
signs the document.
 Under the circumstance, the consent of Y is
vitiated by violence, hence the contract is
voidable.
Example : Intimidation

 If instead of employing force by beating Y in a

secluded place, X threatens Y at his place that if
he does not sign the contract left to him within
two to three days, he would throw sulphuric acid
on the beautiful face of his daughter, and because
of which Y signs the document, the same would
be voidable as Y’s consent is vitiated by
intimidation.
Article 1337

 There is undue (extreme) influence when a person takes

improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the
confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have
been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress.
Article 1338

 There is fraud when, through insidious

words or machinations of one of the
contracting parties, the other is induced to
enter into a contract which, without them,
he would not have agreed to.
Article 1339

 Failureto disclose facts, when there is a

duty to reveal them, as when the parties
are bound by confidential relations,
constitutes fraud
Example

 Insuranceapplicant who had suffered a

grave ailment conceals this fact or
substitute an X-ray of a healthy person for
him.
Article 1340

 Theusual exaggerations in trade, when the

other party had an opportunity to know the
facts, are not in themselves fraudulent
Example
 A sauce manufacturer advertises his product as
pinakamasarap, a buyer’s outright reliance thereof
without investigating on its truth will not constitute
fraudulent representation.
 In other words, if the buyer, having all the
opportunities to investigate by himself the truth of
the representation, fails to do so, he cannot later on
complain that the contract is voidable if the good
bought turn out to be opposite the dealer’s
representation.
Article 1341

A mere expression of an opinion does not

signify fraud, unless made by an expert and
the other party has relied on the former's
special knowledge
Example

A seasoned mining engineer who sells a lot

represented to be loaded with mines, and
the buyer, relying on his expertise buys it,
only to discover nothing beneath the
ground
Article 1342

 Misrepresentation by a third person does

not vitiate consent, unless such
misrepresentation has created substantial
mistake and the same is mutual.
Example

X represents to Y that the price of land per

square meter in Baguio City is P500.00. If Y
relies on the information and entered into
a contract of sale of his land with Z in the
amount represented, the contract cannot
later on be annulled if the price turns out
to be less than the prevailing market.
 Since the mistake is not mutual.
Article 1343

 Misrepresentation made in good faith

is not fraudulent but may constitute
error.
Example

X received a case of Scotch Whisky as a gift

on his birthday. Believing it to be imported,
and running out of cash, sold it to a
grocery, assuring it to be imported. If it
turned out to be local …
 Thecontract will not be avoided for being
fraudulent.
Article 1344

 Inorder that fraud may make a contract

voidable, it should be serious and should
not have been employed by both
contracting parties. Incidental fraud only
obliges the person employing it to pay
damages
Kinds of Fraud

 Dolo Causante
 Dolo Incidente
Dolo Causante
 serious fraud or fraud without which the contract would
not have been executed.
 Requisites:
 There must be misrepresentation or concealment of material fact.
 The fraud must be serious.
 The fraud must have been employed by only one party upon the
other.
 There must be a deliberate intent to deceive the other party
 The fraud must have induced the party to enter into the contract
Dolo Incidente

 does not cause the invalidity of the contract the

contract is valid but the person guilty of fraud
and shall pay damages
 Fraud which does not got to the essence of the
contract or to the substance of its subject matter,
but refers to some particulars of the contract
which is incompatible with the principle of good
faith.
Dolo Causante or Incidente?

 after the execution of the contract of deposit of

imported linen textiles, the owner of the
warehouse untie the bulks and replaces the inner
contents with local fabrics and then dressing
them in a manner that looks as if it has not been
touched at all.
 The depositor may only recover damage by reason
of the replacement.
 Answer : Incidente
Dolo Causante or Incidente?

 a vendor sells a gold ring which he represents to

be mounted with a diamond when such is merely
a stone glass.

 Answer: Causante
Article 1345

 Simulation of a contract may be absolute or

relative. The former takes place when the
parties do not intend to be bound at all;
the latter, when the parties conceal their
true agreement
Article 1346

 Anabsolutely simulated or fictitious

contract is void. A relative simulation,
when it does not prejudice a third person
and is not intended for any purpose
contrary to law, morals, good customs,
public order or public policy binds the
parties to their real agreement.
Kinds of Simulated Contracts:

 The name that is given to contract that seems to

be valid and bona fide but it actually is invalid
 ABSOLUTELY SIMULATED
 when the parties do not intend to be bound by
their agreement.
 RELATIVELY SIMULATED
 contracts
where the parties hide their true
agreement.
Object of Contracts
Section 2
Article 1347

 All things which are not outside the commerce of men,

including future things, may be the object of a contract.
 All rights which are not in transmissible may also be the
object of contracts.
 No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
 All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the
object of a contract
Example : Outside Commerce of Men

 It has been held that a municipal council cannot

sell or lease public property, such as plaza,
streets, common lands, rivers, bridges etc.,
because they are outside commerce of men. If it
has been done so by leasing part of the plaza the
lease is null and void, for it is contrary to law, and
the thing leased cannot be the object of a
contract
Article 1348

 Impossiblethings or services cannot be

the object of contracts
Article 1349

 The object of every contract must be determinate

as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the
existence of the contract, provided it is possible
to determine the same, without the need of a
new contract between the parties.
Example

A contract whose object is described as the

first batch of lanzones from a five hectare
land in Paete, Laguna, in which the
quantity is not capable of determination at
the time of contract is a determinate
object.
Cause of Contracts
Section 3
Article 1350

 In onerous contracts the cause is understood to

be, for each contracting party, the prestation or
promise of a thing or service by the other; in
remuneratory ones, the service or benefit which
is remunerated; and in contracts of pure
beneficence, the mere liberality of the
benefactor.
Example : Onerous Contract

 IfX sells his land to Y for P100,000.00, the

onerous cause for X is the P100,000.00
coming from Y, whereas, that of Y is the
land coming from X.
Article 1352

 Contracts without cause, or with unlawful

cause, produce no effect whatever. The
cause is unlawful if it is contrary to law,
morals, good customs, public order or
public policy.
Example

 When the deed of sale states that the seller

received the price of the thing when the truth of
the matter is that none has been received as the
sale is merely a ploy to place the object of the
contract beyond the reach of the seller’s
creditors.
 In this case, even if there is a deed of sale, the
contract is void as the last element is lacking.
Article 1353

 The statement of a false cause in contracts

shall render them void, if it should not be
proved that they were founded upon
another cause which is true and lawful.
Example

 X signs a contract of sale that he sold and delivered a

Betamax to Y for P10,000.00 which the latter paid in cash.
The truth of the matter however is that Y did not pay any
amount to X as the latter’s purpose is to place the
Betamax beyond the reach of an appliance firm to which
he had not paid the complete installment payments.
 Here, the cause stated is false hence, the contract is void.
FORM OF CONTRACTS
Article 1356

 Contracts shall be obligatory, in whatever form they may

have been entered into, provided all the essential
requisites for their validity are present. However, when
the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be
proved in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised
When law requires form of validity.

 If the law requires a contract or agreement to be in

writing or to be in a public instrument, a contract which is
not in such form is not valid, hence cannot be enforced.
 Example
A donation of real property which must be in a
public instrument and also accepted in the
same manner.
When law requires a form for
enforceability
 When the law requires a contract or agreement to
be in writing or noted in any manner to be
enforceable, i.e. those contained in the statute of
Frauds, such shall be complied with otherwise no
action can be allowed to enforce the contract.
When law requires a form of
convenience
 If the contract is valid and enforceable but not in
a public instrument, a party interested in its
registration may compel the other party to
rewrite it in the proper form or complete it
through placing the needed notarial
acknowledgement.
Article 1357

 If the law requires a document or other special

form, as in the acts and contracts enumerated in
the following article, the contracting parties may
compel each other to observe that form, once the
contract has been perfected. This right may be
exercised simultaneously with the action upon the
contract.
Example

 X sold to Y a parcel of land but the contract is

written only in an ordinary pad. Under the law,
sales of, or real rights involving real property
must be in a public instrument.
 Since the contract is not in a public instrument, Y
may compel X to rewrite it in a public instrument
so that it can be registered in the Registry of
Deeds, thereby becoming binding to the whole
world.
Article 1358:
The following must appear in a public document:

 Acts and contracts which have for their object the

creation, transmission, modification or
extinguishment of real rights over immovable
property; sales for real property or of an interest
therein a governed by articles 1403, No. 2, and
1405
The following must appear in a public
document
 The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
 Example:

 Don Mariano dies survived by four children. X, the

eldest and a successful engineer and already stable,
renounced his share in the estate of his father. This
renunciation must be in public instrument.
The following must appear in a public
document
 The cession (giving up), repudiation (refuse to accept) or
renunciation of hereditary rights or of those of the
conjugal partnership of gains;
 The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document or should prejudice a third
person;
 The cession of actions or rights proceeding from an act
appearing into public document
REFORMATION OF INSTRUMENTS
Article 1359

 When, there having been a meeting of the minds of the

parties to a contract, their true intention is not expressed
in the purposing to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident , one of
the parties may ask for the reformation of the instrument
to the end that such true intention may be expressed. If
mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract.
Article 1361

 When a mutual mistake of the parties causes the

failure of the instrument to disclose their real
agreement, said instrument may be reformed.
Article 1362

 If one party was mistaken and the other acted

fraudulently or inequitably in such a way that the
instrument does not show their true intention,
the former may ask for the reformation of the
instrument
Article 1363

 When one party was mistaken and the other knew

or believed that the instrument did not state their
real agreement, but concealed that fact from the
former, the instrument may be reformed
Article 1364

 When through the ignorance, lack of skill,

negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist,
the instrument does not express the true
intention of the parties, the courts may order
that the instrument be reformed.
Article 1365

 If two parties agree upon the mortgage or pledge

of real or personal property, but the instrument
states that the property is sold absolutely or with
a right of repurchase, reformation of the
instrument is proper.
Article 1366

 There shall be no reformation in the following

cases:
 Simpledonations inter vivos (between living persons)
wherein no condition is imposed;
 Wills;

 When the real agreement is void

Article 1367

 When one of the parties has brought an action to

enforce the instrument, he cannot subsequently
ask for its reformation.
Article 1368

 Reformation may be ordered at the instance of

either party or his successors in interest, if the
mistake was mutual; otherwise, upon petition of
the injured party, or his heirs and assigns
Article 1369

 The procedure for the reformation of instrument

shall be governed by rules of court to be
promulgated (disseminated or broadcast) by the
Supreme Court
INTERPRETATION OF CONTRACTS
INTERPRETATION OF CONTRACTS

 Interpretation of a contract is the determination

of the meaning of the terms of word used by the
parties in their contact.
 If the terms of a contract are clear and
unequivocal (explicit or plain) , the parties are
bound thereby according to the literal sense of
their stipulations.
Article 1370

 If the terms of a contract are clear and leave no

doubt upon the intention of the contracting
parties, the literal meaning of its stipulations
shall control. If the words appear to be contrary
to the evident intention of the parties, the latter
shall prevail over the former
Example

 For and in consideration of the amount of P

100,000.00, I hereby transfer and convey by way
of absolute sale my said piece of land.
 This should be interpreted to be sale because the
terms are clear and free from doubt.
Example
 But suppose the phrase “by way of absolute sale ” does
not appear
 For and in consideration of the amount of P 100,000.00, I
hereby transfer and convey my said piece of land.
 Although the contract recites that the amount of
P100,000.00 has been received which shall even bear
interest, then the contract shall be interpreted as
mortgage since the evident intention is to secure the
amount loaned.
Article 1371

 In order to judge the intention of the contracting

parties, their contemporaneous and subsequent
acts shall be principally considered.
Example
 X and Y enters into a contract entitled “Kasunduan sa
Lupa” on February 8, 2003. It recites that because of a
debt of P100,00.00 of X to Y, X enters and cedes
(surrenders) the lot to Y.
 Is this a sale or mortgage?
 It appears however, that before February 8, 2003, Y is a
lessee of an apartment which is too small for his family,
paying a high rental, had a feud at one time with the
lessor, and that after the contract X delivers the title of
the land to Y, and X immediately paid its unpaid taxes,
and Y constructed a concreted bungalow. Under the
circumstances, there can be no doubt that the intension
of the parties is that of a sale.
Article 1373

 If some stipulation of any contract should admit

of several meanings, it shall be understood as
bearing that import which is most adequate to
render it effectual
Article 1375

 Words which may have different significations

shall be understood in that which is most in
keeping with the nature and object of the
contract
Article 1377

 The interpretation of obscure words or

stipulations in a contract shall not favor the party
who caused the obscurity
Article 1378

 When it is absolutely impossible to settle doubts by the

rules established in the preceding articles, and the doubts
refer to incidental circumstances of a gratuitous contract,
the least transmission of rights and interests shall prevail.
If the contract is onerous, the doubt shall be settled in
favor of the greatest reciprocity of interests. If the doubts
are cast upon the principal object of the contract in such
a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null
and void
Example
 X who is financially distressed entered into a contract with
Y letting his house to Y for an amount P100,000.00 for five
years which was paid to X upon occupancy of the house by
Y. The contract was registered in the Registry of Deeds.
 Because of the refusal of Y to surrender the house after five
years, X filed and action to recover the possession of the
house. Y claims that the house has been sold to him for that
amount although the market value of the same is
P260,000.00.
 In this case, since the doubt refers to incidental
circumstances of an onerous contract, the transaction shall
be deemed a contract of lease or an equitable mortgage
because it involves the greatest reciprocity of interest.
RESCISSIBLE CONTRACTS
RESCISSIBLE CONTRACTS

 contracts
which are validly executed but
may be set aside for equitable (justifiable)
reasons.
ARTICLE 1380

 Contracts validly agreed upon may be rescinded

(ended or no longer valid) in the cases established
by law.
ARTICLE 1381 –Recissible Contracts:

 Those which are entered into by guardians

whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the
things which are the object thereof;
Example: Contracts in representation of
Wards.
 X, the guardian of minor Y, sold to Z a piece of land
belonging to Y in the amount of P100,000.00 although
the market price is at P160,000.00. By reason of the
sale Y suffered lesion of more than one fourth of its
value. Upon reaching the age of majority Y can bring
an. action for rescission.
 RECSCISSION
 the remedy granted by law to the contracting parties
and even to third persons to obtain reparation or
damages caused to them
ARTICLE 1381 –Recissible Contracts:

 Those agreed upon in representation by

absentees, if the latter suffer lesion stated in the
preceding numbers.
 Example
 ifY is an absentee, he can file an action for
rescission when he reappears
ARTICLE 1381 –Recissible Contracts:

 Those undertaken in fraud of creditors when the

latter cannot in any other manner collect the
claims due them.
Example

 To enable the creditors to exercise the remedy of

rescission, it must be proven by the prejudiced
(biased) creditor that he cannot collect the claims
due in any other manner.
 If X to evade paying his debt to Y amounting to
P60,000.00 enters into a contract selling his only
Ford Fiera for the same amount to Z, Y can file an
action for rescission as the contract was made to
fraud him – a creditor.
ARTICLE 1381 –Recissible Contracts:

 Those which refer to things under litigation if

they have entered into by the defendant without
the knowledge and approval of the litigants or of
competent judicial authority
Example

 IfX sues Y for the recovery of a car and

pending trial the same is sold by Y to Z
without the approval of X or court….
 The sale is recissible.
VOIDABLE CONTRACTS
Voidable Contracts

 Are those that possesses all the requisites of a valid

contract namely; consent, object certain and
consideration, but have a defect or vice because the
consent is vitiated by mistake, violence, intimidation,
undue influence and fraud, or that one of the contracting
parties is incapable of giving consent.
 A voidable contract is valid until voided in court. Its
validity becomes absolute once it is ratified or not
annulled within four years.
 DISTINCTION BETWEEN ANNULMENT AND
RESCISSION
ANNULMENT RESCISSION
1. It declares the inefficiency which the contract 1. It produces the inefficiency which did not exist
already carries in itself inherently in the contract

2. It is based on a vice of the contract 2. It is compatible with the perfect validity of the
contract
3. Public interest governs 3. Private interest governs

4. It is a sanction wherein the law predominates 4. It is a remedy wherein equity predominates

5. Annulment requires ratification to be cured 5. Rescission needs no ratification to be effective

6. Annulment is only available to the contracting 6. Rescission is available to contracting parties and
parties third persons whose interest are affected
Grounds for Annulment

 In capacity of one of the parties.

 Vitiated Consent
ARTICLE 1391

 The action for annulment shall be brought within four

years. This period shall begin:
 In cases of intimidation, violence or undue influence, from
the time the defect of the consent ceases. In case of
mistake or fraud, from the time of the discovery of the
same. And when the action refers to contracts entered into
by minors or other incapacitated persons, from the time the
guardianship ceases.
Article 1392

 Ratification extinguishes the action to annul a

voidable contract
 Ratification
 isthe affirmance by a person of a prior act made
by him or by other persons for his account but did
not bind him in the beginning, and by reason of
which gives an effect to the prior act as if
originally intended or consented to by him.
Article 1393

 Ratification may be effected expressly or tacitly

(expressed or understood without being directly
stated). It is understood that there is a 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 should execute an act which
necessarily implies an intention to waive his right.
Example

 A minor bought a piece of land but sold the same after reaching twenty one
years of age to a third person;
 A minor sold his land, and upon reaching majority age, collected the unpaid
balance of the selling price;
Article 1394

 Ratification may be effected by the guardian of

the incapacitated person
Article 1395

 Ratification does not require the conformity of

the contracting party who has no right to bring
the action for annulment
Article 1396

 Ratification cleanses the contract from all its

defects from the moment it was constituted
Article 1398

 An obligation having been annulled, the

contracting parties shall restore to each other the
things which have been the subject matter of the
contract, with their fruits, and the price with its
interest, except in cases provided by law. In
obligations to render service, the value thereof
shall be the basis for damages.
Example
 X, an uncle who weilds undue in influence of Y, succeeded
in having Y signed a contract selling to him 3 door
apartment on his birthday - Sept 11,1984 for P600,000.00,
paying one-half and the balance to be paid in Sept
30,1984. Each door earns P2000.00 a month. Because of
the predominant influence of X, Y got the nerve to file an
action annulment only on December.
 If the court will decree the annulment of the contract on
September 10, 1985, X will be obliged to Y the apartment
plus the rentals amounting to 24,000.00 received by X,
and Y to return to X the sum of P60,000.00 with interest.
UNENFORCEABLE CONTRACTS
Article 1403

 Thefollowing contracts are unenforceable,

unless they are ratified:
UNENFORCEABLE 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;
Example

 Without X’s authority his brother Y sold his car, in

his name to Z. The contract being unauthorized
cannot bind X unless he ratifies the same
expressly or impliedly, as by accepting the
proceeds of the sale.
 In the event however that X will ratify the
contract, he will be bound by it and the principle
of agency shall be applied.
UNENFORCEABLE CONTRACTS

 Those that do not comply with the Statute of

Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or
some note or memorandum, thereof, be in
writing, and subscribed by the party charged, or
by his agent; evidence, therefore, of the
agreement cannot be received without the
writing, or a secondary evidence of its contents:
UNENFORCEABLE CONTRACTS

 An agreement that by its terms is not to be

performed within a year from the making thereof
Example

 On June 16, 1983, X entered into a verbal

contract with Y for the construction of his house
to start on June 30, 1984. If Y fails or refuse to
construct or commence on the construction by
Jun 30, 1984, X cannot enforce agreement
between them since the contract is not in writing.
UNENFORCEABLE CONTRACTS

 A special promise to answer for the debt, default,

or miscarriage of another
Example

X owes Y P6,000.00. When Y asked that X

puts up a security on the debt, Z verbally
committed to Y: “Don’t bother, if X does
not pay, I will pay the amount”.
 This
promise must be in writing in order to
be enforced in court.
UNENFORCEABLE CONTRACTS

 An agreement made in consideration of marriage,

other than a mutual promise to marry
Example

X made a verbal promise to give his nephew

Y a house and lot if Y marries his secretary
Miss Z. Two months later, Y and Z was
married. X refused to abide with his
promise to give Y the house and lot.
 Can Y sue X for breach of contract?
 No, because the contract is not in writing.
UNENFORCEABLE CONTRACTS

 An agreement for the sale of goods, chattels or things in

action, at a price not less than five hundred pesos, unless
the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such
things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient
memorandum;
Example

 Today, X agreed verbally to sell his car to Y to be

delivered and paid a month later. If on the
designated time X will refuse to abide the
contract, Y cannot enforce the contract for lack
of writing.
 An agreement of the leasing for a longer period
than one year, or for the sale of real property or
of an interest therein;
Example

 TodayX leased his 2 door apartment to Y

verbally for two years. If x ejects Y after
six months the latter cannot rely on the
contract because it is not in writing.
UNENFORCEABLE CONTRACTS

 A representation as to the credit of a third person

 Those where both parties are incapable of giving consent
to a contract.
VOID AND INEXISTENT CONTRACTS
ARTICLE 1409 – The following contracts are
inexistent and void from the beginning

1. Those whose cause, object or purpose is contrary to

law, morals, good customs, public order or public
policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose case or object did not exist at the time of
the transaction;
4. Those whose object is outside the commerce of men;
ARTICLE 1409 – The following contracts are
inexistent and void from the beginning

5. Those which contemplate an impossible service;

6. Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
7. Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived.
 DISTINCTION BETWEEN VOID AND RECISSIBLE CONTRACTS

RECISSIBLE CONTRACTS VOID CONTRACTS

1. There is a contract, which may be set 1. There is no contract at all
aside for equitable reasons.

2. They are valid until rescinded 2. Inexistent and therefore no action is

required to set them aside
3. The action to rescind prescribes 3. Action or defense for the declaration of
the nullity of a void contract does not
prescribe
 DISTINCTION BETWEEN VOID AND UNENFORCEABLE CONTRACTS

UNENFORCEABLE CONTRACTS VOID CONTRACTS

1. There is no contract but it can not be 1. There is no contract at all
enforced unless ratified

2. They can be ratified 2. Void contracts can never be ratified at all

 DISTINCTION BETWEEN VOID AND VOIDABLE CONTRACTS

VOIDABLE CONTRACT VOID CONTRACT

1. There is a contract which is valid until it is 1. There is no contract at all
judicially voided

2. They can be ratified 2. They can never be ratified

3. The action for annulment prescribes 3. The action or defense for the declaration
of nullity is absolute and permanent,
hence it does not prescribe