CONTRACTS

CHAPTER 2

ESSENTIAL REQUISITES OF CONTRACTS

General Provisions

Art. 1318. There is no contract unless the following req-

uisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obligation which is established.1
Requisites of Contracts in General. — As we have already
seen, the elements of a contract may be either essential, natural
or accidental. The essential elements are those without which
there can be no contract; the natural elements are those which are
derived from the very nature of the contract, and as a consequence,
ordinarily accompany the same, although they can be excluded by
the contracting parties if they so desire; the accidental elements are
those which exist only when the contracting parties expressly provide
for them for the purpose of limiting or modifying the normal effects
of the contract. The essential elements, on the other hand, may
be either common (comunes), special (especiales) or extraordinary
(especialisimos). The common elements are those which are present
in all contracts, such as consent, object and cause; the special are
present only in certain contracts, such as delivery in real contracts or
form in solemn ones; the extraordinary are those which are peculiar
to a specific contract, such as the price in a contract of sale.2

1
Art. 1261, Spanish Civil Code.
2
3 Castan, 7th Ed., pp. 322-324; 8 Manresa, 5th Ed., Bk. 2, pp. 350-351.

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The above classification can be understood better and with more

precision when considered from the viewpoint of the influence
which the two great bases of contracts — the law and the will of the
contracting parties — have over each group of elements. Thus, in the
descending order, the law imposes the essential elements, presumes
the natural and authorizes the accidental; conversely, the will of the
contracting parties conforms to the first, accepts or repudiates the
second and establishes the third.3

Section 1. — Consent

Art. 1319. Consent is manifested by the meeting of the

offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and
the acceptance absolute. A qualified acceptance constitutes
a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered
into in the place where the offer was made.4

Concept of Consent. — The most important element, which

constitutes the very heart and soul of contracts, is, unquestionably,
the consent of the contracting parties. In its derivative sense, the
word “consent” (cum sentire) merely means the agreement of wills.
Consequently, as applied to contracts, it may be defined as the
concurrence of the wills of the contracting parties with respect to
the object and the cause which shall constitute the contract.5
Requisites of Consent. — Under the Civil Code, in order
that there is consent, the following requisites must concur: first, the
consent must be manifested by the concurrence of the offer and the
acceptance (Arts. 1319-1326); second, the contracting parties must
possess the necessary legal capacity (Arts. 1327-1327); and third,
the consent must be intelligent, free, spontaneous, and real (Arts.

3
8 Manresa, 5th Ed., Bk. 2, 351.
4
Art. 1262, Spanish Civil Code, in modified form.
5
3 Castan, 7th Ed., pp. 326-327; 8 Manresa, 5th Ed., Bk. 2, p. 365; 4 Sanchez
Roman 191.

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1330-1346).6 The first is expressly stated in the Code, the second and
the third are implied.
When Contracts are Perfected — In general, contracts
are perfected from the moment that there is a manifestation of the
concurrence between the offer and the acceptance with respect to
the object and the cause which shall constitute the contract. (Art.
1319, par. 1, New Civil Code.)
However, if the acceptance is made by letter or telegram, we
must distinguish. According to Art. 1319, par. 2, of the New Civil
Code, the contract is perfected from the moment that the offeror has
knowledge of such acceptance, while according to Art. 54 of the Code
of Commerce, the contract is perfected from the moment an answer
is made accepting the offer. Because of the repealing clause found in
Art. 2270 of the New Civil Code, it is submitted that Art. 54 of the
Code of Commerce can now be applied only to purely commercial
contracts, such as joint accounts, maritime contracts, etc. We can,
therefore, say that the rule found in the second paragraph of Art.
1319 of the New Civil Code is the general rule, while that found in
Art. 54 of the Code of Commerce is the exception.
Manifestation of Consent. — Before there is consent, it is
essential that it must be manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute
the contract.7 Once there is such a manifestation of the concurrence of
the wills of the contracting parties, the period or stage of negotiation
is terminated. The contract, if consensual, is finally perfected.8
Thus, it was held, that even if the draft renewal contract had
not been signed by the lessor, the parties may be deemed to have
agreed to review their lease contract considering the exchanges of
letters between, and the implementing acts of the parties. (Ramon
Magsaysay Award Foundation vs. CA, G.R. No. 55998, Jan. 17,
1985.)

6
According to Castan, consent presupposes the following elements or conditions:
(1) plurality of subjects; (2) legal capacity; (3) intelligent and voluntary; (4) express
or implied manifestation; and (5) concurrence of the internal and the declared will. (3
Castan, 7th Ed., p. 327)
7
Art. 1318, par. 1, Civil Code.
8
8 Manresa, 5th Ed., Bk. 2, p. 368.

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De Lim vs. Sun Life Assurance Co.

41 Phil. 263

On July 6, 1917, Luis Lim applied to the defendant

company for a policy of insurance of his life in the sum of
P5,000. In his application, he designated his wife, Pilar C.
de Lim, plaintiff herein, as beneficiary. The first premium
of P33 was paid, and upon payment, the company issued a
“provisional policy’’ accepting the application “provided that
the Company shall confirm this agreement by issuing a policy
on said application when the same shall be submitted to the
Head Office in Montreal.’’ Should the Company not issue such
a policy, “then this agreement shall be null and void ab initio x
x x .’’ A period of four months from the date of the application
was also stated as the period within which the Company shall
issue the policy. Luis Lim, however, died on August 24, 1917,
after the issuance of the provisional policy but before approval
of the application by the head office of the insurance company.
The instant action is brought by the beneficiary to recover from
the insurance company the sum of P5,000, the amount stated in
the provisional policy. The question now is whether or not the
contract has been perfected.
Held: “Our duty in this case is to ascertain the correct
meaning of the document above quoted. Certainly, language
could hardly be used which would more clearly stipulate that
the agreement should not go into effect until the home office
of the company should confirm by issuing a policy. As we read
and understand the so-called provisional policy it amounts to
nothing but an acknowledgment on behalf of the company,
that it had received from the person named therein the sum of
money agreed upon as the first year’s premium upon a policy to
be issued upon the application, if the application is accepted by
the company.
“It is of course a primary rule that a contract of insurance,
like other contracts, must be assented to by both parties
either in person or by their agents. So long as an application
for insurance has not been either accepted or rejected, it is
merely an offer or proposal to make a contract. The contract, to
be binding from the date of the application, must have been a
completed contract, one that leaves nothing to be done, nothing
to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the
parties have met in agreement. Our view is, that a contract of
insurance was not here consummated by the parties.”

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Art. 1319 CONTRACTS

Idem; Character of offer and acceptance. — As an element

of a contract, an offer may be defined as a proposal to make a con-
tract.9 In order to constitute a binding proposal, the first paragraph
of Art. 1319 declares that the offer must be certain or definite. Thus,
where the defendant wrote a letter to the plaintiff stating that he is
“in a position” and is “willing to entertain” the purchase of a yacht
belonging to the plaintiff under certain terms, and the plaintiff ac-
cepted all of such terms, it was held that there was no perfected
contract, since the word “entertain” applied to an act does not mean
the resolution to perform said act, but simply a position to deliber-
ate whether to perform or not to perform said act; consequently, the
letter of the defendant cannot be interpreted as a definite offer to
purchase the yacht but simply to deliberate whether or not he would
purchase the yacht.10
As far as the acceptance is concerned, although the law does
not expressly say so, it is clear that in order that there will be a
perfected contract, the acceptance must also be certain or definite.
Thus, where the plaintiff offered to the defendant certain machin-
eries in exchange for tractors and the latter answered stating “we
are willing to accept the proposition,’’ it was held that there was
no perfected contract of barter, since the phrase “willing to accept’’
does not mean acceptance, but simply a disposition to accept the
offer in principle.11 Furthermore, the acceptance must be absolute
in character.12 In other words, it must be plain and unconditional;
consequently, if it involves any new proposal or if it is qualified,
it constitutes a counter-offer — in which case it is essential before
there can be a perfected contract that there must be a definite and
absolute acceptance by the original offeror of such counter-offer.13
Thus, where the defendant offered to the plaintiff an option for three
months to buy a certain land for the price of its assessed government
valuation and the latter answered by accepting the offer, but subject
to certain modifications with regard to the terms of payment speci-
fied in the proposal, it is clear that there is no perfected contract be-

9
3 Bouvier’s Law Dictionary, 2399.
10
Rosenstock vs. Burke, 46 Phil. 217.
11
Meads vs. Lasedeco, 52 Off. Gaz. 208.
12
Art. 1319, par. 1, Civil Code.
13
Ibid. See Beaumont vs. Prieto, 41 Phil. 670; Zayco vs. Serra, 44 Phil. 326; Ba-
tangan vs. Cojuangco, 78 Phil. 481. See also Logan vs. Philippine Acetylene Co., 33
Phil. 782; Datoc vs. Mendoza, CA, 47 Off. Gaz. 2427.

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cause there is no concurrence between the offer and the acceptance.14

The same can also be said with regard to a case where the defendant
gave an option to the plaintiff to buy a certain sugar central for
P1,000,000, payable within three years and properly secured, and
the latter accepted the offer, placing at the defendant’s disposal the
sum of P100,000 as part payment, and at the same time, notifying
him that the Philippine National Bank had agreed to transfer the
defendant’s long term loan of P600,000 to the account of the plaintiff
who will thus assume the defendant’s liability to the said Bank for
the said amount.15
Contracts that are consensual in nature are perfected upon
mere meeting of the minds. Once there is concurrence between the
offer and the acceptance upon the subject matter, consideration
and terms of payment a contract is produced. The offer must be
certain. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional and without variance of any sort
from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the
terms of the offer annuls the offer.’’ (ABS-CBN Broadcasting Corp.
vs. Court of Appeals, G.R. No. 128690, January 21, 1999.)
Idem; id. — Acceptance of complex offers. — To a certain
extent the rules regarding acceptance are modified in case of
complex offers. Thus, if the offeror proposes to lease one part and to
sell another part, acceptance of one by the offeree would ordinarily
result in a perfected contract, unless, of course, the offeror should
have made one offer dependent upon the other. However, the
prospective contracts which are comprised in a single offer may be
so interrelated in such a way that the acceptance of one would not
at all result in a perfected contract. Thus, in an offer involving a
prospective contract of loan and the mortgage which will secure it,
acceptance by the future debtor of the proposed loan alone would not
give rise to a perfected contract.16

14
Beaumont vs. Prieto, 41 Phil. 670, 249 U.S. 554.
15
Zayco vs. Serra, 44 Phil. 326.
16
8 Manresa, 5th Ed., Bk. 2, pp. 372-373.

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Art. 1319 CONTRACTS

Idem; id. — Acceptance by letter or telegram. — If the

acceptance is made by letter or telegram, an interesting question
arises. When or at what precise moment would there be a meeting of
the offer and the acceptance upon the thing and the cause which are
to constitute the contract? As applied to consensual contracts, when
would there be a perfected contract?
There are actually four different theories which have been
advanced in order to pin-point the exact moment of perfection.17
They are:
(1) The manifestation theory (manifestación) — According to
this theory, the contract is perfected from the moment the acceptance
is declared or made. This is the theory which is followed by the Code
of Commerce.18
(2) The expedition theory (expedición) — According to this
theory, the contract is perfected from the moment the offeree
transmits the notification of acceptance to the offeror, as when the
letter is placed in the mailbox. This is the theory which is followed
by the majority of American courts.
(3) The reception theory (recepción) — According to this theory,
the contract is perfected from the moment that the notification of
acceptance is in the hand of the offeror in such a manner that he can,
under ordinary conditions, procure the knowledge of its contents,
even if he is not able actually to acquire such knowledge by reason
of absence, sickness or some other cause. This is the theory which is
followed by the German Civil Code.
(4) The cognition theory (cognición) — According to this
theory, the contract is perfected from the moment the acceptance
comes to the knowledge of the offeror. This is the theory which is
followed by the Spanish Civil Code.
Evidently, we have retained the cognition theory as embodied
in the Spanish Civil Code. According to the second paragraph of Art.
1319 of the new Code, 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. According to the Code

17
3 Castan, 7th Ed., pp. 385-386; 2 De Diego 102-103.
18
Art. 54, Code of Commerce.

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 ESSENTIAL REQUISITES OF CONTRACTS Art. 1319
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Commissioners in their report, the Commission deliberated at some

length on the question of whether acceptance by letter should take
effect upon the mailing of the same, as followed in American law,
or when the same comes to the knowledge of the offeror. It was,
however, finally decided to retain the old in order to avoid confusion
and litigation.19
Although the Code seems to limit the rule to acceptance by
letter or telegram only, the weight of authority is to the effect that
such rule is applicable to all cases in which the acceptance is made
by a person who is not in the presence of the offeror, (contratación
entre ausentes.)20 This is, of course, premised upon the fact that he is
not acting through an agent.21
It must be noted, however, that Art. 54 of the Code of Commerce
declares that “contracts entered into by correspondence shall be
perfected from the moment an answer is made accepting the offer
or the condition by which the latter may be modified.’’ Is this rule
still applicable? In view of the repealing clause found in Art. 2270
of the New Civil Code, it is submitted that it can be applied only to
purely commercial contracts which are still governed by the Code of
Commerce, such as joint accounts and maritime contracts. Hence,
we can very well say that the rule found in the second paragraph of
Art. 1319 of the Civil Code is the general rule, while that found in
Art. 54 of the Code of Commerce is the exception.
The cognition theory, as embodied in the second paragraph of
Art. 1319 of the Code, is very well illustrated in the case of Enriquez
vs. Sun Life Assurance Co.22 The facts of this case are as follows: The
records show that on September 24, 1917, Joaquin Herrer applied
to the defendant company through its local office in Manila for a life
annuity. He paid the sum of P6,000 and was issued a provisional
receipt. The application was immediately forwarded to the head
office of the company in Montreal, Canada. On November 26, 1917,
the head office gave notice of acceptance by cable to Manila. Whether
notice of this acceptance was sent to Herrer by the Manila office is
a disputed question. On December 4, 1917, the policy was issued

19
Report of the Code Commission, p. 135.
20
3 Castan, 7th Ed., p. 385; 8 Manresa, 5th Ed., Bk. 2, p. 373.
21
Art. 1322, Civil Code.
22
41 Phil. 269.

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Art. 1319 CONTRACTS

at Montreal. On December 18, 1917, the lawyer of Herrer wrote to

the Manila office that Herrer desired to withdraw his application.
The following day the local office replied to the lawyer stating that
the policy had been issued, and called attention to the notification
of November 26, 1917. This letter was received by the lawyer on
December 21, 1917. Herrer, however, died on December 20, 1917.
This action was subsequently commenced by the administrator of
the estate of Herrer to recover the sum of P6,000 from the defendant
company. The defendant company, however, contended that the
plaintiff cannot recover the amount on the ground that the contract
of life annuity had already been perfected. Holding that it is the
provision of the second paragraph of Art. 1262 (now Art. 1319) of
the Civil Code and not Art. 54 of the Code of Commerce that will
apply, and that the letter of November 26, 1917, was never actually
mailed, and thus, was never received by the applicant, the Supreme
Court, speaking through Justice Malcolm, ruled that the contract
was not perfected because it has not been proved satisfactorily that
the acceptance of the application ever came to the knowledge of the
applicant.
The theory is also illustrated in the case of Francisco vs.
GSIS.23 In this case, the plaintiff’s offer of compromise with respect
to the settlement of an obligation which had already matured was
accepted by the Government Service Insurance System by means of
a telegram signed by the Board Secretary. For a year, the System
receipted payments made pursuant to the compromise agreement.
Is there a perfected contract in this case inspite of the fact that the
General Manager of the System denied that he authorized the Board
Secretary to send the telegram? According to the Supreme Court
there is already a perfected contract of compromise applying the
provision of the second paragraph of Art. 1319 of the New Civil Code.
It is of course a familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public
as possessing the power to do those acts, the corporation will, as
against anyone who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority. Hence,
even if it were the Board Secretary who sent the telegram, the
corporation could not evade the binding effect which it produced.

23
117 Phil. 586.

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 ESSENTIAL REQUISITES OF CONTRACTS Art. 1319
Consent

Idem; id. — Effect of constructive knowledge. — Since

the Code says that the acceptance by letter or telegram does not
bind the offeror except from the time it came to his knowledge, there
is a clear implication that such offeror must have read the contents
of the letter or telegram accepting his offer. In other words, as a
general rule, what is required by the law is actual knowledge of the
acceptance. Consequently, mere receipt of the letter or telegram
is not sufficient. Of course, ordinarily, once it is established that
the offeror has received the letter or telegram, there arises a
presumption that he has read the contents thereof. But it is possible
that he might not have been able to do so, such as when he was
absent or incapacitated at the time of the receipt of the letter or
telegram. In such cases, it is quite clear that he cannot be bound
by the acceptance. It is, however, different if, being able to do so,
he refused to open the letter or telegram because for some reason
or other he has already changed his mind or he has already decided
to revoke his offer or proposal. In such case, it would be unjust to
apply the cognition theory as embodied in the Civil Code literally.
The better rule would be to say that since the offeror has already a
constructive knowledge of the contents of the letter or telegram, it
is but logical that he shall be bound by the acceptance made by the
offeree.24
Idem; id. — Withdrawal of offer. — An interesting problem
arising from the principle enunciated in the second paragraph of
Art. 1319 is whether the offeror after the offer has been made can
still withdraw it or not. Undoubtedly, the rule in this jurisdiction
is that he may still withdraw his offer or proposal so long as he
still has no knowledge of the acceptance by the offeree.25 This can
be implied from the rule that he is not bound by the acceptance
except from the time it comes to his knowledge; it is confirmed
to a certain extent by the new provision enunciated in Art. 1324.
This principle is illustrated in the case of Laudico vs. Arias.26 The
facts of this case are as follows: On February 6, 1919, defendant
wrote a letter to the plaintiff, giving him an option to lease a certain
building to a third person, and transmitting to him for that purpose
a tentative contract in writing containing the conditions upon which

24
3 Castan, 7th Ed., p. 387.
25
8 Manresa, 5th Ed., Bk. 2, p. 373.
26
43 Phil. 270.

405
Art. 1319 CONTRACTS

the proposed lease should be made. After certain negotiations, the

plaintiff finally wrote a letter to the defendant on March 6, 1919,
advising him that all his propositions were accepted. This letter
was received by the defendant by special delivery at 2:53 p.m. of
that day. On that same day, at 11:25 a.m., the defendant had, in
turn, written a letter to the plaintiff withdrawing the offer. This
letter was sent through a messenger and should have been received
that same morning, or at least, before the defendant had received
the letter of acceptance. Because of the refusal of the defendant to
recognize the existence of a perfected contract, plaintiff brought this
action to compel him to execute the contract of lease of the building
in question. Holding that no contract was perfected, the Supreme
Court, speaking through Justice Avanceña ruled:

“Under Article 1262, paragraph 2 (now Art. 1319, par. 2)

of the Civil Code, an acceptance by the latter does not have any
effect until it comes to the knowledge of the offeror. Therefore,
before he learns of the acceptance, the latter is not yet bound by
it and can still withdraw the offer. Consequently, when Mr. Arias
wrote Mr. Laudico, withdrawing the offer, he had the right to do
so, inasmuch as he had not yet received notice of the acceptance.
And when the notice of the acceptance was received by Mr.
Arias, it no longer had any effect, as the offer was not then in
existence, the same having already been withdrawn. There was
no meeting of the minds through offer and acceptance, which is
the essence of the contract. While there was an offer, there was
no acceptance, and when the latter was made and could have
binding effect, the offer was then lacking. Though both the offer
and the acceptance existed, they did not meet to give birth to a
contract.’’
Problem — Gigi offered to construct the house of Chito
for a very reasonable price of P1 Million, giving the latter 10
days within which to accept or reject the offer. On the fifth day,
before Chito could make up his mind, Gigi withdrew the offer.
What is the effect of the withdrawal of Gigi’s offer? (2005 Bar
Problem)
Answer — The withdrawal of Gigi’s offer will cause the
offer to cease in law. Hence, even if subsequently accepted, there
could be no concurrence of the offer and the acceptance . In the
absence of concurrence of offer and acceptance, there can be no
consent. (Laudico vs. Arias Rodriguez, G.R. No.16530, March
31, 1922). Without the consent, there is no perfected contract
for the construction of the house of Chito. (Salonga vs. Farrales,

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Consent

G.R. No. L-47088, July 10, 1981). Article 1318 of the Civil Code
provides that there can be no contract unless the following
requisites concur : (1) consent of the parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the
obligation.
Gigi will not be liable to pay Chito any damages for
withdrawing the offer before the lapse of the period granted.
In this case, no consideration was given by Chito for the option
given. Thus, there is no perfected contract of option for lack of
cause of obligation. Gigi cannot be held to have breached the
contract. Thus, he cannot be held liable for damages (Suggested
Answers to the 2005 Bar Examination Questions, Philippine
Association of Law Schools).

Idem— Withdrawal of acceptance. — As far as the offeree

is concerned, however, the rule is different. The problem may be
stated by means of an example. A, who is residing in Manila, has
offered to lease a certain parcel of land for a certain price to B, who is
residing in Baguio. B finally decides to accept the offer. So he writes
a letter to A accepting all of the terms and conditions of the offer.
The letter is mailed. Can he revoke it by using a more rapid means
of communication, let us say a telegram, in order to counteract the
acceptance?
Answering the above question in the negative, Manresa says:

“It is to be observed that although the offeror is not bound

until he learns of the acceptance, the same thing can not be said
of the offeree who, from the moment that he accepts, loses the
power to retract such acceptance since the right to withdraw
between the time of the acceptance and its communication
is a right which is expressly limited by law to the offeror.
Undoubtedly, under this rule there would exist a certain
inequality between the contracting parties during such interval;
but this is explained by the fact that since the offeree is the first
person who knows of the concurrence of wills of the parties, as a
consequence, the obligation, as far as he is concerned, must also
commence earlier.’’27

Dr. Tolentino, however, maintains that the acceptance may be

revoked before it comes to the knowledge of the offeror because in

27
8 Manresa, 5th Ed., Bk. 2, p. 373.

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Art. 1320 CONTRACTS

such case there is still no meeting of the minds, since the revocation
has cancelled or nullified the acceptance which thereby ceased to
have any legal effect.28 We believe that this opinion is more logical.
After all, as far as the law is concerned, there is only one decisive
moment to consider and that is the moment when the offeror has
knowledge of the acceptance made by the offeree. At any time before
that moment, the offeror is not bound by his offer; neither should
the offeree be bound by his acceptance. Otherwise, it would then
be possible to say that there are two moments when a consensual
contract is perfected — first, when the offeree transmits his
acceptance to the offeror, and second, when the offeror has knowledge
of the acceptance. Legally, this is not possible.

Problem — In an offer to sell, parties failed to agree on the

size of the land to be sold. Is there a meeting of the minds of the
parties that would perfect a contract?
Answer — There is no consent that would perfect a contract
as there is no agreement on the exact area to be sold. Contracts
that are consensual in nature are perfected upon mere meeting
of the minds. A contract is produced once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment. The offer must be certain.
To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer. It must
be plain, unequivocal, unconditional, and without variance of
any sort from the proposal, constitutes a counter-offer and is a
rejection of the original offer. Hence, when something is required
is desired which is not exactly what is proposed in the offer,
such acceptance is not sufficient to generate consent because
any modification or variation from the terms of the offer.

Art. 1320. An acceptance may be express or implied.29

Form of Acceptance. — According to the above article, the
acceptance may be express or implied. Thus, in the case of Perez vs.
Pomar,30 where the defendant contended that there was no perfected
contract entered into between him and the plaintiff, because there

28
4 Tolentino, Civil Code, 1956 Ed., p. 418.
29
New provision.
30
2 Phil. 682.

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Consent

was no proof that he had accepted the services of the latter as

interpreter, the Supreme Court held:

“Not only is there an express and tacit consent which

produces true contracts, but there is also a presumptive consent
which is the basis of quasi-contracts, thus giving rise to the
multiple juridical relations which result in obligations for the
delivery of a thing or the rendition of a service. Notwithstanding
the denial of the defendant, it is unquestionable that it was
with his consent that the plaintiff rendered him services
as interpreter, thus aiding him at a time when, owing to the
existence of an insurrection in the province, the most disturbed
conditions prevailed. It follows, hence, that there was consent
on the part of both in the rendition of such service as interpreter.
Such services not being contrary to law or to good customs, it
was a perfectly licit object of a contract and such a contract must
necessarily have existed between the parties, as alleged by the
plaintiff.’’
Problem — A gasoline manufacturing company (TPMC)
obatined a loan from PNB and executed a real estate mortgage
over its parcel of land in Paranque City to secure its loan. When
the loan matured, PNB sent collection letters to TPMC. In reply,
TPMC proposed to pay its obligations by way of a dacion en pago
conveying its TCT No. [Link] of accepting the offer, PNB
filed a petition for extrajudicial foreclosure of the REM. TPMC
filed a complaint for annulment of extrajudicial foreclosure sale
alleging that its debt has already been extinguished by its offer
of dacion en pago. PNB contended that the proposal of TPMC to
pay by way of dacion en pago did not extinguish its obligation as
it was not accepted by PNB. Hence, the extrajudicial foreclosure
sale was [Link] PNB correct?
Answer — Yes, TPMC has no clear right to an injunctive
relief because its proposal to pay by way of dacion en pago did
not extinguish its obligation. Undeniably, TPMC’s proposal to
pay by way of dacion en pago was not accepted by PNB.
Dacion en pago is a special mode of payment whereby
the debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding obligation. The
undertaking is really one of sale, that is, the creditor is really
buying the thing or property of the debtor , payment for which
is to be charged against the debtor’s debt. As such, the essential
elements of a contract of sale, namely, consent, object certain
and cause or consideration must be present. It is only when the

409
Arts. 1321-1323 CONTRACTS

thing offered as an equivalent is accepted by the creditor that

novation takes place, thereby, totally extinguishing the debt.
Thus, the unaccepted proposal neither novates the par-
ties’ mortgage contract nor suspends its execution as there was
no meeting of the minds between the parties on whether the
loan will be extinguished by way of dacion en pago (Technogas
Philippines Mfg. Corp. vs. Philippine National Bank, G. R. No.
161004, April 14, 2008).

Art. 1321. The person making the offer may fix the
time, place, and manner of acceptance, all of which must be
complied with.31
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him.32
Art. 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.33
Effect of Death, Civil Interdiction, Insanity, or Insolven-
cy. — According to the above article, an offer becomes ineffective
upon the death, civil interdiction, insanity, or insolvency of either
party before acceptance is conveyed. The word “conveyed” refers to
that moment when the offeror has knowledge of the acceptance by
the offeree. Hence, the article merely means that an offer becomes
ineffective upon the death, civil interdiction, insanity, or insolvency
of either party before the offeror has knowledge of the acceptance by
the offeree.

Problem No. 1 — A, who resides in Manila, wrote to his

friend B, who is residing in Cotabato City, stating in the letter
that he (A) is donating to him (B) one new car worth P25,000.
Upon receipt of the letter, B, called A by long distance telephone
telling A that he is accepting the donation. The same day B wrote
and mailed a letter to A accepting the donation. Immediately
after mailing the letter, B died of a heart failure. Who is entitled
to the car now, A or the heirs of B? Reasons. (1962 Bar Problem)

31
New provision.
32
New provision.
33
New provision.

410
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1321-1323
Consent

Answer — A is entitled to the car. The reason is that

the donation in the instant case cannot produce any effect
whatsoever. According to Art. 748 of the Civil Code, if the value
of the personal property donated exceeds P5,000, the donation
and the acceptance shall be in writing; otherwise, the donation
is void. True, the acceptance by B was actually written and
mailed. But immediately after mailing the letter of acceptance,
B died. The effect is to bring into play the provision of Art. 1323
of the Civil Code which is certainly applicable here, considering
the provision of Art. 732. According to Art. 1323, an offer
becomes ineffective upon the death, civil interdiction, insanity,
or insolvency of either party before acceptance is conveyed.
Analyzing the provision, it is clear that the offer of A has become
ineffective and that the contract of donation, as a consequence,
has never been perfected.
Problem No. 2 — A donated a piece of land to B in a donation
inter vivos. B accepted the donation in a separate instrument
but A suddenly died in an accident before the acceptance could
be communicated to him. Is the donation valid? Reasons. (1971
Bar Problem)
Answer — Even assuming that both the donation and
the acceptance are contained in a public instrument, which the
law requires (Art. 749, CC), the donation is not valid for the
following reasons:
(1) Under Art. 749 of the Civil Code which enunciates
the different formalities required in the execution of donations
inter vivos, the law declares that if the acceptance is made in a
separate public instrument, the donor shall be notified thereof in
authentic form, and this step shall be noted in both instruments.
It is obvious that in the instant case the requirement of
notification of the donor in authentic form (constancia autentica)
has not been complied with. It is of course axiomatic under the
law on donations that all of the formalities prescribed in Art.
749 of the Code are essential for validity.
(2) Art. 734 of the Civil Code declares that a donation is
perfected from the moment the donor knows of the acceptance
by the donee. It is also obvious that in the instant case A never
came to know of the acceptance by B because he suddenly died
in an accident before such acceptance could be communicated to
him. Consequently, the contract of donation was never perfected.
(3) And finally, Art. 1323 of the Civil Code is decisive.
This article (which is certainly applicable here considering

411
Art. 1324 CONTRACTS

the provision of Art. 732 of the Code) declares that an offer

becomes ineffective upon the death, civil interdiction, insanity
or insolvency of either party before acceptance is conveyed.

Art. 1324. When the offerer has allowed the offeree a

certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as
something paid or promised.34

Period for Acceptance: Options. — It is clear from the

above article that there is a very great difference between the effect
of an option which is without a consideration and the effect of one
which is founded upon a consideration as far as the right of the
offeror to withdraw his offer or proposal is concerned. If the option
is without any consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at anytime before
acceptance; if it is founded upon a consideration, the offeror cannot
withdraw his offer.
In the case of Beaumont vs. Prieto,35 Justice Araullo explained
the nature of an option founded upon a consideration in the following
words:

“In his Law Dictionary, Bouvier defines an option as a

contract in the following language: ‘A contract by virtue of which
A, in consideration of the payment of a certain sum to B, acquires
the privilege of buying from, or selling to B, certain securities or
properties within a limited time at a specified price.’
“From Vol. 6, page 5001, of the work ‘Words and Phrases,’
citing the case of Ide vs. Leiser (24 Pac., 695, 10 Mont., 5; 24
Am. St. Rep. 17), the following quotation has been taken: ‘An
agreement in writing to give a person the ‘option’ to purchase
lands within a given time at a named price is neither a sale nor
an agreement to sell. It is simply a contract by which the owner
of property agrees with another person that he shall have the
right to buy his property at a fixed price within a certain time.
He does not sell his land; he does not then agree to sell it; but
he does sell something; that is, the right or privilege to buy at
the election or option of the other party. The second party gets

34
New provision.
35
41 Phil. 670.

412
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1324
Consent

in praesenti, not lands, nor agreement that he shall have lands,

but he does get something of value; that is, the right to call for
and receive lands if he elects. The owner parts with his right to
sell his lands, except to the second party for a limited period.
The second party receives this right, or rather, from his point of
view, he receives the right to elect to buy.’
“But the two definitions above cited refer to a contract of
option, or, what amounts to the same thing, to a case where
there is cause or consideration for the obligation.’’

Art. 1324 standing alone, or in relation to the other articles

under this chapter of the Civil Code, is clear. However, the second
paragraph of Art. 1479 of the Civil Code under the law on sales
declares that “an accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promisor if
the promise is supported by a consideration distinct from the price.”
Interpreting this provision in relation to Art. 1324, in two cases,36 the
Supreme Court sustained the view that this provision constitutes an
exception to the general rule stated in Art. 1324. If the option is not
supported by a consideration which is distinct from the purchase
price, the offer may still be withdrawn even if the offeree has already
accepted it.
The above interpretation, however, was finally abandoned in
Sanchez vs. Rigos (G.R. No. L-25494, June 14, 1972, 45 SCRA 368).
In this case, the Supreme Court ruled that in unilateral offers to
buy or to sell, since there may be no valid contract without a cause
or consideration, the promisor is not bound by his promise and
may, accordingly withdraw it. Pending notice of his withdrawal, his
promise partakes of the nature of an offer to sell which, if accepted,
results in a perfected contract of sale. Stated in another way, if the
option is without a consideration, it is a mere offer to sell which is
not binding until accepted. If, however, acceptance is made before
a withdrawal, it constitutes a binding contract of sale. There is
already a concurrence of both offer and acceptance. Under Art. 1319
of the Civil Code, the contract is perfected.

Problem — “A’’ agreed to sell to “B’’ a parcel of land for

P5,000.00. “B’’ was given up to May 6, 1975 within which to

36
Southwestern Sugar and Molasses Co. vs. Atlantic Gulf & Pacific Co., 51 Off.
Gaz. 3447; Navarro vs. Sugar Producers, Inc., 1 SCRA 1180.

413
Art. 1324 CONTRACTS

raise the necessary funds. It was further agreed that if “B’’

could not produce the money on or before said date, no liability
would attach to him. Before May 6, 1975, “A’’ backed out of the
agreement. Is “A’’ obliged to sell the property to “B’’? Explain.
(1975 Bar Problem)
Answer — Assuming that the offer of “A’’ to sell the land to
“B’’ is merely a unilateral offer to sell, and that there is still no
bilateral agreement in the sense that “B’’ had already agreed to
buy the land, “A’’ is not obliged to sell the property to “B.’’ In such
case, it is clear that the general rule stated in Art. 1324 and the
particular rule stated in Art. 1479, par. 2, of the Civil Code are
applicable. As a matter of fact, even if “B’’ has formally accepted
the option given to him by “A,’’ such acceptance would be of no
moment since the option is not supported by any consideration
distinct from the purchase price. “A’’ can always change his mind
at any time. The option does not bind him for lack of a cause or
consideration. It would have been different if “B’’ had accepted
the offer to sell within the period of the option before said offer
was withdrawn by “A.’’ In such a case, a contract of sale would
have been generated right then and there. As it turned out, “A’’
withdrew his offer in time. (See Sanchez vs. Rigor, 45 SCRA
368)
(Note: In Sanchez vs. Rigos, supra, the Supreme Court
finally resolved a question which arose out of the use of the word
“accepted’’ in modifying the phrase “unilateral promise to buy or
to sell’’ in Art. 1479, par. 2, of the Civil Code. “Accepted’’ refers
to the option, not to the offer, to buy or to sell; in other words, it
refers to the acceptance by either prospective vendee or vendor
of the option of, let us say, ninety days within which he shall
decide whether or not he shall buy or sell the thing. Thus, if
“A’’ offers to sell a lot to “B’’ for P200,000, and gives the latter
an option of ninety days within which to decide whether or not
he shall buy the property, and the latter accepts the option, two
possible situations may arise:
(1) In accepting the option, “B’’ pays to “A’’ an “option
money’’ of, let us say, P5,000 which is distinct from the purchase
price. In such case, there is already a perfected preparatory
contract of option. “A’’ is bound by his offer. “B’’ shall now decide
within the period of the option whether or not he shall buy the
property. If he decides to buy, he shall then pay to “B’’ the price
of P200,000; if he decides otherwise, no contract of sale will ever
be perfected.
(2) In accepting the option, “B’’ does not pay any “option
money’’ to “A’’. In such case, there is no perfected preparatory

414
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1324
Consent

contract of option for lack of a consideration. The result is a mere

offer to sell, acceptance or which will be suffcient to generate a
perfected contract of sale. But suppose that meanwhile, “A’’ has
changed his mind? The lot is no longer for sale. “B’’, on the other
hand, has decided to buy the property. What will now happen?
Under this situation, the one who is first to notify the other of
his decision emerges the victor. If “A’’ is the first to notify “B’’
of his change of mind, no contract of sale will ever be perfected;
if “B’’ is the first to notify “A’’ of his acceptance of the offer, a
contract of sale has already been perfected.)
Problem — “Q,’’ the owner of a house and lot in Quezon
City, gave an option to “R’’ to purchase said property for
P100,000.00 within ninety days from May 1, 1979. “R’’ gave “Q’’
one (P1.00) peso as option money. Before the expiration of the
ninety-day period, “R’’ went to “Q’’ to exercise his option to pay
the purchase price but “Q’’ refused because somebody wanted
to buy his property for P150,000.00 and because there was no
sufficient consideration for the option. “R’’ sued “Q’’ to compel
him to accept payment and execute a deed of sale in his favor.
Decide the case. (1980 Bar Problem)
Answer — “Q’’ should be compelled to accept the purchase
price of P100,000.00 and to execute a deed of sale of the subject
property in favor of “R.’’ The reason is that there is already a
perfected contract of sale.
Undoubtedly, in the instant case, there is a unilateral
offer of “Q’’ to sell the subject property to “R.’’ For that purpose,
the latter is given an option of ninety days from May 1, 1979
within which to exercise the option. The consideration for the
option is P1.00. According to the Civil Code, since there is a
consideration for the option, “Q’’ is now bound by his promise
to sell the property to “R’’ so long as the latter will exercise the
option within the agreed period of ninety days. “R’’ exercised his
option. Therefore, there is already a perfected contract of sale.
True, “Q’’ will suffer some sort of lesion or prejudice
if what he says about another desiring to buy the property
for P150,000.00 is established. True also, the consideration
of P1.00 for the option is grossly inadequate. The Civil Code,
however, declares that except in cases specified by law, lesion
or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence. Here, there is
no fraud, mistake or undue influence which would be a possible
basis for invalidating either the preparatory contract of option
or the principal contract of sale.

415
Arts. 1325-1326 CONTRACTS

As a matter of fact, even assuming that there is no

consideration for the option, the end result would still be the
same. Since “R’’ accepted the offer before it could be withdrawn
or revoked by “Q,’’ there is already a perfected contract of sale.
(Note: The second paragraph of the above answer, which
gives the raison d’etre for what is stated in the first paragraph,
is based on Arts. 1324 and 1479, par. 2, of the Civil Code. The
third paragraph, which disposes of the contentions or defenses
of the defendant, is based on Art. 1355 of the Civil Code. The
fourth paragraph, which is a sort of obiter, is based on Sanchez
vs. Rigos, 45 SCRA 368.)

Art. 1325. Unless it appears otherwise, business adver-

tisements of things for sale are not definite offers, but mere
invitations to make an offer.37
Art. 1326. Advertisements for bidders are simply invita-
tions to make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary ap-
pears.38

Article Applied. — The above article may be illustrated by the

following problem:

Problem — “K’’ and Co. published in the newspaper an

“Invitation to Bid’’ inviting proposals to supply labor and
materials for a construction project described in the invitation.
“L,’’ “M’’ and “N’’ submitted bids. When the bids were opened,
it appeared that “L’’ submitted the lowest bid. However, “K’’
and Co. awarded the contract to “N,’’ the highest bidder, on
the ground that he was the most experienced and responsible
bidder. “L’’ brought an action against “K’’ and Co. to compel the
award of the contract to him and to recover damages.
Is “L’s’’ position meritorious? (1980 Bar Problem)
Answer — “L’s’’ position is not meritorious.
According to the Civil Code, advertisements for bidders
are simply invitations to make proposals, and the advertiser
is not bound to accept the highest or lowest bidder unless the

37
New provision.
38
New provision.

416
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1327
Consent

contrary appears. It is clear that the general rule applies in the

instant case. In its advertisement, “K’’ and Co. did not state that
it will award the contract to the lowest bidder. Therefore, in
awarding the contract to “N,’’ the defendant company acted in
accordance with its rights.

Art. 1327. The following cannot give consent to a con-

tract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who
do not know how to write.39

Legal Capacity of Contracting Parties. — The capacity of

the contracting parties is, in effect, an essential element of a contract,
or to be more exact, it is an indispensable requisite of consent. Since
it is so intimately interwoven with the latter as an antecedent is
to a consequent, and since it is impossible in law to speak of an
effective consent without presupposing the capacity to give it, it is
perfectly understandable why the Code does not expressly mention
capacity as one of the essential elements.40 The Code in Art. 1327,
however, speaks of those who are incapacitated to give their consent
to a contract.
Idem; Incapacitated persons. — According to Art. 1327, the
following cannot give their consent to a contract: (1) Unemancipated
minors; (2) insane or demented persons; and (3) deaf-mutes who
do not know how to write. The second is broad enough to cover
all cases where one or both of the contracting parties are unable
to understand the nature and consequences of the contract at the
time of its execution, such as those in a state of drunkenness or
under a hypnotic spell or who are suffering from any kind of mental
incapacity whatsoever.
Because the law incapacitates them to give their consent to a
contract, the only way by which any one of those enumerated above
can enter into a contract is to act through a parent or guardian.
If this requirement is not complied with, the result is a defective
contract. If only one of the contracting parties is incapacitated

39
Art. 1263, Spanish Civil Code, in modified form.
40
8 Manresa, 5th Ed., Bk. 2, p. 352.

417
Art. 1327 CONTRACTS

to give his consent, the contract is voidable.41 If both of them are

incapacitated to give their consent, the contract is unenforceable.42
Idem; id. — Unemancipated minors. — Under No. 1 of Art.
1327, unemancipated minors cannot give their consent to a contract.43
However, if a minor is emancipated by marriage or by voluntary
concession, according to Art. 399 of the Civil Code, he shall have the
power to administer his property, but he cannot borrow money or
alienate or encumber real property without the consent of his father
or mother, or guardian.
Nevertheless, there are five exceptional cases where a contract
entered into by an unemancipated minor may have all of the effects
of a valid contract. They are: first, when it is entered into by a minor
who misrepresents his age;44 second, when it involves the sale and
delivery of necessaries to the minor;45 third, when it involves a
natural obligation and such obligation is fulfilled voluntarily by the
minor, provided that such minor is between eighteen and twenty-one
years of age;46 fourth, when it is a marriage settlement or donation
propter nuptias, provided that the minor is between twenty and
twenty-one years of age, if male, or between eighteen and twenty-
one years of age, if female;47 and fifth, when it is a life, health or
accident insurance taken on the life of the minor, provided that the
minor is eighteen years old or more and the beneficiary appointed
is the minor’s estate, or the minor’s father, mother, husband wife,
child, brother, or sister.48
Idem; id. — Effect of misrepresentation. — The first
exception is based on the principle of estoppel. Thus, in the case of
Mercado and Mercado vs. Espiritu,49 the Supreme Court held that
where the minors who entered into the contract have already passed

41
Art. 1390, No. 1, Civil Code.
42
Art. 1403, No. 3, Civil Code.
43
For legal effect of contracts entered into by unemancipated minors, see Gan
Tingco vs. Pabanguit, 35 Phil. 31; Ibañez vs. Rodriguez, 47 Phil. 554; Velayo vs. Al-
cantara, 47 Off. Gaz.
44
Mercado and Mercado vs. Espiritu, 37 Phil. 215; Sia Suan vs. Alcantara, 47
Off. Gaz. 4561.
45
Art. 1489, Civil Code.
46
Arts. 1425, 1426, 1427, Civil Code.
47
Arts. 120, 128, Civil Code.
48
Act No. 3424, as amended, Insurance Law.
49
37 Phil. 215.

418
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1327
Consent

the age of puberty and adolescence in such a way that they could
misrepresent and actually did misrepresent themselves as having
reached the age of majority, they cannot, upon reaching the age of
majority, annul the contract on the ground of minority inasmuch
as they are already in estoppel. This doctrine was reiterated in the
cases of Sia Suan vs. Alcantara50 and Hermosa vs. Zobel.51 In his
concurring and dissenting opinion in the Alcantara case, however,
Justice Padilla declared:

“The contract of sale involved in the case of Mercado vs.

Espiritu was executed by the minors on May 17, 1890. The
law in force on this last mentioned date was not Las Siete
Partidas, which was the law in force at the time the causes of
action accrued in the cases decided by the Supreme Court of
Spain referred to, but the Civil Code which took effect in the
Philippines on December 8, 1889. As already stated, the Civil
Code requires the consent of both parties for the valid execution
of a contract (Art. 1261 — now Art. 1318, of the Civil Code). As a
minor cannot give his consent, the contract made or executed by
him has no validity and legal effect. There is no provision in the
Civil Code similar to that of Law 6, Title 19 of the 6th Partida
which is equivalent to the common law principle of estoppel.52 If
there be an express provision in the Civil Code similar to Law
6, Title 19 of the 6th Partida, I would agree to the reasoning of
the majority. The absence of such provision in the Civil Code is
fatal to the validity of the contract executed by a minor. It would
be illogical to uphold the validity of a contract on the ground of
estoppel, because if the contract executed by a minor is null and
void for lack of consent and produces no legal effect, how could
such a minor be bound by misrepresentation about his age? If
he could not be bound by a direct act, such as the execution of
a deed of sale, how could he be bound by an indirect act, such
as his misrepresentation as to his age? The rule laid down in
Young vs. Tecson, 39 Off. Gaz. 953, in my opinion, is the correct
one.’’53

50
47 Off. Gaz. 4561.
51
104 Phil. 769.
52
This was true under the Spanish Civil Code. However, the New Civil Code
(Art. 1431) now provides that through estoppel, an admission or representation is
rendered conclusive upon the person making it and it cannot be denied or disproved
as against the person relying thereon.
53
The case of Young vs. Tecson was a case decided by the Court of Appeals hold-
ing that: “The theory advanced by the appellants that misrepresentation made by the
defendant as to his age estops him from denying that he was of age, or from assert-

419
Art. 1327 CONTRACTS

Be that as it may, it is now well settled that misrepresentation

by unemancipated minors with regard to their age when entering
into a contract shall bind them in the sense that they are estopped
subsequently from impugning the validity of the contract on the
ground of minority. It is, however, necessary that the misrepresen-
tation must be active, not merely constructive.54

Braganza vs. Villa Abrille

105 Phil. 456

On Oct. 20, 1944, Rosario de Braganza and her two minor

sons, Rodolfo and Guillermo, who were then 18 and 16 years old
respectively, borrowed from Villa Abrille P70,000 in Japanese
military notes, promising to pay the latter solidarily P10,000 “in
legal currency of the Philippines, two years after the cessation of
present hostilities or as soon as International Exchange has been
established in the Philippines,’’ plus 2% interest per annum.
For failure to pay, Villa Abrille sued them in March, 1949.
Defendants, however, have interposed the minority of Rodolfo
and Guillermo de Braganza at the time when they signed the
note as a defense. Consequently, the principal questions to be
decided are: first, whether or not the minority of her co-signers
has any effect upon the liability of Mrs. Braganza; and second,
whether or not such co-signers can be held liable. The Supreme
Court held:
“Mrs. Braganza is liable because the minority of her co-
signers does not release her from liability, since it is a personal
defense of the minors. However, she can avail herself of the
defense but such defense will benefit her only as regards that
part of the debt for which the minors are responsible. (Art.
1148, now Art. 1222, Civil Code.) Therefore, she shall pay 1/3 of
P10,000 or P3,333.33, plus 2% interest from October, 1944.
“On the other hand, the Court of Appeals found the minors
liable because they did not state in the promissory note that
they are not yet of legal age and ‘when minors pretended to be

ing that he was under age, at the time he entered into the contract, for the breach of
which this action is brought is untenable, because under the principle of estoppel the
liability resulting from the misrepresentation has its juridical source in the capacity
of the person making the misrepresentation to bind himself. If the person making the
misrepresentation cannot bind himself by a contract, he cannot also be bound by any
misrepresentation he may have made in connection therewith.’’
54
Braganza vs. Villa Abrille, 106 Phil. 456.

420
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1327
Consent

of legal age, when in fact they were not, they will not later on
be permitted to excuse themselves from the fulfillment of the
obligation contracted by them, or to have it annulled.’ (Mercado,
et al. vs. Espiritu, 37 Phil. 15.) However, the Mercado case is dif-
ferent because the document signed therein by the minors spe-
cifically stated that they were of age, here, the promissory note
contained no such statement. In other words, in the Mercado
case, the minors were guilty of active misrepresentation; where-
as in this case, the minors are guilty of passive or constructive
misrepresentation. From the minor’s failure to disclose their mi-
nority, it does not follow, as a legal proposition, that they will
not be permitted there after to assert it. According to Corpus
Juris Secundum (43, p. 206), ‘mere silence when making a con-
tract as to his age does not constitute a fraud which can be made
the basis of an action for deceit. In order to hold the infant li-
able, the fraud must be actual and not constructive.’ Therefore,
the minors in the case at bar cannot be legally bound by their
signatures in the promissory note.
“They cannot, however, be absolved entirely from mon-
etary responsibility. Under the Civil Code, even if their written
contract is voidable because of non-age, they shall make resti-
tution to the extent that they may have profited by the money
they received. (Art. 1304, now Art. 1399, Civil Code.) There is
testimony that the funds were used for their support during the
Japanese occupation. Such being the case, it is but fair to hold
that they had profited to the extent of the value of such money,
which value has been established in the Ballantyne Schedule. In
October, 1944, P40 Japanese military notes were equivalent to
P1.00 of current Philippine money. Hence, they shall pay jointly
P1,666.67, plus 6% interest beginning March 7, 1949, when the
complaint was filed.”

Idem; id. — Insane or demented persons. — Under No. 2 of

Art. 1327, insane or demented persons cannot give their consent to
a contract. It is, of course, well established that “insane or demented
persons” include any person, who, at the time of the celebration of
the contract, cannot understand the nature and consequences of the
act or transaction by reason of any cause affecting his intellectual
or sensitive faculties, whether permanent or temporary. Art. 1328,
however, provides that a contract entered into during a lucid interval
is valid. Thus, according to the Supreme Court:

“Even in the execution of contracts, in the absence of

a statute to the contrary, the presumption of insanity and

421
Art. 1327 CONTRACTS

mental incapacity in a person under guardianship for mental

derangement, is only prima facie and may be rebutted by
evidence. A person under guardianship for insanity may still
enter into a valid contract and even convey property, provided
it is proven that at the time of entering into said contract, he
was not insane or that his mental defect, if mentally deranged,
did not interfere with or affect his capacity to appreciate the
meaning and significance of the transaction entered into by
him. There are many cases of persons mentally deranged who,
although they have been having obsessions and delusions for
many years regarding certain subjects and situations, still are
mentally sound in other respects. There are others who, though
insane, have their lucid intervals when in all respect they are
perfectly sane and mentally sound.55

What is the nature and extent of the mental incapacity which

will incapacitate a person from giving his consent to a contract?
In our present knowledge of the state of mental alienation such
certainty has not yet been reached in which we can determine with
precision who are those who are suffering from mental capacity and
who are those who are not. As a matter of fact, the Code considers
as a demented person, or at least, places in the same category as a
demented person anyone who is in a state of drunkenness or under a
hypnotic spell, when it declares in Art. 1328 that a contract entered
into by such person is voidable. It is, however, a well-established
rule in contractual law that in order to avoid a contract because of
mental incapacity, it is necessary to show that at the time of the
celebration of the contract one of the contracting parties was not
capable of understanding with reasonable clearness the nature
and effect of the transaction in which he was engaged. Hence, such
circumstances as age, sickness, or any other condition as such will
not necessarily justify a court of justice to interfere in order to
set aside a contract voluntarily entered into.56 Thus, where it was
established that one of the contracting parties was suffering from
monomania or delusion of wealth at the time of the execution of the
contract believing himself to be very wealthy when as a matter of
fact he is not, it was held that such fact alone will not be sufficient
to invalidate the contract so long as it was not proved that at the

55
Dumaguin vs. Reynolds, 48 Off. Gaz. 3887.
56
Cui vs. Cui, 100 Phil. 913, citing Page on Contracts, Vol. 3, Sec. 2810.

422
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1327
Consent

moment of the execution of the contract he was incapable, crazy,

insane, or out of his mind.57
Consequently, mental incapacity to enter into a contract is
a question of fact which must be decided by the courts. There is,
however, a presumption that every person of legal age possesses the
necessary capacity to execute a contract,58 but the presumption is
prima facie and may be rebutted by proper evidence. Thus, in the
case of Carillo vs. Jaoco,59 where it was established that the vendor
of several parcels of land was declared insane by a competent court
nine days after the execution of the contract of sale, the Supreme
Court still ruled:

“The fact that nine days after the execution of the contract,
Adriana Carillo was declared mentally incapacitated by the
trial court does not prove that she was so when she executed the
contract. After all this can perfectly be explained by saying that
her disease became aggravated subsequently.
“Our conclusion is that prior to the execution of the docu-
ment in question the usual state of Adriana Carillo was that of
being mentally capable, and consequently, the burden of proof
that she was mentally incapacitated at a specified time is upon
her who affirms said incapacity. If no sufficient proof to this ef-
fect is presented, her capacity must be presumed.’’

Idem; id. — Deaf-mutes. — With regard to deaf-mutes, we

must distinguish between the effect of a contract entered into by a
deaf-mute who knows how to write and that of a contract entered
into by a deaf-mute who does not know how to write. The first is
perfectly valid, while the second is either voidable or unenforceable,
depending upon whether one or both of the parties are incapacitated.
This can be inferred from No. 2 of Art. 1327 which states that deaf-
mutes who do not know how to write cannot give their consent to a
contract.
Idem; id. — Other incapacitated persons. — Besides the
persons enumerated in Art. 1327, there are others who are also
incapacitated to give their consent to a contract, such as married

57
Standard Oil Co. vs. Arenas, 19 Phil. 363.
58
Standard Oil Co. vs. Arenas, 19 Phil. 363; Dumaguin vs. Reynolds, 48 Off. Gaz.
3887.
59
Standard Oil Co. vs. Arenas, 19 Phil. 363.

423
Art. 1327 CONTRACTS

women of age in cases specified by law, persons suffering from civil

interdiction,60 and incompetents who are under guardianship.61
It must be noted that under Art 1263 of the Spanish Civil Code,
among the persons incapacitated to give their consent to a contract
are “married women in the cases specified by law,” whereas under
the present Civil Code, they are not included. This is, of course, in
conformity with the rule that a married woman, twenty-one years of
age or over, is qualified for all acts of civil life except in cases specified
by law.62 In spite of its elimination from the list, it cannot be denied
that there are still cases, although much more limited in extent than
under the old Code, where married women cannot give their consent
to a contract without first securing their husband’s consent. The
most evident example of this is that contemplated by Art. 114 of the
Code regarding acquisition by a wife of property by gratuitous title.
According to this article, the husband’s consent is necessary, unless
the property is acquired from her ascendants, descendants, parents-
in-law and relatives within the fourth degree.63
With regard to incompetents under guardianship, it must
be noted that the mere fact that a person is classified as an
“incompetent” in accordance with the New Rules of Court does not
necessarily mean that he cannot give his consent to a contract, nor
does the mere fact that he is not under guardianship necessarily
mean that he can give his consent to a contract. Under Sec. 2 of
Rule 92 of the New Rules of Court, the word “incompetent’’ includes:
(1) persons suffering from civil interdiction; (2) hospitalized lepers;
(3) prodigals; (4) deaf and dumb who are unable to read and write;
(5) those who are of unsound mind, even though they have lucid
intervals; and (6) those who by reason of age, weak mind, and other
similar causes, cannot, without outside aid, take care of themselves
and manage their property becoming thereby an easy prey for deceit
and exploitation. It is evident from what had already been stated
that insane or demented persons as well as deaf-mutes who cannot
write cannot give their consent to a contract, whether or not they

60
Art. 34, Revised Penal Code.
61
Rules 92-93, New Rules of Court.
62
Art. 39, par. 2, Civil Code.
63
With regard to contracts involving paraphernal property, see Art. 140, and
with regard to those involving conjugal property, see Art. 172, Civil Code.

424
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1328-1329
Consent

are under guardianship.64 The same is also true with regard to those
suffering from civil interdiction.65 On the other hand, prodigals
and those who by reason of age, weak mind, and other similar
causes, cannot take care of themselves and manage their property,
before they are placed under judicial guardianship, are disputably
presumed to possess contractual capacity. Consequently, whether
or not they can give their consent to a contract becomes a matter of
proof. Hospitalized lepers, before they are placed under guardianship,
are, of course, not incapacitated. But once an incompetent is placed
upon guardianship, such incompetent can enter into a contract only
through his guardian; otherwise, the contract is voidable.

Problem — Is a person of advanced years or age or by

reason of physical infirmities incapacitated to enter into a
contract?
Answer — A person is not incapacitated to enter into a
contract merely because of advanced years or by reason of
physical infirmities, unless such age and infirmities impair
his mental faculties to the extent that he is unable to properly,
intelligently and fairly understand the provisions of said
contract (Dr. Jose and Aida Yason and Faustino Arciaga, et. al.,
G.R. No. 145017, Jan. 28, 2005).

Art. 1328. Contracts entered into during a lucid interval

are valid. Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable.66
Art. 1329. The incapacity declared in Article 1327 is subject
to the modification determined by law, and is understood to
be without prejudice to special disqualifications established
in the laws.67

Disqualifications to Contract. — It is apparent that the

persons specially disqualified mentioned in Art. 1329 refer to those
who are prohibited from entering into a contract with certain persons
with regard to certain property under certain circumstances and not
to those who are incapacitated to give their consent to a contract.

64
Art. 1327, Civil Code.
65
Art. 34, Revised Penal Code.
66
New provision.
67
Art. 1264, Spanish Civil Code.

425
Arts. 1328-1329 CONTRACTS

Thus, Sec. 145 of the Administrative Code declares that no contract

relating to real property shall be made with any non-Christian
inhabitant of Mindanao and Sulu, unless such contract shall bear
the approval of the provincial governor of the province wherein the
contract was executed or his representative duly authorized for
such purpose in writing endorsed upon it.68 This rule is still intact
under Rep. Act No. 3872, although the sale is subject to the approval
of the Chairman of the Commission on National Integration. Any
contract executed in violation of this rule is void.69 Similarly, under
the Insolvency Law, a person who is declared insolvent before he is
discharged is prohibited from entering into a contract.70
Attention must also be called to the following provisions of the
Civil Code:

“Art. 133. Every donation between the spouses during the

marriage shall be void. This prohibition does not apply when the
donation takes effect after the death of the donor.
“Neither does this prohibition apply to moderate gifts
which the spouses may give each other on the occasion of any
family rejoicing.’’
“Art. 1490. The husband and the wife cannot sell property
to each other, except:
“(1) When a separation of property was agreed upon in
the marriage settlements; or
“(2) When there has been a judicial separation of
property under Article 191.’’
“Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person
or through the mediation of another:
“(1) The guardian, the property of the person or persons
who may be under his guardianship;
“(2) Agents, the property whose administration or sale

68
Act No. 2798 has extended the application of this rule to the non-Christians of
Mountain Province and Nueva Vizcaya.
69
Rep. Act No. 3872. See Porkan vs. Yatco, 70 Phil. 161; Porkan vs. Navarro, 73
Phil. 698; Madale vs. Raya, 49 Off. Gaz. 536; Miguel vs. Catalino, 26 SCRA 234; Heirs
of Lacamen vs. Heirs of Laruan, 65 SCRA 605.
70
Act No. 1956.

426
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1328-1329
Consent

may have been entrusted to them, unless the consent of the

principal has been given;
“(3) Executors and administrators, the property of the
estate under administration;
“(4) Public officers and employees, the property of the
State or of any subdivision thereof, or of any government-owned
or controlled corporation, or institution, the administration of
which has been entrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever,
take part in the sale;
“(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and employees
connected with the administration of justice, the property
and rights in litigation or levied upon on execution before
the court within whose jurisdiction or territory they exercise
their respective functions; this prohibition includes the act
of acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession;
“(6) Any others specially disqualified by law.”
“Art. 1782. Persons who are prohibited from giving each
other any donation or advantage cannot enter into universal
partnership.’’

Idem; Distinguished from incapacity to contract. —

Disqualification to contract or prohibition to contract, referred to in
the previous section, must not be confused with incapacity to give
consent to a contract. The two may be distinguished from each other
as follows:
(1) Incapacity restrains the exercise of the right to contract,
while prohibition to contract restrains the very right itself; in other
words, a person who is incapacitated can still enter into a contract,
but he must do so through his parent or guardian, while one who
is prohibited from entering into a particular contract is absolutely
disqualified from entering into that contract;
(2) Incapacity is based upon subjective circumstances of cer-
tain persons which compel the law to suspend for a definite or in-
definite period their right to contract, while prohibition to contract,

427
Art. 1330 CONTRACTS

which has been improperly called special incapacity by certain au-

thors, is based upon public policy and morality; and

(3) A contract entered into by an incapacitated person is

merely voidable in accordance with Art. 1390 of the Civil Code, while
that entered into by one against whom a prohibition is directed is
void in accordance with Arts. 5 and 1409, No. 7, of the Civil Code.71

Art. 1330. A contract where consent is given through

mistake, violence, intimidation, undue influence, or fraud is
voidable.72

Vices of Consent. — Art. 1330 enumerates the different vices

which may vitiate consent. In addition to the five stated in this
article, we can also include simulation of contracts.73
According to Castan, the vices of consent may be divided into
two distinct groups — vices of the will (vicios de la formacion de la
voluntad) and vices of declaration (vicios de la declaracion). The first
comprehends mistake, violence, intimidation, undue influence, and
fraud; the second comprehends all forms of simulated contracts.74
Actually, Art. 1330, according to Manresa, enumerates in a
negative way the different requisites of consent objectively considered.
These requisites are that the consent must be intelligent, that it
must be free, and that it must be spontaneous. Intelligent consent is
vitiated by mistake or error; free consent by violence, intimidation
and undue influence; spontaneous consent by fraud.75 Because of the
inclusion of simulation of contracts as one of the vices which vitiate
consent, we might add a fourth requisite — that the consent must
be real. In the absence of any of the first three requisites because
consent is given through either mistake, or violence, or intimidation,
or undue influence, or fraud, the contract is voidable; in the absence
of the fourth requisite because the contract is simulated, it may be

71
3 Castan, 7th Ed., p. 525.
72
Art. 1265, Spanish Civil Code.
73
Arts. 1345-1346, Civil Code. See also 3 Castan, 7th Ed., p. 330; 8 Manresa, 5th
Ed., Bk. 2, p. 393.
74
3 Castan, 7th Ed., p. 330.
75
8 Manresa, 5th Ed., Bk. 2, pp. 392-393.

428
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1331
Consent

either void ab initio or valid as far as the real agreement is concerned

depending upon whether the simulation is absolute or relative.76

Art. 1331. In order that mistake may invalidate consent,

it should refer to the substance of the thing which is the
object of the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such identity or
qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correc-
tion.77

Mistake. — The Code does not distinguish between mistake

as such and ignorance. Consequently, as it is understood in the Civil
Code, mistake may be defined not only as the wrong conception of a
thing, but also as the lack of knowledge with respect to a thing.78
Idem; Mistakes which vitiate consent. — There are two
general kinds of mistakes — mistake of fact and mistake of law. There
is, of course, a mistake of fact when one or both of the contracting
parties believe that a fact exists when in reality it does not, or that
such fact does not exist when in reality it does. On the other hand,
there is a mistake of law when one or both of the contracting parties
arrive at an erroneous conclusion regarding the interpretation of a
question of law or the legal effects of a certain act or transaction. As
a general rule, it is only a mistake of fact which will vitiate consent
thus rendering the contract voidable; a mistake of law, on the other-
hand, does not render the contract voidable because of the well-
known principle that ignorance of the law does not excuse anyone
from compliance therewith.79

76
Arts. 1330, 1345, Civil Code.
77
Art. 1266, Spanish Civil Code, in modified form.
78
8 Manresa, 5th Ed., Bk. 2, p. 395.
79
Luna vs. Linatoc, 74 Phil. 15, citing Art. 3, Civil Code, 3 Castan, 7th Ed., pp.
330-331.

429
Art. 1331 CONTRACTS

Idem; id. — Mistake of fact. — For purposes of clarity, we

shall divide the different mistakes of fact which vitiate consent into
the following classes:80
(1) Mistake as to object (error in re): This is the mistake which
is referred to in the first paragraph of Art. 1331 of the Code. It may
be subdivided into the following: (a) Mistake as to the identity of
the thing (error in corpore), as when the thing which constitutes the
object of the contract is confused with another thing; (b) mistake as
to the substance of the thing (error in substantia); (c) mistake as to
the conditions of the thing, provided such conditions have principally
moved one or both parties to enter into the contract; and (d) mistake
as to the quantity of the thing (error in quantitate), provided that
the extent or dimension of the thing was one of the principal reasons
of one or both of the parties for entering into the contract.81
In order that a contract is rendered voidable because of mistake
regarding the quantity of the thing which constitutes the object
thereof, it is necessary that such mistake should refer not only to
the material out of which the thing is made, but also to the nature
which distinguishes it, generically or specifically, from all others,
such as when a person purchases a thing made of silver believing
that it is made of gold. Consequently, if the mistake refers only to
accidental or secondary qualities (error in qualitate), the contract is
not rendered voidable.82
In case of mistake regarding the quantity of the thing (error
in quantitate), it is important that this class of mistake should be
distinguished from a mistake of account or calculation. In the first,
there is a real mistake as to the extent of the object of the contract;
in the second, there is only an apparent mistake, a mere mistake
in mathematical computation. As a consequence, in the first, the
contract is voidable; in the second, it is not. Thus, if the parties enter
into a contract with respect to a parcel of land which they believe
has an area of 100 hectares, when in reality it has an area of only
50 hectares, there is mistake as to the quantity of the thing; the
contract in this case is voidable. If, on the other hand, they enter
into a contract in which it is agreed that a parcel of land consisting

80
3 Castan, 7th Ed., pp. 331-335; 8 Manresa, 5th Ed., Bk. 2, pp. 397-405.
81
3 Castan, 7th Ed., pp. 331-332.
82
3 Castan, 7th Ed., pp. 332-333; 8 Manresa, 5th Ed., Bk. 2, pp. 397-398.

430
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1331
Consent

of 10 hectares shall be sold for P1,000 per hectare, and they thought
that the total price is only P5,000, there is a mistake of account; the
mistake in this case can only be corrected.83

Asiain vs. Jalandoni

45 Phil. 296

The records show that the plaintiff offered to sell to

the defendant a certain hacienda for P55,000. During the
negotiation, he told the defendant that it contained between 25
and 30 hectares and that the cane then planted would produce
2,000 piculs of sugar. Although doubtful of the extent of the
land, the defendant finally accepted the offer, paid P30,000 of
the purchase price and took possession of the land. While thus
in possession, he discovered that the land was only about 18
hectares and the cane only about 800 piculs of sugar. Because
of this discovery, he refused to pay the balance of the purchase
price. As a consequence, plaintiff commenced this action to
recover the said balance. To the complaint, defendant filed an
answer and a counter complaint, asking that the contract be
annulled.
Held: “Coordinating more closely the law and the facts in
the instant case, we reach the following conclusions: This was
not a contract of hazard. It was a sale in gross in which there
was a mutual mistake as to the quantity of land sold and as to
the amount of the standing crop. The mistake of fact as disclosed
not alone by the terms of the contract but by the attendant
circumstances, which it is proper to consider in order to throw
light upon the intention of the parties, is, as it is sometimes
expressed, the efficient cause of the concoction. The mistake
with reference to the subject matter of the contract is such
that, at the option of the purchaser, the contract is rescissible
(voidable). Without such mistake the agreement would not have
made and since this is true, the agreement is inoperative. It
is not deception but is more nearly akin to bilateral mistake
for which relief should be granted. Specific performance of the
contract can therefore not be allowed at the instance of the
vendor.

83
8 Manresa, 5th Ed., Bk. 2, pp. 403-404. For cases illustrating mistakes account,
see Pastor vs. Nicasio, 6 Phil. 152; Aldecoa & Co. vs. Warner, Barnes & Co., 16 Phil.
23; Gutierrez Hermanos vs. Oria Hermanos,30 Phil. 491; Oquinena & Co. vs. Muer-
tegui, 32 Phil. 261.

431
Art. 1332 CONTRACTS

“The ultimate result is to put the parties back in exactly

their respective positions before they became involved in the
negotiation and before accomplishment of the agreement. This
was the decision of the trial judge and we think that decision
conforms to the facts and the principles of equity.’’

(2) Mistake as to person (error in persona): This kind of mis-

take or error may refer either to the name or to the identity or to
the qualification of a person. It is evident from the provision of the
second paragraph of Art. 1331 that the only mistake with regard to
persons which will vitiate consent are mistakes with regard to the
identity or the qualifications of one of the contracting parties. Hence,
mistake with regard to the name of one or both of the contracting
parties will not invalidate the contract. In order that mistake as to
persons shall vitiate consent, the following requisites must, how-
ever, concur: first, the mistake must be either with regard to the
identity or with regard to the qualification of one of the contracting
parties; and second, such identity or qualification must have been
the principal consideration for the celebration of the contract. Gen-
erally, this kind of mistake occurs in obligations to do which require
special qualifications of the parties or which are based on confidence.
Examples of these obligations are those arising from remuneratory
contracts, partnership, agency, deposit, commodatum, and lease of
services.84

Art. 1332. When one of the parties is unable to read, or

if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained
to the former.85
Rule Where a Party Is Illiterate. — The rule stated in the
above article was declared by the codifiers as “especially necessary
in the Philippines where unfortunately there is still a fairly large
number of illiterates and where documents are usually drawn up
in English and Spanish.”86 Thus, where the plaintiff, who cannot

84
3 Castan, 7th Ed., pp. 334-335; 8 Manresa, 5th Ed., Bk. 2, p. 402.
85
New provision.
86
Report of the Code Commission, p. 136, cited in Ayola vs. Valderama Lumber
Co., CA, 49 Off. Gaz. 980.

432
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1332
Consent

read and write, signed with a cross a document which she thought
was merely a promise to pay certain expenses which defendant had
advanced to her in a certain law suit, but which turned out to be
an absolute deed of sale of two parcels of land and a carabao, said
document is voidable, for had she truly understood the contents
thereof, she would neither have accepted nor authenticated it by
her mark.87 Similarly, where the plaintiffs, both of whom are blind,
affixed their thumbmarks to a deed which they thought was a deed
of mortgage, but which turned out to be a deed of sale of certain
properties in favor of the defendant who is a son-in-law of one of
them, although the deed is a public document and the notary public
testified as to their due execution, since courts are given a wide
latitude in weighing the facts or circumstances in a given case and
since there exists a fiduciary relationship between the parties to the
contract, it was held that such contract is voidable.88 The same is also
true where the plaintiff had testified that he had signed a voucher
without knowing or understanding its contents. Since under Art.
1332, the burden of proving that the plaintiff had understood the
contents of the document was shifted to the defendant and he had
failed to do so, the presumption of mistake still stands unrebutted
and controlling.89
Article 1332 was intended for the protection of a party to a
contract who is at a disadvantage due to his illiteracy, ignorance,
mental weakness or other handicap. This article contemplates a
situation wherein a contract has been entered into, but the consent
of one of the parties is vitiated by mistake or fraud committed by
the other contracting party. This is apparent from the ordering of
the provisions under Book IV, Title II, Chapter 2, Section 1 of the
Civil Code, from which Article 1332 is taken. Article 1330 states
that “A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.’’ (Hemedes vs.
Court of Appeals, 316 SCRA 348.)
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. Fraud, on the other hand, is present when,

87
Dumasug vs. Modelo, 34 Phil. 252.
88
Trasporte vs. Beltran, CA, 51 Off. Gaz. 1434.
89
Ayola vs. Valderama Lumber Co., CA, 49 Off. Gaz. 980.

433
Arts. 1333-1334 CONTRACTS

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. Clearly, Article 1332 assumes
that the consent of the contracting party imputing the mistake or
fraud was given, although vitiated, and does not cover a situation
where there is a complete absence of consent. (Hemedes vs. Court of
Appeals, supra.)

Art. 1333. There is no mistake if the party alleging it

knew the doubt, contingency or risk affecting the object of
the contract.90
Art. 1334. Mutual error as to the legal effect of an agree-
ment when the real purpose of the parties is frustrated, may
vitiate consent.91

Mistake of Law. — Mistake of law as a rule will not vitiate

consent. There is, however, an exception to this rule. According
to Art. 1334 (a new provision), mutual error as to the effect of an
agreement when the real purpose of the parties is frustrated, may
vitiate consent.92 Three requisites are, therefore, necessary in order
that such mistake will vitiate consent. In the first place, the mistake
must be with respect to the legal effect of an agreement; in the
second place, the mistake must be mutual; and in the third place,
the real purpose of the parties must have been frustrated.
Explaining the reason for the insertion of Art. 1334 in the Civil
Code, the Code Commissioners stated in their report:
“Mistake of law does not generally vitiate consent. But when
there is mistake on a doubtful question of law, or on the construction
or application of law, this is analogous to a mistake of fact, and the
maxim of ignorantia legis neminem excusat should have no proper
application. When even the highest courts are sometimes divided
upon difficult legal questions, and when one-half of the lawyers in all

90
New provision.
91
New provision.
92
The mistake referred to in this article seems to be the equivalent of what
Castan terms a mistake as to the nature of the contract (error in negocio) giving as
an example a contract in which one of the parties believes that he is selling the thing,
while the other thinks that he is merely leasing it. (3 Castan, 7th Ed., 335.)

434
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1335-1336
Consent

controversies on a legal question are wrong, why should a layman be

held accountable for his honest mistake on a doubtful legal issue?’’93

Art. 1335. There is violence when in order to wrest

consent, serious or irresistible force is employed.
There is intimidation when one of the contracting
parties is compelled by a reasonable and well-grounded fear
of an imminent and grave evil upon his person or property,
or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of the intimidation, the age,
sex and condition of the person shall be borne in mind.
A threat to enforce one’s claim through competent au-
thority, if the claim is just or legal, does not vitiate consent.94
Art. 1336. Violence or intimidation shall annul the
obligation, although it may have been employed by a third
person who did not take part in the contract.95

Violence and Intimidation. — The first paragraph of Art.

1335 gives the definition of violence, while the second paragraph of
the same article gives the definition of intimidation.
Because of the similarity between violence and intimidation,
especially with regard to their effects both upon the will of the
person upon whom they are exercised and upon the contract which
is produced thereby, the two are sometimes known as duress. One,
however, must be distinguished from the other. While violence
is external, intimidation is internal; while the first prevents the
expression of the will substituting it with a material act dictated by
another, the second influences the operation of the will, inhibiting
it in such a way that the expression thereof is apparently that of a
person who has freely given his consent.96 In the terse language of
Castan, violence is physical compulsion, while intimidation is moral
compulsion.97

93
Report of the Code Commission, p. 136.
94
Art. 1267, Spanish Civil Code, in modified form.
95
Art. 1268, Spanish Civil Code.
96
8 Manresa, 5th Ed., Bk. 2, p. 408.
97
3 Castan, 7th Ed., p. 336.

435
Arts. 1335-1336 CONTRACTS

Idem; Requisites of violence. — In order that consent is

vitiated through violence, it is essential that the following requisites
must concur: first, the force employed to wrest consent must be
serious or irresistible; and second, it must be the determining
cause for the party upon whom it is employed in entering into the
contract.98
Idem; Requisites of intimidation. — Intimidation, on the
other hand, requires the concurrence of the following requisites:
first, one of the contracting parties is compelled to give his consent
by a reasonable and well-grounded fear of an evil; second, the evil
must be imminent and grave; third, the evil must be unjust; and
fourth, the evil must be the determining cause for the party upon
whom it is employed in entering into the contract.99
Idem; id. — Character of intimidation. — In order that
intimidation may be sufficient to render a contract voidable, Art.
1335 requires that one of the contracting parties should be 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. This presupposes that the threat
or intimidation must be actual, serious and possible of realization,
and that the actor can and still will carry out his threat.100 The
best illustrations of the application of this rule are those contracts
entered into during the Japanese occupation involving payments
in Japanese military notes, where it is established that one of the
contracting parties was compelled to give his consent to the payment
by reason of a threat to report his non-acceptance of the military
notes to the Japanese authorities. Thus, it has been held that the
threat to deliver anyone to the Kempetai or to the now infamous
Fort Santiago, for refusal to accept Japanese military notes, or for
any cause, even to intelligent persons of ordinary firmness would
surely infuse just fear of great bodily harm, should there be a refusal
considering the inquisitorial methods employed by the invaders and
what they had done.101 But the mere knowledge of the severe penalties

98
Ibid., pp. 337-338.
99
Ibid.
100
This rule, which is taken from Manresa (Vol. 8, Bk. 2, 5th Ed., p. 411), is enun-
ciated in the cases of Alarcon vs. Kasilag, CA, 40 Off. Gaz. 11th S, p. 203; De Asis vs.
Buenviaje, CA, 45 Off. Gaz. 317; Mirano vs. Mossessgeld Santiago, CA, 45 Off. Gaz.
343; Derequito vs. Dolutan, CA, 45 Off. Gaz. 1351; Valdeabella vs. Marquez, CA, 48
Off. Gaz. 719.
101
Rodriguez vs. De Leon, CA, 47 Off. Gaz. 6296.

436
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1335-1336
Consent

imposed by the invaders upon a violation of their proclamations

and orders regarding non-acceptance of military notes, which was
common and applicable to all, without any proof of direct acts
showing the imminence and gravity of any injury, does not in itself
establish intimidation, since according to the law, such intimidation
exists only when one of the contracting parties is inspired with a
reasonable and well grounded fear of suffering an imminent and
grave injury to his person or property, or to the person or property of
his spouse, descendants or ascendants.102
Idem; id. — Distinguished from reluctant consent. —
From what had been stated, consent given through intimidation
must not be confused with consent given reluctantly and even against
good sense and judgment. There must be a distinction to be made
between a case where a person gives his consent reluctantly and
even against his good sense and judgment and where he, in reality,
gives no consent at all as where he executes a contract against his
will under a pressure which he cannot resist. It is clear that one acts
as voluntarily and independently in the eyes of the law when he acts
reluctantly and with hesitation as when he acts spontaneously and
joyously. Legally speaking, he acts voluntarily and freely when he
acts wholly against his better sense and judgment as when he acts
in conformity with them. Between the two acts there is no difference
in law.103
The test in order to determine whether consent given “under
pressure” is intimidation within the meaning of the law or not is
given by Justice Moreland in the following words:

“All men are presumed to be sane and normal and subject

to be moved by substantially the same motives. When of age
and sane, they must take care of themselves. In their resolu-
tions with others in the business of life, wits, sense, intelligence,
training, ability and judgment meet and clash and contest,
sometimes with gain and advantage to all, sometimes to a few
only, with loss and injury to others. In these contests men must
depend upon themselves — upon their own abilities, talents,

102
Valdeabella vs. Marquez, CA, 48 Off. Gaz. 719. To the same effect: Mirano vs.
Mossessgeld Santiago, CA, 45 Off. Gaz. 343; Phil. Trust Co. vs. Araneta, 46 Off. Gaz.
4254; Laraga vs. Bañez, 47 Off. Gaz. 696; Fernandez vs. Brownell, 51 Off. Gaz. 713.
103
Vales vs. Villa, 35 Phil. 769; Reyes vs. Zaballero, G.R. No. L-3561, May 23,
1951.

437
Arts. 1335-1336 CONTRACTS

training, sense, acumen, judgment. The fact that one may be

worsted by another, of itself, furnishes no cause of complaint.
One man cannot complain, because another is more able, or bet-
ter trained, or has better sense or judgment than he has; and
when the two meet on a fair field the inferior cannot murmur if
the battle goes against him. The law furnishes no protection to
the inferior simply because he is inferior, any more than it pro-
tects the strong because he is strong. The law furnishes protec-
tion to both alike — to one no more or less than to the other. It
makes no distinction between the wise and the foolish, the great
and the small, the strong and the weak. The foolish may lose all
they have to the wise; but that does not mean that the law will
give it back to them again. Courts cannot follow one every step
of his life and extricate him from one-sided contracts, or annul
the effects of foolish acts. Courts cannot constitute themselves
guardians of persons who are not legally incompetent. Courts
operate not because one person has been defeated or overcome
by another, but because he has been defeated or overcome il-
legally. Men may do foolish things, make ridiculous contracts,
use miserable judgments, and lose money by them — indeed, all
they have in the world; but not for that alone can the law inter-
vene and restore. There must be, in addition, a violation of law,
the commission of what the law knows as an actionable wrong
before the courts are authorized to lay hold of the situation and
remedy it.
“Furthermore, even if an actionable wrong be committed
in such manner as to authorize the court to intervene, the
person injured may renounce his right to take the matter to the
courts and may compromise with the wrong-doer. Or, having
been placed in a very disadvantageous position by the wrong
committed against him, he may be offered by his adversary one
or more avenues of escape. He may be required to lose more
property to his enemy or go to the court for redress. In such case
the payment of an additional sum as a means of escape is not
necessarily a payment for duress. The act was preceded by an
exercise of judgment. This much was plain to him; he had either
to let the matter stand as it was with the loss already sustained
or go to the courts to be relieved. His judgment, operating upon
this condition, told him to pay the additional sum rather than
to suffer the inconvenience and expense of an action in court.
A payment made under such conditions is not voidable. It
is a voluntary act of a sane and mature man performed upon
reflection. Not only this; it is a compromise of the original wrong
and a ratification of the relation which the wrongful act was
intended to establish between the parties.

438
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1335-1336
Consent

“The same may be said with greater force of a case where

a person’s own voluntary act, uninfluenced by another, has put
him in a disadvantageous position — a position which another
may unjustly make use of to his injury. The failure to reduce a
contract to writing or to have witnesses present when a verbal
agreement is made, or to record an instrument, or to exclude
from the operation of its terms things verbally agreed to be
excluded, etc., may place a person in a disadvantageous position
with respect to another; but the demand that he pays to secure
his extrication is not illegal, and payment made pursuant to
such demand is not necessarily voidable. He pays for his lack of
foresight. While the demand may be reprehensible morally, it is
not illegal; and of itself is not ground for relief.
“There must, then, be a distinction to be made between
a case where a person gives his consent reluctantly and even
against his good sense and judgment, and where he, in reality,
gives no consent at all, as where he executes a contract or performs
an act against his will under a pressure which he cannot resist.
It is clear that one acts as voluntarily and indepedently in the
eyes of the law when he acts reluctantly and with hesitation,
as when he acts spontaneously and joyously. Legally speaking,
he acts as voluntarily and freely when he acts wholly against
his better sense and judgment as when he acts in conformity
with them. Between the two acts there is no difference in law.
But when his sense, judgment, and his will rebel and he refuses
absolutely to act as requested, but is nevertheless overcome
by force or intimidation to such an extent that he becomes a
mere automaton and acts mechanically only, a new element
enters, namely, a disappearance of the personality of the actor.
He ceases to exist as an independent entity with faculties and
judgment and in his place is substituted another — the one
exercising the force or making use of the intimidation. While
his hand signs, the will which moves it is another’s. While a
contract is made, it has, in reality and in law, only one party,
the one using the force or the intimidation; it is unenforceable
for lack of a second party.
“From these considerations it is clear that every case of
an alleged intimidation must be examined to determine within
which class it falls. If it is within the first class, it is not duress
in law, if it falls in the second, it is.’’104

104
Vales vs. Villa, 35 Phil. 769. To a certain extent the doctrine of absolute judi-
cial objectivity as applied to contractual relations has been humanized by the provi-
sion of Art. 24 of the New Civil Code.

439
Arts. 1335-1336 CONTRACTS

Martinez vs. Hongkong and Shanghai Bank

15 Phil. 252
This is an action to annul a contract on the ground that
plaintiff’s consent thereto was obtained under duress. Under
this contract, she agreed to a conveyance of several properties to
Aldecoa & Co. and the Hongkong and Shanghai Bank as settle-
ment of their claims against her and against her husband, who
in order to escape criminal charges, had escaped to Macao, a
territory not covered by any extradition treaty. It was estab-
lished at the trial that during the period of negotiation, repre-
sentations were made to her by the defendants and concurred
in by her lawyers, that if she assented to the requirements of
the defendants, the civil suit against herself and her husband
would be dismissed and the criminal charges against the latter
withdrawn, but if she refused, her husband must either spend
the rest of his life in Macao or be criminally prosecuted. The
question now is whether or not there was duress which would
invalidate the contract.
Held: “In order that this contract can be annulled it
must be shown that the plaintiff never gave her consent to
the execution thereof. It is, however, necessary to distinguish
between real duress and the motive which is present when one
gives his consent reluctantly. A contract is valid even though
one of the parties entered into it against his wishes and desires
or even against his better judgment. Contracts are also valid
even though they are entered into by one of the parties without
hope of advantage or profit. A contract whereby reparation is
made by one party for injuries which he has wilfully inflicted
upon another is one which from its inherent nature is entered
into reluctantly by the party making the reparation. He is
confronted with a situation in which he finds the necessity
of making reparation or of taking the consequences, civil
or criminal, of his unlawful acts. He makes the contract of
reparation with extreme reluctance and only by the compelling
force of the punishment threatened. Nevertheless, such contract
is binding and enforceable.
“It is undisputed that the attorneys for the plaintiff in this
case advised her that, from the facts which they had before them,
facts of which she was fully informed, her husband had been
guilty of embezzlement and misappropriation in the management
of the business of Aldecoa & Co. and that, in their judgment,
if prosecuted therefor, he would be convicted. In other words,
under the advice of her counsel, the situation was so presented
to her that it was evident that in signing the agreement, she

440
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1335-1336
Consent

had all to gain and nothing to lose, whereas, in refusing to sign

said agreement, she had all to lose and nothing to gain. In the
one case, she would lose her property and save her husband.
In the other, she would lose her property and her husband too.
The argument thus presented to her by her attorneys addressed
itself to judgment and not to fear. It appealed to reason and
not to passion. It asked her to be moved by common sense and
not by love of family. It spoke to her own interests as much as
to those of her husband. The argument went to her financial
interests as well as to those of the defendants. It spoke to her
business judgment as well as to her wifely affections. From the
opinions of her attorneys as they were presented to her upon
facts assumed by all to be true, we do not well see how she could
reasonably have reached a conclusion other than that which
she did reach. It is of no consequence here whether or not her
lawyers advised her wrongly. It is of no importance whether, as
a matter of law, she would have been deprived of her alleged
interests in the properties mentioned in the manner described
and advised by her attorneys. The important thing is that she
believed and accepted their judgment and acted upon it. The
question is not did she make a mistake, but did she consent; not
was she wrongly advised, but was she coerced; not was she wise,
but was she duressed.
“From the whole case we are of the opinion that the finding
of the court below that the plaintiff executed the contract in
suit of her own free will and choice and not from duress is fully
sustained by the evidence.’’

Idem; id. — Determination of degree of intimidation.

— According to the third paragraph of Art. 1335, to determine the
degree of the intimidation, the age, sex and condition of the person
shall be borne in mind. It is evident that this provision refers princi-
pally to the person intimidated. By condition here is meant not only
the resolute or weak character of the person intimidated, but also
his other circumstances, such as his capacity or culture, which per-
mits him to appreciate whether or not there is an imminent danger,
his position, by which he can determine whether or not it gives him
a chance to thwart the danger, his financial condition, because while
a certain amount may mean nothing to some, to others it may mean
economic ruin.105

105
8 Manresa, 5th Ed., Bk. 2, p. 418; Rodriguez vs. De Leon, CA, 47 Off. Gaz.
6296.

441
Art. 1337 CONTRACTS

But the applicability of the provision is even more evident in

the case of the spouse, descendant or ascendant of the contracting
party. When the evil which threatens is directed not against the
contracting party but against his spouse, descendant or ascendant,
we must consider not only the conditions of the contracting party,
but also the conditions of such spouse, descendant or ascendant,
because, although the evil which threatens may not be sufficiently
grave or serious to bring harm to the contracting party, it may have a
different effect upon a weak woman, an aged father, or a defenseless
child.106
Idem; id. — Effect of just or legal threat. — According
to the last paragraph of Art. 1335, a threat to enforce one’s claim
through competent authority, if the claim is just or legal, does not
vitiate consent. Consequently, even if it can be established that the
reason or motive of a party in entering into a contract was the threat
of the other to proceed against him through the courts, the contract
would still be perfectly valid and not voidable.107 Thus, where it is
established that a demand for the settlement of an obligation made
by the creditor upon the debtor was accompanied by the threat that
upon failure of the latter to do so, an action would be instituted
against him in court, it was held that such threat is proper within
the realm of the law as a means to enforce collection of the obliga-
tion, and therefore, cannot constitute intimidation which would in-
validate any settlement entered into even if the claim proves to be
unfounded so long as the creditor who made the threat believed that
it was his right to do so.108

Art. 1337. There is undue influence when a person

takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be considered: the
confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have been

106
8 Manresa, 5th Ed., Bk. 2, p. 418.
107
Doronilla vs. Lopez, 3 Phil. 360; Martinez vs. Hongkong and Shanghai Bank,
5 Phil. 252; Jalbuena vs. Ledesma, 8 Phil. 601; Berg vs. Nat. City Bank of New York,
102 Phil. 309.
108
Berg vs. Nat. City Bank of New York, G.R. No. L-9312, Oct. 31, 1957.

442
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1337
Consent

unduly influenced was suffering from mental weakness, or

was ignorant or in financial distress.109

Undue Influence. — According to Art. 1337 of the Code, there

is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable
freedom of choice. Concisely stated, undue influence invalidating a
contract is that which substitutes the wishes of another for those of
a party to the contract or that which deprives the latter of his free
agency.110
Idem; Undue influence which vitiates consent. —
Although it has often been stated that undue influence is an unlawful
influence, it appears that no more is meant by the expression “undue
influence,” as used in this connection than that it is the influence
which deprives a person of his free agency. Consequently, even if it
can be established that a person entered into a contract through the
importunity or persuasion of another against his better judgment,
if the deprivation of his free agency is not proved, there is no undue
influence which will invalidate the contract. Thus, according to the
Supreme Court:

“Solicitation, importunity, argument, and persuasion are

not undue influence and a contract is not to be set aside merely
because one party used these means to obtain the consent of
the other. Influence obtained by persuasion or argument or by
appeals to the affections is not prohibited either in law or morals
and is not obnoxious even in courts of equity. Such may be termed
‘due influence.’ The line between due and undue influence when
drawn, must be with full recognition of the liberty due every
true owner to obey the voice of justice, the dictates of friendship,
of gratitude and of benevolence, as well as the claims of kindred,
and when not hindered by personal incapacity or particular
regulations, to dispose of his own property according to his own
free choice. (9 Cyc. 455, and cases there cited.)’’111

The test, therefore, in order to determine whether or not there

is undue influence which will invalidate a contract is to determine
whether or not the influence exerted has so overpowered or subjugated

109
New provision.
110
57 Am. Jur., Sec. 350, p. 258.
111
Martinez vs. Hongkong and Shanghai Bank, 15 Phil. 252.

443
Art. 1338 CONTRACTS

the mind of a contracting party as to destroy his free agency, making

him express the will of another rather than his own.112 However, in
determining whether or not there is undue influence, 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.113

Art. 1338. There is fraud when, through insidious words

or machinations of one of the contracting parties, the other
is induced to enter into a contract which, without them, he
would not have agreed to.114

Fraud. — Fraud which will render a contract voidable refers

to those insidious words or machinations employed by one of the
contracting parties in order to induce the other to enter into a
contract, which, without them, he would not have agreed to.115
Idem; Kinds of fraud. — The fraud which is defined in Art.
1338 must not be confused with the fraud which is mentioned in Arts.
1170 and 1171 of the Code.116 Fraud or dolo under the Civil Code, as
distinguished from fraud or dolo under the Revised Penal Code, may,
therefore, be classified as either fraud in the perfection of a contract
(Art. 1338) or fraud in the performance of an obligation (Art. 1170).
The first is the fraud which is employed by a party to the contract in
securing the consent of the other party, while the second is the fraud
which is employed by the obligor in the performance of a pre-existing
obligation. Fraud or dolo which is present or employed at the time
of the birth or perfection of a contract, on the other hand, may be
subdivided into dolo causante and dolo incidente. Dolo causante or
causal fraud refers to those deceptions or misrepresentations of a
serious character employed by one party and without which the
other party would not have entered into the contract. This is the
fraud which is defined in Art. 1338. Dolo incidente or incidental

112
Coso vs. Fernandez Deza, 42 Phil. 595.
113
Art. 1337, Civil Code.
114
Art. 1269, Spanish Civil Code.
115
Art. 1338, Civil Code.
116
See distinctions under Art. 1171, Civil Code.

444
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1338
Consent

fraud refers to those deceptions or mispresentations which are not

serious in character and without which the other party would still
have entered into the contract. This is the fraud referred to in Art.
1344. The two may be distinguished from each other as follows:
(1) The first refers to a fraud which is serious in character,
while the second is not serious.
(2) The first is the cause which induces the party upon whom
it is employed in entering into the contract, while the second is not
the cause.
(3) The effect of the first is to render the contract voidable,
while the effect of the second is to render the party who employed it
liable for damages.117
Idem; Requisites. — It is evident from the provisions of Arts.
1338 to 1344 of the Code that in order that the consent of a party
to a contract is vitiated by fraud, it is essential that the following
requisites must concur:
(1) Fraud or insidious words or machinations must have been
employed by one of the contracting parties;
(2) The fraud or insidious words or machinations must have
been serious;
(3) The fraud or insidious words or machinations must have
induced the other party to enter into the contract; and
(4) The fraud should not have been employed by both of the
contracting parties or by third persons.
Idem; id. — Nature of fraud. — According to Manresa, the
essence of this class of fraud lies in the deception or misrepresenta-
tion employed by one of the contracting parties to secure the con-
sent of the other. This is indicated by the phrase “insidious words or
machinations’’ used in Art. 1338 which is broad enough to compre-
hend any kind of deception, such as false promises, fictitious names,
fictitious qualifications, or fictitious authority — in short, all the
thousand and one forms of deception which may delude a contract-

117
8 Manresa, 5th Ed., Bk. 2, pp. 240-241; Hill vs. Veloso, 31 Phil. 160; Wood-
house vs. Halili, 49 Off. Gaz. 3374.

445
Art. 1338 CONTRACTS

ing party to give his consent, without necessarily constituting estafa

or some other offense under our penal laws.118
Before a contract can be invalidated because of fraud, it
is, however, essential that there must be proof of concrete facts
constituting the fraud or insidious words or machinations employed
by one of the contracting parties by virtue of which the other
party was induced to enter into the contract, which, without them,
he would not have agreed to.119 Furthermore, it is also essential
that such insidious words or machinations must be prior to or
contemporaneous with the birth or perfection of the contract.120

Eguaras vs. Great Eastern Life Assurance Co.

33 Phil. 263

This is an action for the collection of the value of an

insurance policy. The records show that Dominador Albay filed
an application for an insurance on his life with the defendant
company; that since Albay was in poor health, the person who
presented himself for medical examination to the company
physician was not the applicant, but Castor Garcia, who posed
as Dominador Albay; that as a result of the favorable report of
the physician, the defendant company executed the contract
of insurance; that a short time thereafter the insured died. In
this action the company contends that the contract should be
annulled on the ground of fraud.
Held: “The fraud which gave rise to the mistaken consent
given by the defendant company to the application for insurance
made by Albay and to the execution of the contract through
deceit, is plain and unquestionable. The fraud consisted in the
substitution at the examination of Castor Garcia in place of the
insured Dominador Albay, and as the deceit practiced in the
said contract is of a serious nature, the same is also ipso facto
void and ineffective (voidable), in accordance with the provision
of Article 1270 (now Art. 1344) of the Civil Code.’’121

118
8 Manresa, 5th Ed., Bk. 2, p. 423; Eguaras vs. Great Eastern Life Ass. Co., 33
Phil. 263.
119
Ramos vs. Valencia, 47 Off. Gaz. 1978.
120
Eguaras vs. Great Eastern Life Ass. Co., 33 Phil. 263.
121
To the same effect: Musngi vs. West Coast Ins. Co., 61 Phil. 864.

446
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1339-1340
Consent

Art. 1339. Failure to disclose facts, when there is a duty

to reveal them, as when the parties are bound by confidential
relations, constitutes fraud.122

Effect of Failure To Disclose Facts. — Failure to disclose

facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.123 Thus, where the
defendant, who is the manager of a certain corporation as well as
the owner of about 3/4 of the shares of capital stock thereof, bought
through an agent 800 shares of capital stock from the plaintiff,
without disclosing the fact that he had just negotiated the sale of
valuable properties to the government thus enhancing the value
of the capital stocks of the company, such nondisclosure is clearly
fraudulent; therefore, the sale can be annulled.124 However, the
innocent nondisclosure of a fact, when there is no duty to reveal
it, does not constitute fraud; consequently, such nondisclosure does
not affect the formation of the contract or operate to discharge the
parties from their agreement.125

Art. 1340. The usual exaggerations in trade, when the

other party had an opportunity to know the facts, are not in
themselves fraudulent.126
Effect of Exaggerations in Trade. — The usual exaggera-
tions in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent.127 Thus, according to the
Supreme Court:

“When the purchaser proceeds to make investigations

by himself, and the vendor does nothing to prevent such
investigations from being as complete as the former might wish,
the purchaser cannot later allege that the vendor made false
representations to him.
“One who contracts for the purchase of real estate in
reliance on the representations and statements of the vendor

122
New provision.
123
Art. 1339, Civil Code.
124
Strong vs. Gutierrez Repide, 213 U.S. 419; 41 Phil. 947.
125
Tuazon vs. Marquez, 45 Phil. 481. To the same effect: Escudero vs. Flores, 51
Off. Gaz. 3444.
126
New provision.
127
Art. 1340, Civil Code.

447
Arts. 1339-1340 CONTRACTS

as to its character and value, but after he has visited and

examined it for himself, and has had the means and opportunity
of verifying such statements, cannot avoid the contract on the
ground that such statements were false or exaggerated.’’128

Art. 1341. A mere expression of an opinion does not sig-

nify fraud, unless made by an expert and the other party has
relied on the former’s special knowledge.129
Effect of Expression of Opinion. — 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.130 This
principle is illustrated in the following case:

Songco vs. Sellner

37 Phil. 254
The principal defense in this action for specific perfor-
mance relates to the false representation which, it is claimed,
was made by the plaintiff Songco with respect to the quantity
of uncut cane standing in the fields at the time the defendant
Sellner became the purchaser thereof. It is proved that Songco
estimated that the crop would yield 3,000 piculs of sugar. As
the crop turned out, it produced only 2,017 piculs of sugar. The
question now is whether such representation of the plaintiff-
vendor is fraudulent, which, under Art. 1338, would invalidate
the contract. Holding that such representation can only be con-
sidered as a mere expression of an opinion, the Supreme Court
ruled:
“It is of course elementary that a misrepresentation upon
a mere matter of opinion is not an actionable deceit, nor is it a
sufficient ground for avoiding a contract as fraudulent. We are
aware that statements may be found in the books to the effect
that there is a difference between giving an honest opinion and
making a false representation as to what one’s real opinion is.
We do not think, however, that this is a case where any such
distinction should be drawn.

128
Azarraga vs. Gay, 52 Phil. 599. To the same effect: Songco vs. Sellner, 37 Phil.
254; Puato vs. Mendoza, 64 Phil. 457.
129
New provision.
130
Art. 1341, Civil Code.

448
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1342
Consent

“The law allows considerable latitude to seller’s statement,

or dealer’s talk, and experience teaches that it is exceedingly
risky to accept it at its face value. The refusal of the seller to
warrant his estimate should have admonished the purchaser
that such estimate was put forth as a mere opinion; and we will
not now hold the seller to a liability equal to that which would
have been created by a warranty, if one had been given.
“Assertions concerning the property which is the subject of
a contract of sale, or in regard to its qualities and characteristics,
are the usual and ordinary means used by sellers to obtain a
high price and are always understood as affording to buyers no
ground for omitting to make inquiries. A man who relies upon
such an affirmation made by a person whose interest might
so readily prompt him to exaggerate the value of his property
does so at his peril and must take the consequences of his own
imprudence.’’

Art. 1342. Misrepresentation by a third person does not

vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual.131
Effect of Misrepresentation by Third Persons. — Misrep-
resentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is
mutual.132 Even without Art. 1342, this rule would still be applicable
since it is a logical corollary to the principle that in order to vitiate
consent, the fraud must be employed only by one of the contracting
parties. Besides, it would be clearly unjust to visit upon a contract-
ing party the disastrous effects of nullity simply because the other
contracting party has indiscreetly reposed his confidence upon a
third party. The precept, however, would not be applicable if the
third person makes the misrepresentation with the complicity or, at
least, with the knowledge, but without any objection, of the contract-
ing party who is favored. Neither is it applicable if the misrepresen-
tation has created substantial mistake and the same is mutual.133

Problem — C, an old and ignorant woman, was helped by

V in obtaining a loan of P3,000.00 from X Rural Bank secured
by a mortgage on her house and lot. On the day she signed the

131
New provision.
132
Art. 1342, Civil Code.
133
8 Manresa, 5th Ed., Bk. 2, p. 427; Hill vs. Veloso, 31 Phil. 160.

449
Arts. 1343-1344 CONTRACTS

promissory note and the mortgage covering the loan, she also
signed several documents. One of these documents signed by
her was promissory note of V for a loan of P3,000.00 also secured
by a mortgage on her house and lot. Several years later, she
received advice from the sheriff that her property shall be sold
at public auction to satisfy the two obligations. Immediately she
filed suit for annulment of her participation as co-maker in the
obligation contracted by V as well as of the mortgage in relation
to said obligation of V on the ground of fraud and mistake. Upon
filing of the complaint, she deposited P3,383.00 in court as
payment of her personal obligation including interests.
(a) Can be held liable for the obligation of V? Why?
(b) Was there a valid and effective consignation consid-
ering that there was no previous tender of payment made by C
to the Bank? Why?
Answer — (a) C cannot be held liable for the obligation
of V. It is crystal clear that C’s participation in V’s obligation
both as co-maker and as mortgagor is voidable not on the
ground of fraud because the Bank was not a participant in the
fraud committed by V, but on the ground of mistake. There was
substantial mistake on the part of both C and the Bank mutually
committed by them as a consequence of the fraud employed by
V. (See Rural Bank of Caloocan City vs. CA, 104 SCRA 151.)
(b) Despite the fact that there was no previous tender
of payment made directly to the Bank, nevertheless, the
consignation was valid and effective. The deposit was attached
to the record of the case and the Bank had not made any claim
thereto. Therefore, C was right in thinking that it was useless
and futile for her to make a previous offer and tender of payment
directly to the Bank. Under the foregoing circumstances, the
consignation was valid, if not under the strict provisions of the
law, under the more liberal consideration of equity. (Ibid.)

Art. 1343. Misrepresentation made in good faith is not

fraudulent but may constitute error.134
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been
employed by both contracting parties.

134
New provision.

450
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1343-1344
Consent

Incidental fraud only obliges the person employing it to

pay damages.135

Magnitude of Fraud. — The second indispensable requisite

in order that the fraud employed by one of the contracting parties
will vitiate the consent of the other is that it should be serious in
character. This requisite is expressly stated in the first paragraph of
Art. 1344 of the Code.
According to Manresa, the serious character of the fraud refers
not to its influence, but to its importance or magnitude. By virtue
of this requisite, the annulment of a contract cannot, therefore, be
invoked just because of the presence of minor or common acts of
fraud whose veracity could easily have been investigated; neither
can such annulment be invoked because of the presence of ordinary
deviations from the truth, deviations, which are almost inseparable
from ordinary commercial transactions, particularly those taking
place in fairs or markets.136
Relation Between Fraud and Consent. — The third in-
dispensable requisite in order that the fraud employed by one of
the contracting parties will vitiate consent is that it should have in-
duced the other party to enter into the contract. In other words, such
fraud must be the principal or causal inducement or consideration
for the consent of the party who is deceived in the sense that he
would never have given such consent were it not for the fraud. This
is the fraud which Spanish commentators can dolo causante (dolus
causam dans).
If the fraud is merely incidental in the sense that the party
who is deceived would have agreed to the contract even without it,
his consent is not vitiated and, as a consequence, the validity of the
contract is not at all affected. Its only effect is to render the party
who has employed it liable for damages. This is the fraud which
Spanish commentators call dolo incidente (dolus incidens).
The following case will serve to illustrate the effect of dolo
incidente:

135
Art. 1270, Spanish Civil Code.
136
8 Manresa, 5th Ed., Bk. 2, p. 426.

451
Arts. 1343-1344 CONTRACTS

Woodhouse vs. Halili

49 Off. Gaz. 3374

Plaintiff and defendant entered into a contract whereby

it was agreed that they shall organize a partnership for the
bottling and distribution of Mission soft drinks, plaintiff to act
as industrial partner and manager, and defendant as capitalist
partner; that plaintiff was to secure the Mission soft drinks
franchise for and in behalf of the partnership; and that he
was to receive 30% of the net profits of the business. Because
of the alleged failure of defendant to comply with this contract
after the bottling plant was already in operation, plaintiff
brought this action against him praying for the execution of
the agreed contract of partnership, an accounting of the profits
of the business, as well as damages amounting to P200,000.
Defendant, in his answer, alleged that his consent to the
contract was secured through plaintiff’s false representation
that he had the exclusive bottling franchise of the Mission Dry
Corporation in the Philippines and that, although such franchise
was later on obtained from the Mission Dry Corporation, it
was he, the defendant, and not the plaintiff, who obtained it.
He also presented a counterclaim for P200,000 as damages.
Consequently, the principal questions which will have to be
decided in this case are: first, whether or not the plaintiff had
falsely represented that he had the exclusive franchise to bottle
Mission beverages in the Philippines; and second, whether this
false representation, if it existed, annuls the agreement to form
a partnership. Holding that there was breach of contract on the
part of the defendant as well as misrepresentation on the part
of the plaintiff, the Supreme Court, speaking through Justice
Labrador, ruled:
“We now come to the legal aspect of the false representa-
tion. Does it amount to a fraud that would vitiate the contract?
It must be noted that fraud is manifested in illimitable number
of degrees or gradations, from the innocent praises of a sales-
man about the excellence of his wares to those malicious machi-
nations and representations that the law punishes as a crime. In
consequence, Article 1270 (now Art. 1344) of the Civil Code dis-
tinguishes two kinds of (civil) fraud or dolo — the causal fraud
which may be a ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages. This Court has held that in order that fraud
may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente), inducement to the mak-
ing of the contract. The record abounds with circumstances in-

452
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1343-1344
Consent

dicative of the fact that the defendant was led to the belief that
plaintiff had the exclusive franchise, but that the same was to
be secured for or transferred to the partnership. The plaintiff
no longer had the exclusive franchise, or the option thereto, at
the time the contract was perfected. But while he had already
lost his option thereto (when the contract was entered into), the
principal obligation that he assumed or undertook was to secure
said franchise for the partnership, as the bottler and distributor
for the Mission Dry Corporation. We declare, therefore, that if
he was guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led defendant
to enter into the partnership agreement. But, on the other hand,
this supposed ownership of an exclusive franchise was actual-
ly the consideration or price plaintiff gave in exchange for the
share of 30% granted him in the net profits of the partnership
business. Defendant agreed to give plaintiff 30% share in the
net profits because he was transferring his exclusive franchise
to the partnership.
“We conclude from the above that while the representation
that plaintiff had the exclusive franchise did not vitiate
defendant’s consent to the contract, it was used by plaintiff to
get from defendant a share of 30% of the net profits; in other
words, by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent
of the latter to give him (plaintiff) a big slice in the net profits.
This is the dolo incidente defined in Article 1270 (now Art. 1344)
of the Civil Code, because it was used to get the other party’s
consent to a big share in the profits, an incidental matter in the
agreement.
“The last question for us to decide is that of damages, dam-
ages that plaintiff is entitled to receive because of defendant’s
refusal to form the partnership, and damages that defendant is
also entitled to collect because of the falsity of plaintiff’s repre-
sentation. Under Article 1106 (now Art. 2200) of the Civil Code,
the measure of damages is the actual loss suffered and the prof-
its reasonably expected to be received embraced in the terms
daño emergente and lucro cesante. Plaintiff is entitled under the
terms of the agreement to 30% of the net profits of the business.
Against this amount of damages, we must set off the damage
defendant suffered by plaintiff’s misrepresentation that he had
the exclusive franchise, by which misrepresentation he obtained
a very high percentage of share in the profits.’’

453
Arts. 1345-1346 CONTRACTS

Art. 1345. Simulation of a contract may be absolute or

relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal
their true agreement.137
Art. 1346. An absolutely simulated or fictitious contract
is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary
to law, morals, good customs, public order or public policy
binds the parties to their real agreement.138
Simulation of Contracts. — Simulations of contract, which
Castan calls vices of declaration (vicios de la declaración), may be
either absolute or relative. The simulation is absolute when there is
colorable contract but it has no substance as the contracting parties
do not intend to be bound by the contract at all, as when a debtor
simulates the sale of his properties to a friend in order to prevent
their possible attachment by creditors. The basic characteristic
of this type of simulation of contract is the fact that the apparent
contract is not really desired or intended to produce legal effects or
in any way alter the juridical situation of the parties.139 It is relative
when the contracting parties state a false cause in the contract to
conceal their true agreement, as when a person conceals a donation
by simulating a sale of the property to the beneficiary for a fictitious
consideration. The primary consideration in determining the true
nature of a contract is the intention of the parties. such intention
is determined from the express terms of their agreement as well
as from their contemporaneous and subsequent acts (Nena Lazalita
Tating vs. Felicidad Tating Marcella, et al., G.R. No. 155208, March
27,2007).
Idem; Effects. — While the other vices of consent (vicios de la
formacion de la voluntad) render the contract voidable, simulation
of contracts affects the contract in an entirely different manner.
Thus, according to Art. 1346, an absolutely simulated contract
is void, while a relatively simulated contract binds the parties and
the parties may recover from each other what they may have given

137
New provision.
138
Art. 1270, Spanish Civil Code.
139
Rodriguez vs. Rodriguez, 28 SCRA 229; Carrantes vs. Court of Appeals, 76
SCRA 514.

454
 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1345-1346
Consent

under the contract, while a relatively simulated contract is binding

and enforceable between the parties and their successors in interest
to their real agreement, 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 (Gaudencio Valerio et al., vs.
Vicenta Refresca, et al., G.R. No. 163687, March 28,2006). The legal
presumption is in favor of the validity of contracts. The party who
impugns the validity and regularity of a contract has the burden of
proving his allegation.
Contracts of Adhesion — In the case of Development Bank of
the Philippines vs. Perez, G.R. No. 14854, Nov. 11, 2004, the Court
held that:
(a) A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely affixes his
signature signifying his adhesion thereto.
A contract of adhesion is just as binding as ordinary contracts.
It is true that we have, on occasion, struck down such contracts as
void when the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing. Nevertheless, contracts of adhesion are
not invalid per se; they are not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent
In the case of Sps. Francisco and Ruby Reyes vs. BPI Family
Savings Bank, Inc., et al., G. R. Nos. 149840-41, March 31,2006,
where the petitioner spouses undertook to secure the P15M loan of
Transbuilders Resources & Development Corporation to BPI-FSB
“and other credit accomodations of whatever nature obtained by the
Borrower/Mortgagor” under the Real Estate Mortgage they executed
in favor of BPI-FSB, the SC held that while the stipulation proved
to be onerous to the petitioners, neither the law nor the courts will
extricate a party from an unwise or undesirable contract entered
into with all the required formalities and with full awareness of its
consequences. Petitioners voluntarily executed the REM on their
property in favor of BPI-FSB to secure the loan. They cannot now be
allowed to repudiate their obligation to the bank after Transbuilder’s
default . While petitioner’s liability was written in fine print and in
a contract written by BPI-FSB, it has been the consistent holding

455
Arts. 1347-1348 CONTRACTS

of the Court that contracts of adhesion are not invalid per se. On
numerous occasions, the Supreme Court has upheld the binding
effects of such contracts.

Section 2. — Object of Contract

Concept of Object. — Of all the requisites of a contract, the

object is, if not the most fundamental, the most indispensable in
order to have at least the shadow of a contract. Without a cause an
agreement is possible, although inexplicable; without consent it is
possible at least to have the appearance of a contract; but without
an object there is nothing.
Although there are commentators who distinguish between the
juridical relations or obligations created and the prestations which
constitute the objects of these obligations, under the Civil Code,
the objects of contracts and that of obligations are identical. This
fact is recognized by the provisions of Art. 1347 in relation with the
definition of obligations in Art. 1156 of the Code.140 Consequently,
the object of a contract may be defined as the thing, right or service
which is the subject matter of the obligation which is created or
established.141

Art. 1347. All things which are not outside the commerce
of men, including future things, may be the object of a
contract. All rights which are not intransmissible may also
be the object of contracts.
No contract may be entered into upon future inheritance
except 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.142
Art. 1348. Impossible things or services cannot be the
object of contracts.143

140
8 Manresa, 5th Ed., Bk. 2, pp. 430-431.
141
Adopted from the definition given by Castan (Vol. 3, 7th Ed., p. 243).
142
Art. 1271, Spanish Civil Code, in modified form.
143
Art. 1272, Spanish Civil Code.

456
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1349
Object of Contract

Art. 1349. The object of every contract must be determi-

nate as to its kind. The fact that the quantity is not determi-
nate 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.144

What May Be the Object of Contracts. — As a general rule,

all things or services may be the object of contracts. It is, however,
essential that the following requisites must concur:
First: The object should be within the commerce of men; in other
words, it should be susceptible of appropriation and transmissible
from one person to another.
Second: The object should be real or possible; in other words, it
should exist at the moment of the celebration of the contract, or at
least, it can exist subsequently or in the future.
Third: The object should be licit; in other words, it should not
be contrary to law, morals, good customs, public order or public
policy.
Fourth: The object should be determinate, or at least, possible
of determination, as to its kind.145
Consequently, the following cannot be the object of contracts: (1)
Things which are outside the commerce of men;146 (2) intransmissible
rights;147 (3) future inheritance, except in cases expressly authorized
by law;148 (4) services which are contrary to law, morals, good
customs, public order or public policy;149 (5) impossible things or
services;150 and (6) objects which are not possible of determination
as to their kind.151
Idem; Appropriability and transmissibility. — In order
that a thing, right or service may be the object of a contract, it is
essential that it must be within the commerce of men. Consequently,

144
Art. 1273, Spanish Civil Code.
145
3 Castan, 7th Ed., pp. 342-343; 8 Manresa, 5th Ed., Bk. 2, pp. 431-432.
146
Art. 1347, par. 1, Civil Code.
147
Ibid.
148
Ibid.
149
Art. 1348, par. 3, Civil Code.
150
Ibid.
151
Art. 1349, Civil Code.

457
Art. 1349 CONTRACTS

two conditions must concur. In the first place, the thing, right or
service should be susceptible of appropriation; and in the second
place, it should be transmissible from one person to another.152 Those
things, rights or services which do not possess these conditions or
characteristics are outside the commerce of men, and therefore,
cannot be the object of contracts. These include: (1) those things
which are such by their very nature, such as common things like
the air or the sea, sacred things, res nullius, and property belonging
to the public domain; (2) those which are made such by special
prohibitions established by law, such as poisonous substances,
drugs, arms, explosives, and contrabands; and (3) those rights
which are intransmissible because either they are purely personal
in character, such as those arising from the relationship of husband
and wife, like jus consortium, or from the relationship of paternity
and filiation, like patria potestas, or they are honorary or political
in character, such as the right to hold a public office and the right of
suffrage.153
Thus, in this jurisdiction, it has been held that communal
things, such as public plazas, sidewalks, streets, rivers, fountains
and other things for public use cannot be sold or leased because they
are by their very nature outside the commerce of men.154
Idem; Existence of object. — The most evident and
fundamental requisite in order that a thing, right or service may
be the object af a contract is that it should be in existence at the
moment of the celebration of the contract, or at least, it can exist
subsequently or in the future. Hence, according to the first sentence
of Art. 1347, even future things may be the object of contracts.
Idem; id. — Things which have perished. — In principle,
these things cannot be the object of contracts because they are
inexistent. The rule declared in Art. 1493 of the Civil Code to the
effect that “if at the time the contract of sale is perfected, the thing
which is the object of the contract has been entirely lost, the contract
shall be without any effect’’ can, therefore, be generalized.155

152
6 Sanchez Roman 1281.
153
8 Manresa, 5th Ed., Bk. 2, pp. 441-443.
154
Mun. of Cavite vs. Rojas, 30 Phil. 602; Muyot vs. de la Fuente, CA, 48 Off.
Gaz. 4866.
155
8 Manresa, 5th Ed., Bk. 2, p. 432.

458
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1349
Object of Contract

Idem; id. — Future things. — It is clear from Art. 1347 that

a future thing may be the object of a contract.156 Such contract, ac-
cording to Manresa, maybe interpreted in two possible ways. It may
be interpreted as a conditional contract if its efficacy should depend
upon the future existence of the thing, or as an aleatory contract if
one of the contracting parties should bear the risk that the thing will
never come into existence. In case of doubt about the nature of the
contract, it must be deemed to be conditional because of the prin-
ciple stated in Art. 1378 of the Code that the doubt shall be resolved
in favor of the greatest reciprocity of interests.157
Idem; id. — Rule with respect to future inheritance. —
There is, however, one very important exception to the rule that a
future thing may be the object of a contract. This exception is found
in the second paragraph of Art. 1347 which states that no contract
may be entered into with respect to future inheritance.158 There are
several reasons for this exception. If the rule were otherwise, there
would always be the possibility that one of the contracting parties
may be tempted to instigate the death of the other in order that the
inheritance will become his. There would also be the possibility, and
this is more probable, that fraud and prejudice may be committed or
occasioned thereby. Besides, the right to make a will would then be
subordinated to the right to enter into a contract.159
By reason of the rule that no contract may be entered into with
respect to future inheritance, it has been held that an agreement for
the partition of the estate of a living person, made between those
who, in case of death, would inherit the estate is null and void.160 It
has also been held that where the vendor undertook to convey to the
vendee his participation in the property left by his deceased father,
the part of the property belonging to his mother, who is still living,
cannot at all be affected by the conveyance, since his interest in the
property of his mother at the time of the execution of the deed of sale
was a future inheritance and could not be the subject matter of a
valid contract, pursuant to the second paragraph of Art. 1347.161 But

156
See also Arts. 1461 and 1462, Civil Code.
157
8 Manresa, 5th Ed., Bk. 2, p. 433. See Art. 1461, Civil Code.
158
This rule is complemented by Arts. 905 and 2035, No. 6, Civil Code.
159
8 Manresa, 5th Ed., Bk. 2, p. 437.
160
Arroyo vs. Gerona, 58 Phil. 226. To the same effect: Tinsay vs. Yusay, 47 Phil.
639; Tordilla vs. Tordilla, 60 Phil. 162; Reyes vs. Reyes, CA, 45 Off. Gaz. 1836.
161
Rivero vs. Serrano, 48 Off. Gaz. 642.

459
Art. 1349 CONTRACTS

after the death of the decedent, anyone of the co-heirs may enter into
a contract with respect to the inheritance even before partition has
been effected. This is so because of the principle announced in Art.
777 of the Code that the rights to the succession are transmitted at
the moment of the death of the decedent.162
The following case, however, provides an interesting study
of the applicability or inapplicability of the rule enunciated in the
second paragraph of Art. 1347:

Blas vs. Santos

1 SCRA 899

Simeon Blas married Marta Cruz in 1898. Out of this

marriage there were three children. The following year after
Marta’s death, Simeon contracted a second marriage with
Maxima Santos. There were no children out of this marriage. At
the time of the second marriage, no liquidation of the properties
of the first marriage was made. On Dec. 26, 1936, only over a
week before his death on Jan. 9, 1937, Simeon executed a will
declaring all of his properties as conjugal and giving one-half
thereof to Maxima as her share. On the same date, Maxima
signed a notarized document, stating that she had read the will
of her husband and that she promises to convey by will one-
half of the share given to her to the children of her husband
by his previous marriage. As a result, the children of Simeon
by his first marriage brought this action against the estate of
Maxima asking for the enforcement of the promise contained
in the document. It is now contended that the promise is not
enforceable because it lacks a sufficient cause or consideration
and that, being a contract with respect to future inheritance, it
falls within the purview of the prohibition enunciated in Art.
1271 (now Art. 1347) of the Civil Code.
Held: Considering that the properties of the first marriage
had not been liquidated, and the further fact that such properties
were actually included as conjugal properties of the second
marriage, it is clear that the document signed by Maxima is the
compromise defined in Art. 1809 ( now Art. 2128) of the Civil
Code. Its execution was ordered by the testator evidently to
prevent his heirs by his first marriage from contesting his will
and demanding liquidation of the conjugal properties acquired

162
Osorio vs. Osorio, 41 Phil. 53; Ibarle vs. Po, 49 Off. Gaz. 1836.

460
 ESSENTIAL REQUISITES OF CONTRACTS Art. 1349
Object of Contract

during his first marriage. It is, therefore, a contract with a

sufficient cause or consideration. Neither does the prohibition
enunciated in Art. 1271 (now Art. 1347) of the Civil Code
apply. What is prohibited under this article is a contract which
deals with any property or right not in existence or capable of
determination at the time of the contract, that a person may
in the future acquire by succession. Here, the subject matters
of the contract signed by Maxima are well-defined properties,
existing at the time of the agreement.

Idem; id. — Exceptions. — The prohibition enunciated in the

second paragraph of Art. 1347, however, is not absolute in character.
There are two exceptions. They are:
(1) Under Art. 130 of the Code, which allows the future
spouses to give or donate to each other in their marriage settlement
their future property to take effect upon the death of the donor and
to the extent laid down by the provisions of the Civil Code relating
to testamentary succession; and
(2) Under Art. 1080 of the Code, which allows a person to
make a partition of his estate by an act inter vivos, provided that the
legitime of compulsory heirs is not prejudiced.
Idem; id. — Impossible things or services. — According
to Art. 1348, impossible things or services cannot be the object of
contracts. Thus, if the parties enter into a contract with respect to
an impossible thing like a mythical bird or animal or with respect
to an impossible service like a trip to some distant planet or galaxy,
the contract is void or inexistent.163 It must be observed, however,
that as far as impossible services are concerned, a distinction should
be made between absolute and relative impossibility. Absolute
impossibility, which arises from the very nature or essence of the
act or service itself, renders the contract void; relative impossibility,
which arises from the circumstances or qualifications of the obligor
rendering him incapable of executing the act or service, allows the
perfection of the contract, although the fulfillment thereof is hardly
probable. Thus, as a consequence, in a contract of partnership where
one of the partners obligates himself to contribute to the common
fund an amount which is beyond his means, the contract is not void
because the impossibility may disappear. When the impossibility

163
Art. 1409, Nos. 3 and 5, Civil Code.

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is permanent, however, as in the case of a person who is unable

to perform the service which he has contracted because of total
blindness, the contract is void.164
Idem; Licitness of object. — It is also an indispensable
requisite that the object must be licit. Hence, the third paragraph of
Art. 1347 provides that all services which are not contrary to law,
morals, good customs, public order and public policy may be the
object of a contract. This provision complements the provision of Art.
1306 of the Code. Consequently, the same principles which we have
taken up under that article may also be applied here.
Idem; Determinability of object. — It is also an indispen-
sable requisite that the object is determinable, or at least, determin-
able, as to its kinds.
When Art. 1349 says that the object must be determinate as
to its kind, it simply means that the genus of the object should
be expressed although there might be no determination of the
individual specie. Consequently, there need not be any specification
of the qualities and circumstances of the thing which constitutes
the object of the contract, since anyway according to Art. 1246
of the Code: “When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances
have not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality.
The purpose of the obligation and other circumstances shall be taken
into consideration.”165 Hence, if A and B enter into an agreement by
virtue of which the former binds himself to deliver “ten horses” to the
latter, the contract is perfectly valid since the law merely requires
that the object must be determinate, or at least, determinable, as to
its kind.
Let us, however, assume that there is no specification of the
quantity, although there is a specification of the class or genus
to which the object belongs, is the contract valid? According to
the second sentence of Art. 1349, 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

164
8 Manresa, 5th Ed., Bk. 2, pp. 433-434.
165
For a detailed discussion of Art. 1349, see Manresa, Vol. 8, Bk. 2, 5th Ed.,
pp. 444-448.

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Cause of Contracts

a new contract between the parties. Consequently, so long as it is

possible to determine the quantity of the object without the necessity
of any new contract, there can be no question about the validity of
a contract in which there is no specification of the quantity. This
would occur in those cases where the contract itself has established
the basis upon which such quantity can be determined, such as the
needs of a family, the provisions needed for a factory, the materials
for a particular work, and others of a similar nature.166 This can
be determined from the purpose or motive of the contract itself. In
case of failure of any of these means, the contract is without force
whatsoever.167
In the case of Aurora Fe B. Camacho vs. CA et al., G.R.
No.127520, Feb. 9, 2007, the SC held that Arts. 1349 and 1460 of
the New Civil Code provide the guidelines in determining whether
or not the object of the contract is certain. In this case, the object of
the contract is a 5,000 [Link] of Lot 261, Balanga Cadastre.
The failure of the parties to state the exact location in the contract is
of no moment. This is a mere error occasioned by the parties’ fsilure
to describe with particularity the subject property, which does not
indicate the absence of the principal object as to render the contract
void. Since in this case, Camacho bound herself to deliver a potion
of Lot 261 to Atty. Banzon, the description of the property subject of
the contract is sufficient to validate the same.

Section 3. — Cause of Contracts

Art. 1350. In onerous contracts the cause is understood

to be, for each contracting party, the prestation or promise
of a thing or service by the other; in remuneratory ones, the
service or benefit which is remunerated; and in contracts of
pure beneficence, the mere liberality of the benefactor.168
Art. 1351. The particular motives of the parties in
entering into a contract are different from the cause thereof.169
Concept of Cause. — In general, cause is the why of the
contract or the essential reason which moves the contracting parties

166
Liebenow vs. Phil. Vegetable Co., 39 Phil. 63.
167
8 Manresa, 5th Ed., Bk. 2, pp. 445-446.
168
Art. 1274, Spanish Civil Code.
169
New provision.

463
Arts. 1350-1351 CONTRACTS

to enter into the contract.170 In other words, it is the immediate,

direct or most proximate reason which explains and justifies the
creation of an obligation through the will of the contracting parties.171
In particular, 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 contracts, it is the service or
benefit which is remunerated; and in contracts of pure beneficence,
it is the liberality of the benefactor.172
Idem; Distinguished from consideration. — Actually, in
this jurisdiction, cause and consideration are used interchangeably.
After all, causa is merely the civil law term, while consideration is
the common law term. It is, however, undisputed that the causa
in civil law jurisdictions is broader in scope than consideration in
Anglo-American jurisdictions. Many agreements which cannot be
supported in Anglo-American law for want of consideration can be
enforced under the broader doctrine of causa.173
Idem; Distinguished from object. — The cause must not
be confused with the object of the contract. Of course, there can
be no question about the difference between the two in cases of
remuneratory and gratuitous contracts, it is evident that, in the
first, the cause is the service or benefit which is remunerated,
while the object is the thing which is given in remuneration, and
in the second, the cause is the liberality of the donor or benefactor,
while the object is the thing which is given or donated. In onerous
contracts, however, there is a tendency to confuse one with the other.
Nevertheless, it is clear that the cause, for each contracting party,
is the prestation or promise of a thing or service by the other, while
the object of the contract, on the other hand, is the thing or service
itself. Thus, in a contract of sale, the cause, as far as the vendor is
concerned, is the acquisition of the purchase price, while the cause,
as far as the vendee is concerned, is the acquisition of the thing,174
stated in another way, the cause of the obligation of the vendor is

170
8 Manresa, 5th Ed., Bk. 2, pp. 445-446.
171
3 Castan, 7th Ed., p. 347, citing 2 Planiol, 1949 Ed., Sec. 279. These definitions
have been cited with approval in General Enterprises, Inc. vs. Lianga Bay Logging
Co., 11 SCRA 733.
172
Art. 1350, Civil Code.
173
5 Tolentino, Civil Code, 1956 Ed., p. 486.
174
3 Castan, 7th Ed., p. 346.

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Cause of Contracts

the obligation of the vendee, while the cause of the obligation of the
vendee is the obligation of the vendor.175 The objects of the contract,
on the other hand, are the thing which is sold and the price which
is paid.176 This view, which is upheld by Manresa and Castan, may
be illustrated by an example. If A sells, an automobile to B for
P20,000, delivery and payment to be made at some specified date,
the cause of the contract, as far as A is concerned, is the promise of
B to pay him P20,000, while the cause, as far as B is concerned, is
the promise of A to deliver the automobile to him. The objects of the
contract, on the other hand, are the automobile and the purchase
price of P20,000. Dr. Tolentino, however, while concurring with the
opinion of Manresa and Castan that as to the vendor the cause is the
obligation of the vendee to pay the price, and as to the vendee it is the
obligation of the vendor to deliver the automobile, maintains that in
the example given, the object is the automobile itself because it is the
starting point of agreement, without which the negotiations would
never have begun. Consequently, the object of an onerous contract
is the same as to both parties, although the cause is different.177 Dr.
Padilla, on the other hand, contends that in bilateral contracts like
sale, the thing sold is the object, while the price paid is the cause.178
We believe that the view of Dr. Tolentino is the most logical.
Idem; Distinguished from motives. — Neither must the
cause be confused with the motives of the parties in entering into a
contract.179
The motives which impel one to a sale or purchase are not
always the consideration of the contract as the term is understood
in law. One may purchase an article not because it is cheap, for in
fact it may be dear, but because he may have some particular use
to which it may be put, because of a particular quality which the
article has, or the relation which it will bear, to other articles with
which it will be associated. These circumstances may constitute the
motive which induces the purchase, but the real consideration of
the purchase (as far as the vendor is concerned) is the money which

175
Dualde, “Concepto de la causa de los contratos,’’ cited by Castan, Vol. 3, 7th
Ed., p. 450.
176
8 Manresa, 5th Ed., Bk. 2, p. 450.
177
4 Tolentino, Civil Code, 1956 Ed., p. 485.
178
Padilla, Civil Code, 1956 Ed., p. 553.
179
Art. 1351, Civil Code.

465
Arts. 1350-1351 CONTRACTS

passed.180 As Castan says: “In the case of a contract of sale, the cause
as far as the vendor is concerned, is always the acquisition of the
purchase price, and as far as the vendee is concerned, it is always
the acquisition of the thing; the motives of the contracting parties,
on the other hand, are as different or complex and as capable of
infinite variety as the individual circumstances which may move
men to acquire things or to make money.’’181
Consequently, the cause of the contract and the motives of the
contracting parties may be distinguished from each other in the
following ways:
(1) While the cause is the direct or most proximate reason of
a contract, the motives are the indirect or remote reasons;
(2) While the cause is the objective or juridical reason of
a contract, the motives are the psychological or purely personal
reasons;
(3) While the cause is always the same, the motives differ for
each contracting party;182 and
(4) While the legality or illegality of the cause will affect the
existence or validity of the contract, the legality or illegality of the
motives will not affect the existence of the contract.
There are times, however, when the boundary line between
motive and cause disappears altogether. The motive may be regarded
as causa when the contract is conditioned upon the attainment of the
motive of either contracting party. In other words, motive becomes
causa when it predetermines the purpose of the contract.
The best examples are the decided cases. Thus —
(1) Where a married man of mature years donated a parcel
of land to a girl of sixteen subject to the condition that the latter
shall cohabit with him, and such condition is accepted, it is clear
that the donation is conditioned upon the attainment of the motive
of the donor; in other words, it predetermines the purpose of the
contract. Thus considered, the conveyance is clearly predicated upon
an illegal causa. Consequently, it is void. Therefore, under what is

180
De Jesus vs. Urrutia & Co., 33 Phil. 171.
181
3 Castan, 7th Ed., pp. 346-347.
182
Ibid.

466
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Cause of Contracts

now Art. 1412 of the New Civil Code, there can be no recovery of
what has already been delivered. (Liguez vs. CA, 102 Phil. 577.)
(2) Where a mother sold two fishponds to a daughter
and the latter, in turn, resold the same fishponds to her and her
stepfather, as a consequence of which said fishponds were converted
into conjugal properties, it is clear that the motive or purpose is
to circumvent the law against donations between spouses (Art.
133, CC). This motive or purpose is the illegal causa rendering
the contract void. Consequently, the rule of in pari delicto non
oritur actio, now enunciated in Art. 1412 of the New Civil Code, is
applicable. (Rodriguez vs. Rodriguez, 20 SCRA 908.)
(3) Where a Filipino leased a parcel of land to an alien for 99
years with an option to buy the property within 50 years, provided
that the latter shall become a Filipino citizen, it is clear that the
motive or purpose of the arrangement, which has resulted in the
virtual transfer of ownership to the lessee, is to circumvent the
Constitutional prohibition of transfer of lands to aliens. This motive
or purpose is the illegal causa rendering the contract void. However,
it will be the provision of Art. 1416 and not of Art. 1412, of the New
Civil Code that will apply. Because of public policy, the lessor will be
allowed to recover the property. (Phil. Banking Corp. vs. Lui She, 21
SCRA 52.)

Liguez vs. Court of Appeals

102 Phil. 577
This is an action commenced by Conchita Liguez against
the widow and heirs of Salvador Lopez to recover a parcel of
land in their possession. The records show that Salvador Lopez,
a married man of mature years, donated the land to Conchita,
who was then a minor of 16, subject to the condition that she will
cohabit with him as his mistress. The donation was accepted
and Conchita became the donor’s mistress until his death.
Because defendants have advanced the defense of the nullity
of the contract by virtue of the illegality of the cause is of pure
beneficence, the cause is actually the liberality of the donor;
hence, what is illicit or illegal is the motive of such donor and
not the cause of the contract, since liberality per se can never be
illegal. The Supreme Court, however, speaking through Justice
J.B.L. Reyes, held:
“The flaw in this argument lies in ignoring the fact that
the liberality of the donor is deemed causa only in contracts of

467
Arts. 1350-1351 CONTRACTS

pure beneficence; that is to say, contracts in which the idea of

self-interest is totally absent on the part of the transferor. Here
the facts demonstrate that in making the donation, the donor
was not moved exclusively by the desire to benefit Conchita
Liguez, but also gratify his sexual impulse. Actually, therefore,
the donation was but one part of an onerous transaction that
must be viewed in its totality. Thus considered, the conveyance
was clearly predicated upon an illicit causa.
“With respect to appellant’s contention regarding the
distinction between causa and motive, it is well to note that
Manresa himself (Vol. 8, pp. 641-642), while maintaining the
distinction, expressly excepts from the rule those contracts that
are conditioned upon the attainment of the motives of either
party. The same view is held by the Supreme Court of Spain in
its decisions of February 4, 1941, and December 4, 1946, holding
that the motive may be regarded as causa when it predetermines
the purpose of the contract. In the present case, it is scarcely
disputable that Lopez would not have conveyed the property in
question had he known that appellant would refuse to cohabit
with him; so that the cohabitation was an implied condition
to the donation and being unlawful, necessarily tainted the
donation itself.
“However, since the rule that parties to an illegal contract,
if equally guilty, will not be aided by the law but will both be left
where it finds them, has been interpreted as barring the party
from pleading the illegality of the bargain as a cause of action or
as a defense, appellant is, therefore, entitled to so much of the
donated property as may be found upon proper liquidation not
to prejudice the share of the widow or the legitimes of the forced
heirs.’’

Cause in Onerous Contracts. — 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. From this it necessarily
follows that a promise made by one party may be a sufficient cause for
a promise made by another party. It is not, therefore, necessary that
the cause or consideration should pass from one party to the other
at the time of the execution of the contract.183 Thus, where a logging
company by contract designated a certain agency as its distributor to

183
Enriguez de Cavada vs. Diaz, 37 Phil. 982; Phil. Banking Corp. vs. Lui She,
102 Phil. 577.

468
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Cause of Contracts

export logs to Korea and Europe at the best market price obtainable
on condition that it would pay the latter a commission of 13% of the
gross value of the logs, it was held that for the former the cause of
the agreement is the distribution of its logs in the areas agreed upon
which the latter undertook to accomplish, whereas for the latter
the cause is its commitment to sell or export the logs for onerous
consideration.184

Idem; Accessory contracts. — In accessory contracts the

rule is that the cause of the accessory contract is identical with that
of the principal contract. Thus, it has been held that as a mortgage
is an accessory contract, its cause is the very cause of the principal
contract from which it receives its life, and without which it cannot
exist as an independent contract, although it may secure an obligation
incurred by another.185 The same principle is applicable to the case
of an accommodation party who binds himself jointly and severally
with the principal debtor for the payment of a debt by affixing his
signature to a promissory note for the accommodation of the latter.
This is so in spite of the fact that he might not have received even
a single centavo of the money given to the accommodated party.
In the words of the Supreme Court, “the consideration which sup-
ports the promise of the accommodation maker is that parted
with by the person taking the note and received by the person
accommodated.’’186

Idem; Moral obligations. — May a moral or natural obligation

constitute a sufficient cause or consideration to support an onerous
contract? The jurisprudence with respect to this question in this
jurisdiction is meager. It is, however, clear that where the moral
obligation arises wholly from ethical considerations, unconnected
with any civil obligation and, as such, is not demandable in law
but only in conscience, it can not constitute a sufficient cause or
consideration to support an onerous contract,187 but where such
moral obligation is based upon a previous civil obligation which
has already been barred by the statute of limitations at the time

184
General Enterprises, Inc. vs. Lianga Bay Co., 11 SCRA 733.
185
China Banking Corp. vs. Lichauco, 46 Phil. 460.
186
National Bank vs. Maza, 48 Phil. 207; Acuna vs. Veloso, 50 Phil. 241. But see
Standard Oil Co. vs. Arenas, 19 Phil. 363.
187
Fisher vs. Robb, 69 Phil. 101.

469
Arts. 1350-1351 CONTRACTS

when the contract is entered into, it constitutes a sufficient cause or

consideration to support the said contract.188

Fisher vs. Robb

69 Phil. 101

The defendant was one of the organizers of a certain en-

terprise known as the Philippine Greyhound Club, Inc. which
was formed for the purpose of introducing dog racing in the
Philippines, while the plaintiff was one of those who had in-
vested a certain sum of money in the venture. It appears that
this venture did not succeed, and, as a result, the defendant
wrote a letter to the plaintiff explaining the critical condition of
the company, and, at the same time, stating that he felt “a moral
responsibility for those who had sent in the second payment of
their subscription” and that he will see to it that “stockholders
who had made such payment shall be reimbursed such amount
as soon as possible out of his own personal funds.” This action
now is brought to enforce the “obligation.” The principal ques-
tion to be decided, among others, is whether there is a sufficient
cause or consideration to justify the promise made by the defen-
dant in his letter. Answering this question in the negative, the
Supreme Court, speaking through Justice Villareal, held:
“The contract sought to be judicially enforced by the
plaintiff appellee against the defendant is onerous in character,
because it supposes the deprivation of the latter of an amount
of money which impairs his property, which is a burden, and
for it to be legally valid it is necessary that it should have a
consideration consisting in the lending or promise of a thing or
service by such party. The defendant-appellant is required to
give a thing, namely the payment of the sum of P2,000, but the
plaintiff-appellee has not given or promised anything or service
to the former which may compel him to make such payment.
The promise which said defendant-appellant has made to the
plaintiff-appellee to return to him P2,000 which he had paid to
the Philippine Greyhound Club, Inc. as a second installment
of the amount of the shares for which he had subscribed, was
prompted by a feeling of pity which said defendant-appellant
had for the plaintiff-appellee as a result of the loss which the
latter had suffered because of the failure of the enterprise. The

188
Villaroel vs. Estrada, 71 Phil. 14. Strictly speaking, the moral obligation in
this case is a natural obligation (Arts. 1423, et seq., Civil Code), as distinguished from
a purely moral obligation, such as that referred to in the case of Fisher vs. Robb.

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 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1350-1351
Cause of Contracts

obligation which the said defendant-appellant had contracted

with the plaintiff-appellee is, therefore, purely moral, and, as
such, is not demandable in law, but only in conscience, over
which human judges have no jurisdiction.”

Villaroel vs. Estrada

71 Phil. 140
This was originally an action commenced by the plaintiff
(respondent) against the defendant (petitioner) for the purpose
of enforcing a contract entered into on August 9, 1930, by virtue
of which the defendant undertook to pay to the plaintiff a certain
debt which his deceased mother had incurred from the deceased
parents of the said plaintiff more than eighteen years ago. It is
submitted that this debt had already prescribed. The question
now is whether this action will prosper, considering that the
debt incurred by the defendant’s mother had already prescribed.
The Supreme Court, speaking through Justice Avanceña, ruled:
“The present action is not founded on the original obligation
contracted by the mother of the defendant, which had already
prescribed, but on that contracted by the defendant on August 9,
1930, in assuming the obligation which had already prescribed.
The defendant being the only heir of the original debtor with the
right to succeed in her inheritance, that debt lawfully contracted
by his mother, although it lost its efficacy by prescription, is
nevertheless now a moral obligation as far as he is concerned,
a moral obligation which is a sufficient consideration to create
and make effective and demandable the obligation which he had
voluntarily contracted on August 9, 1930.’’

Cause in Remuneratory Contracts. — According to Art.

1350, the cause in remuneratory contracts is the service or benefit
which is remunerated. From this we can say that a remuneratory
contract is one in which one of the contracting parties remunerates
or compensates the service or benefit rendered or given by the
other party, although such service or benefit does not constitute a
demandable debt.189 This may be clarified by means of an example.
If A gives a certain property in accordance with the formalities
prescribed by law to his lawyer friend, B, in remuneration for legal
services which the latter had rendered to him freely in the past and
such gift is duly accepted, the cause as far as A is concerned would

189
See Art. 726, Civil Code.

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Arts. 1352-1355 CONTRACTS

be the legal services rendered by B, although such services do not

constitute demandable debts.
Cause in Contracts of Pure Beneficence. — The cause
in contracts of pure beneficence, on the other hand, is the mere
liberality of the benefactor. Thus, if A makes a pure donation of a
certain property to B in accordance with the formalities prescribed
by law, its cause is the mere liberality (causa liberalitatis) of the
donor or benefactor. The liberality would be the equivalent of what
Manresa calls “el cariño, el desprendimiento, la admiracion, la
generosidad, el agradecimiento, la compasion.”

Art. 1352. Contracts without cause, or with unlawful

cause, produce no effect whatever. The cause is unlawful if
it is contrary to law, morals, good customs, public order or
public policy.190
Art. 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that they
were founded upon another cause which is true and lawful.191
Art. 1354. Although the cause is not stated in the con-
tract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary.192
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence.193

Essential Requisites of Cause. — In order that there will

be a sufficient cause upon which a contract may be founded, it is
essential that the following requisites must concur:
First: The cause should be in existence at the time of the
celebration of the contract;
Second: The cause should be licit or lawful; and
Third: The cause should be true.194

190
Art. 1275, Spanish Civil Code, in modified form.
191
Art. 1276, Spanish Civil Code.
192
Art. 1277, Spanish Civil Code.
193
New provision.
194
3 Castan, 7th Ed., pp. 348-351.

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Cause of Contracts

If the contract has no cause, or even if it has, if the cause should

be illicit or unlawful, the rule is that it shall not produce any effect
whatsoever, or what amounts to the same thing, it is inexistent or
void from the beginning.195 The same is true if the cause stated in
the contract is false, unless it can be proved that the contract is, in
reality, founded upon another cause which is true and lawful.196
Idem; Effect of lack of cause. — By express provision of
Art. 1352, if the contract is not founded upon any cause, then it
shall not produce any effect whatsoever. This precept is confirmed
by Art. 1409 of the Code which declares as inexistent those contracts
which are absolutely simulated or fictitious as well as those whose
cause did not exist at the time of the transaction. Hence, it has been
held that if the purchase price in a contract of sale was never in
fact paid by the purchaser or vendee to the vendor, the contract is
inexistent for all purposes for lack of a cause or consideration.197
The same rule is applicable in cases of conveyances of property
where the conveyance or transfer is simulated without any cause
or consideration whatsoever whether the purpose of the grantor is
to defraud his creditors or to avert the possible attachment of the
property.198 However, the rule is not applicable where the purchaser
or vendee failed to fully pay for the property, even if there is a
stipulation in the contract of sale that full payment shall be made
at the time of the celebration thereof.199 As a matter of fact, even
where the contract itself expressly states that the consideration for
the sale of a piece of land is only one peso (P1.00), it does not follow
that the contract or sale is void or inexistent for lack of a cause or
consideration. The reason is obvious. There is a consideration. The
contract may be voidable because of the inadequacy of the cause
or consideration, but certainly, it is not void or inexistent. Thus,
in Carantes vs. Court of Appeals,200 speaking through Chief Justice
Fred Ruiz Castro, the Supreme Court declared:

195
Arts. 1352, 1409, Nos. 1, 2, 3, Civil Code.
196
Art. 1353, Civil Code.
197
Ocejo, Perez & Co. vs. Flores, 40 Phil. 921; Onejera vs. Iga Sy, 76 Phil. 580.
198
De Belen vs. Coll. of Customs, 46 Phil. 241; Gallon vs. Gayares, 53 Phil. 43;
Escutin vs. Escutin, 60 Phil. 922; Gonzales vs. Trinidad, 67 Phil. 682; Navarro vs.
Diego, CA, 40 Off. Gaz. 2106.
199
Puato vs. Mendoza, 64 Phil. 457.
200
76 SCRA 514.

473
Arts. 1352-1355 CONTRACTS

“We do not agree with the respondent court’s legal conclu-

sion that the deed of “Assignment of Right to Inheritance’’ is
void ab initio and inexistent on the grounds that real consent
was wanting and the consideration of P1.00 is so shocking to the
conscience that there was in fact no consideration, hence, the
action for the declaration of the contract’s inexistence does not
prescribe pursuant to Article 1410 of the new Civil Code.
“Article 1409(2) of the new Civil Code relied upon by the
respondent court provides that contracts “which are absolutely
simulated or fictitious’’ are inexistent and void from the
beginning. The basic characteristic of simulation is the fact
that the apparent contract is not really desired or intended to
produce legal effects or in any way alter the juridical situation
of the parties.
“The respondents’ action may not be considered as one to
declare the inexistence of a contract for lack of consideration. It
is total absence of cause or consideration that renders a contract
absolutely void and inexistent. In the case at bar consideration
was not absent. The sum of P1.00 appears in the document as
one of the considerations for the assignment of inheritance. In
addition — and this of great legal import — the document recites
that the decedent Mateo Carantes had, during his lifetime,
expressed to the signatories to the contract that the property
subject-matter thereof rightly and exclusively belonged to the
petitioner Maximino Carantes. This acknowledgment by the
signatories definitely constitutes valuable consideration for the
contract.”

In order that the cause shall be considered as existing, is it

necessary that it should be stated in the contract? This question
must be resolved in the negative. According to Art. 1354, even if
the cause is not stated in the contract, it is presumed that it exists
and is lawful, unless the debtor proves the contrary.201 This is true
even where the contract falls within the purview of the Statute of
Frauds.202
If instead of an absolute lack of cause or consideration, there is
lesion or inadequacy of cause, shall this not invalidate the contract?
Again, this question must be resolved in the negative. This is clear

201
Azarraga vs. Rodriguez, 9 Phil. 637; Eliot vs. Montemayor, 9 Phil. 960; Stand-
ard Oil Co. vs. Arenas, 19 Phil. 211; Dumaguin vs. Reynolds, 48 Off. Gaz. 3887.
202
Bhen, Meyer & Co. vs. Davis, 37 Phil. 431. See Art. 1403, No. 2, Civil Code.

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 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1352-1355
Cause of Contracts

from the provision of Art. 1355, which states that lesion or inadequacy
of cause, except in cases specified by law, shall not invalidate a
contract, unless there has been fraud, mistake or undue influence.
This provision (which is new) reiterates the doctrine enunciated by
the Supreme Court in several notable cases.203 However, if it can be
established that the lesion or inadequacy of the cause was due to
fraud, mistake or undue influence, such fact will render the contract
voidable.204
Despite the fact that lesion or inadequacy of cause, in itself, can
not render the contract inexistent or void under Art. 1355 or voidable
under Art. 1330, the party who has suffered the lesion or damage is
not left without a remedy. There is always the possibility that the
contract may be rescissible in accordance with the provisions of Art.
1381 of the Code, in which case he can file an action for rescission.
Idem; Effect of unlawful cause. — According to Art. 1352 of
the Code, the cause is unlawful when it is contrary to law, morals,
good customs, public order or public policy. According to the same
article, if a contract has an unlawful cause, it shall not produce any
effect whatsoever; in other words it is void from the very beginning.205
Thus, it has been held that where the cause or consideration for
the sale of a certain property is no other than the accumulated
usurious interests which the vendor-debtor has not yet paid, the
sale is void because of the illegality of the cause or consideration.206 It
has also been held that a contract affecting the course of a criminal
prosecution is invalid, because such a contract would be manifestly
contrary to public policy and the due administration of justice.207 In
the words of the Supreme Court, “in the interest of the public it is
of the utmost importance that criminals should be prosecuted and
that all criminal proceedings should be instituted and maintained
in the form and manner prescribed by law. To permit an offender to

203
Asky vs. Cosalan, 46 Phil. 179; Gabriel vs. Mateo, 71 Phil. 497; Garcia vs.
Manas, 45 Off. Gaz. 1815.
204
See Arts. 1330, et seq., Civil Code; see also Alsua-Betts vs. Court of Appeals,
92 SCRA 332, 368.
205
See Art. 1409, No. 1, Civil Code.
206
Mulet vs. People of the Phil., 73 Phil. 63. But see Briones vs. Cammayo, 41
SCRA, 404; see also comments under Art. 1420.
207
Arroyo vs. Berwin, 36 Phil. 386; Velez vs. Ramas, 40 Phil. 787; Navarro vs.
Yuan, CA, 40 Off. Gaz. 1675; Reyes vs. Gonzales, 45 Off. Gaz. 381; Monteney vs.
Gomez, 104 Phil. 1059.

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Arts. 1352-1355 CONTRACTS

escape the penalties prescribed by law by the purchase of immunity

from private individuals would result in a manifest perversion of
justice.’’208 This doctrine, which has been reiterated several times in
the past, is very aptly illustrated in the case of Velez vs. Ramas.209
The facts of this case are as follows: C, wife of A and daughter of B,
while employed in a pawnshop owned by X, embezzled the amount
of more than P2,000. In order to prevent her criminal prosecution, A
and B signed a document obligating themselves jointly and severally
to pay to X the amount embezzled including interest. Because of
their failure to comply with their promise, the latter filed this action
against them. The Supreme Court, however, ruled:

“We are of the opinion that the trial court was correct in
the conclusion that an action cannot be maintained upon this
contract. In our opinion, the consideration for this agreement is
clearly illicit, which fact is apparent on the face of the contract,
and the case is accordingly governed by Art. 1275 (now Art.
1352) of the Civil Code.
“There has been no period since contract law reached
the state of consciousness, when the maxim ex turpi causa
non oritur actio was not recognized. A contract based upon
an unlawful object is and always has been void ab initio by
the common law, by the civil law, moral law, and all laws
whatsoever. It is immaterial whether the illegal character of
the contract is revealed in the matter of the consideration, in
the promise as expressed in the agreement or in the purpose
which the agreement, though legal in expression, is intended
to accomplish. If the illegality lurks in any element, or even
subsists exclusively in the purpose of the parties, it is fatal to
the validity of the contract.
“By the universal consensus of judicial opinion in all ages
it has been considered contrary to public policy to allow parties
to make agreements designed to prevent or stifle prosecutions
for crime. It is self-evident that the law cannot sanction
an engagement which is subversive of human society. The
machinery for the administration of justice cannot be used to
promote an unlawful purpose.’’

208
Arroyo vs. Berwin, 36 Phil. 386.
209
40 Phil. 787.

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 ESSENTIAL REQUISITES OF CONTRACTS Arts. 1352-1355
Cause of Contracts

However, the above case should be distinguished from the following

case:

Mactal vs. Melegrito

111 Phil. 363

Plaintiff gave to defendant P1,770 to be used in the

purchase of palay, with the obligation to return said amount
within 10 days, if not spent for said purpose. The latter never
bought palay nor returned said amount. As a result, the former
accused him of estafa. When the case was about to be heard, a
common friend, acting upon defendant’s request, prevailed upon
plaintiff to move for the dismissal of the case and be contented
with a promissory note to be executed by the defendant. The note
was executed and, accordingly, the criminal case was dismissed.
Defendant, however, was unable to comply with his promise
despite repeated demands. Subsequently, plaintiff brought this
action against him for the recovery of the P1,770. Defendant
now contends that the promissory note is void because the
consideration thereof is the dismissal of the estafa case which is
certainly contrary to public policy.
Held: This contention is untenable. It is admitted that
defendant had received the P1,770 from plaintiff to be used for
the purchase of palay. The cause or consideration, therefore,
for the promise was the pre-existing debt of said defendant, not
the dismissal of the estafa case, which merely furnished the
occasion for the execution of the promissory note.

It must also be noted that in applying the provision of Art. 1352

regarding the effect of an unlawful cause, it is always necessary
to consider the provisions of Arts. 1411 and 1412 of the Code. It
must be observed that these provisions presuppose the existence
of an illicit or illegal cause which is determinative of the nullity of
the contract. Accordingly, they cannot be applied to simulated or
fictitious transfers of property, where the motive of the grantor may
be either to defraud his creditors or to avert the possible attachment
of the property. As stated in a previous section, the cause of the
contract should not be confused with the motive of the contracting
parties.210 However, when the motive of one of the contracting
parties predetermines the purpose of the contract and such motive

210
Gonzales vs. Trinidad, 67 Phil. 862; Navarro vs. Diego, CA, 40 Off. Gaz. 2106.

477
Arts. 1352-1355 CONTRACTS

or purpose is illegal or immoral, it is clear that such illegal or illicit

motive or purpose becomes the illegal causa, thus rendering the
contract void from the beginning.211
Idem; Effect of false cause. — According to Art. 1353, the
statement of a false cause in contracts shall render them void, if it
should not be proved that they were founded upon another cause
which is true and lawful. Thus, where the deed of sale expressly
states that the purchase price has been paid when in fact it has
never been paid, it is evident that the contract of sale is invalid
in accordance with the general rule announced in Art. 1353 and
confirmed by Art. 1409, No. 2, which declares as inexistent those
contracts which are absolutely simulated or fictitious. It must be
observed, however, that the simulation of a contract may be either
absolute or relative.212 The first is inexistent from the very beginning,
while the second binds the parties to their true agreement, provided
that it does not prejudice third persons and is not contrary to law,
morals, good customs, public order or public policy.213 It is, therefore,
clear that if a contract is simulated, it does not necessarily follow that
it is inexistent or void, provided, of course, that it can be established
that it is, in reality, founded upon another cause which is true and
lawful.

211
Liguez vs. Court of Appeals, 102 Phil. 577; Rodriguez vs. Rodriguez, 20 SCRA
908; Philippine Banking Corp. vs. Lui She, 21 SCRA 52.
212
Art. 1345, Civil Code.
213
Art. 1346, Civil Code.

478