LAW231:

CONTRACTS
Discussions by Sir Maylon
 CHAP 01: GENERAL PROVISIONS - perfected upon execution or preparation of certain
documents or other formalities.
c. Real
CONTRACT
- perfected upon delivery
- Is a meeting of minds between two persons whereby one binds
2. As to whether defective or not
himself, with respect to the other to give something or to render some
a. Valid
service.
b. Voidable
c. Unforceable
STAGES IN CONTRACTS
d. Rescissible
1. Negotiation
e. Void
- This covers the period from the time the prospective
3. As to degree of dependence or independence
contracting parties indicate interest in the contracts to the time
a. Principal
the contract is concluded or perfected.
b. Accessory
2. Perfection
c. Preparatory
- This takes place upon the concurrence of essential elements of
4. As to whether or not obligations are fulfilled
contract.
a. Executory
- It signifies the BIRTH of the contract.
b. Executed
3. Consummation
5. As to whether or not name is given by law
- This begins when the parties perform their respective
a. Nominate
undertakings under the contract culminating in the
- examples:
extinguishment of the same contract.
● Sale (Title VI, Civil Code)
● Lease (Title VIII, Civil Code)
KINDS OF CONTRACTS
● Partnership (Title IX, Civil Code)
1. As to perfection
● Agency (Title X, Civil Code)
a. Consensual
b. Innominate
- perfected by mere consent or upon the meeting of the
- Those which lack individuality and are not regulated by
minds upon the object and consideration of the contract
special provisions of law.
b. Formal
- examples:
- a.k.a solemn contracts
● do ut es (i give that you may give)
 ● do ut facias (i give that you may do) 3. MUTUALITY OF CONTRACTS
● facio ut des (i do that you may give) - Contract BINDS ALL parties, and the validity and compliance cannot
● facio ut facias (i do that you may do) be left to the will of one of the parties.
6. As to nature of consideration - One party cannot claim that the contract is binding on him and not to
a. Gratuitous the other.
b. Onerous a. Compliance left to the will of only one party, the contract is
c. Remuneratory VOID (refer to the rules on potestative obligation).
b. Compliance left to the will of a third person, the contract is
CHARACTERISTICS OF CONTRACTS VALID.
[Link] FORCE OR CHARACTER OF CONTRACTS
- Once the contract is perfected, it shall be of OBLIGATORY 4. RELATIVITY OF CONTRACTS
FORCE upon both of the contracting parties. - Contracts take effect ONLY between the parties, their assigns, and
- The parties are BOUND to the fulfillment of what has been their heirs.
expressly stipulated and to all of the consequences thereof. - As a rule, they CANNOT PRODUCE any effect upon third persons.
a. One party CANNOT UNILATERALLY change the provisions of - Exception to relativity:
the contract without the consent of the other. a. If there is a stipulation in favor of third persons (pour atrui).
b. The parties CANNOT REFUSE to comply with the obligations b. If there is a law that extends the benefits under the contract to
stated in the contract. third person.
c. Any party CAN FILE a case in court IF the other party will fail c. If the contract is intended to defraud the creditor.
to perform his obligation. d. If the person files subrogatory action or rescissory action.
d. The court CANNOT CHANGE the provisions of the contract. e. Negotiorium Gestio
- It can interpret BUT cannot replace what was agreed
upon by the parties. INTERFERENCE WITH CONTRACTS
2. AUTONOMY OF CONTRACTS - A party to a contract MAY SUE a third person for damages if the said
- Contracting parties MAY ESTABLISH such agreements as they may third person causes the other party to violate the provisions of the
deem convenient. contract.
- PROVIDED: they are not contrary to law, morals, good customs, public - Example:
order, or public policy. ● Allan K owns "Klowns" restobar and hired Vice Gas a comedian
for a period of one year.
 ● When Bongbong Revilla learned that Vice G is very good, the REQUISITES OF OFFER
former induced the latter to terminate the contract without any 1. The offer must purport to create legal liabilities that are legally
reason and to enter a contract with him. enforceable.
2. There must be a real intention to assume liability.

CHAP 02: REQUISITES OF CONTRACT 3. It must be intended of itself to create legal relations on acceptance.
4. Must be complete in terms.
5. It must definite.
REQUISITES OF CONTRACT
1. Consent
ACCEPTANCE
2. Object
- It means signification of conformity with all the terms of the offer.
3. Cause
- In order that there will be a perfected contract, the acceptance must
4. Delivery
be:
a. Certain & definite. AND
CONSENT
b. Absolute in character (must be plain and unconditional).
- The concurrence of the WILLS of the contracting parties with respect
to the object and the cause which shall constitute the contract.
COGNITION THEORY
- It is manifested by the meeting of the offer and the acceptance upon
- The rule is that the acceptance takes effect from the time the offeror
the thing and the cause which are to constitute the contract.
LEARNS about the acceptance.
a. If the acceptance is made by letter or telegram, the same is
REQUISITES OF CONSENT
binding on the offeror from time it (letter or telegram) came to
1. The consent must be manifested by the CONCURRENCE of the offer
his knowledge.
and the acceptance.
b. If the offer is made through the agent, the acceptance is
2. The contracting parties MUST POSSESS the necessary legal capacity.
effective when the principal or his agent learns about the
3. The consent MUST BE intelligent, free, spontaneous, and real.
acceptance.

OFFER
FORM OF ACCEPTANCE
- Is a proposal to make a contract.
1. Express
- It is a manifestation of willingness to enter into a bargain.
2. Implied
- In order to constitute a binding proposal, the offer must be certain or
- From conduct or acceptance of unsolicited services.
definite.
 3. Presumptive INCAPACITATED PERSON
- When there is silence in certain cases as would tend to mislead - Persons INCAPACITATED to give their consent to a contract: a
the other party and thus places the silent person in estoppel. a. [Unemancipated] Minor
b. Insane or Demented Persons
THINGS THAT MAY BE FIXED BY THE OFFEROR c. Deaf-mutes who do not know hot to write
1. Time
2. Place VICES OF CONSENT
3. Manner of Acceptance (way or method) - Circumstances that affect the decision of the party to enter into a
contract.
WHEN OFFER BECOMES INEFFECTIVE a. Mistake
- An offer becomes INEFFECTIVE when either party, before acceptance b. Fraud
is conveyed, suffers from: c. Violence
a. Death d. Intimidation
b. Civil interdiction
c. Insanity OBJECT
d. Insolvency - The subject matter of the obligation which is created or established.
- It refers to the thing or a right which is the subject matter of the
LEGAL CAPACITY OF CONTRACTING PARTIES contract.
- The capacity of the contracting parties is an INDISPENSABLE - It may be tangible or intangible.
requisite of consent.
- It is impossible to speak of an effective consent without presupposing REQUISITES OF OBJECT
the capacity to give it. 1. The thing or service must be WITHIN the commerce of man.
- EFFECT: The contract is defective. 2. The thing or service MUST NOT be contrary to law, morals, good
a. VOIDABLE - If only one of the parties is incapacitated to give customs, public policy, or public order.
his consent. 3. The thing or service MUST be possible.
b. UNENFORCEABLE - If both of them are incapacitated to give 4. The thing or service MUST be determinate or at least determinable.
their consent
CAUSE REFORMATION OF INSTRUMENTS
- The essential reason which moves the contracting parties to enter into - Reformation involves the filing of a case in court to have the
the contract. document that constitute the evidence of the agreement to reflect the
- It is the reason THAT IMPELS a party to assume an obligation under a REAL INTENT of the parties.
contract. - The purpose is not to make a new contract BUT to reform the same to
- In other words, it is the immediate, direct or most PROXIMATE reflect the true intention of the parties.
REASON which explains and justifies the creation of an obligation REQUISITES
through the will of the contracting parties. 1. There MUST have been a meeting of minds of the parties to the
contract.
TYPES OF CONTRACTS AND THEIR CAUSES 2. The instrument DOES NOT express the true intention of the parties.
1. Onerous contracts 3. The FAILURE of the instrument to express the true intention of the
- The cause is understood to be, for each contracting party, the parties is due to mistake, fraud, inequitable conduct or accident.
prestation or promise of a thing or service by the other.
2. Remuneratory contracts
- The cause is the service or benefit which is remunerated.
CHAP 04: REFORMATION OF INSTRUMENTS
DOCTRINE OF REFORMATION OF INSTRUMENTS
3. Gratuitous contracts
- When the true intention of the parties to a valid contract NOT
- The mere liberality of the benefactor.
EXPRESSED in the instrument purporting to embody their agreement
by reason of mistake, fraud, inequitable conduct, or accident.
EFFECT OF LACK OF CAUSE
- One of the parties may ask for the reformation of the
- General rule: It shall NOT produce any effect, whatsoever.
instrument so that such true intention may be expressed.
- Exception/s:
a. Failure to pay the full amount of the property, even if there be a
stipulation that full payment shall be made at the time of the CHAP 05: INTERPRETATION OF CONTRACTS
celebration of the contract.
b. Where the consideration is only PHP1.00. Primacy of intention of the parties
- Reason: There is a consideration. The contract may be - To effect that the intention of the contracting parties should ALWAYS
voidable because of the inadequacy of the cause or PREVAIL because their will has the force of law between them.
consideration. But it is NEVER void or inexistent.
 a. If the terms are clear and leave no doubt as to the intention of a. If the meaning of the words is contrary to the evident intent,
the contracting parties - literal sense of its stipulations must be then the evident intent prevails.
followed. b. The contemporaneous or subsequent acts should be considered.
b. If the words appear to be contrary to the evident intention of ● In construing a particular writing, previous acts or
the contracting parties - the intention shall prevail. circumstances may be considered.
- example: Due to the non-renewal of their franchise, ● Where the parties to a contract have given it a practical
ABS-CBN, Corp. sold to TV5 Network, Inc. their corporate construction by their conduct as by acts in partial
office including "all the furniture therein." Suppose part performance.
of the furniture belongs to the President of ABS-CBN, c. The ambiguity in the stipulation by reason of faulty sentence
Corp. who had been brought to the office temporarily. construction should not defeat the otherwise clear intention of
- Should such furniture be included? No because although the parties.
the term "all" is general, it should still not be understood 3. When there is a conflict between provisions.
to comprehend things that are distinct and cases that a. When there is conflict between general and a particular
are different from those upon which the parties intended provision, the particular or specific provision shall prevail.
to agree. b. When a principal contract and an accessory contract are
involved, the accessory should be interpreted together with the
WORDS WITH DIFFERENT MEANING principal so as to harmonize them.
- If a word is SUSCEPTIBLE to two or more meanings: 4. When words are omitted.
a. That in keeping with the nature and object of the contract. - Usage or customs shall be used to supply the omission.
b. If this cannot be determined, then the "terms of a writing are 5. There is doubt as to the meaning of terms.
presumed to have been used in their primary and general a. All the provisions should be examined and the doubt should be
acceptation.” resolved by giving an interpretation that is consistent with the
provisions.
RULES OF INTERPRETATION b. If there are several meanings, the meaning that should be
1. If terms are clear and unambiguous: given is that which is most adequate to make the word
- The literal meaning of the terms used controls. effectual.
● Contracts that are crystal clear should not be construed c. If there are several meanings, the meaning that is most
2. If words used are not the words that should have been used to make consistent with the nature of the contract should be followed.
the intent clear and unambiguous: 6. Obscurity caused by one party.
 - It should be interpreted against the person who caused the b. Those which must appear in a public document.
obscurity. c. Those which must be registered.
7. If settling the doubt is impossible.
a. If incidental circumstances are involved: The interpretation KINDS OF DEFECTIVE CONTRACTS
should be such that involves the least transmission of rights. 1. Rescissible contracts
b. Construction which would amount to impairment or loss of 2. Voidable contracts
rights is not favored; conservation and preservation, not waiver, 3. Unenforceable contracts
abandonment or forfeiture of a right, is the rule. 4. Void or inexistent contracts
c. If the principal object of the contract is involved: the contract is
null and void.
CHAP 06: RESCISSIBLE CONTACTS
CHAP 03: FORMS OF CONTRACTS
RESCISSIBLE CONTRACTS
- Those where essential requisites of a contract EXIST and the contract
FORMS
should have been VALID
- General rule: There is NO formality or solemnity is required for a
- BUT by reason of injury or damage to third persons, the
contract.
contract MAY BE RESCINDED.
- Reason: It is perfected by mere meeting of the minds.
- Exception/s:
BASIC REQUIREMENTS
a. When the law requires that the contract must be in a certain
1. Any of the grounds to make the contract Rescissible under Arts. 1381
form in order to be VALID.
and 1382 must be which include:
b. When the law requires that the contract must be in a certain
a. Lesion
form to be ENFORCEABLE.
b. Contract is in fraud of creditors
c. When the law requires that the contract must be in a certain
c. Transfer of property in litigation
form for the CONVENIENCE of the contracting parties or for
d. Transfer by an insolvent
the EFFICACY of the contract.
2. There is no other legal means to obtain reparation for the damage.
3. Mutual restitution can still be made.
FORMALITIES FOR VALIDITY
4. The action must be filed within four (4) years [prescriptive period).
- Contracts for which the law prescribes certain forms for their validity.
a. Those which must appear in writing.
DIFFERENCE FROM RESCISSION FOR BREACH a. A property transferred by gratuitous title and the transferor did
- Rescission of rescissible contract (under Arts. 1381 to 1389) IS not reserve sufficient property to pay his debts contracted
DIFFERENT from rescission that is allowed due to breach of contract before the donation.
(under Art. 1191). b. Transfers by enormous or gratuitous title after a judgment was
- Based on the ground of "non-compliance" of a binding and rendered by a court against the transferor.
enforceable contract.
REQUISITES OF CONTRACT IS IN FRAUD OF CREDITORS
LESION a. The creditor MUST HAVE in his favor a credit that existed prior to the
- Lesion (paras. 1 and 2, Art. 1381) contract that is sought to be rescinded
● The injury suffered by one who DOES NOT receive a full b. Fraud MUST BE established.
equivalent for what he gives in a commutative contract. .
● Lesion is inequality of contracts. OBLIGATIONS OF THE TRANSFEREE:
a. To RETURN the thing he acquired.
REQUISITES OF LESION b. If he cannot return the thing, to PAY DAMAGES.
a. The lesion what was suffered is more than 1/4 of the value of the thing.
b. The contract was entered into by a guardian or a representative of an TRANSFER OF PROPERTY IN LITIGATION
absentee. - Transfer of property in litigation (para. 4, Art. 1381)
c. The contract was entered into in behalf of the ward or the absentee
involving the ward or absentee's property. TRANSFER BY INSOLVENT
d. The contract does not require approval of the court and/or there is no - Transfer by insolvent (Art. 1382)
approval of the court ● Payment by an insolvent even if he cannot be compelled to pay at the
time made the payment is VOIDABLE.
CONTRACT IS IN FRAUD OF CREDITORS ● Insolvency in this case is NOT by judicial declaration.
- Contract is in fraud of creditors (para 3, Art. 1381) ○ Otherwise the transfer is VOID
● The action to rescind a contract for being in fraud of creditor is called
"accion pauliana”
● take note: Fraud is not presumed
● The mere fact that the conveyance was founded on a valuable RESCISSION AS SUBSIDIARY REMEDY
consideration DOES NOT NECESSARY negate presumption.
 - The person who seeks the rescind the contract CANNOT DO SO unless 1. Incapacity to give consent (minors, insane, deaf- mute)
there is no other remedy that is available. 2. Vitiated by reason of mistake, violence, intimidation, undue influence,
- The relief is on the premise that the contract is VALID. or fraud.
- Recession is the last resort
- Not being void, rescissible contracts remain legally effective until set take note: Even though there may have been no damage to the contracting
aside in a rescissory action and they may convey title. parties, it is still VOIDABLE, regardless of whether the contract has already
been consummated or is merely executory
MUTUAL RESTITUTION
- Mutual restitution is REQUIRED in rescission. RATIFICATION
- The person who rescinded the contract MUST BE ABLE to return what - A voidable contract can be RATIFIED.
he received and the losing party MUST be able to restore what he - Ratification is an act or any other means by which a defective
received. contract is cured of its vice or defect.
- In ratification, the person who has the right to annulled the contract

CHAP 07: VOIDABLE CONTRACTS executes an act which expressly or necessarily implied an intention to
waive his rights.

VOIDABLE CONTRACTS
EFFECTS OF RATIFICATION
- A contract where all the essential elements for validity are present,
1. The action to annul the contract is extinguished.
although the element of CONSENT IS VITIATED by reason of lack of
2. Retroactivity - The contract is cleansed of all its defects from the
legal capacity or by mistake, violence, fraud, etc.
moment it was constituted.
● When a voidable contract is ratified, the contract losses its defects
BASIC CHARACTERISTICS OF VOIDABLE CONTACTS
and it is as if it was valid from the beginning.
1. Contract becomes voidable because of:
a. Incapacity of one of the contracting parties.
b. Consent was vitiated. CHAP 08: UNENFORCEABLE CONTRACTS
2. Voidable contracts are binding UNLESS they are ANNULLED by a
proper action in court. UNENFORCEABLE CONTRACTS
3. Voidable contracts are susceptible of ratification. - Those which CANNOT BE ENFORCED by a proper action in court,
unless they are ratified, because:
GENERAL CLASSES OF VOIDABLE a. They are entered into without or in excess of authority.
 - DEFECT: No consent from the person in whose name the
contract is entered into. VOID AND INEXISTENT CONTRACTS
b. Non-compliance with the Statute of Frauds. - A contract which LACKS ABSOLUTELY either in fact or in law one or
- DEFECT: No writing, note or memo to prove the contract. some of the elements which are essential for its validity.
c. Incapacity of both parties. - A contract may be void because:
- DEFECT: Consent absolutely vitiated by incapacity of a. Any of the elements of the contract is actually inexistent.
both. b. The cause or object is illegal or illicit.
c. The law prohibits the contract or declares it to be void.
ABSENCE OF AUTHORITY
- Those entered into in the name of another person by one who has INEXISTENT AND VOID AB INITIO CONTRACTS
been given no authority or legal representation, or who has acted - The following contracts are inexistent and void from the beginning:
beyond his power. a. Those whose cause, object, or purpose is CONTRARY to law,
morals, good customs, public order, or public policy.
STATUE OF FRAUD b. Those whose object is OUTSIDE the commerce of man.
- The Statue of Frauds is NOT APPLICABLE if the contract is wholly or c. Those which contemplate an IMPOSSIBLE service.
partially executed. d. Those where the intension of the parties relative to the principal
- If the contract is partially performed, the Statue of Frauds is no longer object of the contract CANNOT be ascertained.
applicable.
- example: B1 sold a parcel of land to B2 worth PHP 2 million pesos PROHIBITED OR VOID BY LAW
without executing a contract. The land was already delivered but the - Contract that are expressly provided by law as void including the
price is unpaid. The contract is already enforceable and the seller (B1) following:
can enforce the verbal contract by demanding for payment of the a. Art. 1490, Civil Code (Sale between spouses)
price. b. Art. 96, Family Code (alienation without the consent of the wife)

take note: In pari delicto (in equal fault) connotes that two or more people
are at fault

IN PARI DELICTO PRINCIPLE

CHAP 09: VOID AND INEXISTENT CONTRACTS
 - Arts. 1411 and 1412 embody what is known as the "in pari delicto b. Inexistent - where one or some of the requisites essential for its
principle". validity are absolutely lacking.
- The rule is that parties to an illegal contract have no right to enforce - EFFECT: Still open to attack even by the parties thereto.
the contract.
- If the contract or act CONSTITUTES CRIMINAL OFFENSE and both
PARTIES ARE AT FAULT, the following are the effects:
a. Both parties have no action against each other.
b. Criminal cases can be filed against both.
- If the act is UNLAWFUL or FORBIDDEN but does NOT constitute a
criminal offense and BOTH parties are at fault:
a. Both parties cannot enforce the contract by demanding
performance.
b. Both parties cannot recover what the other has given by virtue
of the contract.
- If the contract CONSTITUTE a criminal offense and ONLY ONE party is
at fault:
a. Both parties have no action against each other for specific
performance or the enforcement of the contract.
b. The innocent party has the right to claim what he has given and
shall not be bound to comply with his promise.
c. The guilty party may be prosecuted.

VOID AND INEXISTENT

- The distinction is relevant for the in pari delicto principle.
a. Void - where all of the requisites of a contract are present BUT
the cause, object or purpose is contrary to law, morals, etc
- EFFECT: Neither party may be heard to invoke its
unlawful character as a ground for relief.
 TITLE II CONTRACTS Article 1310. The determination shall not be obligatory if it is evidently inequitable.
In such case, the courts shall decide what is equitable under the circumstances. (n)
CHAPTER 1 General Provisions
Article 1311. Contracts take effect only between the parties, their assigns and heirs,
Article 1305. A contract is a meeting of minds between two persons whereby one except in case where the rights and obligations arising from the contract are not
binds himself, with respect to the other, to give something or to render some service. transmissible by their nature, or by stipulation or by provision of law. The heir is not
(12548) liable beyond the value of the property he received from the decedent. if a contract
should contain some stipulation in favor of a third person, he may demand its
Article 1306. The contracting parties may establish such stipulations, clauses, terms fulfillment provided he communicated his acceptance to the obligor before its
and conditions as they may deem convenient, provided they are not contrary to law, revocation. A mere incidental benefit or interest of a person is not sufficient. The
morals, good customs, public order, or public policy. (1255a) contracting parties must have clearly and deliberately conferred a favor upon a third
person. (1257a)
Article 1307. Innominate contracts shall be regulated by the stipulations of the
parties, by the provisions of Tittes I and II of this Book, by the rules governing the Article 1312. in contracts creating real rights, third persons who come into
most analogous nominate contracts, and by the customs of the place. (n) possession of the object of the contract are bound thereby, subject to the provisions
of the Mortgage Law and the Land Registration Laws. (n)
Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (1256a) Article 1313. Creditors are protected in cases of contracts intended to defraud them.
(n)
Article 1309. The determination of the performance may be left to a third person,
whose decision shall not be binding until it has been made known to both Article 1314. Any third person who induces another to violate his contract shall be
contracting parties. (n) liable for damages to the other contracting party. (n)
Article 1315. Contracts are perfected by mere consent, and from that moment the SECTION 1 Consent
parties are bound not only to the fulfillment of what has been expressly stipulated Article 1319. Consent is manifested by the meeting of the offer and the acceptance
but also to all the consequences which, according to their nature, may be in keeping upon the thing and the cause which are to constitute the contract. The offer must be
with good faith, usage and law.(1258) certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer. Acceptance made by letter or telegram does not bind the offerer except
Article 1316. Real contracts, such as deposit, pledge and commodatum, are not from the time it came to his knowledge. The contract, in such a case, is presumed to
perfected until the delivery of the object of the obligation. (n) have been entered into in the place where the offer was made. (1262a)

Article 1317. No one may contract in the name of another without being authorized Article 1320. An acceptance may be express or implied. (n)
by the latter, or unless he has by law a right to represent him. A contract entered into
in the name of another by one who has no authority or legal representation, or who Article 1321. The person making the offer may fix the time, place, and manner of
has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or acceptance, all of which must be complied with. (n)
impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party. (1259a) Article 1322. An offer made through an agent is accepted from the time acceptance
is communicated to him. (n)
CHAPTER 2 Essential Requisites of Contracts General Provisions
Article 1323. An offer becomes ineffective upon the death, civil interdiction,
Article 1318. There is no contract unless the following requisites concur: insanity, or insolvency of either party before acceptance is conveyed. (n)
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; Article 1324. When the offerer has allowed the offeree a certain period to accept, the
(3) Cause of the obligation which is established. (1261) 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. (n)
Article 1325. Unless it appears otherwise, business advertisements of things for sale which have principally moved one or both parties to enter into the contract. Mistake
are not definite offers, but mere invitations to make an offer. (n) 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
Article 1326. Advertisements for bidders are simply invitations to make proposals, simple mistake of account shall give rise to its correction. (12668)
and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears. (n) Article 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
Article 1327. The following cannot give consent to a contract: enforcing the contract must show that the terms thereof have been fully explained to
(1) Unemancipated minors; the former. (n)
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
(1268) Article 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. (n)
Article 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. (n) Article 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent. (n)
Article 1329. The incapacity declared in article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special Article 1335. There is violence when in order to wrest consent, serious or irresistible
disqualifications established in the laws. (1264) 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
Article 1330. A contract where consent is given through mistake, violence, upon his person or property, or upon the person or property of his spouse,
intimidation, undue influence, or fraud is voidable. (1265a) descendants or ascendants, to give his consent. To determine the degree of
intimidation, the age, sex and condition of the person shall be borne in mind. A
Article 1331. in order that mistake may invalidate consent, it should refer to the threat to enforce one's claim through competent authority, if the claim is just or
substance of the thing which is the object of the contract, or to those conditions legal, does not vitiate consent. (1267a)
Article 1336. Violence or intimidation shall annul the obligation, although it may Article 1342. Misrepresentation by a third person does not vitiate consent, unless
have been employed by a third person who did not take part in the contract. (1268) such misrepresentation has created substantial mistake and the same is mutual. (n)

Article 1337. There is undue influence when a person takes improper advantage of Article 1343. Misrepresentation made in good faith is not fraudulent but may
his power over the will of another, depriving the latter of a reasonable freedom of constitute error. (n)
choice. The following circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties, or the fact that the person alleged Article 1344, in order that fraud may make a contract voidable, it should be serious
to have been unduly influenced was suffering from mental weakness, or was ignorant and should not have been employed by both contracting parties. Incidental fraud
or in financial distress. (n) only obliges the person employing it to pay damages. (1270)

Article 1338. There is fraud when, through insidious words or machinations of one Article 1345. Simulation of a contract may be absolute or relative. The former takes
of the contracting parties, the other is induced to enter into a contract which, place when the parties do not intend to be bound at all; the latter, when the parties
without them, he would not have agreed to. (1269) conceal their true agreement. (n)

Article 1339. Failure to disclose facts, when there is a duty to reveal them, as when Article 1346. An absolutely simulated or fictitious contract is void. A relative
the parties are. bound by confidential relations, constitutes fraud. (n) 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
Article 1340. The usual exaggerations in trade, when the other party had an the parties to their real agreement. (n)
opportunity to know the facts, are not in themselves fraudulent. (n)
SECTION 2 Object of Contracts
Article 1341. A mere expression of an opinion does not signify fraud, unless made by
an expert and the other party has relied on the former's special knowledge. (n) Article 1347. All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are not
intransmissible may also be the object of contracts. No contract may be entered into
upon future inheritance except in cases expressly authorized by law. All services Article 1353. The statement of a false cause in contracts shall render them void, if it
which are not contrary to law, morals, good customs, public order or public policy should not be proved that they were founded upon another cause which is true and
may likewise be the object of a contract. (1271a) lawful. (1276)

Article 1348. Impossible things or services cannot be the object of contracts. (1272) Article 1354. Although the cause is not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the contrary. (1277)
Article 1349. The object of every contract must be determinate as to its kind. The
fact that the quantity is not determinate shall not be an obstacle to the existence of Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall
the contract, provided it is possible to determine the same, without the need of a new not invalidate a contract, unless there has been fraud, mistake or undue influence. (n)
contract between the parties. (1273)
CHAPTER 3 Form of Contracts
SECTION 3 Cause of Contracts.
Article 1356. Contracts shall be obligatory, in whatever form they may have been
Article 1350. in onerous contracts the cause is understood to be, for each entered into, provided all the essential requisites for their validity are present.
contracting party, the prestation or promise of a thing or service by the other; in However, when the law requires that a contract be in some form in order that it may
remuneratory ones, the service or benefit which is remunerated; and in contracts of be valid or enforceable, or that a contract be proved in a certain way, that
pure beneficence, the mere liberality of the benefactor. (1274) requirement is absolute and indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised. (1278a)
Article 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof. (n) Article 1357. if the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel
Article 1352. Contracts without cause, or with unlawful cause, produce no effect each other to observe that form, once the contract has been perfected. This right may
whatever. The cause is unlawful if it is contrary to law, morals, good customs, public be exercised simultaneously with the action upon the contract. (12798)
order or public policy. (1275a)
Article 1358. The following must appear in a public document: has prevented a meeting of the minds of the parties, the proper remedy is not
(1) Acts and contracts which have for their object the creation, transmission, reformation of the instrument but annulment of the contract.
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by articles 1403, No. 2, and 1405; Article 1360. The principles of the general law on the reformation of instruments
(2) The cession, repudiation or renunciation of hereditary rights or of those of the are hereby adopted insofar as they are not in conflict with the provisions of this
conjugal partnership of gains; Code.
(3) The power to administer property, or any other power which has for its object an
act appearing or which should appear in a public document, or should prejudice a Article 1361. When a mutual mistake of the parties causes the failure of the
third person; instrument to disclose their real agreement, said instrument may be reformed.
(4) The cession of actions or rights proceeding from an act appearing in a public
document. Article 1362. if one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true intention, the
All other contracts where the amount involved exceeds five hundred pesos must former may ask for the reformation. of the instrument.
appear in writing, even a private one. But sales of goods, chattels or things in action
are governed by articles, 1403, No. 2 and 1405. (1280) Article 1363. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from the
CHAPTER 4 Reformation of Instruments (n) former, the instrument may be reformed.

Article 1359. When, there having been a meeting of the minds of the parties to a Article 1364. When through the ignorance, lack of skill, negligence or bad faith on
contract, their true intention is not expressed in the instrument purporting to the part of the person drafting the instrument or of the clerk or typist, the
embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, instrument does not express the true intention of the parties, the courts may order
one of the parties may ask for the reformation of the instrument to the end that such that the instrument be reformed.
true intention may be expressed. If mistake, fraud, inequitable conduct, or accident
Article 1365. if two parties agree upon the mortgage or pledge of real or personal control. If the words appear to be contrary to the evident intention of the parties, the
property, but the instrument states that the property is sold absolutely or with a right latter shall prevail over the former. (1281)
of repurchase, reformation of the instrument is proper.
Article 1371. in order to judge the intention of the contracting parties, their
Article 1366. There shall be no reformation in the following cases: contemporaneous and subsequent acts shall be principally considered. (1282)
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills: Article 1372. However general the terms of a contract may be, they shall not be
(3) When the real agreement is void. understood to comprehend things that are distinct and cases that are different from
those upon which the parties intended to agree. (1283)
Article 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation. Article 1373, if some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it
Article 1368. Reformation may be ordered at the instance of either party or his effectual. (1284)
successors in interest, if the mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns. Article 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken
Article 1369. The procedure for the reformation of instrument shall be governed by jointly. (1285)
rules of court to be promulgated by the Supreme Court.
Article 1375. Words which may have different significations shall be understood in
CHAPTER 5 Interpretation of Contracts that which is most in keeping with the nature and object of the contract. (1286)

Article 1370. if the terms of a contract are clear and leave no doubt upon the Article 1376. The usage or custom of the place shall be borne in mind in the
intention of the contracting parties, the literal meaning of its stipulations shall interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established. (1287)
 (2) Those agreed upon in representation of absentees, if the latter suffer the lesion
Article 1377. The interpretation of obscure words or stipulations in a contract shall stated in the preceding number;
not favor the party who caused the obscurity. (1288) (3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
Article 1378. When it is absolutely impossible to settle doubts by the rules (4) Those which refer to things under litigation if they have been entered into by the
established in the preceding articles, and the doubts refer to incidental defendant without the knowledge and approval of the litigants or of competent
circumstances of a gratuitous contract, the least transmission of rights and interests judicial authority;
shall prevail. If the contract is onerous, the doubt shall be settled in favor of the (5) All other contracts specially declared by law to be subject to rescission. (1291a)
greatest reciprocity of interests. If the doubts are cast upon the principal object of
the contract in such a way that it cannot be known what may have been the intention Article 1382. Payments made in a state of insolvency for obligations to whose
or will of the parties, the contract shall be null and void. (1289) fulfillment the debtor could not be compelled at the time they were effected, are also
rescissible. (1292)
Article 1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts. (n) Article 1383. The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain reparation for
CHAPTER 6 Rescissible Contracts the same. (1294)

Article 1380. Contracts validly agreed upon may be rescinded in the cases Article 1384. Rescission shall be only to the extent necessary to cover the damages
established by law.(1290) caused, (n)

Article 1381. The following contracts are rescissible Article 1385. Rescission creates the obligation to return the things which were the
(1) Those which are entered into by guardians whenever the wards whom they object of the contract, together with their fruits, and the price with its interest;
represent suffer lesion by more than one-fourth of the value of the things which are consequently, it can be carried out only when he who demands rescission can return
the object thereof: whatever he may be obliged to restore. Neither shall rescission take place when the
things which are the object of the contract are legally in the possession of third Article 1389. The action to claim rescission must be commenced within four years.
persons who did not act in bad faith. In this case, indemnity for damages may be For persons under guardianship and for absentees, the period of four years shall not
demanded from the person causing the loss. (1295) begin until the termination. of the former's incapacity, or until the domicile of the
latter is known. (1299)
Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take
place with respect to contracts approved by the courts. (1296a) CHAPTER 7 Voidable Contracts

Article 1387. All contracts by virtue of which the debtor alienates property by Article 1390. The following contracts are voidable or annullable, even though there
gratuitous title are presumed to have been entered into in fraud of creditors, when may have been. no damage to the contracting parties:
the donor did not reserve sufficient property to pay all debts contracted before the (1) Those where one of the parties is incapable of giving consent to a contract;
donation. Alienations by onerous title are also presumed fraudulent when made by (2) Those where the consent is vitiated by mistake, violence, intimidation, undue
persons against whom some judgment has been rendered in any instance or some influence or fraud. These contracts are binding, unless they are annulled by a proper
writ of attachment has been issued. The decision or attachment need not refer to the action in court. They are susceptible of ratification. (n)
property alienated, and need not have been obtained by the party seeking the
rescission. In addition to these presumptions, the design to defraud creditors may be Article 1391. The action for annulment shall be brought within four years. This
proved in any other manner recognized by the law of evidence. (12978) period shall begin:
(1)In cases of intimidation, violence or undue influence, from the time the defect of
Article 1388. Whoever acquires in bad faith the things alienated in fraud of the consent ceases.
creditors, shall indemnify the latter for damages suffered by them on account of the (2) In case of mistake or fraud, from the time of the discovery of the same.
alienation, whenever, due to any cause, it should be impossible for him to return (3) And when the action refers to contracts entered into by minors or other
them. If there are two or more alienations, the first acquirer shall be liable first, and incapacitated persons, from the time the guardianship ceases. (1301a)
so on successively. (1298a)
Article 1392. Ratification extinguishes the action to annul a voidable contract.
(13098)
Article 1393. Ratification may be effected expressly or tacitly. It is understood that with their fruits, and the price with its interest, except in cases provided by law. In
there is a tacit ratification if, with knowledge of the reason which renders the obligations to render service, the value thereof shall be the basis for damages. (1303a)
contract voidable and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an intention to waive his Article 1399. When the defect of the contract consists in the incapacity of one of the
right. (1311a) parties, the incapacitated person is not obliged to make any restitution except insofar
as he has been benefited by the thing or price received by him. (1304)
Article 1394. Ratification may be effected by the guardian of the incapacitated
person. (n) Article 1400. Whenever the person obliged by the decree of annulment to return the
thing can not do so because it has been lost through his fault, he shall return the
Article 1395. Ratification does not require the conformity of the contracting party fruits received and the value of the thing at the time of the loss, with interest from
who has no right to bring the action for annulment. (1312) the same date. (1307a)

Article 1396. Ratification cleanses the contract from all its defects from the moment Article 1401. The action for annulment of contracts shall be extinguished when the
it was constituted. (1313) thing which is the object thereof is lost through the fraud or fault of the person who
has a right to institute the proceedings. If the right of action is based upon the
Article 1397. The action for the annulment of contracts may be instituted by all who incapacity of any one of the contracting parties, the loss of the thing shall not be an
are thereby obliged principally or subsidiarily. However, persons who are capable obstacle to the success of the action, unless said loss took place through the fraud or
cannot allege the incapacity of those with whom they contracted; nor can those who fault of the plaintiff. (1314a)
exerted intimidation, violence, or undue influence, or employed fraud, or caused
mistake base their action upon these flaws of the contract. (13028) Article 1402. As long as one of the contracting parties does not restore what in
virtue of the decree of annulment he is bound to return, the other cannot be
Article 1398. An obligation having been annulled, the contracting parties shall compelled to comply with what is incumbent upon him. (1308)
restore to each other the things which have been the subject matter of the contract,
 CHAPTER 8 Unenforceable Contracts (n) (e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;
Article 1403. The following contracts are unenforceable, unless they are ratified: (f) A representation as to the credit of a third person.
(1) Those entered into in the name of another person by one who has been given no (3) Those where both parties are incapable of giving consent to a contract
authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. in Article 1404. Unauthorized contracts are governed by article 1317 and the principles
the following cases an agreement hereafter made shall be unenforceable by action, of agency in. Title X of this Book.
unless the same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of
agreement cannot be received without the writing, or a secondary evidence of its article 1403, are ratified by the failure to object to the presentation of oral evidence to
contents: prove the same, or by the acceptance of benefit under them.
(a) An agreement that by its terms is not to be performed within a year from the
making thereof; Article 1406. When a contract is enforceable under the Statute of Frauds, and a
(b) A special promise to answer for the debt, default, or miscarriage of another; public document is necessary for its registration in the Registry of Deeds, the parties
(c) An agreement made in consideration of marriage, other than a mutual may avail themselves of the right under Article 1357.
promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not Article 1407. In a contract where both parties are incapable of giving consent,
less than five hundred pesos, unless the buyer accept and receive part of such express or implied ratification by the parent, or guardian, as the case may be, of one
goods and chattels, or the evidences, or some of them, of such things in action of the contracting parties shall give the contract the same effect as if only one of
or pay at the time some part of the purchase money; but when a sale is made them were incapacitated, if ratification is made by the parents or guardians, as the
by auction and entry is made by the auctioneer in his sales book, at the time case may be, of both contracting parties, the contract shall be validated from the
of the sale, of the amount and kind of property sold, terms of sale, price, inception.
names of the purchasers and person on whose account the sale is made, it is a
sufficient memorandum; Article 1408. Unenforceable contracts cannot be assailed by third persons.
 CHAPTER 9 Void and Inexistent Contracts. This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his promise.
Article 1409. The following contracts are inexistent and void from the beginning: (1305)
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy: Article 1412. if the act in which the unlawful or forbidden cause consists does not
(2) Those which are absolutely simulated or fictitious; constitute a criminal offense, the following rules shall be observed:
(3) Those whose cause or object did not exist at the time of the transaction; (1) When the fault is on the part of both contracting parties, neither may recover
(4) Those whose object is outside the commerce of men; what he has given by virtue of the contract, or demand the performance of the other's
(5) Those which contemplate an impossible service; undertaking:
(6) Those where the intention of the parties relative to the principal object of the (2) When only one of the contracting parties is at fault, he cannot recover what he has
contract cannot be ascertained; given by reason of the contract, or ask for the fulfillment of what has been promised
(7) Those expressly prohibited or declared void by law.. him. The other, who is not at fault, may demand the return of what he has given
without any obligation to comply his promise. (1306)
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived. Article 1413. Interest paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of the payment.
Article 1410. The action or defense for the declaration of the inexistence of a
contract does not prescribe. Article 1414. When money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose has been
Article 1411. When the nullity proceeds from the illegality of the cause or object of accomplished, or before any damage. has been caused to a third person. In such case,
the contract, and the act constitutes a criminal offense, both parties being in pari the courts may, if the public interest will thus be subserved, allow the party
delicto, they shall have no action against each other, and both shall be prosecuted. repudiating the contract to recover the money or property.
Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.
Article 1415. Where one of the parties to an illegal contract is incapable of giving Article 1421. The defense of illegality of contract is not available to third persons
consent, the courts may, if the interest of justice so demands allow recovery of money whose interests are not directly affected.
or property delivered by the incapacitated person.
Article 1422. A contract which is the direct result of a previous illegal contract, is
Article 1416. When the agreement is not illegal per se but is merely prohibited, and also void and non-existent
the prohibition by the law is designed for the protection of the plaintiff, he may, if
public policy is thereby. enhanced, recover what he has paid or delivered.

Article 1417. When the price of any article or commodity is determined by statute,
or by authority of law, any person paying any amount in excess of the maximum price
allowed may recover such excess.

Article 1418. When the law fixes, or authorizes the fixing of the maximum number
of hours of labor, and a contract is entered into whereby a laborer undertakes to work
longer than the maximum thus fixed, he may demand additional compensation for
service rendered beyond the time limit.

Article 1419. When the law sets, or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he
shall be entitled to recover the deficiency.

Article 1420. In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced.