1318 Essential requisites of Consensual / Real / Solemn

contracts:
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.
Additional requirements for:
Real contracts delivery
Solemn compliance with the formalities required by law.

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.

Requisites of Consent:
1. There must be two or more parties.
2. The parties must be capable or capacitated.
3. There must be no vitiation of consent.
4. There must be no conflict between what was
expressly declared and what was really intended.
5. The intent must be declared properly.

Requisites for the Meeting of the Minds:
1. An offer must be Certain;
2. And an acceptance that is Unqualified and
Absolute

1320 An acceptance may be:
1. Express
2. Implied
3. Presumed

1321 the person making the offer may fix the time, place,
and manner of acceptance, all of which must be complied
with.

1322 An offer made through an agent is accepted from the
time acceptance is communicated to him.

1323 An offer becomes ineffective upon the Death, Civil
Interdiction, Insanity, or insolvency of either party before
acceptance is conveyed.

There are other instances when the offer becomes
ineffective, namely:
1. When the offeree expressly or impliedly rejects the
offer.
2. When the offer is accepted with a qualified or
condition.
3. When before acceptance is communicated, the
subject matter has become illegal or impossible.
4. When the period of time given to the offeree
within which he must signify his acceptance has
already lapsed.
5. When the offer is revoked in due time.

1324 When the offerer has allowed the offeree 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period to accept, the offer may be withdrawn at any time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.
Option is a contract granting a person the privilege to buy
or not to buy certain objects at any time within the agreed
period at a fixed price.

Earnest money is given to the offerer as part of the
purchase price or a down payment.

1325 Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere
invitation to make an offer.

1326 Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept
the highest or lowest bidder, unless the contrary appears.

1327 The following cannot give consent to a contract:
1. Minors;
2. Insane or demented persons, and deaf-mutes who
do not know how to write (read).

Examples of Persons Specially Disqualified:
1. As a general rule, the husband and wife cannot sell
to each other, nor can they donate to each other.
2. Insolvents before they are discharge cannot make
payments.
3. Persons disqualified because of fiduciary
relationship.
4. Contracts entered into with non-Christians unless
approved by the governor or his representative.

1328 Contracts entered into during Lucid Interval are valid.
Contracts agreed to in a state of drunkenness or during
hypnotic spell are voidable.

1329 Incompetents under the Rules of Court:
1. Those under Civil Interdiction
2. Hospitalized lepers
3. Prodigals
4. Deaf and dumb who are unable to read and write
5. Those of unsound mind even though they have
lucid intervals
6. Those who by reason of age, disease, 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.

1330 Causes of Vitiated Consent:
1. Fraud
2. Intimidation
3. Violence
4. Undue Influence
5. Mistake

A voidable contract is binding and valid, unless annulled by
a proper action in court.

1331 Requisites for Mistake to Vitiate Consent:
1. The error must be substantial regarding:
a. The object of the contract
b. The conditions which principally moved or
induced one of the parties
c. Identity or qualifications, but only if such
was the principal cause of the contract
2. The error must be excusable
3. The error must be mistake of fact, and not of law

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.

1333 There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the
contract.

1334 Requisites for Mutual Error to Vitiate Consent:
1. There must be mutual error
2. The error must refer to the legal effect of the
agreement
3. The real purpose of the parties is frustrated.

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.

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.

1337 There is UNDUE INFLUENCE when a person takes
advantage of his power over the will of another, depriving
the latter of a reasonable freedom of choice.

The following circumstances to be considered:
1. Confidential, family, spiritual, and other relations
between the parties
2. Mental weakness
3. Ignorance
4. Financial distress

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.

Kinds of Fraud:
1. Fraud in the Celebration of the contract (fraud
proper)
a. Dolo causante (causal fraud): here, were it
not for the fraud, the other party would
not have consented
b. Dolo incedente (incidental fraud): here,
even without the fraud the parties would
have agreed just the same, hence the fraud
was only incidental in causing consent
2. Fraud in the Performance of the obligations
stipulated in the contract
Note: this kind of fraud presupposes the existence
of an already perfected contract.

Note: Art. 1391 The action for annulment shall be brought
within four years.
The period shall begin:
In cases of intimidation, violence or undue
influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the
discovery of the same.
When the action refers to contracts entered into
by minors or other incapacitated persons, from the time
the guardianship ceases.

1339 Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential
relations, constitutes fraud.

Opponents in litigation there would seem to be no duty
to disclose facts, as between opponents in a litigation for
their relations, far from being friendly or confidential, are
openly antagonistic

1340 The unusual exaggeration in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent.

1341 A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has
relied on the formers special knowledge.

1342 Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created
substantial mistake and the same is mutual.

Misrepresentation by a Third Person
How does the participation of a third person in
force and in fraud or misrepresentation differ?

1. Force or intimidation by a third person makes the
contract voidable.
2. Fraud by a third person does not make contract
voidable unless:
a. The representation has created substantial
mistake, and
b. The mistake is mutual

1343 Misrepresentation made in good faith is not
fraudulent but may constitute error.

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

Incidental fraud only obliges the person employing it to pay
damages.

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.

Simulated contract feigned, make-believe, or pretended
contract.

1346 Kinds of simulated contracts:
1. Absolutely simulated or fictitious contracts:
a. The parties do not intend to be bound
b. The contract is VOID
2. Relatively simulated or disguised contracts:
a. The parties conceal their true agreement
b. The parties are bound to the real or true
agreement except:
i. If the contract should prejudice a
third person
ii. If the purpose is contrary to law,
morals, good customs, public
order, or public policy.

1347 Requisites for Objects of Contract:
1. All things within the commerce of man, including
future things.
2. All rights that are transmissible.
Exceptions: Art. 1178
a. That the law provides
b. That the contract provides
c. The obligation is purely personal
3. Future inheritance which are authorized by law.
4. All services which are not contrary to law, morals,
good customs, public policy or public order.

1348 Impossible things or services cannot be the object of
contracts.

1350 CAUSE is the essential and impelling reason why a
party assumes an obligation.

BAR QUESTION:
If a particular piano is sold for P500,000.00 what is
the object and what is the cause?
ANS: there are two schools of thought here.
1. According to Manresa, for the seller the object is
the piano and the cause is the price; for the buyer
the object is the price and the cause is the piano.
2. According to others, for both the seller and the
buyer, there is just one object, namely, the piano.
The cause for the seller is the price; the cause for
the buyer is the delivery of the piano.

Classification of Contracts as to Cause:
1. Onerous here the cause is, for each contracting
party, the prestation or promise of a thing or
service by the other. Every party has an obligation.
Example: contract of sale
2. Remuneratory the past services or benefit which
by itself is a recoverable debt.
3. Gratuitous here, the cause is the mere liberality
of the benefactor.
1351 The particular motives of the parties in entering into
a contract are different from the cause thereof.

Motive distinguished from cause:
1. The motive of a person may vary although he
enters into the same kind of contract; the cause is
always the same.
2. The motive may be unknown to the other; the
cause is always known.
3. The presence of motive cannot cure the absence of
cause.

1352 Contracts without cause, or with unlawful cause,
produce no effect whatsoever. The cause is unlawful if it is
contrary to law, morals, good customs, public policy or
public order.

Effect if the Cause is illegal:
1. If one party innocent he cannot be compelled to
perform his obligation, and he may recover what
he has already given.
2. If both parties are guilty, in general, neither can
sue the other, the law leaving them as they are.
But certain exceptions exist.

Liguez vs C.A.

1354 Although the cause is not stated in the contract, it is
presumed that it exist and is lawful, unless the debtor
proves the contrary.

1355 Lesion is inadequacy of cause, like an insufficient
price for a thing sold.

Rules on Lesion: Lesion or inadequacy of price does not
invalidate a contract
Exception:
1. When, together with lesion, there has been:
a. Fraud
b. Mistake
c. Undue influence
2. In cases expressly provided by law:
Refer to Art. 1381 par 1 & 2
Partition among co-heirs, when anyone of them
received things with a value less by at least than
the share to which he is entitled.

1356 Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential
requisites for their validity are present. However, when the
law requires that a contract be in some form in order that
is may be valid or enforceable, or that a contract be proved
in a certain way, that requirement is absolute and
indispensable.

Form may be important:
1. For validity
2. For enforceability
3. For convenience


Examples of Formal contracts:
1. Donations of real property
2. Donations of personal property
3. Stipulations to pay interest on loans, interest for
use of the money
4. Transfer of large cattle
5. Sale of land through an agent
6. Contract of antichresis

Some problems:
1. A donated a real property to B in a private
document. B accepted the donation. Is the
donation valid?
Ans.: No, because donation was not made in a
public instrument.
2. Real property was donated in a public instrument
but acceptance was made in private instrument. Is
the donation valid?
Ans.: No, because both the giving and the
accepting must be in a public instrument.
3. Is an oral sale of land valid as between the parties?
Answer:
a. If the land had been delivered or the
money has been paid, the sale is
completely valid.
b. If the land has not yet been delivered and
the price has not been paid, the sale is
unenforceable, that is neither party may be
compelled by court action to perform
unless the defense of the Statute of Frauds
is waived.

1357 Right of one party to compel the other to execute the
necessary form. It is essential that the contract be:
1. Perfected (valid)
2. Enforceable under the statute of frauds
Read comment no. 2 for examples

1358 The following must appear in a public document:
1. Acts and contracts which have for their object the
creation, transmission, 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;
2. The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
partnership of gains;
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 third person;
4. The cession of actions or rights proceeding from an
act appearing in a public document.
All other contracts where the amount involved exceeds
500 pesos must 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.


A loan was contracted orally. If the amount is P800, may
the lender recover the sum lent?
Answer: Yes, because although the law says that contracts
involving more than P500 must appear in writing, even a
private one, still this requirement is only for convenience,
not for validity.
Note: a stipulation, however, to pay interest on
loans must be in writing. If not, the stipulation as to
interest is Void, but the loan itself is valid.

Chapter 4 REFORMATION OF INSTRUMENTS

Reformation is that remedy in equity by means of which a
written instrument is made or construed so as to express
or conform to the real intention of the parties when some
error or mistake has been committed.

1359 distinctions between Reformation and Annulment
1. Where there has been a meeting of the minds, but
there is mistake, fraud, inequitable conduct or
accident in the contract as written, the remedy is
REFORMATION. When there has been no meeting
of the minds, because of vitiated consent, the
proper remedy is ANNULMENT.
2. REFORMATION does not invalidate a contract;
ANNULMENT invalidates a contract.

Requisites for the Action for Reformation:
1. There must be a meeting of the minds.
2. The true intention is not expressed in the
instrument because of Mistake, Fraud, Inequitable
conduct, or accident.

1368 Reformation may be ordered at the instance of either
party or his successors in interest, if the mistake was
mutual; otherwise, upon petition of the injured party, or
his heirs or assigns.

Chapter 5 INTERPRETATION OF CONTRACTS

1370 If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former.
Let us interpret not by the letter that killeth but by the
spirit that giveth life.

1371 In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall
be principally considered.

1372 However general the terms of a contract may be,
they shall be understood to comprehend things that are
distinct and cases that are different from those upon which
the parties intended to agree.

1373 If some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that
import which is most adequate to render it effectual.
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 jointly.

1375 Words which may have different significations shall
be understood in that which is most in keeping with the
nature and object of the contract.

Meaning of the Article:
If a word is susceptible of two or more meanings, what
meaning should be used?
1. That in keeping with the nature and object of the
contract.
2. If this cannot be determined, then the terms of a
writing are presumed to have been used in their
primary and general acceptation.

1376 the usage or custom of the place shall be borne in
mind in the interpretation of the ambiguities of a contract,
and shall fill the omission of stipulations which are
ordinarily established.

Pleading and Proof of Customs and Usages:
Should customs and usages be pleaded (alleged in the
pleading)?
Answer: Distinguish:
1. If the customs and usages are general, they need
not be pleaded. Hence, even without previously
being alleged, they may be proved in court.
2. If the customs and the usages are merely local,
then they have to be both alleged (pleaded) and
proved.

1377 The interpretation of obscure words or stipulations in
a contract shall not favor the party who caused the
obscurity.

Chapter 6 RESCISSIBLE CONTRACTS

The four kinds of defective contracts:
1. Rescissible
2. Voidable
3. Unenforceable
4. Void (which may be inexistent or illegal)

1380 Contracts validly agreed upon may be rescinded in
the cases established by law.

Rescission it is a relief to protect one of the parties or a
third person from all injury and damages which the
contract may cause, to protect some preferential right.

Requisites for rescission:
1. There must be at the beginning either a valid or a
voidable contract;
2. There is an economic or financial prejudice to
someone;
3. Requires mutual restitution.



1381 The following contracts are rescissible:
1. Those which are entered into by the guardians
whenever the wards whom they represent suffer
lesion by more than of the value of the things
which are the object thereof;
2. Those agreed upon in representation of absentees,
if the latter suffer the lesion of more than of the
value of the things which are the object thereof;
3. Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the
claims due them;
4. Those which refer to things under litigation if they
have been entered into by the defendant without
the knowledge and approval of the litigants or of
competent judicial authority;
5. All other contracts specially declared by law to be
subject to rescission.

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 the same.

Rescission is not a principal remedy.

1385 Requisites before the action for rescission can be
brought:
1. Generally, the plaintiff must be able to return what
has been received by virtue of the rescissible
contract.
2. The thing object of the contract is not in the legal
possession of third persons in good faith.
3. There must be no other legal remedy.
4. The action must be brought within the proper
prescriptive period.

1387 Presumption of fraud: this article establishes
presumptions of fraud in the case of:
1. Gratuitous alienations;
2. Onerous alienations.

Gratuitous alienations are presumed fraudulent when the
debtor did not reserve sufficient property to pay all debts
contracted before the donation.

Onerous alienations are presumed fraudulent when made
by persons:
1. Against whom some judgment has been rendered
in any instance (even if not yet a final judgment)
2. Or against whom some writ of attachment has
been issued.

Badges of Fraud:
1. The fact that the consideration of the conveyance
is fictitious or inadequate;
2. A transfer made by a debtor after suit has been
begun and while it is pending against him;
3. A sale upon credit by an insolvent debtor;
4. The transfer of all or nearly all of his property by a
debtor, especially when he is insolvent or greatly
embarrassed financially;
5. Evidence of large indebtedness or complete
insolvency;
6. The fact that the transfer is made between father
and son;
7. The failure of the vendee to take exclusive
possession of all the property.

Rule in case of registered lands
The principle that the presumption of fraud established
in Art. 1387 does not apply to registered lands under the
Torrens System if the judgment or attachment made is not
also registered.
The encumbrances of the judgment and the attachment,
not having been registered and annotated on the
certificate, cannot prejudice an innocent purchaser for
value of registered lands.

Fraud alone not sufficient for rescission
Question: just because a contract is made to defraud
creditors, does this necessarily mean that it can be
rescinded?
Answer: No, after all the transferee may have been in
good faith and is now in legal possession of the property.

1388 Whoever acquires in bad faith the things alienated in
fraud of creditors, shall indemnify the latter for damages
suffered by them on account of the alienation, whenever,
due to any cause, it should be impossible for him to return
them.
If there are two or more alienations, the first acquirer shall
be liable first, and so on successively.

Bad faith has been defined as a state of mind affirmatively
operating with furtive design or with some motive or self-
interest or ill-will or for an ulterior purpose, and implies a
conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.

1389 Prescriptive period for rescission:
Must commence within four years from the date the
contract was entered into.
Exceptions:
1. For persons under guardianship, four years from
termination of incapacity;
2. For absentees, four years from the time the
domicile of the absentee is known.

Who can bring the action for rescission:
1. The injured party (or the defrauded creditor)
2. His heirs or successor-in-interest
3. Creditors of the injured party or his heirs

CHAPTER 7 VOIDABLE CONTRACTS

1390 The following contracts are voidable or annullable,
even though there may have been no damage to the
contracting parties:
1. Those where one of the parties is incapable of
giving consent;
2. Those where the consent is vitiated by fraud,
intimidation, violence, undue influence or mistake.
1391 The action for annulment shall be brought within four
years. This period shall begin:
1. In cases of intimidation, violence, or undue
influence, from the time the defect of the consent
ceases;
2. In case of fraud or mistake, from the time of the
discovery of the same;
3. In contracts entered into by minors or
incapacitated persons, from the time the
guardianship ceases.

Effect of prescription if the action has prescribed, the
contract can no longer be set aside.

1392 Ratification extinguishes the action to annul a
voidable contract.

Effects of ratification:
1. The action to annul is extinguished
2. The contract is cleansed of its defect from the
beginning.

1393 Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who
has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.

1394 Ratification may be effected by the guardian of the
incapacitated person.

1395 Ratification does not require the conformity of the
contracting party who has no right to bring the action for
annulment.

1396 Ratification cleanses the contract from all its defects
from the moment it was constituted.

1397 Persons who may ask for annulment the victim
(principal or subsidiary party) may ask for annulment, not
the guilty person or his successor. He who comes to equity
must come with clean hand.

The creditors of the victim cannot ask for annulment for
they are not bound by the contract.

If a minor represents his age and the other party is misled
as to his age, may the minor later on sue for annulment?
1. No, because of estoppel (Mercado v. Espiritu)
estoppel means you cannot deny what you have
confirmed before.
2. Yes, because a minor can never be guilty of
estoppel since he is not liable for his conduct or act
(Young v. Tecson)
3. No, reiterating the Mercado case (Sia Suan & Chao
v. Alcantara)

1398 Effects of annulment:
1. If the contract has not yet been complied with, the
parties are excused from their obligations;
2. If the contract has already been performed, there
must be Mutual Restitution of:
a. The thing, with fruits;
b. The price, with interest.

1399 When the defect of the contract consists in the
incapacity of one of the contracting 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.

1401 The action for annulment of contracts shall be
extinguished when the 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 incapacity of any
one of the contracting parties, the loss of the thing shall
not be an obstacle to the success of the action, unless said
loss took place through the fraud or fault of the plaintiff.

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 compelled to comply
with what is incumbent upon him.