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CONTRACTS

1. CONSENSUAL Contract perfected by


General Provisions mere consent like the contract of sale. 2. REAL
Contract perfected by deliver like depositum,
Article 1305. A contract is a meeting of pledge, commodatum.
minds between two persons whereby one 3. FORMAL or SOLEMN Contract those
binds himself, with respect to the other, to where special formalities are essential before
give something or to render some service. the contract may be perfected like donation
inter vivos of real property which requires for
CONTRACT its validity to be in public instrument.
It is from the Latin word contractus and
from the French contract which is a B. According to Cause or Equivalence of the
juridical convention manifested in legal Value of the Prestations (3)
form, by virtue of which, one or more
persons (or parties) bind themselves in 1. ONEROUS Contract where there is an
favor of another or others, or reciprocally, to interchange of equivalent valuable
the fulfilment of a prestation to give, to do or consideration.
not do. 2. GRATUITOUS or LUCRATIVE Contract
this is FREE, thus one party receives no
A CONTRACT is the meeting of the minds equivalent prestation except a feeling that one
between two persons whereby one binds has been generous or liberal.
himself with respect to the other, to give 3. REMUNERATIVE Contract one where
something or to render some service. one prestation is given for the benefit or service
that had been rendered previously.
It is the agreement of two or more persons (or C. According to Importance or Dependence of
parties) for the purpose of creating, modifying, One upon Another (3)
or extinguishing a juridical relation between
them. 1. PRINCIPAL Contract here, the contract
may stand alone by itself like the contract of
ELEMENTS OF A CONTRACT (3) sale or of lease.
2. ACCESSORY Contract this depends for its
A. ESSENTIAL Elements without them a existence upon another contract. Example:
contract cannot exist. Example: consent, mortgage. Here the principal contract is one of
subject matter, cause or consideration a loan.
In some contracts, form is essential; in still 3. PREPARATORY Contract here, the
others, delivery is likewise essential. parties do not consider the contract as the end
by itself, but as a means thru which future
B. NATURAL Elements those found in transaction or contracts may be made.
certain contracts and presumed to exist, unless Example: agency, partnership.
the contrary has been stipulated.
Example: warranty against eviction, and D. According to the Parties Obligated (2)
against hidden defects in the contract of sale
1. UNILATERAL Contract where only one
C. ACCIDENTAL Elements these are the of the parties has an obligation Example:
various particular stipulations that may be commodatum
agreed upon by the contracting parties in a 2. BILATERAL Contract here, both parties
contract. They are called accidental because are required to render reciprocal prestation like
they may be present or absent, depending upon in the contract of sale.
whether or not the parties have agreed upon
them. Example: the stipulation to pay credit, E. According to their Name or Designation (2)
the stipulation to pay interest, the designation
of the particular place fore delivery of payment. 1. NOMINATE Contract here, the contract is
given a particular or special name.
CLASSIFICATION OF CONTRACTS 2. INNOMINATE Contract also called
contratos innominados; those not given any
A. According to Perfection or Formation (3) special name.

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Example: I give that you may give. 1. ORDINARY Contract where two parties
are represented by different persons
F. According to the Risk of Fulfilment (2) 2. AUTO-CONTRACTS where only one
person represents two opposite parties but in
1. COMMUTATIVE Contract here the different capacities.
parties contemplate a real fulfilment; therefore Example: An agent representing his principal
equivalent values are given sells a specific car to himself, as a buyer.
2. ALEATORY Contract here the fulfilment NOTE: Such a contract is valid for the
is dependent upon chance; thus the values vary law does not expressly prohibit the
because of the risk or chance. same except in certain specified cases.
Example: Insurance Contract
L. According to the Number of Persons who
G. According to the Time of Performance or Participated in the Drafting of the Contract (2)
Fulfilment (2)
1. ORDINARY Contract like an ordinary sale
1. EXECUTED Contract one completed at 2. A Contract of ADHESION like one
the time the contract is entered into, that is, the prepared by a real estate company for the sale
obligations are complied with at this time. of real estate; or one prepared by an insurance
2. EXECUTORY Contract one where the company. The contract is drafted only by one
prestation are to complied with at some future party and is sought to be accepted or adhered to
time. by the other party on a take it or leave it basis:.

H. According to Subject Matter (3) M. According to the Nature of the Contract (2)

1. Contracts involving THINGS like sale 1. Personal Contract contract of life insurance
2. Contracts involving RIGHTS or CREDITS is an example. This is because upon the death
(provided these are transmissible like a contract of the insured, the contract ceases to exist.
of usufruct, or assignment of credits) 2. Impersonal Contract
3. Contracts involving SERVICES like agency,
lease of services, a contract of common STAGES OF A CONTRACT (3)
carriage.
1. PREPARATION (Conception) here the
I. According to Obligations Imposed parties are progressing with their negotiations;
and Regarded by the Law (2) they have not yet arrived at any definite
agreement, although there may have been a
1. ORDINARY Contract like sale; the law preliminary offer and bargaining.
considers this as an ordinary contract
2. INSTITUTIONAL Contract like the 2. PERFECTION (Birth) Here the parties
contract of marriage; the law considers have at long last came to a definite agreement;
marriage as an inviolable social institution. the elements of definite subject matter and
valid cause have been accepted by mutual
J. According to the Evidence Required for Its consent.
Proof (2)
1. Those requiring merely oral or parol 3. CONSUMMATION (Death or Termination
evidence of the Contract) here the terms of the contract
NOTE: Even an oral contract is are performed and the contract may said to
binding on the parties, UNLESS form have been fully executed.
is essential for its validity and
enforceability. PARTIES TO A CONTRACT
2. Those requiring written proof like contracts The law speaks of a meeting of minds between
enumerated under the Statute of Frauds. two persons. The meeting of the minds really
refers to two parties. If at the time of supposed
K. According to the Number of Persons perfection, one of the parties had already died,,
Actually and Physically Entering into the there can be no meeting of the minds, hence, no
Contract (2) contact.

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The meeting of the minds may arise because of THE PRINCIPLE OF FREEDOM
an express or implied accord (such as when This Article stresses the principle of freedom.
services as an interpreter and guide, whether The free entrance into contracts generally
solicited or not, was accepted and duly without restraint is one of the liberties
rendered; here an obligation to pay for such guaranteed to the people. HOWEVER, the
services exists.). constitutional prohibition against the
impairment of contractual obligations refers
BASIC PRINCIPLES or only to contracts which are legal, not to void or
CHARACTERISTICS OF A CONTRACT inexistent ones.
(5)
LIMITATIONS On the Nature of the
1. Freedom (Liberty) to Stipulate provided Stipulations (5)
not contrary to law, morals, good customs,
public order, or public policy. 1. The Law
2. Morals
2. Obligatory Force and Compliance in good 3. Good Customs
Faith 4. Public Policy
5. Public Order
3. Perfection by Mere Consent
(CONSENSUALITY as a rule); NOTE: The freedom of contract under the
present system of government is not meant to
4. Both Parties are Mutually Bound be absolute. The same is understood to be
subject of reasonable legislative regulations
5. Relatively (generally, it is binding only aimed at the promotion of public health,
between the parties, their assigns, and heirs). morals, safety, and welfare.

LEGAL EFFECTS OF A CONTRACT Limitations Imposed By Law


How Determined
Contracts constitute the law between the a. The contractual stipulations must not be
parties. They must be read together and contrary to mandatory and prohibitive laws.
interpreted in a manner that reconciles and Directory and suppletory laws need not be
gives life to all of them. The INTENT of the complied with, since these are either
PARTIES as shown by the clear language used, discretionary, or merely supply the omissions
prevails over post facto explanations that find of the parties.
no support from the words employed by the b. Contracts must respect the law, for the law
parties or from their contemporary and forms part of the contract.
subsequent acts showing their understanding of
such contracts. c. In mortgage contract, a pactum
commissorium (a clause providing that the
A subsequent agreement cannot novate or mortgagee will automatically own the property
change by implication a previous one, mortgaged if the debt is not paid at maturity) is
UNLESS the old and new contracts are, on null and void.
every point, incompatible with each other.
d. Likewise, an upset price is not allowed in
LEGAL EFFECTS of the contract are a mortgaged contract. An upset price is a
determined by extracting the INTENTION OF specified price below which the property
THE PARTIES from the language they used mortgaged is not supposed to be sold at the
and from the contemporaneous and subsequent execution sale.
acts.
e. The parties to a contract cannot deprive a
Article 1306. The contracting parties may competent court of its jurisdiction, because
establish such stipulations, clauses, terms and jurisdiction is fixed by law and not by the will
conditions as they may deem convenient, of the parties. HOWEVER, venue or the place
provided they are not contrary to law, morals, where the action may be brought, can be the
good customs, public\ order, or public policy. subject of stipulation.

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NOTE: The contract of the parties must public, social and legal interest in private
conform with the law in force at the time the law.
contract was executed.
A contract is contrary to public policy if it has
Limitations Imposed By Morals a tendency to injure the public, is against the
Morals deal with right and wrong and with public good, or contravenes some established
human conscience. interest of society, or is inconsistent with sound
policy and good morals, or tends clearly to
Example: undermine the security of individuals rights.
1. An agreement to work without pay is
immoral and void since this would amount to Examples:
involuntary servitude. a. Those denying access to the courts;
b. Those which tend to stifle prosecution of a
2. A promise of marriage based on carnal person charged with a crime, for a pecuniary or
consideration is immoral and therefore void. other valuable consideration;
c. Those which encourage fraud.
3. Excessive and unreasonable attorneys fees
even if stipulated in the contract must be DESIGNATION OF THE NAME OF THE
reduced, for a lawyer is primarily a court CONTRACT
officer, subject to judicial control. The parties generally may agree on any
NOTE: Parties are free to enter into any contract, but the name they give to it should not
contractual stipulations, provided it is not be controlling, for a contract is what the parties
illegal or contrary to public morals. When such intended it to be, not what they call it.
agreement, freely and voluntarily entered into, This is because, a contract must be judged by
turn out to be disadvantageous to a party, courts its character, its nature and its legal
cannot rescue it without crossing the qualifications. The courts will therefore, look
constitutional right to contract. They are not not so much at the form of the transaction as it
authorized to extricate parties from the its substance.
necessary consequences of their acts, and the
fact that the contractual stipulation may turn Article 1307. Innominate contracts shall be
out to be financially disadvantageous will not regulated by the stipulations of the parties, by
relieve the latter of their obligations. the provisions of Titles I and II of this Book, by
the rules governing the most analogous
Limitations Imposed By Good Customs nominate contracts, and by the customs of the
GOOD CUSTOMS are those that have place.
received for a period of time practical and
social confirmation. According to the Code INNOMINATE CONTRACTS
Commission, good customs and morals overlap Also called contratos innominados; those not
each other but sometimes they do not. given any special name.

Limitations Imposed By Public Order Governing Rules for Innominate Contracts


PUBLIC ORDER deals with the public weal
and includes public safety. 1. Stipulations of the parties;
2. Titles I and II of Book IV (Obligations and
NOTE: Every contract affecting public interest Contracts)
suffers a congenital infirmity in that it contains
an implied reservation of the police power as a 3. Rules on the Most Analogous Nominate
postulate of the existing order. This power can Contracts
be activated at any time to change the
provisions of the contract, or even abrogate it 4. Customs of the Place
entirely for the promotion or protection of the
general welfare. FOUR Kinds of Innominate Contracts

Limitations Imposed By Public Policy 1. do ut des (I give that you may give)
PUBLIC POLICY which varies according to 2. do ut facios (I give that you may do)
the culture of a particular country, is the 3. facio ut des (I do that you may give)

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4. facio ut facias (I do that you may do) DETERMINATION BY THIRD PERSON

Article 1308. The contract must bind both Example:


contracting parties; its validity or compliance In a contract of sale, the fixing of the price and
cannot be left to the will of one of them. the delivery date can be left to a third person.

MUTUALITY OF CONTRACTS WHEN DECISION is BINDING:


This Article stresses the mutuality of contracts The decision binds the parties only after it was
that is BOTH PARTIES are BOUND. The made known to both.
principle is based on the essential equality of
the parties. It is repugnant to bind one party, Evidently Inequitable Determination
and yet leave the other free. What is equitable is a question of fact, to be
ascertained from the attendant circumstances.
NOTE: Contracts are respected as the law The COURT is called upon to decide what is
between the contracting parties. And the courts, equitable.
be they the original trial court or the appellate
court, have no power to make contracts for the Article 1311. Contracts take effect only
parties. between the parties, their assigns and heirs,
except in case where the rights and obligations
CONSEQUENCES of Mutuality arising from the contract are not transmissible
by their nature, or by stipulation or by provision
a. A party cannot revoke or renounce a contract of law. The heir is not liable beyond the value
without the consent of the other, not can it have of the property he received from the decedent.
set aside on the ground that he had made a bad (PRINCIPLE OF RELATIVITY)
bargain.
If a contract should contain some stipulation in
b. When the fulfilment of the condition favor of a third person, he may demand its
depends upon the sole will of the debtor, the fulfillment provided he communicated his
conditional obligation is void if the condition is acceptance to the obligor before its revocation.
suspensive. If resolutory, the obligation is A mere incidental benefit or interest of a person
valid. is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor
Exception to the Inviolability of Contractual upon a third person. (STIPULATION POUR
Obligations AUTRUI)
The rule that the obligation of contracts should
not be impaired is not absolute. Thus, the free PRINCIPLE OF RELATIVITY
exercise of religious beliefs is superior to This Article stresses the principle of relativity
contractual rights. that is contracts are generally effective only
An example is the belief of a religious sect that between the PARTIES, theirs ASSIGNS and
its members should not join a labor their HEIRS.
organization or participate in a collective
bargaining. Such belief must be respected. Such contract can neither favor nor prejudice a
third person as a rule. The obligation of the
Article 1309. The determination of the contracts is limited to the parties making them
performance may be left to a third person, and, ordinarily, only those who are parties to
whose decision shall not be binding until it has contracts are liable for their breach. Parties to a
been made known to both contracting parties. contract cannot thereby impose any liability on
one who, under its terms, is a stranger to the
Article 1310. The determination shall not be contract, and in any event, in order to bind third
obligatory if it is evidently inequitable. In such person contractually, an expression of assent by
case, the courts shall decide what is equitable such person is necessary.
under the circumstances.
REASON for the RULE:
Res inter alios acta aliis neque nocet
prodest.

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The act, declaration, or omission of another PARTNERSHIP the death of the principal, of
cannot affect another, except as otherwise the partner, or of the agents ENDS the contract,
provided by law or agreement. and the heir does not step into the shoes of the
PRIVITY OF INTEREST As to Heirs deceased.
The rights of the predecessor may be NOTE:
transmitted to the heirs provided they are not Money debts are not directly chargeable
intransmissible. against the heirs. They should be claimed in the
estate or intestate proceedings for the
HEIRS are bound to respect the contracts settlement of the estate of the deceased.
entered into by their predecessors in interest in
view of their privity of interest with such 2. Where there is STIPULATION POUR
predecessor. AUTRUI - a stipulation in favor of a third
Therefore, if the predecessor was duty-bound party.
to reconvey land to another, and at his death the
reconveyance had not yet been made, the heirs DEFINITION of STIPULATION POUR
can be compelled to execute the proper deed for AUTRUI:
reconveyance. The heirs, however, are not It is a stipulation in favor of a third person
liable beyond the value of the property they conferring a clear and deliberate favor upon
received from the decedent. him, and which stipulation is merely part of the
contract entered into by the parties, neither of
NOTE: In order that an heir can question the whom acted as agent of the third person.
validity of contracts entered into by his
predecessor, or bring an action to annul the If a contract should contain some stipulation in
same, he must be a compulsory or forced heir, favor of a third person, he may demand its
for the simple reason that the deceased could do fulfillment provided he communicated his
with the property whatever he desired, as long acceptance to the obligor before its revocation.
as he respects the rights of his compulsory A mere incidental benefit or interest of a person
heirs. is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor
QUESTION: upon a third person.
May the compulsory heirs question the
deceaseds transactions? REQUISITES (6)

ANSWER: a. There must be a stipulation in favor of a third


It depends upon the nature of the status of the person.
contract.
b. The contracting parties must have clearly
a. If the contract was voidable YES. and deliberately conferred a favor upon a third
person.
b. If the contract was illicit or illegal NO,
because even the deceased had no right to c. A mere incidental benefit or interest of a
question it himself, and had no right to recover person is NOT SUFFICIENT.
the properties illicitly conveyed. HOWEVER,
an ACTION to RESCIND the contract can d. The stipulation must be part of the contract.
prosper, insofar as the legitimes of the
compulsory heirs are prejudiced e. The third person communicated his
acceptance to the obligor before its revocation;
EXCEPTIONS TO THE PRINCIPLE OF acceptance may be in the form of a demand; the
RELATIVITY (5) acceptance may be made expressly or
implicitly, formally or informally.
1. Where the obligations arising from the
contract are not transmissible by their nature, f. There must be no relation of agency between
by stipulation, or by provision of law. either of the parties and the third person.

Example: NOTE: A stipulation pour autrui need not be in


A contract of AGENCY or a contract of any particular form.

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EXAMPLE of Stipulation Pour Autrui: anothers contract.

D purchased Cs land for ten million. It wad Article 1314. Any third person who induces
also agreed that only eight million would be another to violate his contract shall be liable for
given to C, because the remaining two million damages to the other contracting party.
would be given by D to X, a creditor of C. If x
communicates his acceptance of the stipulation RULE IF CONTRACT IS VIOLATED
to D, X can demand its fulfilment. THRU INDUCEMENT OF THIRD
PERSON
NOTE: Such stipulation is binding on said third This Article gives an instance when a
person, although he may not be a signatory to STRANGER to a contract can be sued in view
the contract. of his UNWARRANTED INTERFERENCE.
Whoever is injured may properly sue for
NOTE: If the principal contract of which the damages.
stipulation forms part is void, the stipulation is
generally also void. If because of vitiated NOTE: The liability of the stranger does not
consent, the principal contract is annulled, the arise ex-contractu for he was not a party to the
stipulation also ceased to be effective. contract and he cannot be liable for greater
damages. A contrary answer would lead to
3. Where a third person induces another to result at once grotesque and unjust.
violate his contract. (See Article 1314)
Article 1315. Contracts are perfected by mere
4. Where in some cases, third persons may be consent, and from that moment the parties are
adversely affected by a contract where they did bound not only to the fulfillment of what has
not participate. been expressly stipulated but also to all the
consequences which, according to their nature,
This is clearly evident in the case of may be in keeping with good faith, usage and
COLLECTIVE CONTRACTS, where the law.
majority naturally rules over the minority.
CONSENSUALITY OF CONTRACTS
5. Where the law authorizes the creditor to sue This Article stresses the CONSENSUALITY
on a contract entered into by his creditor. OF CONTRACTS or perfection by mere
(ACCION DIRECTA) consent.

Article 1312. In contracts creating real rights, PERFECTION OF A CONTRACT


third persons who come into possession of the A contract is perfected only from the time an
object of the contract are bound thereby, ACCEPTANCE OF AN OFFER is made
subject to the provisions of the Mortgage Law known to the offeror.
and the Land Registration Laws.
An offer made inter praesentes must be
CONTRACTS CREATING REAL accepted immediately. If the parties intended
RIGHTS that there should be an express acceptance, the
This Article constitutes one of the exceptions to contract will be perfected only upon knowledge
the general rule that a contract binds only the by the offeror of the express acceptance by the
parties. offeree of the offer.

REASON for Article: An acceptance which is not made in the manner


A real right binds the property over which it is prescribed by the offeror is not effective but
exercised. constitutes a COUNTER-OFFER which the
offeror may accept or reject.
Article 1313. Creditors are protected in cases
of contracts intended to defraud them. The contract is not perfected if the offeror
revokes or withdraws its offer and the
RIGHTS OF DEFRAUDED CREDITORS revocation or withdrawal of the offeror is the
This Article represents another instance when first to reach the offeree. The acceptance by the
an outsider can in a sense interfere with offeree of the offer after knowledge of the

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revocation or withdrawal of the offer is DELIVERY as a REQUISITE
inefficacious. Delivery is required of the very nature of the
contract.
HOW A CONTRACT IS PERFECTED (3)
Real Contracts Referred To (3)
1. CONSENSUAL CONTRACTS perfected
by mere consent; this is the general rule. a. DEPOSIT
2. REAL CONTRACTS perfected by deliver b. PLEDGE
like in the case of depositum or pledge. c. COMMODATUM, a loan where the
3. FORMAL or SOLEMN CONTRACTS identical object must be returned.
here a special form is necessary or required for
its perfection. Future Real Contracts as Consensual
Contracts
PERFECTION of a CONSENSUAL A contract to make a deposit, to make a
CONTRACT pledge, or to make a commodatum is a
Consensual contracts are perfected from the consensual contract. AFTER DELIVERY, the
moment there is agreement (consent) on the contract becomes a real contract.
subject matter, and the cause or consideration.
Example:
CONSEQUENCES of PERFECTION A agreed to lend B his (As) car on September
8. If on September 8, A refuses to deliver the
a. The parties are bound to the fulfilment of car, may B sue him for damages?
what has been expressly stipulated and
compliance thereof must be in good faith. ANSWER: Yes, because of the consensual
contract of to make a commodatum. If A had
NOTE: If the true intention is not expressed in delivered the car and B thru negligence
a written agreement, in case on has been made, damages the car, A can sue him because of the
the proper remedy is REFORMATION. real contract of commodatum.

b. The parties are also bound to the Article 1317. No one may contract in the name
CONSEQUENCES which according to their of another without being authorized by the
nature, may be in keeping with good faith, latter, or unless he has by law a right to
usage, and law. represent him.

Condition Imposed on the Perfection of the A contract entered into in the name of another
Contract VERSUS Condition Imposed on by one who has no authority or legal
the Performance of an Obligation representation, or who has acted beyond his
Failure to comply with the first condition powers, shall be unenforceable, unless it is
results in the failure of a contract, while a ratified, expressly or impliedly, by the person
failure to comply with the second condition on whose behalf it has been executed, before it
only gives the other party the option either to is revoked by the other contracting party.
refuse to proceed with the sale or to waive the
condition. REQUISITE for a Person to Contract in the
Name of Another
Article 1316. Real contracts, such as deposit,
pledge and commodatum, are not perfected If a person wants to contract in the name of
until the delivery of the object of the obligation. another:

PERFECTION OF REAL CONTRACTS 1. He must be duly authorized (expressly or


REAL CONTRACTS require: impliedly); OR
1. Consent
2. Subject Matter 2. He must have by law a right to represent him
3. Cause or Consideration (like the guardian, or the administrator); OR
4. DELIVERY
3. The contract must be subsequently
RATIFIED (expressly or impliedly, by word or

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by deed). EFFECT OF NON-CONSENT
If there is ABSOLUTELY NO CONSENT,
RATIFICATION means that one under no there is NO CONTRACT. The agreement may
disability voluntarily adopts and gives sanction be considered inexistent or non-existent or
to some unauthorized act or defective void. The same rule applies as in the case of
proceeding, which without his sanction would ABSOLUTELY SIMULATED CONTRACT,
not be binding on him. one where the parties never intended to be
bound.
Effect of RATIFICATION:
Ratification cleanses the contract from all its If there is a VICE OF CONSENT (vitiated
defects from the moment the contract was consent), such as error, fraud, or undue
entered into. Hence there is retroactive effect. influence, the contract is not void; it merely
VOIDABLE.
NOTE: There can be no more ratification if the Lack of Consent VERSUS Lack of
contract has previously been revoked by the Consideration
other contracting party. One of the three essential requisites of a valid
contract is consent of the parties on the object
NOTE: An UNAUTHORIZED CONTRACT and cause of the contract. In a contract of sale,
is a form of an UNENFORCEABLE the parties must agree not only on the price, but
CONTRACT. also on the manner of payment of the price. An
agreement on the price but a disagreement on
ESSENTIAL REQUISITES OF the manner of its payment will not result in
CONTRACTS consent, thus, preventing the existence of a
valid contract for LACK of CONSENT. This
Article 1318. There is no contract unless the lack of consent is different from LACK OF
following requisites concur: CONSIDERATION where the contract states
(1) Consent of the contracting parties; that the price has been paid when in fact, it has
(2) Object certain which is the subject matter of never been paid.
the contract;
(3) Cause of the obligation which is CONSENT
established.
Article 1319. Consent is manifested by the
ESSENTIAL REQUISITES OF meeting of the offer and the acceptance upon
CONSENSUAL CONTRACTS the thing and the cause which are to constitute
The THREE essential requisites for consensual the contract. (CONSENT) The offer must be
contracts are enumerated in this Article. certain and the acceptance absolute. A qualified
acceptance constitutes a COUNTER-OFFER.
NOTE: Under the OLD Civil Code,
consideration was the word used instead of ACCEPTANCE MADE BY LETTER OR
cause of the obligation. TELEGRAM does not bind the offerer except
from the time it came to his knowledge. The
REAL CONTRACTS contract, in such a case, is presumed to have
Real contracts require a FOURTH been entered into in the place where the offer
REQUISITE DELIVERY. was made. (ACCEPTANCE THRU
CORRESPONDENCE)
SOLEMN OR FORMAL CONTRACTS
This requires a FOURTH REQUISITE - CONSENT as an ESSENTIAL REQUISITE
Compliance with the formalities required by This Article emphasizes CONSNET, which is
law. Example: A simple donation inter vivos of the first essential requisite of every contract.
land requires a public instrument for its
perfection. CONSENT is the meeting of the minds
between the parties on the subject matter, and
What CONSENT Presupposes the cause of the contract, even if neither one has
CONSENT presupposes LEGAL CAPACITY been delivered.
and the FULFILMENT of CONDITIONS,
should any be attached. It is the manifestation of the meeting of the

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offer and the acceptance upon the thing and the ACCEPTANCE, or if the OFFER IS
cause which are to constitute the contract. EXPRESSLY REJECTED, there is NO
(Article 1319, 1st Paragraph) MEETING OF THE MINDS.

REQUISITES OF CONSENT (5) If the acceptance is QUALIFIED or not


absolute, there is no concurrence of minds. This
1. There must be two or more parties. merely constitutes a COUNTER-OFFER.

One person may represent two or more parties, A COUNTER-OFFER as a matter of fact
UNLESS there are uncontradictory or extinguishes the offer. Moreover, it may or may
prejudicial interests involved. not be accepted by the original offeror.

2. The parties must be capable or capacitated. QUERY:


A offered 20 fountain pens to B for P1,000
3. There must be NO vitiation of consent. each. B answered by letter that he was willing
to purchase 30 fountain pens at said price at
4. There must be NO CONFLICT between P1,000 each. Is the contract perfected?
what was expressly declared and what was
really intended. ANSWER: It depends.
If B wanted 30 pens and would not be satisfied
Otherwise the remedy may be reformation, as with less, the acceptance can be considered as
when the parties really intended to be bound, or qualified, so there has been no perfection yet.
else the contract is void, as when the contract is
fictitious or absolutely simulated. If B was contented with 20 pens, but desired, if
possible to get 10 more, there is perfected sale
5. The INTENT must de declared properly (that regarding the original 20, and an offer with
is, whatever legal formalities are required must respect to the extra ten. Unless accepted in turn,
be complied with). there would be no contract yet with respect to
the additional 10 fountain pens.

REQUISITES OF THE MEETING OF NOTE: If an offeror offers several distinct and


THE MINDS (2) separate items, and the offeree accepts one of
1. An OFFER must be CERTAIN. them, the contract is perfected as to the item
In order than on offer may be considered accepted.
certain, it must not be vague, misleading, or
made as a joke. ACCEPTANCE THRU
If the offer is withdrawn before it is accepted, CORRESPONDENCE
there is no meeting of the minds RULE: Acceptance made by letter or telegram
DOES NOT BIND the offeror, EXCEPT from
NOTE: If two contracts are offered, but they the time it came to his knowledge.
are independent of each other, acceptance of
one does not imply acceptance of the other. The knowledge may be actual or constructive
BUT if one contract depends upon another, like (as when the letter of acceptance has been
a contract of loan provided it is secured by a received in the house of the offeror by a person
contract of mortgage, it is essential that there be possessed of reasonable discernment). If actual
an agreement on both transactions. Otherwise, knowledge be required, proof of this would
there can be as yet no meeting of the minds. almost impossible, for even when the letter
containing the answer has been opened and
2. And an ACCPETANCE that must be read, the offeror can always claim, in some
UNQUALIFIED and ABSOLUTE. cases truthfully, that while he was reading the
same, his mind was elsewhere, and he did not
NOTE: If the acceptance is qualified, let us say actually know the contents of the letter.
by a condition, this merely constitutes a The contract in such a case is presumed to have
COUNTER-OFFER. been offered into in the place where the offer
was made.
If there is COMPLETELY NO

10
CASE: unsolicited services.
On February 5, 1919, Arias wrote Laudico a
letter, offering a lease contract. On March 6, 3. PRESUMED BY LAW as when there is a
1919, Laudico wrote a letter of complete failure to repudiate hereditary rights within the
acceptance, which was received by Arias that period fixed by law; or when there is silence in
same afternoon. But that same morning Arias certain specific cases as would tend to mislead
had already written Laudico a letter the other party and thus place the silent person
withdrawing the offer. in estoppel.

ISSUE: Was there a contract here? IMPLIED REJECTION


ANSWER: No, because prior to receipt of the Upon the other hand, REFUSAL or
letter of acceptance, the offer had already been REJECTION of an offer may also be inferred
withdrawn. In other words, it does not matter from acts and circumstances like the failure to
that the letter of withdrawal may have been act on offer of compromise before the court
received later by the offeree than receipt of the enters a final judgment on a case.
letter of acceptance by the offeror. What is
important is that the letter of withdrawal was Article 1321. The person making the offer may
made prior to the knowledge of acceptance. fix the time, place, and manner of acceptance,
all of which must be complied with.
RULE IF LETTER OF ACCEPTANCE IS
WITHDRAWN OR REVOKED THINGS THAT MAY BE FIXED BY THE
A letter of acceptance may in turn be OFFEROR
withdrawn or revoked.
1. The time
PROBLEM: 2. The place
A offered on January 1. B accepted on January 3. The manner of acceptance.
8. The letter of acceptance was received by A
on January 15. But on January 12, B had NOTE: Any act contrary to the prescribed
already written a letter revoking the terms really constitutes a counter-offer or
acceptance. Was there a meeting of the minds? counter-proposal.

ANSWER: Article 1322. An offer made through an agent


a. If the letter revoking the acceptance was is accepted from the time acceptance is
received by A before January 15 (receipt of the communicated to him.
letter of acceptance), there is no question that
there was no meeting of the minds. ACCEPTANCE OF AN OFFER THRU AN
AGENT
b. BUT if the letter revoking the acceptance, This Article applies when BOTH the offer and
although made previously, was nevertheless the acceptance are made thru an agent (who is
received by A only after January 15 (receipt of an extension of the principal).
the letter of acceptance), Reyes, Puno, and
Tolentino believe that there was already a Any other intermediary (who is not an agent,
meeting of the minds. with power to bind) is merely a sort of
messenger, who must communicate to the
According to them, the REVOCATION OF person who sends him; otherwise, there is as
THE ACCEPTANCE must reach and be yet no meeting of the minds.
learned by the offeror ahead of the acceptance.

Article 1320. An acceptance may be express or QUERY:


implied. Suppose the principal himself made the offer,
and acceptance is communicated to his agent,
FORMS OF ACCEPTANCE would the Article apply? In other words, would
there already be a meeting of the minds?
1. EXPRESS
ANSWER:
2. IMPLIED from conduct, or acceptance of It is submitted that as a GENERAL RULE,

11
there would as yet be no meeting of the minds, GENERAL RULE ON OPTIONS
for the agent may be an ordinary one, not If the offeror has allowed the offeree a certain
authorized to receive the acceptance for the period to accept, the offer may be withdrawn at
particular transaction. HOWEVER, if the agent any time before acceptance (or the thing being
was expressly authorized to receive the offered) by communicating such withdrawal.
acceptance, or if the offeree had been told that
acceptance could be made direct with the agent, To be binding on the person who made a
who would then be given freedom to act or unilateral promise, the promise must be
proceed, there can be a meeting of the minds supported by a cause or consideration distinct
and a perfection of the contract. from the price.

Article 1323. An offer becomes ineffective EXCEPTION


upon the death, civil interdiction, insanity, or When the option is founded upon a
insolvency of either party before acceptance is consideration as something paid or promised,
conveyed. the offeror cannot withdraw the offer to sell
until after the expiration of the period given.
WHEN OFFER BECOMES
INEFFECTIVE 4 Instances OPTION DEFINED
It is a contract granting a person the privilege
When either party: to buy or not to buy certain objects at any time
within the agreed period at a fixed price. The
1. Died; Contract of Option is a SEPARATE and
2. Suffers civil interdiction; DISTINCT CONTRACT from the contract
3. Insanity which the parties may enter into upon the
4. Insolvency consummation of the contract.

Before the acceptance is conveyed. Therefore, an option must have its own cause
or consideration, a cause distinct from the
Other Instances: selling price itself. Of course, the consideration
may be pure liberality.
1. When the offeree expressly or impliedly
rejects the offer;
PERFECTION of an OPTION
2. When the offer is accepted with a Since an option is by itself a contract, it is not
qualification or condition (for here, there would perfected unless there is a MEETING OF THE
be merely a counter-offer) MINDS on the option. Thus, the offer to grant
an option, even if founded on a distinct cause
3. When before acceptance is communicated, or consideration, may itself be withdrawn
the subject matter has become illegal or before the acceptance of the offer of an option.
impossible;
NOTE: There is therefore a difference between
4. When the period of time given to the offeree acceptance of the offer of option (which results
within which he must signify his acceptance in the contract of option) and acceptance of the
has already lapsed. object being offered for sale or acceptance of
the offer of sale (which results in the contract
5. When the offer is revoked in due time (that of sale.
is, before the offeror has learned of its
acceptance by the offeree). Article 1325. Unless it appears otherwise,
business advertisements of things for sale are
Article 1324. When the offerer has allowed the not definite offers, but mere invitations to make
offeree a certain period to accept, the offer may an offer.
be withdrawn at any time before acceptance by
communicating such withdrawal, except when BUSINESS ADVERTISEMENTS
the option is founded upon a consideration, as Are business advertisements of things for sale
something paid or promised. (OPTIONS) definite offers?

12
ANSWER: It depends. TWO CLASSES OF VOIDABLE
CONTRACTS
a. If it appears to be a definite offer containing
all the specific particulars needed in a contract, 1. Those were one party is incapacitated to give
it really is a definite offer. consent;

b. If important details are left out, the 2. Those were the consent of one party has been
advertisement is not a definite offer, but a mere vitiated (such as by error, fraud, violence,
invitation to make an offer. intimidation and undue influence).

Article 1326. Advertisements for bidders are NOTE: These contracts in general are valid
simply invitations to make proposals, and the until annulled; however annulment cannot
advertiser is not bound to accept the highest or prosper when they have been ratified.
lowest bidder, unless the contrary appears.

ADVERTISEMENT FOR BIDDERS PERSONS INCAPACITATED TO GIVE


As a GENERAL RULE, the advertiser is not CONSENT (3)
bound to accept the highest or lowest bidder,
UNLESS the contrary appears. 1. Unemancipated Minors;

ACCEPTANCE OF A BID 2. Insane or Demented Persons (unless they


The mere determination of a public official or acted during a lucid interval), drunks and those
board to accept the proposal of a bidder does hypnotized (Article 1328 of the Civil Code);
not constitute a contract; the decision must be
communicated to the bidder. 3. Deaf-Mute, who do not know to write (and
read).
Definition of Terms
NOTE: If they know how to read, but do not
1. LOWEST BIDDER - is he who offers the know how to write, it is submitted that the
lowest price (as in the case of purchase by the contract is valid for then they are capable of
bidder, or a contract for work by the bidder. understanding, and therefore capaciated to give
consent.
2. LOWEST RESPONSIBLE BIDDER
includes not only financial ability but also the Unemancipated Minors
skill and capacity necessary to complete the job These are the minors who have not been
for which the bidder would become emancipated by attainment of the legal age of
answerable. majority.

3. LOWEST AND BEST BIDDER is even In GENERAL, the contracts which they enter
wider and includes not only financial into are VOIDABLE, UNLESS:
responsibility, skill, and capacity, but also the
reputation of the bidders for dealing fairly and a. Upon reaching the age majority, they ratify
honestly with the government, their mechanical the same;
facilities, and business organization
tending to show dispatch in their work and b. They were entered into thru a guardian, and
harmonious relations with the government, the the court having jurisdiction had approved the
magnitude and urgency of the job, the kind and same;
quality of materials to be used, and other
factors, as to which a bidder may offer greater c. They were contracts of life insurance in favor
advantages than another. of their parents, spouse, children, brothers,
sisters, and provided furthermore, that minor is
Article 1327. The following cannot give 18 years old or above.
consent to a contract:
(1) Unemancipated minors; d. They were in the form of savings account
(2) Insane or demented persons, and deaf- provided furthermore that the minor was at
mutes who do not know how to write. least seven years old.

13
e. They were contracts for necessities such as spell are voidable.
food, but here the people who are legally bound
to give them support should pay therefor. LUCID INTERVALS
Even if a person has already been judicially
f. They were contracts where the minor declared insane, and is actually now under
misrepresented his age, and pretended to be one guardianship, he may still enter into a valid
of major age and is, thus in ESTOPPEL. It is contract, provided that it can be shown that at
however, essential here that the other party the time of contracting, he was in a lucid
have been misled. interval. Of course here, he is already presumed
insane, and therefore the sanity must be proved.
NOTE: If both parties to a contract are minors,
the contract is UNENFORCEABLE. (Article Article 1329. The incapacity declared in article
1403, No. 3 of the Code where both parties 1327 is subject to the modifications determined
are incapable of giving consent to a contract) by law, and is understood to be without
prejudice to special disqualifications
Insane or Demented Persons established in the laws.
UNLESS, they acted during a lucid interval.
INCOMPETENT PERSONS Under the
REASON: People who contract must know Rules of Court
what they are entering into. Under the Rules of Court, the following are
considered incompetents, and may be placed
NOTE: No proper declaration of insanity by the under guardianship:
court is required, as long as it is shown that at
the time of contracting, the person was really 1. Those under civil interdiction;
insane. 2. Hospitalized lepers;
3. Prodigals (spendthrifts);
PRESUMPTION OF SANITY: If the 4. Deaf and dumb who are unable to read and
contract was made before the declaration of write;
insanity, the presumption is that he was still 5. Those of unsound mind
sane at the time of contracting. He who alleged 6. Those who by reason of age, disease, weak
the insanity of another at the time of mind, and other similar causes, cannot without
contracting is duty-bound to prove the same, outside aide, take care of themselves and
otherwise, the latters capacity must be manage their property, becoming thereby an
presumed. easy prey for deceit and exploitation.

Deaf-Mutes Who Do Not Know How to Article 1330. A contract where consent is
Write (and Read) given through mistake, violence, intimidation,
If a deaf-mute does not know how to write but undue influence, or fraud is voidable.
he knows how to read, he should be considered
capacitated. CAUSES of VITIATED CONSENT
1. Mistake or Error
PERSONS SPECIALLY DISQUALIFIED 2. Fraud
There are people who are specially disqualified 3. Violence
in certain things. Here the transaction is VOID 4. Intimidation
because the right itself is restricted, that is, the 5. Undue Influence
right is withheld. Mistake and Fraud affect the intellect. They
thus affect cognition. Cognition must be
In the case of mere legal incapacity, the intelligent. Violence, Intimidation, and Undue
transaction is voidable because the right itself Influence affect the will. They thus affect the
is not restricted, but merely its exercise, that is, volition. Volition must be free.
it can still be exercised but under certain
conditions. Mistake and Fraud result in the defects of the
intellect. The others result in the defects of the
Article 1328. Contracts entered into during a will.
lucid interval are valid. Contracts agreed to in
a state of drunkenness or during a hypnotic

14
NATURE OF VOIDABLE CONTRACTS computation, would ordinarily give rise merely
A voidable contract is binding and valid, unless to correction and not annulment of the contract.
annulled by a proper action in court. It is Note, however the difference between error in
however, susceptible of ratification before quantity and error in account. He who alleges
annulment. Annulment may be had even if must prove the same.
there be no damage to the contracting parties.
2. The error must be excusable (not caused by
Clear and Convincing Evidence on the Vice negligence);
of Consent The error does not vitiate consent if the party in
There must be clear and convincing evidence error was negligent, or if having had an
of the presence of vitiated consent. Mere opportunity to ascertain the truth, he did not do
preponderance of evidence on this matter is not so.
sufficient.
There is no mistake if the party alleging it knew
Article 1331. In order that mistake may the doubt, contingency or risk affecting the
invalidate consent, it should refer to the object of the contract. Error as to how much the
substance of the thing which is the object of the profit a person can make because of the
contract, or to those conditions which have transaction cannot annul the contract because
principally moved one or both parties to enter in many cases, this is merely speculative.
into the contract.
3. The error must be a mistake of fact, and not
Mistake as to the identity or qualifications of of law.
one of the parties will vitiate consent only when This is because ignorance of the law excuses no
such identity or qualifications have been the one from compliance therewith. Error of law,
principal cause of the contract. however, on a doubtful or difficult question can
exist together with good faith.
A simple mistake of account shall give rise to
its correction. NOTE: Mutual error as to the legal effect of an
agreement when the real purpose of the parties
MISTAKE or ERROR is frustrated, may vitiate consent. (Article 1334,
It is a false belief about something. NCC) Legal effect here refers to the rights of
the parties as stated in the legal provisions.
REQUISITES FOR MISTAKE TO
VITIATE CONSENT (3) Article 1332. When one of the parties is unable
to read, or if the contract is in a language not
1. The error must be substantial regarding: understood by him, and mistake or fraud is
a. The object of the contract alleged, the person enforcing the contract must
b. The conditions which principally moved or show that the terms thereof have been fully
induced one of the parties (error in quality or in explained to the former.
quantity)
RULE IN CASE OF INABILITY TO READ
c. Identity or qualifications (error in personae) OR UNDERSTAND
but only if such was the principal cause of the
contract. Reason for the Article:
This rule is especially necessary in the
The error is substantial if because of it, the Philippines where unfortunately there is still a
party gave his consent. Therefore, if a party fairly large number of illiterates, and where
would still have entered into the contract even documents are usually drawn up in English.
if he had known of the error, the error is not
substantial. Presumption
The natural presumption, of course, is that one
NOTE: Error as to personal motive does not always acts with due care and signs with full
vitiate consent. knowledge of all the contents of a document.
And this is true even if the mind of the party
NOTE: A simple mistake as to account, caused signing was confused at the time of signing, as
for example by wrong arithmetical long as he still knew what he was doing. He,

15
thus, cannot repudiate the transaction. doubtful or difficult question of law, or on the
construction or application of law, this is
When Presumption Does Not Apply analogous to a mistake of fact.
The presumption referred to cannot apply in the
cases contemplated under this Article: DISTINGUISHED FROM THE REMEDY
OF REFORMATION
1. When one of the parties us unable to read This Article must be distinguished from Article
(including a blind person); 1361 where the remedy is reformation, not
2. Or if the contract is in language not annulment. Thus, Article 1361 of the Civil
understood by one of the parties. Code reads: When a mutual mistake of the
parties causes the failure of the instrument to
In both cases, the person enforcing the contract disclose their real agreement, said instrument
must show that the terms thereof have been may be reformed.
fully explained to the former.
NOTE: Under Article 1361, the real agreement
Article 1333. There is no mistake if the party of the parties is not disclosed; in Article 1334,
alleging it knew the doubt, contingency or risk the error is as to legal effect of the agreement.
affecting the object of the contract.
Knowledge of Doubt or Risk Does Not Article 1335. There is violence when in order
Vitiate Consent to wrest consent, serious or irresistible force is
employed. (VIOLENCE)
It is to be assumed here that the party was
willing to take the risk. This is particularly true There is intimidation when one of the
in contracts which are evidently aleatory in contracting parties is compelled by a
nature. reasonable and well-grounded fear of an
imminent and grave evil upon his person or
Mistake Caused by Inexcusable Negligence property, or upon the person or property of his
If mistake is caused by inexcusable negligence, spouse, descendants or ascendants, to give his
the contract cannot be annulled. consent. (INTIMIDATION)

Article 1334. Mutual error as to the legal effect To determine the degree of intimidation, the
of an agreement when the real purpose of the age, sex and condition of the person shall be
parties is frustrated, may vitiate consent. borne in mind.
(MUTUAL ERROR)
A threat to enforce one's claim through
REQUISITES FOR MUTUAL ERROR TO competent authority, if the claim is just or legal,
VITIATE CONSENT (3) does not vitiate consent.

1. There must be mutual error; VIOLENCE and INTIMIDATION


VIOLENCE refers to physical coercion;
2. The error must refer to the legal effect of the INTIMIDATION to moral coercion.
agreement.
Example:
3. The real purpose of the parties is frustrated If a person signs a contract only because a gun
Example: is pointed at him, this is intimidation because
he is afraid he would be killed. But if he signs
A and B entered into a contract, which they because his left hand is being twisted painfully,
intended should result in co-ownership this is violence or force.
between hem, but which turned out later to be
a mortgage, as a result of their mutual error as REQUISITES for VIOLENCE TO
to the legal effect of the agreement. Here the VITIATE CONSENT (2)
contract is voidable.
1. Employment of serious or irresistible force;
REASON for the ARTICLE:
Mistake of law does not generally vitiate 2. It must have been the reason why the contract
consent, BUT when there is a mistake on a was entered into.

16
REQUISITE for INTIMIDATION TO PERSON)
VITIATE CONSENT (5)
Article 1337. There is undue influence when a
1. Reasonable and well-grounded fear. person takes improper advantage of his power
Whether the fear is reasonable and well- over the will of another, depriving the latter of
grounded or not depends upon many a reasonable freedom of choice. (UNDUE
circumstances, including the age, condition, INFLUENCE)
and sex of the person concerned.
The following circumstances shall be
The fear is reasonable and well-grounded when considered: the confidential, family, spiritual
those who threaten have power, and when and other relations between the parties, or the
maltreatment has accompanied the threat. fact that the person alleged to have been unduly
influenced was suffering from mental
2. Of an imminent and grave evil weakness, or was ignorant or in financial
This again depends on the circumstances, distress.
particularly, the age, sex, or condition of the
person threatened. REQUISITES FOR UNDUE INFLUENCE
TO VITIATE CONSENT (3)
3. Upon his person, property, or upon the
person or property of his spouse, descendants, 1. Improper advantage
or ascendants
It is believed that threat to honor, chastity, and 2. Power over the will of another
dignity may be classified under threat to
person. 3. Deprivation of the latters will of a
reasonable freedom of choice.
THREAT TO THE LIFE OF ONES
FIANCEE: It is submitted that the provision is The influence exerted must be of a kind that
to be liberally interpreted for indeed consent overpowers the mind as to destroy the partys
here is vitiated just the same. free agency.

4. It must have been the reason why the FACTORS TO BE CONSIDERED:


contract was entered into
1. Confidential, family, spiritual and other
5. The threat must be of unjust act; an relations between the parties;
actionable wrong. 2. Mental weakness;
3. Ignorance;
NOTE: A threat to enforce ones claim thru 4. Financial distress
competent authority, if the claim is just and
legal, does not vitiate consent. NOTE: To vitiate consent, the influence must
be UNDUE. If the influence is due or
A THREAT TO PROSECUTE is not allowable, as when caused by solicitation,
considered as intimidation. But, of course, an importunity, argument, and persuasion, same is
agreement not to prosecute on account of crime not prohibited by law, morals, or equity.
is against public policy.
UNDUE INFLUENCE CAUSED BY THIRD
REVERENTIAL FEAR PERSONS
If a contract is signed merely because of fear
of displeasing persons to whom obedience and It also vitiates consent, just like in the case of
respect are due, the contract is still valid for by violence and intimidation.
itself reverential fear is not wrong.
Contracts of Adhesion
Article 1336. Violence or intimidation shall Contracts where one party merely signs
annul the obligation, although it may have been carefully prepared contracts by big companies
employed by a third person who did not take (adhesions contracts or contract of adherence)
part in the contract. (VIOLATION OR should be strictly interpreted against the
INTIMIDATION CAUSED BY THIRD company, and liberally in favor of the

17
individual, because the individual is usually
helpless to bargain for better terms. Entrance into a Ridiculous Contract
Suppose a man enters into a ridiculous contract
Article 1338. There is fraud when, through because of a wrong judgment although he is
insidious words or machinations of one of the well in possession of his mental faculties, will
contracting parties, the other is induced to enter the court grant a relief by annulling the
into a contract which, without them, he would contract?
not have agreed. (FRAUD)
ANSWER: NO, for in this case, it was the
KINDS OF FRAUD mans own fault. The Supreme Court said: All
men are presumed to be sane and normal and
1. Fraud in the Celebration of the Contract subject to be moved by substantially the same
this is fraud proper motives. When of age and sane, they must take
care of themselves.
a. Dolo Causante (CAUSAL
FRAUD) here, were it not for the The fact that one may be worsted by another,
fraud, the other party would not have of itself, furnishes no cause of complaint. One
consented. The contract is voidable. man cannot complain because another is more
able, or better trained, or has a better sense of
b. Dolo Incidente (INCIDENTAL judgment than he has; and when the two meet
FRAUD) here, even without the on FAIR FIELD, the inferior cannot murmur if
fraud, the parties would have agreed the battle goes against him.
just the same, hence the fraud was
only incidental in causing consent. The law furnishes no protection to the inferior
Effect of this kind of fraud: The simply because he is inferior, anymore than it
contract is valid, but there can be protects the strong because he is strong. The
action for damages. law furnished protection to both alike, to one
no more or less than the other.
2. Fraud in the Performance of the Obligations
Stipulated in the Contract Article 1339. Failure to disclose facts, when
there is a duty to reveal them, as when the
This kind of fraud presupposes the existence of parties are bound by confidential relations,
an already perfected contract. constitutes fraud. (CONCEALMENT OF
FACTS)
DOLO CAUSANTE (Causal Fraud)
This is the use of insidious words and FAILURE TO DISCLOSE FACTS
machinations by one of the contracting parties (CONCEALMENT)
to induce the other party to enter into a contract,
without them, he would not have agreed to. a. Failure to disclose facts (CONCEALMENT)
constitutes fraud, when there is a duty to reveal
REQUISITES of DOLO CAUSANTE (4) them.

1. The fraud must be material and serious, that b. There is a DUTY TO REVEAL, for
is, it really induced that consent. example, when the parties are bound by
confidential relations as in the case of partners.
2. The fraud must have been employed by only
one of the contracting parties, because if both Article 1340. The usual exaggerations in trade,
committed fraud, the contract would remain when the other party had an opportunity to
valid. know the facts, are not in themselves
3. There must be a deliberate intent to deceive fraudulent.
or to induce; therefore, misrepresentation in
good faith is not fraud. USUAL EXAGGERATIONS IN TRADE
This Article stresses the RULE of CAVEAT
4. The other party must have relied on the EMPTOR, let the buyer beware.
untrue statement, and must himself not be
guilty of negligence in ascertaining the truth The maxim simply means that a buyer must be

18
on his guard. It is his duty to check the title of annulment of the contract with X?
the seller; otherwise the buyer gets the object at ASNWER: No, because X was not party to the
his own risk. fraud.
Article 1343. Misrepresentation made in good
The USUAL EXAGGERATIONS IN TRADE faith is not fraudulent but may constitute error.
(dealers talk) constitutes tolerated fraud when
the other party had an opportunity to know the MISREPRESENTATION MADE IN
facts. GOOD FAITH

Article 1341. A mere expression of an opinion Example:


does not signify fraud, unless made by an A bought a certain article from B. The article
expert and the other party has relied on the was needed for As radio. B honestly but
former's special knowledge. mistakenly assured A that the Article was the
proper object. May the contract be annulled?
MERE EXPRESSION OF AN OPINION
Answer:
RULE: The mere expression of an opinion is Yes, not on the ground of fraud, for the
not fraudulent. misrepresentation was honest, but on the
EXCEPTION: If the opinion was given by an ground of mistake or substantial error.
expert, and other party relied on his special
knowledge, the contract is voidable on the Article 1344. In order that fraud may make a
ground of fraud contract voidable, it should be serious and
should not have been employed by both
REASON for the EXCEPTION: contracting parties.
The opinion of an expert is almost in the same Incidental fraud only obliges the person
category as a fact, particularly when this employing it to pay damages. (INCIDENTAL
experts knowledge is relied upon by the other FRAUD)
party.
REQUISITES FOR FRAUD TO VITIATE
Article 1342. Misrepresentation by a third CONSENT
person does not vitiate consent, unless such
misrepresentation has created substantial 1. The fraud must be serious;
mistake and the same is mutual.
2. The parties must not be in pari delicto
MISREPRESENTATION BY THIRD (mutual guilt); otherwise, neither party may ask
PERSON for annulment. The contract would, therefore,
How does the participation of a third person in be considered valid.
force and in fraud/misrepresentation differ?
INCIDENTAL FRAUD
a. FORCE and INTIMIDATION BY A THIRD This should not be confused with causal fraud.
PERSON makes the contract voidable. Incidental fraud is not a cause for annulment.
Article 1345. Simulation of a contract may be
b. FRAUD BY A THIRD PERSON does not absolute or relative. The former takes place
make the contract voidable, UNLESS: when the parties do not intend to be bound at
1. The representation has created substantial all; the latter, when the parties conceal their
mistake; and true agreement.
2. The mistake is mutual.
SIMULATION OF CONTRACT
In this case, the contract can be annulled, not It is the process of intentionally deceiving
principally on the ground of fraud, but on the others by producing the appearance of a
ground of error or mistake. contract that really does not exist (absolute
simulation) or which is different from the true
CASE: agreement (relative simulation).
A and B entered into a contract with X. As
consent was obtained only because B had
deceived or defrauded him. May A ask for

19
REQUISITES FOR SIMULATION OBJECTS OF CONTRACTS

1. An outward declaration of will different Article 1347. All things which are not outside
from the will of the parties; the commerce of men, including future things,
may be the object of a contract. All rights which
2. The false appearance must have been are not intransmissible may also be the object
intended by mutual agreement; 3. The purpose of contracts.
is to deceive third persons.
Article 1346. An absolutely simulated or No contract may be entered into upon future
fictitious contract is void. A relative inheritance except in cases expressly
simulation, when it does not prejudice a third authorized by law.
person and is not intended for any purpose
contrary to law, morals, good customs, public All services which are not contrary to law,
order or public policy binds the parties to their morals, good customs, public order or public
real agreement. policy may likewise be the object of a contract.

KINDS OF SIMULATED CONTRACT (2) OBJECT (SUBJECT MATTER) OF A


CONTRACT
1. ABSOLUTELY Simulated Contracts The object of a contract is really to create or to
(Fictitious Contract) end obligation, which in turn, may involve
- Here the parties do not intend to be things or services. Hence, elliptically, it may be
bound; - Effect: The contract is VOID. said that the object of a contract is a thing or
service.
2. RELATIVELY Simulated Contracts
(Disguised Contract) REQUISITES (5)
- Here the parties conceal their true
agreement. 1. The thing or service must be within the
commerce of man;
- Effect: The parties are bound to the
real or true agreement, except: a. If the contract 2. It must be transmissible;
should prejudice a third person;
b. Or if the purpose is contrary to law, morals, 3. IT must not be contrary to law, morals, good
good customs, public order, or public policy. customs, public policy, or public order;

NOTE: Third persons should not be prejudiced; 4. It must not be impossible;


therefore as to them, the apparent or ostensible
contract is the one valid. 5. It must be determinate as to its kind or
Reason: The contracting parties are in estoppel, determinable without the need of a new
and they should be penalized for theri contract or agreement.
deception.
Future Things as Object of a Contract
ABSOLUTELY SIMULATED FUTURE THINGS may be the object of a
CONTRACT versus ILLEGAL contract; thus, the future harvest of sugarcane
CONTRACT in a specific field may be sold, BUT by express
In SIMULATION, the contract is not really provision of law, said future property may not
desired to produce an illegal effect or in any be donated.
way alter the juridical relation or situation of
the parties. FUTURE INHERITANCE (one where the
source of property is still alive) cannot be the
ILLEGAL CONTRACT is intended to be real subject of a contract, except:
and effective, and entered in such form as to
circumvent a prohibited act 1. In the case of marriage settlement;

2. In the case of partitions or property inter


vivos by the creased.

20
Future inheritance is any property or right not benefit which is remunerated;
in existence or capable of determination, at the
time of the contract, that a person may in the And in CONTRACTS OF PURE
future acquire by succession. BENEFICENCE, the mere liberality of the
benefactor.
Article 1348. Impossible things or services
cannot be the object of contracts. CAUSE Defined
It is the essential and impelling reason why a
IMPOSSIBILITY OF THINGS OR party assumes obligation. Strictly speaking,
SERVICES there is no cause of contract, but there is a cause
for an obligation.
Impossibility may be:
1. Because of the nature of the transaction or CAUSE versus SUBJECT MATTER
because of the law; The difference is only a matter of viewpoint in
some way, because what may be the subject
2. Absolute (objectively impossible) here, no matter for one party will be the cause and
one can do it consideration for the other party.

3. Relative (subjectively impossible) here, the Example:


particular debtor cannot comply A is obliged to sing at a concert, in return for
which she will receive a car from B.
NOTE: Generally, the impossibility referred to
by the law is absolute impossibility. Regarding A, the subject matter is the singing,
and the cause is the car. Regarding B, the
Impossibility VERSUS Mere Difficulty subject matter is the car, and the cause is the
IMPOSSIBLITY must not be confused with singing.
difficulty. Hence, a showing of mere
inconvenience, unexpected impediments, or Hence, we can form this GENERAL
increased expenses is not enough. CONCLUSION: In reciprocal contracts, the
Article 1349. The object of every contract must subject matter for one is the cause for the other,
be determinate as to its kind. The fact that the and vice versa.
quantity is not determinate shall not be an
obstacle to the existence of the contract, CLASSIFICATION OF CONTRACTS AS
provided it is possible to determine the same, TO CAUSE
without the need of a new contract between the
parties. 1. ONEROUS CONTRACT here, the cause
is, for each contracting party, the prestation or
DETERMINATE OR DETERMINABLE promise of a thing or service by the other.
OBJECT OF A CONTRACT
Example: Contract of Sale
The object must be DETERMINATE or
DETERMINABLE (without need of a new 2. REMUNERATORY CONTRACT that
agreement); past service or benefit which by itself is a
recoverable debt.
If the object is not determinate or determinable,
the contract is void for want of essential 3. GRATUITOUS (Contract of Pure
requisite the object of the contract. Beneficence) here, the cause is mere
liberality or generosity.
CAUSE OF CONTRACTS
Example: Pure Donation
Article 1350. In ONEROUS CONTRACT, the
cause is understood to be, for each contracting CAUSE IN ACCESSORY CONTRACTS
party, the prestation or promise of a thing or Like in mortgage or pledge, the cause is the
service by the other; same cause for the principal contract of loan.

In REMUNERATORY ones, the service or CAUSE IN ACCESSORY CONTRACTS OF

21
PERSONAL GUARANTY (like guaranty or REQUISITES FOR A VALID OF CAUSE
suretyship), generally is gratuitous, unless (3)
there is stipulation to the contrary.
1. It must be PRESENT (at the time the
Moral Obligation as a Valid Cause of a Civil contract was entered into);
Obligation 2. It must be TRUE (not false);
A moral obligation may be the cause of a civil 3. It must be LAWFUL (not contrary to law,
obligation. Of course, if the moral obligation morals, good customs, public order, and public
really does not exist, there is no valid cause, as policy).
when the promise was made on the erroneous
belief that one was morally responsible for the Existing Cause
failure of a certain particular enterprise. If there is no cause whatsoever, the contract is
void.
Article 1351. The particular motives of the
parties in entering into a contract are different NOTE: The cause must exist at the time of the
from the cause thereof. perfection of the contract; it need not later exist.

MOTIVES OF THE PARTIES for Just because the seller was not the owner of the
ENTERING INTO A CONTRACT thing sold, it does not mean that there was lack
Motives do not enter at all in the validity or of cause, for after all, there is warranty; nor
invalidity of cause or consideration of a does a failure to pay the price, result in a lack
contract. of cause.

MOTIVE versus CAUSE True Cause


If the cause is false, the contract is not valid
1. The MOTIVE of a person may very although UNLESS some other cause which is lawful
he enters into the same kind of contract; the really exists.
CAUSE is always the same.
Lawful Cause
2. The MOTIVE may be unknown to the other; If the cause is unlawful, the transaction is null
the cause is always known. 3. The presence of and void.
MOTIVE cannot cure the absence of CAUSE. If a person claims that some parts of a contract
are illegal but the rest are valid, he has the
NOTE: The motives which impel one to sale or burden of showing which parts are supported
purchase are not always the consideration by a lawful cause; otherwise the whole contract
(cause) of the contract as that term is shall be considered void.
understood in law. With ones motives the law
cannot deal in civil actions of this character, While an absolutely simulated contract can
while with the consideration the law is always have no effect, a contract with an illegal cause
concerned. (Supreme Courts Statement) may produce effect under certain
circumstances where the parties are not of
ILLEGAL CAUSE versus ILLEGAL equal guilt.
MOTIVE
An ILLEGAL CAUSE makes a contract void; EFFECT IF THE CAUSE IS ILLEGAL
an ILLEGAL MOTIVE does not necessarily
render the transaction void. 1. If one party is innocent, he cannot be
compelled to perform his obligation, and he
Article 1352. Contracts without cause, or with may recover what he has already given;
unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law, 2. If both parties are guilty, in general, neither
morals, good customs, public order or public can sue the other, the law leaving them as they
policy. are. But certain exceptions exist.

Article 1353. The statement of a false cause in


contracts shall render them void, if it should not
be proved that they were founded upon another

22
cause which is true and lawful. which he is entitled.

STATEMENT OF FALSE CAUSE NOTE: Mere inadequacy of a price when both


Just because the cause stated is false does not parties are in a position to form an independent
necessarily mean that the contract is void. judgment concerning the transaction, is not a
REASON: The parties are given a chance to sufficient ground for the cancellation of a
show that a cause really exists, and that said contract.
cause is true and lawful.
Lesion may be evidence of the presence of
Thus, under this Article, it would seem that the fraud, mistake, or undue influence.
contract with a statement of a false cause is not
void, but merely revocable or voidable. FORMS OF CONTRACT

Article 1354. Although the cause is not stated Article 1356. Contracts shall be obligatory, in
in the contract, it is presumed that it exists and whatever form they may have been entered
is lawful, unless the debtor proves the contrary. into, provided all the essential requisites for
their validity are present. However, when the
PRESEUMPTION THAT CAUSE EXISTS law requires that a contract be in some form in
It is necessary that the cause must exist. BUT it order that it may be valid or enforceable, or that
is not necessary to state the cause in the a contract be proved in a certain way, that
contract. REASON: It is presumed that the requirement is absolute and indispensable. In
cause exists and is lawful, unless the debtor such cases, the right of the parties stated in the
proves the contrary. following article cannot be exercised.

Article 1355. Except in cases specified by law, GENERAL RULE


lesion or inadequacy of cause shall not In general, form does not matter for the validity
invalidate a contract, unless there has been of a contract. It is enough that there be consent,
fraud, mistake or undue influence. subject matter, and cause. This rule applies,
however to CONSENSUAL CONTRACTS.
LESION
It is inadequacy of cause, like an insufficient NOTE:
price for a thing sold. FORMAL CONTRACTS (Solemn Contracts)
require a certain specified form, in addition to
RULES ON LESION consent, subject matter, and cause.

GENERAL RULE: Lesion or inadequacy of REAL CONTRACTS require delivery to be


price does not invalidate a contract. valid as a real contract even as between the
EXCEPTIONS: parties, in addition to consent, subject matter,
and cause.
1. When together with lesion, there has been
fraud, mistake, or undue influence. Under Article 1356, all contracts are valid
regardless of form. There are only TWO
2. In cases expressly provided by law (in the EXCEPTIONS:
following, the contracts may be rescinded):
1. When the contractual form is needed for
- Those which are entered into by validity as in the case of donation of a real
guardians whenever the wards they represent property which needs a public instrument;
suffer lesion by more than one-fourth of the 2. When form is needed for enforceability
value of the things which are the objects under the Statute of Frauds.
thereof.
- Those agreed upon in representation NOTE: When a party admits the genuineness
of absentees, if the latter suffer the lesion stated of the document, he also admits that the words
in the preceding paragraph; and figures of the document are set out
- Partition among co-heirs when correctly, and that he waives all formal
anyone of them received things with a value requisites required by law, such as the oath,
less by at-least one-fourth than the share to acknowledgement, or revenue stamps.

23
WHEN FORM IS IMPORTANT requirement is absolute and indispensable. In
such cases, the right of the parties stated in the
1. For VALIDITY: This is true in formal or following Article (1357) the right to compel
solemn contracts cannot be exercised.

2. For ENFORCEABILITY: This is true for the NOTE: A contract partly written and partly oral
agreements enumerated under the Statute of is, in legal effect, an ORAL CONTRACT.
Frauds, but of course this requirement may be
waived by acceptance of benefits (partial) or by Article 1358. The following must appear in a
failure to object to the presentation of oral public document:
(parol) evidence.
(1) Acts and contracts which have for their
3. For CONVENIENCE: This is true for the object the creation, transmission, modification
contracts enumerated for example under or extinguishment of real rights over
Article 1385, Civil Code. immovable property; sales of real property or
EXAMPLES OF FORMAL CONTRACTS: of an interest therein are governed by articles
1403, No. 2, and 1405;
1. Donations of real property these require a
public instrument (2) The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
2. Donations of personal property if donation partnership of gains;
exceed P5,000 requires a written contract
(3) The power to administer property, or any
3. Stipulation to pay interest on loans, interest other power which has for its object an act
for the use of the money which must be in appearing or which should appear in a public
writing 4. Sale of land thru agent here, the document, or should prejudice a third person;
authority
5. Contracts of antichresis (4) The cession of actions or rights proceeding
from an act appearing in a public document.
Article 1357. If the law requires a document or
other special form, as in the acts and contracts All other contracts where the amount involved
enumerated in the following article, the exceeds five hundred pesos must appear in
contracting parties may compel each other to writing, even a private one. But sales of goods,
observe that form, once the contract has been chattels or things in action are governed by
perfected. This right may be exercised articles, 1403, No. 2 and 1405.
simultaneously with the action upon the
contract. FORM FOR CONVENIENCE
The necessity for the public document in the
RIGHT OF ONE PARTY TO COMPEL contracts enumerated here is only for
THE OTHER TO EXECUTE THE convenience, not for validity or enforceability.
NECESSARY FORM
The Article applies only when form is need Article 1358, which requires the embodiment
only FOR CONVENIENCE, not for validity or of certain contracts in a public instrument, is
enforceability. only for convenience, and registration of the
instrument only adversely affects third parties.
In other words, before the contracting may be
compelled to execute the needed the form, it is Formal requirements are for the benefit of third
ESSENTIAL that the contract be: parties. NON-COMPLIANCE therewith does
not adversely affect the validity of the contract
a. Perfected (valid) nor the contractual rights and obligations of the
parties thereunder.
b. Enforceable under Statute of Frauds
PROBLEM:
NOTE: Under Article 1356 says that when the A loan was contracted orally. If the amount is
law requires that a contract be in some form in P800, may the lender recover the sum lent?
order that it may valid and enforceable, that

24
ANSWER: of the parties, the proper remedy is not
Yes, because although the law says that reformation of the instrument but annulment of
contracts involving more than P500 must the contract. (ANNULMENT instead of
appear in writing, even a private one, still this REFORMATION)
requirement is only for convenience, not for
validity. REFORMATION versus ANNULMENT
Where there has been a meeting of the minds,
NOTE: All the lender has to do here is to avail but there is mistake or fraud, inequitable
of himself of Article 1357, the right to compel conduct or accident in the contract as written,
the execution of the needed instrument. the remedy is REFORMATION.
Moreover, this right may be exercised
simultaneously with the action upon the When there has been no meeting of the minds,
contract. because of vitiated consent, the proper remedy
is ANNULMENT.
NOTE: A stipulation, however, to pay interest
on loans must be in writing. If not, Article 1357 REFORMATION does not invalidate the
cannot be availed of. If not in writing, the contract. ANNULMENT invalidates a
stipulation as to interest is void, but the loan contract.
itself is valid.
Example NO.1:
REFORMATION OF INSTRUMENT If the seller was selling for one million but the
buyer though he was buying for P500,000 and
REFORMATION DEFINED the contract states one million, there has been
Reformation is that remedy by means of which no meeting of the minds and the remedy is
a written instrument is made or construed so as ANNULMENT.
to express or conform to the real intention of
the parties when some error or mistake has Example NO. 2:
been committed. But, if both agreed on P500,000 and the
contract as written states one million, the
Reason for Reformation remedy is REFORMATION, because here,
EQUITY orders the reformation of an there has been a meeting of the minds.
instrument in order that the true intention of the
contracting parties may be expressed. The REQUISITES FOR THE ACTION OF
courts do not attempt to make another contract REFORMATION (5)
for the parties. The RATIONALE of the
doctrine is that it would be unjust and 1. There must be meeting of the minds;
inequitable to allow the enforcement of a
written instrument which does not reflect or 2. The true intention of the parties is not
disclose the real meeting of the minds of the expressed in the instrument;
parties.
3. There must be a clear and convincing proof
The purpose of reformation is to forestall the thereof.
effects of mistake, fraud, inequitable conduct NOTE: Mere preponderance off evidence here
or accident. would not be sufficient.

Article 1359. When, there having been a 4. It must be brought within the proper
meeting of the minds of the parties to a prescriptive period.
contract, their true intention is not expressed in
the instrument purporting to embody the 5. The document must not refer to a simple
agreement, by reason of mistake, fraud, unconditional donation inter vivos or to wills or
inequitable conduct or accident, one of the to a contract where the real agreement is void.
parties may ask for the reformation of the
instrument to the end that such true intention Article 1360. The principles of the general law
may be expressed. (REFORMATION) on the reformation of instruments are hereby
If mistake, fraud, inequitable conduct, or adopted insofar as they are not in conflict with
accident has prevented a meeting of the minds the provisions of this Code.

25
of the person drafting the instrument or of the
Article 1361. When a mutual mistake of the clerk or typist, the instrument does not express
parties causes the failure of the instrument to the true intention of the parties, the courts may
disclose their real agreement, said instrument order that the instrument be reformed.
may be reformed.
FAILURE TO CONVEY THE TRUE
WHEN REFORMATION MAY BE INTENT
ASKED BECAUSE OF MUTUAL The COURT may order the reformation of the
MISTAKE instrument if the instrument does not convey
Under this Article, the mistake must be mutual. the true intention of the parties BECAUSE of
the:
The mistake may be unilateral under conditions a. Ignorance
set forth in Articles 1362 and 1363 of the Civil b. Lack of Skill
Code. The mistake must be of fact. Therefore, c. Negligence
generally, an error of law is not enough. d. Bad faith of the DRAFTER of the
instrument; or the CLERK; or the
Example: TYPIST.
A sold to B a house at 16 San Isidro, Malate. In
the written public document, both forgot the Article 1365. If two parties agree upon the
true number of the house and instead wrote on mortgage or pledge of real or personal
the instrument No. 18 San Isidro, Malate. property, but the instrument states that the
Here reformation of the instrument is proper. property is sold absolutely or with a right of
repurchase, reformation of the instrument is
REQUISITES: proper.

1. The mistake should be of fact; How to Judge the Parties Intent


2. The mistake should be proved by clear and The intention of the parties can be judged from
convincing evidence; their contemporaneous and subsequent acts.
3. The mistake should be common to both
parties to the instrument (where mutual mistake Article 1366. There shall be no reformation in
is alleged). the following cases:
(1) Simple donations inter vivos wherein no
Article 1362. If one party was mistaken and the condition is imposed;
other acted fraudulently or inequitably in such
a way that the instrument does not show their (2) Wills;
true intention, the former may ask for the
reformation of the instrument. (3) When the real agreement is void.

UNILATERAL MISTAKE WHEN REFORMATION IS NOT


In this Article, the mistake is unilateral but the ALLOWED (3)
other party acted fraudulently or inequitably.
The person who acted by mistake may ask for 1. In simple donations inter vivos wherein no
the reformation of the instrument. condition is imposed.

Article 1363. When one party was mistaken REASON: Donations are generally acts of pure
and the other knew or believed that the liberality. However, if the donation is
instrument did not state their real agreement, conditional, reformation may be resorted to so
but concealed that fact from the former, the that the real or true conditions intended by the
instrument may be reformed. donor might be brought out.

Here again, the mistake is UNILATERAL but 2. In wills.


the other party is guilty of concealment. Only
the party in good faith can ask for reformation. REASON: The making of a will is strictly a
personal one. Moreover, a will may be revoked
Article 1364. When through the ignorance, anytime. However, after the death of the
lack of skill, negligence or bad faith on the part testator, errors or imperfections in descriptions

26
may be corrected under Article 789 of the Civil reformation of instrument shall be governed by
Code but not the manner of property disposal. rules of court to be promulgated by the
Supreme Court.
3. When the real agreement is void.
INTERPRETATION OF CONTRACTS
REASON: Reformation would be useless.
Article 1370. If the terms of a contract are clear
4. When one of the parties has brought an and leave no doubt upon the intention of the
action to enforce the instrument, he cannot contracting parties, the literal meaning of its
subsequently ask for its reformation. stipulations shall control.

Article 1367. When one of the parties has If the words appear to be contrary to the evident
brought an action to enforce the instrument, he intention of the parties, the latter shall prevail
cannot subsequently ask for its reformation. over the former.

Effect of An Action To Enforce the RULE IN CASE OF CONFLICT


Instrument In case of conflict between the words of the
This Article presents another instance when contract and the evident intentions of the
reformation cannot prosper. BASIS: Estoppel, parties which one must prevail?
waiver, or ratification.
ANSWER:
Article 1368. Reformation may be ordered at The INTENTION of the parties must
the instance of either party or his successors in PREVAIL. Let us interpret not by the letter
interest, if the mistake was mutual; otherwise, that killeth but by the spirit that giveth life.
upon petition of the injured party, or his heirs
and assigns. Article 1371. In order to judge the intention of
the contracting parties, their contemporaneous
PLAINTIFFS IN ACTION FOR and subsequent acts shall be principally
REFORMATION considered. (HOW TO JUDGE THE INTENT
OF THE PARTIES)
1. If the MISTAKE is MUTUAL either party
or his successors-in-interest Article 1372. However general the terms of a
contract may be, they shall not be understood
2. In all other cases the injured party; his heirs to comprehend things that are distinct and cases
or assigns. that are different from those upon which the
parties intended to agree. (EFFECT OF THE
What Complaint Must Allege USE OF GENERLA TERMS)
Before reformation can be granted, the
complaint must allege: NOTE: Special intent prevails over general
intent.
1. That the instrument to be reformed does not
express the real agreement or intention of the Article 1373. If some stipulation of any
parties; contract should admit of several meanings, it
shall be understood as bearing that import
2. What real agreement or intention was; which is most adequate to render it effectual.

NOTE: Courts do not reform instruments EFFECT OF AN INTERPRETATION


merely for the sake of reforming them, but only UPHOLDING THE VALIDITY OF THE
to enable some party to assert rights under them CONTRACT
as reformed. If one interpretation makes a contract valid and
illegal, the former interpretation must prevail.
Prescriptive Period
The period of prescription for the reformation Article 1374. The various stipulations of a
of a contract is TEN (10) YEARS. contract shall be interpreted together,
attributing to the doubtful ones that sense
Article 1369. The procedure for the which may result from all of them taken jointly.

27
Article 1375. Words which may have If the contract is ONEROUS, the doubt
different significations shall be understood shall be settled in favor of the greatest
in that which is most in keeping with the reciprocity of interests.
nature and object of the contract.
If the doubts are cast upon the principal
If this cannot be determined, then the terms OBJECT of the contract in such a way that
of a writing are presumed to have been used it CANNOT BE KNOWN what may have
in their primary and general acceptation. been the intention or will of the parties, the
CONTRACT shall be null and VOID.
NOTE: Evidence is admissible to show that (RULE IN CASE OF DOUBTS AS TO THE
WORDS have a local, technical, or PRINCIPAL OBJECT)
otherwise peculiar signification and were
so used and understood in the particular Article 1379. The principles of
instance, in which case the agreement interpretation stated in Rule 123 of the Rules
must be construed accordingly. of Court shall likewise be observed in the
construction of contracts.
Article 1376. The usage or custom of the
place shall be borne in mind in the DEFECTIVE CONTRACTS
interpretation of the ambiguities of a
contract, and shall fill the omission of FOUR KINDS OF DEFECTIVE CONTRACTS
stipulations which are ordinarily established.
1. RESCISSIBLE CONTRACT This is
Pleading and Proof of Customs and Usages valid until rescinded; there is a sort of
extrinsic defect consisting of economic
a. If the customs and usages are damage or lesion.
GENERAL, they need not be pleaded. 2. VOIDABLE CONTRACT This is valid until
Hence, even without previously being annulled; it cannot be annulled, however, if there
alleged, they may be proved in court. has been ratification. The defect is more or less
intrinsic, as in the case of vitiated consent
b. If the customs and the usages are
merely LOCAL, then they have to be both 3. UNENFORCEABLE CONTRACT This
alleged (pleaded and proved) contract cannot be sued upon or enforced unless it is
ratified. In a way, it may be considered a voidable
Article 1377. The interpretation of obscure contract, that is, it has no effect now, but it may be
words or stipulations in a contract shall not effective upon ratification.
favor the party who caused the obscurity.
4. VOID CONTRACT This is really inexistent or
REASON for the Law: Since he caused illegal. It has no effect at all. It cannot be ratified or
the obscurity, the party who drew up the validated.
contract with ambiguous terms should be
responsible therefor; so the obscurity must NOTE: The above-named defective contracts are
be construed against him. The drafter of the arranged in the order of decreasing validity.
terms of the contract should, therefore, be
careful. RESCISSIBLE CONTRACTS

RULE IN CASE OF DOUBTS AS TO Article 1380. Contracts validly agreed upon may be
INCIDENTAL CIRCUMSTANCES rescinded in the cases established by law.

Article 1378. When it is absolutely RESCISSION


impossible to settle doubts by the rules Rescission is a process designated to render
established in the preceding articles, and the inefficacious a contract validly entered into and
doubts refer to incidental circumstances of a normally binding, by reason of external conditions,
GRATUITOUS CONTRACT, the least causing an economic prejudice to a party or to his
transmission of rights and interests shall creditors.
prevail.
MANRESA:

28
This is a remedy granted by law to the contracting MUTUAL DISSENT
parties both to the contracting parties and to third Suppose the parties to a contract mutually agreed to
persons in order to secure reparation of damages cancel he contract, is the rescission properly so-
caused them by a contract, even if the contract be called?
valid, by means of the restoration of the things to
their condition prior to the celebration of said ANSWER:
contract. No, of course, in a loose sense rescission may be
used here. But strictly speaking, this is mutual
REQUISITES FOR RESCISSION 3 backing out, and not the rescission referred to in
Article 1380 of the New Civil Code.
1. There must be at the beginning either a valid or
voidable contract; In mutual withdrawal, it is the will of the parties that
constitutes the basis, where as in rescission
2. But there is an economic or financial prejudice to (properly called), it is the law that constitutes the
someone ( a party or a third person) basis.

3. Requires mutual restitution SALE MUTUALLY CANCELLED BY THE


PARTIES
TWO KINDS OF RESCISSION The Court said that the duty to return the fruits
depended on the agreement of the parties and not on
1. The rescission mentioned in Article 1380 of the the legal provision on rescission, and this is so, even
New Civil Code. This is properly speaking, if the parties had erroneously referred to their act as
rescission. one of rescission.

2. The rescission mentioned in Article 1911 of the NOTE: Rescission should not be granted juts
New Civil Code. The term, properly speaking, because the contract conferred more favors upon
should be resolution. one party than another. This is not a ground for
rescission. The only grounds for rescission are those
RESCISSION, IN GENERAL (Article 1380): enumerated by law.

a. Is based on lesion or fraud upon creditors; NATURE OF RESCISSIBLE CONTRACT


Rescissible contract is not a void contract. It is valid
b. Here, the action is instituted by either of until rescinded. Thus, in the meantime, it can convey
contracting parties or by third persons; title.

c. Here, the courts cannot grant a period or term Moreover, a rescissible contract cannot be attacked
within which to comply; collaterally (incidentally) upon the grounds for
rescission in the course of a land registration case. A
d. Here non-performance by the other party is direct action to rescind is required.
immaterial.
NOTE: Fictitious contracts cannot be rescinded
RESCISSION UNDER Article 1911 (Resolution): because such contract is actually null and void.
Rescission presupposes a valid contract.
a. Is based on non-performance or non-fulfilment of
the obligation; EXTRAJUDICIAL RESCISSION
A judicial action for rescission of a contract is NOT
b. Here, the action may be instituted only by the NECESSARY where the contract provides that it
injured party to the contract; may be revoked and cancelled for violation of any
of its terms and conditions, without noting any
c. Here, in some cases, the courts may grant a term; protest and without interference by any court or any
formality whatsoever.
d. Here, non-performance by the other party is very
important NOTE: A contract of sale entered into in violation
of a right of first of refusal of another person, while
valid, is rescissible.

29
Article 1381. The following contracts are
rescissible: REQUISITES FOR ACCION PAULIANA:

(1) Those which are entered into by guardians a. There must be a creditor who became such prior
whenever the wards whom they represent suffer to the contract sought to be rescinded (whether the
lesion by more than one-fourth of the value of the party asking for rescission is judgment creditor
things which are the object thereof; already or not, is likewise immaterial);
b. There must be an alienation made subsequent to
(2) Those agreed upon in representation of such credit;
absentees, if the latter suffer the lesion stated in the
preceding number; c. The party alienating must be in bad faith (that is,
he knew that damages would be caused his creditors
(3) Those undertaken in fraud of creditors when the whether or not he intended to cause such damage).
latter cannot in any other manner collect the claims
due them; d. There must be no other remedy for the prejudiced
creditor inability to collect the claims due them.
(4) Those which refer to things under litigation if
they have been entered into by the defendant without Thus, rescission is merely a subsidiary remedy.
the knowledge and approval of the litigants or of
competent judicial authority; Since the law makes no distinction, both secured and
unsecured creditors may bring the action; the
(5) All other contracts specially declared by law to important thing is that they be prejudiced.
be subject to rescission.
NOTE: Generally, the party desiring to rescind must
ENUMERATION OF THE RESCISSIBLE show that the conveyance or alienation was
CONTRACTS fraudulent. He has the burden of proof, except in the
cases when there is a presumption of fraud
LESIONS damage or injury to the party asking for
rescission (generally, disparity between the price 3. THINGS IN LITIGATION
and the value)
Example:
NOTE: Mere inadequacy of price, unless shocking A sues B for recovery of a diamond ring. Pendente
to the conscience, is not sufficient ground for setting lite, B sells the ring to C without the approval of A
aside a sale, if there is no showing that, in the event or of the court. The sale to C is rescissible at As
of resale, a better price can be obtained. instance in case A wins in the original litigation,
unless C is in good faith.
1. IN BEHALF OF WARDS
To protect himself, the plaintiff must register his
a. If an act of ownership, court approval is required; claim in the registry of property, pending litigation,
otherwise, contract is unenforceable, whether there if the suit is about real property. This is the NOTICE
is lesion or not; of LIS PENDENS. The purpose is to give notice to
the whole world.
b. If merely an act of administration:
If personal property is involved, the property may be
RULE 1: If with court approval, valid, regardless of levied upon by a writ of preliminary attachment, or
lesion. else, it may be placed in the hands of a receiver.

RULE 2: If without court approval, the agreement is Article 1382. Payments made in a state of
rescissible, if lesion is more than one-fourth. insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time they were
2. Those undertaken IN FRAUD OF CREDITORS effected, are also rescissible.
when the latter cannot in any other manner collect
the claims due them.

The action to rescind contracts made in fraud of


contracts is called ACCION PAULIANA.

30
PREMATURE PAYMENTS MADE IN A Neither shall rescission take place when the things
STATE OF INSOLVENCY which are the object of the contract are legally in the
possession of third persons who did not act in bad
Two requisites are essential under this Article: faith.

1. The debtor-payer must have been insolvent (the In this case, indemnity for damages may be
insolvency need not be a judicially declared one); demanded from the person causing the loss.

2. The debt was not yet due and demandable. NECESSITY OF MUTUAL RESTITUTION
The obligation of restitution does not obviously
NOTE: Both conditions are required; otherwise, apply to creditors who seek to impugn fraudulent
Article 1382 cannot apply. transactions of their debtors. The obligation of
mutual restitution applies to others so that the status
Article 1382 does not exactly speak of a contract; it quo may be restored.
refers to payment; thus, it is not included in Article
1381. REQUISITES BEFORE THE ACTION FOR
RESCISSION CAN BE BROUGHT
Article 1383. The action for rescission is subsidiary;
it cannot be instituted except when the party 1. Generally, the plaintiff must be able to return
suffering damage has no other legal means to obtain what has been received by virtue of the rescissible
reparation for the same. contract;
Exception: prejudiced-creditors
NATURE OF RESCISSION AS A REMEDY 2. The thing object of the contract is not in the legal
Rescission is NOT a PRINCIPAL REMEDY; it is possession of third person in good faith.
only a subsidiary remedy and may only be availed
of by the injured party if it has no other legal means NOTE: In order that the property may not be taken
of seeking redress or reparation for the damages away from a third person, said person must not only
caused. be in legal possession; he must also be in good faith.
Good faith alone, however, without legal possession
NOTE: When a creditor seeks to set aside a contract is not sufficient.
as fraudulent, he must prove that he really is a
creditor, and secondly, that he cannot collect his 3. There must be no other legal remedy.
debt in any way.
4. The action must be brought within the proper
Article 1384. Rescission shall be only to the extent prescriptive period.
necessary to cover the damages caused
WHAT SHOULD BE RETURNED IN
PARTIAL RESCISSION RESCING A CONTRACT?
The only purpose of rescission is to repair or cover
the damages caused. Complete rescission will not ANSWER:
therefore be allowed, if it is not justified by the
circumstances of the case. Insofar as it is not 1. The object of the contract, with its fruits must be
rescinded, the alienation is valid. returned.
2. The price, with its interest, must be returned.
Persons Benefited 3. If return of the things is not possible, indemnity
Only the creditor who asked for rescission, not the for damages from the person causing the loss must
other creditors, benefits from rescission be given.

Article 1385. Rescission creates the obligation to Article 1386. Rescission referred to in Nos. 1 and 2
return the things which were the object of the of article 1381 shall not take place with respect to
contract, together with their fruits, and the price with contracts approved by the courts.
its interest; consequently, it can be carried out only
when he who demands rescission can return
whatever he may be obliged to restore.

31
EFFECTS IF CONTRACTS WERE ANTICIPATORY FRAUD, rescission may still
JUDICIALLY APPROVED prosper if it can be shown that the donation had been
deliberately made beforehand to avoid the payment
Rescission shall not take place. of debts still to be contracted.

Article 1381, No. 1: Those which are entered into by ONEROUS ALIENATIONS
guardians
PRESUMED FRAUDULENT when made by
Article 1382, No. 2: Those agreed upon in persons:
representation of absentee
a. Against whom some judgment has been rendered
Article 1387. All contracts by virtue of which the in any instance (thus, even if not yet a final
debtor alienates property by gratuitous title are judgment);
presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient b. Against whom some writ of attachment has been
property to pay all debts contracted before the issued.
donation.
NOTE: The decision or attachment need not refer to
Alienations by onerous title are also presumed the property alienated, and need not have been
fraudulent when made by persons against whom obtained by the party seeking the rescission.
some judgment has been rendered in any instance or
some writ of attachment has been issued. The
decision or attachment need not refer to the property
alienated, and need not have been obtained by the Example:
party seeking the rescission. After a judgment had been rendered against him, A
sold his property to B. Is the sale presumed
In addition to these presumptions, the design to fraudulent?
defraud creditors may be proved in any other
manner recognized by the law of evidence. ANSWER:
Yes, the sale s presumed fraudulent because it was
PRESUMPTIONS OF FRAUD made after a judgment had been issued against A.
This Article establishes presumptions of fraud in the Upon the other hand, if the sale had been made
case of: before the judgment, the presumption of fraud does
not apply. This is even if, unknown to the buyer, the
1. Gratuitous alienations; suit had already been brought, but still pending, as
2. Onerous alienations. long as of course no attachment had been issued.

GRATUITOUS ALIENATIONS Badges of Fraud


There are some circumstances indicating that certain
PRESUMED FRAUDULENT when the debtor alienation has been made in fraud of creditors. These
did not reserve sufficient property to pay all debts are called badges of fraud.
contracted before the donation.
NOTE: This presumption may be rebutted by In determining whether or not a certain conveyance
adequate proof. is fraudulent, the question in every case is whether
conveyance was bona fide transaction or a trick and
Example: contrivance to defeat creditors, or whether it
A made a donation to B. Later A contracted several conserves to the debtor a special right.
debts. What A has left as assets are much less than
his present liabilities. May the donation be NOTE: Relationship alone does not by itself
rescinded? constitute a badge of fraud.

ANSWER: If there is a great disparity between the price and the


No, because the debts here of A were incurred after real value of the property, this is an indication of
the donation had been made. As a matter of fact, the badges of fraud.
presumption of fraud does not even arise in this case.
However, under the DOCTRINE OF

32
Rule in Case of Registered Lands If the first transferee is in bad faith, the next
Rescission will not prosper for the presumption transferee is liable only if he is also in bad faith.
established under Article 1387 does not apply in this
case for TWO REASONS:
Example:
a. The spouses Jongco had no complicity at all in the A, in fraud of his creditors, sold his house to B, who
fraud imputed to Enriquez; is in bad faith. B in turn alienated it in favor of C,
who later sold it to D. Both C and D were also in bad
b. The encumbrance of the judgment and the faith. The contract is rescinded but the house is
attachment, not having been registered and destroyed. Who, if any, are liable for damages?
annotated on the certificate (TCT), cannot prejudice
an innocent purchaser for value of registered land. Answer:
B is liable first. If he cannot pay, then C will be
Presumption of Validity liable. If C cannot, D will be liable. The law says
A gratuitous conveyance or donation is, on its face that if there are two or more alienations, the first
(prima facie), presumed valid and good as between acquirer shall be liable first, and so on successively.
the parties UNLESS it can be shown that at the time
of the execution of the conveyance, there was a Article 1389. The action to claim rescission must be
creditor or creditors whom said transaction was commenced within four years.
affected adversely.
For persons under guardianship and for absentees,
Fraud Alone Not Sufficient for Rescission the period of four years shall not begin until the
For after all the transferee may have been in good termination of the former's incapacity, or until the
faith and is now in legal possession of the property. domicile of the latter is known.

Article 1388. Whoever acquires in bad faith the PRESCRIPTIVE PERIOD FOR
things alienated in fraud of creditors, shall PRESCRIPTION
indemnify the latter for damages suffered by them
on account of the alienation, whenever, due to any GENERAL RULE:
cause, it should be impossible for him to return FOUR years from the date the contract was entered
them. into.

If there are two or more alienations, the first acquirer EXCEPTIONS:


shall be liable first, and so on successively. 1. Persons under guardianship 4 years from
termination of incapacity;
EFFECT OF BAD FAITH 2. Absentees 4 years from the time the domicile is
known.
a. The acquirer must return or indemnify.
b. Due to any includes a fortuitous event. WHO CAN BRING THE ACTION?
Example:
1. The injured party (or the defrauded creditor);
To defraud his creditors, X sold his to Y, who knew
of Xs purpose. If the sale is rescinded, Y must 2. His heir or successor-in-interest;
indemnify, even if the house be destroyed by a
fortuitous event, but only if X himself cannot pay. 3. Creditors of (1) and (2) by virtue of Article 1177
of the Civil Code (in case of accion subrogatoria)
REMEMBER that rescission is merely a secondary
remedy available only when X cannot pay. VOIDABLE CONTRACTS

SUBSEQUENT TRANSFERS Article 1390. The following contracts are voidable


or annullable, even though there may have been no
RULE 1: damage to the contracting parties:
If the first transferee is in good faith, the good or bad
faith of the next transferee is not important. (1) Those where one of the parties is incapable of
RULE 2: giving consent to a contract;

33
(2) Those where the consent is vitiated by mistake, To prevent rescission, To prevent annulment,
violence, intimidation, undue influence or fraud. ratification is not required. ratification is required.

These contracts are binding, unless they are annulled


by a proper action in court. They are susceptible of
ratification.

RESCISSIBLE CONTRACTS versus VOIDABLE CONTRACT Not Void Ab Initio


VOIDABLE CONTRACTS A contract were consent is vitiated is not void ab
initio but ONLY VOIDABLE, and is binding upon
RESCISSION ANNULMENT the parties unless annulled by proper action in court.

The BASIS here is The BASIS here is GROUNDS FOR ANNULMENT (Declaration of
LESION or damage. incapacity or vitiated Nullity of a Voidable Contract)
consent.
1. Incapacity to consent;
The DEFECT here is The DEFECT here is 2. Vitiated Consent
external or intrinsic. intrinsic (in the meeting of
the minds). NOTE: Repentance at having entered into the
transaction is NOT a ground for annulment. IT is not
the function of the law to protect or relieve a man
The ACTION is The ACTION is from the consequences of his bad bargain.
SUBSIDIARY. PRINCIPAL.
The ACTION TO BRING
This is a remedy. This is a sanction. a. For POSITIVE REDRESS, an action must be
filed, otherwise, the contract remains binding.
Private interest governs. Public interest governs.
b. For use AS A DEFENSE, ordinarily, no
affirmative action is needed.
Equity predominates. Law predominates.
Article 1391. The action for annulment shall be
Plaintiff may be a party or Plaintiff must be a party to brought within four years.
a third person. the contract whether
bound principally or This period shall begin:
subsidiarily.
In cases of intimidation, violence or undue
influence, from the time the defect of the consent
ceases.
There must be damage to Damage to the plaintiff is In case of mistake or fraud, from the time of the
plaintiff. immaterial. discovery of the same.

And when the action refers to contracts entered into


If plaintiff is indemnified, Indemnity is not a barrier
by minors or other incapacitated persons, from the
rescission cannot prosper. for the prosecution of the
time the guardianship ceases.
action.
EFFECT OF PRESCRIPTION
If the action has prescribed, the contract can no
Compatible with the Defect is pre-supposed. longer be set aside.
perfect validity of the
contract. Article 1392. Ratification extinguishes the action to
annul a voidable contract. (EFFECT OF
RATIFICATION)

34
DEFINITION OF TERMS silent for a certain period of time ratifies such
contract.
CONFIRMATION is to cure a defect in a voidable
contract. Article 1394. Ratification may be effected by the
guardian of the incapacitated person.
RATIFICATION is to cure the defect for lack of
authority in an authorized contract. RATIFICATION BY GUARDIAN
ACKNOWLEDGMENT is to remedy a deficiency This Article refers to the ratification of a contract
of proof. entered into by the incapacitated person. Since the
person entitled to ratify is still incapacitated, his
Term in the Civil Code guardian acts in his behalf.
Under the New Civil Code, all the three are now
uniformly called RATIFICATION. RATIFICATION BY THE INJURED PARTY
HIMSELF
EFFECTS OF RATIFICATION Ratification can be made the injured party himself,
provided he is capacitated, or has become
1. The action to annul is extinguished. Thus, the capacitated.
contract becomes a completely valid one.
NOTE: Article 1394 does not refer to a rescissible
2. The contract is cleansed of its defect from the contract entered into by the guardian in behalf of his
beginning. ward.

REQUISITES OF RATIFICATION - 5 Article 1395. Ratification does not require the


conformity of the contracting party who has no right
1. The contract must be a voidable one. to bring the action for annulment.

2. The person ratifying must know the reason for the Article 1396. Ratification cleanses the contract
contract being voidable. That is, the cause must be from all its defects from the moment it was
known. constituted.

3. The cause must not exist or continue to exist RETROACTIVE EFFECT OF


anymore at the time of ratification. RATIFICATION
Once ratification has taken place, annulment based
4. The ratification must have been expressly or by on the original defects cannot prosper. Although
an act implying a waiver of the action to annul. there is a retroactive effect, the right of innocent
third persons must not be prejudiced.
5. The person ratifying must be the injured party.
Article 1393. Ratification may be effected expressly Example:
or tacitly. It is understood that there is a tacit A minor sold his land to X. When be became legally
ratification if, with knowledge of the reason which of age, he became indebted to Y. To avoid paying
renders the contract voidable and such reason Y, the former minor decided to ratify the sale of the
having ceased, the person who has a right to invoke land. He then had no other property. May Y still
it should execute an act which necessarily implies an rescind the sale although at the time it was made he
intention to waive his right. was not yet a creditor?

KINDS OF RATIFICATION 2 Answer:


Yes. Although ratification has a retroactive effect,
1. Express (Oral or Written) Ratification still his rights as an innocent third person must not
be prejudiced.
2. Tacit (Implied) Ratification as from conduct
implying a waiver. Article 1397. The action for the annulment of
contracts may be instituted by all who are thereby
Lapse of Time obliged principally or subsidiarily.
Mere lapse of time does not legalize a voidable
contract, BUT it was held in case, that remaining However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor

35
can those who exerted intimidation, violence, or If a minor misrepresents his age and the other party
undue influence, or employed fraud, or caused is misled as to his age, may the minor later on sue
mistake base their action upon these flaws of the for annulment?
contract.
Answer:
PERSONS WHO MAY ASK FOR No, because of estoppel.
ANNULMENT
The VICTIM (principal or subsidiary party) may ask Article 1398. An obligation having been annulled,
for annulment, not the guilty person or his successor. the contracting parties shall restore to each other the
things which have been the subject matter of the
REASON: He who comes to equity must come with contract, with their fruits, and the price with its
clean hands. interest, except in cases provided by law.

GENERAL RULE: In obligations to render service, the value thereof


Action for annulment of contracts can only be shall be the basis for damages.
maintained by those who are bound either
principally or subsidiarily by virtue thereof. EFFECTS OF ANNULMENT
1. If the contract has not yet been complied with, the
EXCEPTION TO THE RULE: parties are excused from the obligation.
A person who is not obliged principally or
subsidiarily in a contract may exercise an action for 2. If the contract has already been performed, there
nullity of the contract if he is PREJUDICED in his must be MUTUAL RESTITUTION (in general) of:
rights with respect to one of the contracting parties, a.) The thing, with fruits b.) The price, with interest
and can show the detriment which could positively
result to hi from the contract in which he had no NOTE: Innocent third parties cannot be obliged to
intervention. restore.

Creditors of the Victim Extra Liability of the Guilty Party


The creditors of the victim cannot ask for annulment A guilty party, who for example, used force can be
for they are not bound by contract. held liable for damages.

Example: EFFECT OF ANNULMENT IN PERSONAL


A was forced by B to sign a contract. C, a creditor OBLIGATIONS
of A, wants to annul the contract. Is C allowed to do Here, the value of the service shall be the basis for
so? damages.

Answer: Article 1399. When the defect of the contract


No. C is not allowed to do so. If the contract consists in the incapacity of one of the parties, the
prejudices him, and A has no other property, then C incapacitated person is not obliged to make any
may ask for the rescission of the contract, not its restitution except insofar as he has been benefited by
annulment. C cannot ask for annulment because he the thing or price received by him.
is not obliged by the terms of said contract, either
principally or subsidiarily. Generally, No Restitution by Incapacitated
Persons
Intimidation or fraud by a Minor
a. This Article applies only if the defect is
Example: INCAPACITY.
A minor forces X to sign a contract. May the minor
later on ask for annulment? b. This constitutes an exception to the obligation of
mutual restitution.
Answer:
No, because he himself is at fault. c. Here, in Article 1399, restitution is only to the
extent of enrichment (pecuniary or otherwise).
Question:

36
No Presumption of Enrichment A, a minor, was sold a house by B. The house was
The law does not presume this enrichment or destroyed by a fortuitous event. May A still annul
benefit; therefore, the capacitated person has the the contract to recover from the B the price (and
burden of showing such enrichment. Just because interest) he had given?
the property had been delivered, it does not
necessarily follow that there was enrichment. Answer:
Yes. As a rule, if the right of action is based upon
Of course, if the incapacitated person still has the the incapacity of anyone of the contracting parties,
property, this by itself is a benefit which he must the loss of the thing shall not be an obstacle to the
return and not squander; otherwise, this will amount success of the action. Here, the minor was not guilty
to ratification. of fraud or fault.

Article 1400. Whenever the person obliged by the Article 1402. As long as one of the contracting
decree of annulment to return the thing can not do parties does not restore what in virtue of the decree
so because it has been lost through his fault, he shall of annulment he is bound to return, the other cannot
return the fruits received and the value of the thing be compelled to comply with what is incumbent
at the time of the loss, with interest from the same upon him. (RECIPROCAL OBLIGATION OF
date. RESTITUTION)

IF THE THING CANNOT BE RETURNED UNENFORCEABLE CONTRACTS


In the duty of mutual restitution, the value of the
thing with interest substitutes for the thing itself that UNENFORCEABLE CONTRACTS versus
was lost thru the partys fault. VOIDABLE CONTRACTS versus
RESCISSIBLE COTRACTS
Article 1401. The action for annulment of contracts
shall be extinguished when the thing which is the UNENFORCEABLE CONTRACTS cannot be sued
object thereof is lost through the fraud or fault of the upon or enforced unless ratified; thus it is as if they
person who has a right to institute the proceedings. have no effect yet. But they may be ratified.

If the right of action is based upon the incapacity of VOIDABLE OR RESCISSIBLE CONTRACTS
any one of the contracting parties, the loss of the upon the other hand, produce legal effects until they
thing shall not be an obstacle to the success of the are annulled or rescinded.
action, unless said loss took place through the fraud
or fault of the plaintiff. KINDS OF UNENFORCEABLE CONTRACTS
3
EFFECT OF LOSS OF OBJECT THROUGH
FRAUD OR FAULT OF THE VICTIM 1. Unauthorized contracts

Rule: 2. Those that fail to comply with the Statue of


If the plaintiff is at fault; he cannot annul the Frauds;
contract.
3. Those where both parties are incapable of giving
Rule: consent to a contract.
If the plaintiff was guilty of fraud for the loss of the
object, he can no longer annul the contract. Article 1403. The following contracts are
unenforceable, unless they are ratified:
Example No. 1:
A was forced to sign a contract with B. In said (1) Those entered into in the name of another
contract, A was given a house. But A destroyed the person by one who has been given no authority or
house. May A still bring the action for annulment? legal representation, or who has acted beyond his
powers;
Answer: No more. His act of destroying the house
extinguished his right to bring the action for (2) Those that do not comply with the Statute of
annulment. Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
Example No. 2: unenforceable by action, unless the same, or some

37
note or memorandum, thereof, be in writing, and Without ratification, the agent assumes personal
subscribed by the party charged, or by his agent; liability.
evidence, therefore, of the agreement cannot be
received without the writing, or a secondary THE STATUTE OF FRAUDS
evidence of its contents: The PURPOSE is to prevent fraud, and not to
encourage the same. Thus, certain agreements are
(a) An agreement that by its terms is not to required to be in writing so that they may be
be performed within a year from the enforced.
making thereof;
NOTE: The Statute of Frauds applies only to
(b) A special promise to answer for the executor contracts and not to consummated sales
debt, default, or miscarriage of another; where oral evidence may be admitted.
(c) An agreement made in consideration of
marriage, other than a mutual promise to HOW THE STATUTE OF FRAUDS
marry; PREVENTS FRAUD
Since memory is many times unreliable, oral
(d) An agreement for the sale of goods, agreements may sometimes result in injustices. To
chattels or things in action, at a price not aid human memory, to prevent the commission of
less than five hundred pesos, unless the injustices dues to faulty memory, to discourage
buyer accept and receive part of such goods intentional misrepresentations, are the principal
and chattels, or the evidences, or some of aims of the Statute of Frauds.
them, of such things in action or pay at the
time some part of the purchase money; but CHIEF CHARACTERISTIC
when a sale is made by auction and entry is Its chief characteristic is the provision that no suit or
made by the auctioneer in his sales book, at action shall be maintained on certain classes of
the time of the sale, of the amount and kind contracts or engagements unless there is a note or
of property sold, terms of sale, price, names memorandum thereof in writing signed by the party
of the purchasers and person on whose to be charged or by his authorized agent.
account the sale is made, it is a sufficient
memorandum. BASIC AND FUNDAMENTAL PRINCIPLES
CONCERNING THE STATUTE OF FRAUDS
(e) An agreement for the leasing for a
longer period than one year, or for the sale 1. The Statute of Frauds applies only EXECUTORY
of real property or of an interest therein; CONTRACTS (contracts where no performance has
yet been made) and not to partially or completely
(f) A representation as to the credit of a executed contracts.
third person. REASON: The possibility for fraud in executor
contracts is much greater.
(3) Those where both parties are incapable of
giving consent to a contract. 2. The Statute of Frauds cannot apply if the action is
UNAUTHORIZED CONTRACTS neither for damages because of the violation of an
These are those entered into in the name of another agreement nor for the specific performance of said
person by one who has been given no authority or agreement.
legal representation, or who has acted beyond his
powers. 3. The Statute of Frauds is exclusive, that is, it
Example: applies only to the agreements or contracts
Without my authority, my brother sold my car, in enumerated herein
my name to X. The contract is unauthorized and
cannot affect me unless I ratify the same expressly NOTE: Contract of loan is not one those enumerated
or implicitly, as by accepting the proceeds of the in the Statute.
sale.
4. The defense of the Statute of Frauds may be
NOTE: Mere lapse of time, no matter how long, is waived. TWO WAYS to Waive the Defense of
not the ratification required by law of an Statute of Fraud:
unenforceable contract.

38
a. Timely failure to object to the A borrowed money from B, with C as guarantor. The
presentation of oral evidence to prove the contract of guaranty must be in writing to be
oral agreement; enforceable.

b. Acceptance of benefits under them SPECIAL PROMISE refers to a subsidiary or


collateral promise to pay, like a contract of guaranty.
5. The Statute of Frauds is a personal defense, that
is, a contract infringing it cannot be assailed by third 3. An agreement made in consideration of
persons. marriage, other than a mutual promise to marry.

6. Contracts infringing the Statute of Frauds are not Examples of Agreements Made in Consideration
void; they are merely unenforceable. Marriage:
a. Marriage Settlements
7. The Statute of Frauds is a Rule of Exclusion. Oral b. Donations Propter Nuptias
evidence might be relevant to the agreement
enumerated therein and might therefore be When the law says in consideration of marriage, it
admissible were it not for the fact that the law or the really means by reason of marriage. Thus the
statute excludes said oral evidence. cause of the donation propter nuptias is not the
marriage but the liberality or the generosity of the
8. The Statute of Frauds does not determine the giver.
credibility or weight of evidence. It merely concerns
itself with the admissibility thereof. NOTE: The law says other than a mutual promise
9. The Statute of Frauds does not apply if it is to marry. Hence, a oral mutual promise to marry is
claimed that contract does not express the true not embraced by the Statute of Frauds. The injured
agreement of the parties. As long as the true or real party may present oral evidence of the promise in an
agreement is not covered by the Statute of Frauds, it action to obtain actual damages for breach thereof.
is provable by oral evidence.
Example:
NOTE: Contracts infringing the Statute of Frauds A and B mutually promised to marry each other. The
are ratified by the acceptance of benefits under promise need not be in writing, UNLESS the
them. marriage be deferred till after the lapse of one year
from the agreement.
THE SPECIFIC AGREEMENTS UNDER THE
STATUTE OF FRAUDS 4. An agreement for the sale of goods, chattels or
things in action, at a price not less than five
1. An agreement that by its terms is not to be hundred pesos.
performed within a year from the making thereof.
THINGS IN ACTION means incorporated or
The broad view is that the Statute of Frauds applies intangible personal property.
only to agreement not to be performed on either side
within a year from the making thereof. Agreements NOTE: The law says SALES not other contracts.
to be fully performed on one side within a year are
taken out of the operation of the Statute of Frauds. NOTE: If the price is exactly P500, the contract
must be in writing to be enforceable.
NOTE: It would seem that while in general partially
executed contracts are not covered by the Statute of PARTIAL PAYMENT takes the contract away from
Frauds, still under No. 1 SPECIFIC AGREEMENT, the Statute of Frauds except if said part payment
only full or complete performance by one side will corresponds to the part delivered, in which case, the
take the case out of the operation of the Statute. contract is divisible, the remaining is covered by the
Statute.
2. A special promise to answer for the debt, default,
or miscarriage of another. RULE IN CASE OF AUCTION SALE:

Example: When a sale is made by auction and entry is made


by the auctioneer in his sales book at the time of the
sale, of:

39
a. The amount and kind of property sold; DUTY OF THE ATTORNEY FOR THE
b. The terms of the sale; PLAINTIFF who seeks to enforce a contract
c. The price; embraced under the Statute of Frauds
d. The names of the purchasers and persons on
whose amount the sale is made... a. Present the written agreement or contract;

The entry is considered a sufficient memorandum b. If this cannot be done, as when the contract is lost,
even if the same is not signed by the party sought to present a MEMORANDUM or NOTE IN
be charged. WIRTING where the important details of the
contract are set forth but most important of all, the
5. An agreement for the leasing for a longer period party sought to be charged or his agent must have
than one year, or for the sale of real property or of signed the note or memorandum, UNLESS it is an
an interest therein. auction sale where entry need not be signed by the
party being charged.
TWO KINDS OF AGREEMENT REFERRED TO:
c. If the written agreement has been lost and there is
a. Lease of real property for more than one year (not no note or memorandum, there is still a remedy;
a personal property); present SECONDARY EVIDENCE OF THE
b. Sale of Real property (regardless of price) WRITTEN CONTRACT in the form of oral
testimony or parol evidence. But this does not mean
NOTE: If lease of real property is exactly one year, that an oral contract is being proved. The fact is, a
and made orally, lease is still enforceable, for the written contract now lost or destroyed, is being
period here does not exceed one year. proved orally.

INTEREST in REAL PROPERTY may include SUFFICIENT MEMORANDUM


easement or usufruct. No particular form or language or instrument is
necessary to constitute a memorandum or note in
6. A representation as to the credit of a third writing under the Statute of Frauds; any document
person. or note in writing under the contract or for another
purpose, which complies will all the statutory
Example: requirements of the statutes as to contents and
A was borrowing money from B, and gave C as his signature may be considered as sufficient
reference. When C was asked regarding As credit, memorandum.
C said: You can safely lend money to A because A
is the owner of a parcel of land and I have the title RULE ON AUTHORITY OF THE AGENT TO
deeds in my possession. This was made orally. SELL LAND OR ANY INTEREST THEREIN
Incidentally, A was Cs client, C being a lawyer. Under the Civil Code, when a sale of a piece of land
This representation by C is not enforceable against or any interest therein is thru an agent, the authority
him it is not in writing. A representation as to the of the latter shall be in writing; otherwise, the sale
credit of a third person must be in writing to be shall be void. (Article 1874) Note that the law says
enforceable. void, not merely unenforceable.

DUTY OF ATTORNEY FOR THE THE THIRD KIND OF UNEFORCEABLE


DEFENDANT If an agreement violates the CONTRACT where both parties are
Statute of Frauds incapacitated to give consent

a. File a motion to dismiss; Example:


A contract entered into by two unemancipated
b. Plead the Statute of Frauds as an affirmative minors without parental consent.
defense;
Article 1404. Unauthorized contracts are governed
c. Make a timely objection in the course of the trial. by article 1317 and the principles of agency in Title
X of this Book.

Article 1405. Contracts infringing the Statute of


Frauds, referred to in No. 2 of article 1403, are

40
ratified by the failure to object to the presentation of VOID
oral evidence to prove the same, or by the OR INEXISTENT CONTRACTS
acceptance of benefit under them.
RATIFICATION OF CONTRACTS VOIDABLE CONTRACTS versus VOID
INFRINGING STATUTE OF FRAUDS CONTRACTS

Two ways of ratification of contracts infringing the VOIDABLE VOID CONTRACT


Statute of Frauds: CONTRACT
This may be ratified. It cannot be ratified.
a. Failure to object the presentation of oral evidence
this is deemed a waiver.
It produces effects till Generally, effects are not
b. Acceptance of benefits under them thus the annulled. produced at all.
Statute does not apply to executed or partially
executed or performed contracts. Defect is due to incapacity The Defect here is that
or vitiated consent. ordinarily, public policy is
Article 1406. When a contract is enforceable under militated against.
the Statute of Frauds, and a public document is
necessary for its registration in the Registry of
Deeds, the parties may avail themselves of the right
under Article 1357. Valid until annulled. Void from very beginning,
so generally, no action is
RIGHT OF ONE PARTY TO COMPEL THE required to set it aside,
OTHER TO EXECUTE THE NEEDED unless the contract has
INSTRUMENT already been performed.
It must be stressed here that the right of one party to
have the other to execute the public document
needed for convenience in registration, is given only
when the contract is both valid and enforceable.
May be cured by Cannot be cured by
Example: prescription. prescription.
An oral sale of real property is not enforceable;
hence, one party cannot compel the other party to
execute the public document. However, if said oral Defense may be invoked Defense may be availed of
sales of real property has been ratified, then it is now only by the parties or their by anybody, whether he is a
valid and enforceable, and a public document may successors-in-interest and party to the contract or not,
be made so that the sale can be registered. privies. as long as his interest is
directly affected.
Article 1407. In a contract where both parties are
incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case
may be, of one of the contracting parties shall give Referred to a relative or Referred to as absolute
the contract the same effect as if only one of them conditional nullity. nullity.
were incapacitated.
If ratification is made by the parents or guardians, as
the case may be, of both contracting parties, the
contract shall be validated from the inception. UNENFORCEABLE CONTRACTS versus
VOID CONTRACTS
Article 1408. Unenforceable contracts cannot be
assailed by third persons. UNENFORCEABLE VOID CONTRACTS
CONTRACTS

This may be ratified. It cannot be ratified.

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There is a contract but it No contract at all. 3. The defense of illegality of contracts is not
cannot be enforced by a available to third persons whose interests are not
court action. directly affected.

It cannot be assailed by It can be assailed by 4. It cannot give rise to a contract; thus a contract
third parties. anybody directly which is the direct result of a previous illegal
affected. contract is also void and inexistent;

5. It generally, produces no effect;


Article 1409. The following contracts are inexistent
and void from the beginning: 6. Generally, no action to declare them void is
needed, since they are inexistent from the very
(1) Those whose cause, object or purpose is contrary beginning;
to law, morals, good customs, public order or public
policy; 7. They cannot be ratified;

(2) Those which are absolutely simulated or Article 1410. The action or defense for the
fictitious; declaration of the inexistence of a contract does not
prescribe.
(3) Those whose cause or object did not exist at the
time of the transaction; NOTE: While it is true that technically, the action to
annul a void or inexistent contract does not
(4) Those whose object is outside the commerce of prescribe; it may nonetheless, be barred by laches.
men;
(5) Those which contemplate an impossible service; Question:
If a void contract is void from the very beginning,
(6) Those where the intention of the parties relative what is the use of its being declared inexistent?
to the principal object of the contract cannot be
ascertained; Answer:
(7) Those expressly prohibited or declared void by Strictly speaking, there is no use. BUT for purposes
law. of convenience, or to avoid taking the law into our
own hands, there is nothing wring in having a void
These contracts cannot be ratified. Neither can the contract declared really void.
right to set up the defense of illegality be waived.
Article 1411. When the nullity proceeds from the
TWO KINDS OF VOID CONTRACTS illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties
1. The INEXISTENT ones, like those where being in pari delicto, they shall have no action
essential formalities are not complied with. against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative
2. The ILLEGAL or ILLICIT ones, like a donation to the disposal of effects or instruments of a crime
because of immoral condition, such as illicit sexual shall be applicable to the things or the price of the
intercourse. Here, in some way, the donation contract.
produces some effect in that he who gave the
donation cannot get back what he has given. This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim
Some Characteristics of a Void Contract what he has given, and shall not be bound to comply
with his promise. (CONTRACTS WHICH ARE
1. The right to set up the defense of illegality cannot BOTH ILEGAL AND CRIMINAL)
be waived and may be considered on appeal even if Article 1412. If the act in which the unlawful or
not raised in the trial court. forbidden cause consists does not constitute a
criminal offense, the following rules shall be
2. The action or defense for their declaration as observed:
inexistent does not prescribe.
(1) When the fault is on the part of both contracting
parties, neither may recover what he has given by

42
virtue of the contract, or demand the performance of b. Those where only one party is guilty or at fault.
the other's undertaking; A. EFFECT if BOTH parties are GUILTY:
Neither may recover what he has given by virtue of
(2) When only one of the contracting parties is at the contract or demand the performance of the
fault, he cannot recover what he has given by reason others undertaking. The law will leave them as they
of the contract, or ask for the fulfillment of what has are in pari delicto.
been promised him. The other, who is not at fault,
may demand the return of what he has given without B. EFFECTS if only ONE party is GUILTY:
any obligation to comply his promise.
1. The guilty party cannot recover what he has given
TWO KINDS OF ILLEGAL CONTRACT by reason of the contract, or ask the fulfilment of
what has been promised to him.
a. Those where there is a criminal offense; b. Those
where there is no criminal offense. 2. The party not at fault may demand the return of
what he has given, without any obligation to comply
ILLEGAL AND CRIMINAL CONTRACTS with his promise.
Those contracts where there is a criminal offense
may be of two kinds: PARI DELICTO DOCTRINE
If the two parties to a contract are in pari delicto, the
a. Those were both parties are guilty (in pari delicto) doctrine applies even to the spouse of one of them,
who although not a signatory to the contract, has
b. Those were only one party is guilty and the other sufficiently manifested by affirmative act her
is innocent. unequivocal concurrence to the contract in
controversy.
A. EFFECTS Where BOTH parties are GUILTY:
The doctrine does not apply to fictitious or
1. Since they are in pari delicto, they shall have no absolutely simulated contracts since these contracts
action against each other; are inexistent.
2. Both shall prosecuted;
3. The effects or the instruments of the crime shall This principle does not apply with respect to
be confiscated in favor of the government inexistent and void contracts. In pari delicto, it
denies all recovery to the guilty parties inter se. It
B. EFFECTS Where ONLY ONE is GUILTY (or applies to cases where the nullity arises from the
where, even if both are guilty, they are not equally illegality of the consideration or the purpose of the
guilty, therefore not in pari delicto) contract.

1. The guilty party will be prosecuted; The doctrine does not apply where a superior public
2. The instrument of the crime will be confiscated; policy intervenes.
3. The innocent arty may claim what he has given
(like the price he had paid for) or he has not yet RULES AS TO GAMBLING
given anything, he shall not be bound to comply No action can be maintained by the winner for the
with his promise. collection of what he has won in a game of chance.
But any loser in a game of chance may recover his
NOTE: Even if a contract involves a crime, still if a loss from the winner, with legal interest from the
cause of action can be established without referring time he paid the amount lost, and subsidiarily from
to the illegal act or motive, relief can be granted by the operator or manager of the gambling house.
the courts.
If there was cheating or deceit committed by the
ILLEGAL BUT NOT CRIMINAL winner, he and subsidiarily the operator or manager
CONTRACTS of the gambling house shall pay by way of
Those contracts which are unlawful or forbidden but exemplary damages, not less than the equivalent of
where there is no criminal offense may be of two the sums lost, in addition to the latter amount.
kinds:
If both winner and the loser have perpetrated fraud,
a. Those where both are guilty no action for recovery can be brought by either.

43
If the loser refuses or neglects to bring an action to Answer:
recover what has been lost, his or her creditors, Yes, since the interest of justice demands.
spouse, descendants or other persons entitled to be
supported by the loser may institute the action. Article 1416. When the agreement is not illegal per
se but is merely prohibited, and the prohibition by
Gambling VERSUS Betting the law is designed for the protection of the plaintiff,
While generally, gambling on the results of a game he may, if public policy is thereby enhanced, recover
of chance is prohibited, betting which concerns itself what he has paid or delivered.
with the games of skill, like chess, is ordinarily
allowed. ILLEGAL PER SE CONTRACTS versus MERE
Thus the law says: the loser in any game which is PROHIBITED CONTRACTS
not one of chance, when there is no local ordinance
which prohibits betting therein, is under obligation ILLEGAL PER SE CONTRACTS are those
to pay his loss, unless the amount thereof is forbidden because of public interest.
excessive under the circumstances.
MERELY PROHIBITED CONTRACTS are those
Article 1413. Interest paid in excess of the interest forbidden because of private interests. Here
allowed by the usury laws may be recovered by the recovery is permitted provided that:
debtor, with interest thereon from the date of the
payment. a. The contract is not illegal per se;
b. The prohibition is designed for the protection of
Article 1414. When money is paid or property the plaintiff;
delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose c. And public policy would be enhanced by allowing
has been accomplished, or before any damage has the recovery
been caused to a third person. In such case, the
courts may, if the public interest will thus be Article 1417. When the price of any article or
subserved, allow the party repudiating the contract commodity is determined by statute, or by authority
to recover the money or property. of law, any person paying any amount in excess of
the maximum price allowed may recover such
ONCE INSTANCE WHERE RECOVERY CAN excess.
BE HAD EVEN IN THE PRESENCE OF PARI
DELICTO PURPOSE OF THE ARTICLE: To curb the evils of
This is one case where recovery can be had even if profiteering.
the parties be in pari delicto. Note, however, that
recovery can be has only: Article 1418. When the law fixes, or authorizes the
fixing of the maximum number of hours of labor,
a. If the purpose has not yet been accomplished; and a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus
b. Or if damage has not been caused to any third fixed, he may demand additional compensation for
person. service rendered beyond the time limit.

NOTE: The Article also applies if the parties are not Article 1419. When the law sets, or authorizes the
equally guilty, and where public policy would be setting of a minimum wage for laborers, and a
advanced by allowing the suit for relief. contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the
Article 1415. Where one of the parties to an illegal deficiency.
contract is incapable of giving consent, the courts
may, if the interest of justice so demands allow Article 1420. In case of a divisible contract, if the
recovery of money or property delivered by the illegal terms can be separated from the legal ones,
incapacitated person. the latter may be enforced.

Example:
An insane man gave money to another to kill X. May
the insane man recover what he has paid?

44
ILLEGAL TERMS OF A CONTRACT

RULE 1:
If the contract is INDIVISIBLE, the whole contract
is void, even if only some terms are illegal.

RULE 2:
If the contract is DIVISIBLE, the legal terms may
be enforced is same can be separated from the illegal
terms.

NOTE:He who wants to enforce a contract must


show how much of the cause is legal; otherwise, if
partly legal and partly illegal, it will result in the
contract being considered wholly void.

Article 1421. The defense of illegality of contract is


not available to third persons whose interests are not
directly affected.

Article 1422. A contract which is the direct result of


a previous illegal contract, is also void and
inexistent.

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